When you think about any country, part of the checklist is the infrastructure in the country, does it work? If the answer is yes, then you can move on to other aspects of government and private industry to determine if you wish to invest in the country or not. Some countries have seemingly natural advantages, but if the infrastructure does not work, it is easier to skip over the country. One country that should have natural advantages is South Africa, however its recent history has made it less desirable.
In an article from Reuters, in mid February, Prime Minister Cyril Ramaphosa declared a natural disaster over his country’s crippling power storages, saying the pose an existential threat to economic and social fabric.
The previous Prime Minister, who is charged with corruption, allowed the Gupta Group to be some sort of middleman at the state electricity company Eskom. The Guptas were allowed to insert a company which invoiced the company at the normal electrical rate and charged consumers a higher rate thus earning millions for the owners of the company which included the son of the Prime Minister. Outside of higher prices for consumers, there was no benefit to them. The millions were not invested in the infrastructure of the Eskom.
At Eskom, the electricity system met delays in building new coal-fired systems, there was corruption in coal contracts, there were many delays setting up solar farms or allowing private providers to tap into the sunny days of the country and the list goes on. The result is rolling blackouts disrupting manufacturing and households to go about their normal activities. Economic growth is expected to decline to 0.3% this year.
People were expecting after the former corrupt Prime Minister, the existing Prime Minister who is worth over a billion dollars would help fix the economy, but it is very slow process.
Linking to dividend paying stocks, it is easy to take making profits for granted and the government wants a bigger piece of the pie for taxation purposes. It is easy to look at utilities and think they can be … whatever. The reality is if money is not constantly being reinvested into the business, the business goes downhill. Those who like dividend stocks tend to like utilities for people need to pay the bills and regulators tend to increase prices to maintain profits and dividends. If the government thinks about the utility as a cash cow, then it is time to quickly find alternatives.
There are more questions than answers, till the next time – to raising questions.