Covid-19 has catalysed an innovation culture with many new software applications, security solutions, devices, and ways of working coming out of people’s need to hunker down at home while carrying on with their day-to-day jobs. An explosion in small business registrations and start-up activity bodes well, since small enterprises drive economic growth.
According to the New York Times, Americans filed paperwork to start 4.3 million businesses last year, which represents a 24% increase from the year before. Based on data from the Census Bureau, this is by far the highest in the last 15 years that the government has kept track. The good news is that applications are on pace to be even higher this year.
So far, the entrepreneurial boom has proved broader and more durable than early sceptics expected. Many of the biggest gains have been in industries heavily affected by the pandemic, such as retailing, food service and logistics, but there have also been significant increases in manufacturing, finance, construction, and other sectors.
This surge in innovation trend may well boost the employment numbers in the US and provide support for more sustainable economic growth going forward.
At home, we have also seen companies embrace innovation, with the Companies and Intellectual Property Commission (CIPC) reporting a record 510,000 companies registered in 2020, a 32% leap over the 385,000 new companies registered in 2019. The move locally and internationally is not surprising given people generally seek alternative forms of income during difficult times.
What distinguishes South Africa from the US, however, is that local economic policies are misdirected, business confidence is low, emigration is high, and labour policy is tight. At the end of the day, we cannot rely indefinitely on the tax windfall flowing from the resources boom to plug our fiscal deficits. More disturbingly, our unemployment numbers have reached record levels – placing failed government policies into stark light.
“The secret of change is to focus all of your energy, not on fighting the old, but building on the new.”
– Socrates, philosopher (470-399 BC)
“What is the calculus of innovation? The calculus of innovation is really quite simple: knowledge drives innovation, innovation drives productivity, productivity drives economic growth.”
– William Brody, scientist (born 1944)
Global News
- Development economist Dr Grace Baskaran argues that the retreat from Afghanistan hands the green energy crown to Beijing on a lithium platter. She says the fallout from the US withdrawal from Afghanistan is a chilling reminder of the US withdrawal from Vietnam in 1975 and of its withdrawal from Iraq, which led to an Islamic state-led massacre of ethnic minorities. There are many implications – for Afghanis, regional stability, and global energy security.
- Although workers who want to stay at home forever have been especially vocal about their demands, a silent majority of Americans do want to get back to the office, at least for a few days a week. However, as the latest coronavirus surge has led employers to delay return-to-office plans, that larger group is growing increasingly glum. In a national survey of more than 950 workers conducted in mid-August by Morning Consult on behalf of The New York Times, 31% said they would prefer to work from home full time. By comparison, 45% said they wanted to be in a workplace or an office full time. The remaining 24% said they wanted to split time between work and home.
- US equities rose on Monday as the Covid-19 immunisation drive was bolstered by US regulators granting full approval for the Pfizer-BioNTech vaccine. The S&P 500 and the Nasdaq 100 rebounded from lows last week as the approval could lead to more vaccine mandates amid a surge in delta variant cases that has threatened the momentum of the global economic recovery.
- Chinese ride hailing giant Didi has halted plans to launch in the UK and continental Europe, a source close to the company has told the BBC. The Uber rival had been planning to roll out services in Western Europe, including major British cities. Didi is in consultation with the team working on the project about assigning new roles or potential redundancies. The move comes as Chinese firms face intense scrutiny by Western nations and Beijing cracks down on data privacy.
- UK retailer Morrisons has agreed to a £7 billion takeover by the US private equity group Clayton, Dubilier & Rice in a fierce fight for control of the country’s fourth largest supermarket chain. However, unions are anxious about the current wave of private equity takeovers gripping corporate Britain, amid concerns companies will be stripped of their property holdings, loaded up with debt, and worker conditions will deteriorate.
- Since China emerged from the first wave of Covid-19 lockdowns in 2020, the country’s shoppers haven’t been able to get enough Hermes sneakers and Louis Vuitton handbags. Their so-called “revenge spending” has fuelled a rebound in sales of upmarket goods – and sent luxury valuations soaring – to heights that are nothing short of remarkable. But the party might be crashing to a halt as Covid-19 cases increase, retail sales slow, and government is cracking down on growth sectors. Read more here.
- In more company news, Microsoft is stirring up quite a bit of interest with news that it is bringing its cloud gaming service to Xbox consoles later this year. The move, which should please shareholders, will see Xbox Cloud Gaming – allowing players to stream games rather than installing them onto a device – arrive on its new Xbox Series X and Xbox Series S consoles as well as older Xbox One machines this holiday. American tech giants like Microsoft, Google and Amazon are betting on a future of video games beyond consoles, where subscription services and software will play a much greater role.
- Microsoft has also hinted on Twitter that Windows 11 will arrive on 20 October. Among other updates to Windows, the software giant has revamped error sounds to make them less intrusive but made changing the default browser more difficult. (Microsoft is well represented in our preferred equity portfolios).
- The Chairman of the US Federal Reserve, Jerome Powell, is scheduled to deliver later today a key policy speech at the Jackson Hole Symposium and is expected to provide clarity on the outlook for monetary policy. Currency markets are fixated by possible QE tapering, and while Powell is not expected to announce any significant change in policy, the markets will continue to focus heavily on any further announcements for the remainder of 2021. We therefore expect emerging market currencies – and particularly the rand – to remain especially volatile in the fourth quarter, while retaining a weakening bias into 2022.
Local News
- South Africa’s formal unemployment rate, which reached a record 34.4% in the second quarter of 2021, is likely to worsen once the impact of the unrest that swept across parts of the country in July is reflected in future data. The number could also widen further as South Africa’s more than 3.3 million discouraged job seekers, who are not counted in the official rate as they are not actively looking for work, start to return to the labour market as the economy opens up in response to an easing third wave of Covid-19 infections and improving vaccination efforts.
- The unemployment rate is now the highest of 82 countries tracked by Bloomberg, with the unofficial rate, which includes discouraged job seekers, now having hit 44.4%.
- This comes as Statistics South Africa on Wednesday announced a rebased figure for gross domestic product, showing the local economy is 11% bigger than previously thought. Rebasing is a regular exercise that should be done every five years, but – this time – growth rates and patterns before and after the revision are similar, showing little change in real growth of the stagnant economy. Both the revised and previous series show the severe impact of Covid-19 in 2020, with the economy shrinking 6.4%, though this figure was revised from a decline of 7%.
- Meanwhile, mineral resources and energy minister Gwede Mantashe does not share Eskom’s enthusiasm for shutting down coal power plants and replacing them with renewables because he believes it is a strategy akin to economic suicide. This follows Eskom CEO André de Ruyter setting his sights on a “just transition” transaction for Eskom in which some of its coal-fired plants are retired earlier than the timetable contained in the Integrated Resource Plan, and replaced with 7,400MW of newly built renewable energy.
- Mantashe also seems to be at odds with finance minister Enoch Godongwana who has said Eskom’s proposed green transaction looks possible if the additional debt taken on remains within the envelope of existing government guarantees. Godongwana, who has been in the job for less than three weeks, said the proposal has not yet been explored in any detail by National Treasury, which would be required by lenders to guarantee debt raised through the facility.
- In company news, the Naspers and Prosus closing prices on Friday, 20 August, were around R2,400 and R1,227 respectively and share buybacks – which have spanned over a period of more than six months – have shed about R20.7 billion in shareholder value. In total, the original value of the Naspers and Prosus buybacks were $3.6 billion and $1.4 billion respectively. The timing could not have been worse for both counters, with Naspers and Prosus down around 40% since highs in February.
- Bidcorp has delayed the release of its results until the end of September after uncovering fraud amounting to about R501 million at one of its operations in Hong Kong. Bidcorp, which was unbundled from Bidvest in 2016, operates in 35 countries. Through a company called Miumi, a division of its Angliss Greater China business, Bidcorp provided food products like chicken, prawns, pork and cheese to Hong Kong, China, and Macau. However, the division is now at the centre of a scandal after the group uncovered fraudulent activity that involved a shareholder, third-party providers, and some employees.
- Discovery’s chief actuary Emile Stipp has stated that as many as four out of five South Africans – or 70 to 80% – have already contracted Covid-19. On the back of this, Stipp believes herd immunity is something we should all forget for now. He explains that herd immunity will not happen because Covid is becoming endemic and is not going away. Instead, the risk of getting Covid again is simply lower, rather than non-existent.
Sources: Dynasty, Fin24, BusinessLive, BBC, PBS, CNBC, Forbes, The Guardian, Bloomberg, BizNews, New York Times, etc.
