NO DOUBT Eskom's latest tariff hikes - effective in just a few weeks - are really going to have an unpleasant effect on the economy.
While economists can calculate a possible effect on inflation and GDP, I have been pondering how the extraordinary price hike in electricity would ultimately trickle down into company income statements. And in particular, those (many) vulnerable small cap companies that dangle on the edge of viability.
No doubt by early 2010 we will probably see the Eskom factor become pretty much a corporate speak cliché when executives comment on the operating performances of their respective companies.
Obviously it's difficult, at this early juncture, for managements to predict just how much Eskom will be shaving off their bottom line.
A bigger cost, however, may well be the blow to the corporate psyche - the perpetuation of a notion that it's getting damned difficult to do business efficiently in SA. Demoralised executives and hapless management are not what we need at this difficult juncture in the economy.
In any event, I was jolted out of my morbid mulling on Thursday when chatting to Bertie Cloete, the financial director of recently-listed agriservices and food processing business Ububele.
Cloete, completely unsolicited, disclosed that Ububele was considering shifting new production capacity in its fast-growing food business to Namibia.
While stressing that Ububele was not intent on closing up shop in SA, he did indicate several major advantages of doing business in Namibia.
The biggest advantage, clearly, is that power in Namibia is very affordable. Cloete reckons electricity in Namibia - depending on the type of consumer - can be between 25% to 55% cheaper than in SA. Of course, one has to also add that manufacturing entities in Namibia enjoy a very low tax rate (9%, I believe).
Sounds great. But, to be honest, not all light manufacturing entities are going to rush over the border to escape Eskom's punitive rates. Companies have to be close to their markets, labour is an issue and it's costly to shift production facilities thousands of kilometres.
Then again if you are serving African markets - like Ububele is with a large customer base in Angola and Zambia - does it really matter if you are operating from Swakopmund or Windhoek?
Ububele's food processing units, I'd imagine, are fairly flexible, and it's exactly this kind of light manufacturing operation that could quickly and cost effectively be set up in Namibia.
Cloete reckons within two years 10% to 20% of Ububele's food processing turnover could be generated from Namibia-based production units.
The company is also considering moving two or three of its ice cream plants (inherited from the old Milkworx) to Windhoek - even though the thought of an ice cream maker amidst the desert dunes is quite surreal.
Talking about cream...
KWV's announcement on Thursday that it had acquired cream liqueur brand Wild Africa is a bold - frankly, unexpected - move.
I had the feeling KWV, headed by the unflappable Thys Loubser, would be concentrating on its core markets in brandies and (especially) wine.
The deal really does two things: firstly it suggests KWV is keen to mimic rival Distell's very successful multi-brand/multi product strategy.
Secondly, KWV is not afraid to take on Distell, which holds the market-leading Amarula liqueur brand.
Interestingly, KWV has been responsible for the marketing and distribution of Wild Africa in Africa for several years. Clearly, KWV is confident it can increase its flow into major global markets where its fine wines already have a foothold.
If Loubser - who so far has not put a foot wrong at KWV - can make Wild Africa only half a successful as Amarula, there will be a nice dollop of profit at the Paarl-based group's bottom line.
The Queen's been gated
I wonder how unpleasantly surprised shareholders - including Mvelaphanda Holdings - are by developments at leisure and hotel group Queensgate?
Although it was abundantly clear from the dribbled-down share price that all was not well, Queensgate has remained a fairly popular penny stock proxy for the 2010 Fifa World Cup.
But most punters must have by now worked out that Queensgate has somehow lost grip on some of its flagship "assets" - including the Radisson Hotel that lies in Granger Bay adjacent to the Cape Town Stadium.
I honestly don't know why Queensgate, which is trading under a cautionary that was issued last week, is dilly-dallying in putting out an official statement on what appears to be a rather cut and dried development.
The situation recalls recent developments at Country Foods, when Fin24.com was writing about applications to liquidate key subsidiaries and other unsavoury developments before shareholders were officially alerted to these setbacks.
Hopefully, we are not going to see Queensgate stocks lapse into suspension and shareholders left in the dark as to what has really transpired.
- Fin24.com