STOCK TAKE | Another SA firm burned in Australia and what the Post Office, Twitter have in common

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OPINION

M&R's Clough sale yet another warning for offshore investors

Building overseas can be rough

News that Murray & Roberts is selling its Clough subsidiary in Australia is another stark reminder that the grass is not always greener down under.

Many a South African company, notably those in both the retail and construction industries, have come a cropper there after large-scale forays, though disastrous bets can happen on other continents too.

The JSE-listed engineering company's jettisoning of its troubled Australian energy, resources and infrastructure subsidiary for A$350 million (about R4 billion), was clearly welcomed by the market, with its shares surging almost a third on the news.

Many shareholders had also been anxiously waiting for an update from the group after its dire update last month, when it warned of margin pressure at some of its projects and the urgent need for working capital at Clough, which the group has owned since 2013 after buying an initial stake 18 years ago.

The announcement of the sale was just what the doctor ordered, as it will not only see M&R exit that business with a little bit of cash – some A$500 000 – but also able to extricate itself from an inter-company loan to Clough and the risk posed by ongoing projects. However, the long-term impact of losing the business, which accounted for about 62% of its order book, will be become clearer in the coming months.

Apart from the obvious challenges of entering a market like Australia, namely a completely different time zone and corporate ecosystem, there are also some broader lessons here too. Firstly, business is tough everywhere and South African companies wanting to go into foreign markets like Australia or anywhere else for that matter to diversify away from the perceived risks in their own local markets should be aware of this.

Just because you have been successful at home over many years does not mean this can be easily transplanted somewhere else. One of the main challenges is dealing with rivals who know their local markets far better than South Africans do. This applies to everything - from how to price to be competitive and being cognisant of the pitfalls in a particular market, be it on the political, economic and labour fronts.

But, also noteworthy, what applies to those who would venture into Australia, the UK, the US or other markets, also holds true for foreign companies coming into SA.

Locals know this market better than they do, especially when it comes to navigating the vagaries of the labour market, arguably one of the more challenging ones around the world. Not only do locals have to contend with construction mafias in SA who can hold projects to ransom as they try to get their own people employed on sites, but even when there is buy-in from communities, companies have to undertake large-scale training of prospective employees.

And if something goes wrong and there are protests that devolve into mayhem you may not get any joy when you call the police and other law enforcement agencies. A good case in point is the July 2021 unrest when the police and security agencies in SA seemed to be overwhelmed and taken completely by surprise. So clearly, operating a construction business in SA is not for the faint-hearted, something which the Chinese firms who won the bulk of four contracts re-awarded by the South African National Roads Agency (Sanral) would be wise to bear in mind.

The Chinese companies appear to have been able to undercut locals and come in with more attractive pricing, which raises the question of whether they are fully aware of what they are getting themselves into. Why have no local companies priced at similar levels? Is it because they know they would struggle to make any money in a market where margins are already thin?

And just like with SA construction firms who looked abroad amid a local market downturn after the 2010 FIFA World Cup, Chinese firms are currently facing an unprecedented downturn in theirs, meaning the pressure is on to find new markets.

Perhaps these new entrants may yet rue the day they came in so cheaply, which would offer some cold comfort to the local companies who lost out.


Doomed by its shareholder   

The woes of the Post Office and Twitter 

South Africans have a high tolerance for chaos, an inclination perhaps ingrained in Elon Musk during his years here. But even against local standards, he is pushing anarchy to another level.

His erratic first ten days at Twitter will launch a thousand MBA theses on what not to do, and may bring down not only the beleaguered social media platform, but also wreck Tesla. Tesla's share price is taking a hit due to the Twitter deal, which forced Musk to sell $36 billion (R640 billion) in Tesla shares. Also, crucially, with every absurd business move, Musk loses what's left of his status as a visionary – contaminating Tesla's brand, which is closely tied to him.

His management of Twitter has been almost painful to watch. After firing half of its staff, some of them have now been asked to return. A self-proclaimed "free speech absolutist", one of his first moves was to ban unlabelled parodies – while one of his main foes, Alexandria Ocasio-Cortez, claims Twitter sabotaged her account after a testy exchange with Musk.

The noise has scared off advertisers, which contribute 90% of Twitter's revenue. Meanwhile, Musk's big idea - to charge users $8 a month for blue checkmarks - has not been warmly received. Many are leaving Twitter altogether in protest of Musk, who has been tweeting misinformation.

It may all work out in some magical way. For now, however, Twitter is losing $4 million a day, with at least $13 billion in debt.

Like Twitter, the South African Post Office also owes billions, is bleeding money and almost half of its jobs are on the chopping block. Both entities are supposed to serve some communal good, while facing commercial pressures.

And just like Twitter, the Post Office has an owner with a questionable track record. But unlike Musk, who is taking too much perhaps misdirected action – the South African government just stood by as a national treasure has been all but destroyed.

Yes, the Post Office faced the challenge of a dying paper mail industry. But with smarter management, it could have benefitted from the boom in e-commerce-related and other deliveries. Its major advantage - an unequalled national infrastructure - has been squandered as private players outwitted it.

Shamefully, its supposed key role in distributing government services and payments has also been rubbished by its inability to be a consistent payer of social grants. Also, it is closing branches at such a rate that it soon won't have sufficient reach to claim that it can serve all South Africans.

Its big dream to launch a proper bank in this fiercely competitive market – where supermarkets are practically bank branches and some accounts don't even charge fees – is naive.

The Post Office says it needs billions to stay afloat, which Treasury is refusing to give. Where will it all end?

While across the world – including in the UK, Germany and Japan – postal services have been privatised, our government doesn't want to go there. In typical South African state style, the can will probably be kicked down the road until the last Post Office branch is closed and its final service usurped by a private competitor. Along the road, even more of your tax money will be wasted on an institution that is being managed into the ground by a government which doesn't have any clear vision for it.

Say what you want about Elon Musk (but given his prickliness, preferably don't tweet it) – at least he would have taken a big bet with the Post Office. It may not have worked out, but anything would have been better than this slow, devastating and expensive decay.


Quote of the day

I want to take accountability for these decisions and for how we got here... I know this is tough for everyone, and I’m especially sorry to those impacted. But the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than expected. I got this wrong.
Meta CEO Mark Zuckerberg in a note to employees as the company moves to cut more than 11 000 jobs


Tweet of the day


Chart of the day


Number of the day

R6.5 billion
Value of trade between South Africa and Kenya. During a visit to the country, SA's Trade, Industry and Competition Minister Ebrahim Patel said this was "not sufficient". SA is allowing visa-free travel from Kenya from 1 January. Bloomberg

Previously:

STOCK TAKE | Chicken Licken eyes everyone's souls and Shoprite has fans in Singapore

STOCK TAKE | The Dis-Chem dodge - and will you be paying by cash, card or crypto?

STOCK TAKE | Discovery executives make bank

STOCK TAKE | Heineken keeps it green, Godongwana's careful words and SA's tax revolt odds

STOCK TAKE | In praise of SA's great worriers

STOCK TAKE | Eskom (sort of) stimulates business spending, while super yacht heads SA's way

STOCK TAKE | Telkom gets jilted and Markus 2.0

STOCK TAKE | The Dis-Chem drama - and Pick n Pay slump points to trouble ahead

STOCK TAKE | A tale of two smelters, and did banks get it wrong on home loans?

STOCK TAKE | Reserve Bank walks the hawk talk and Harmony re-emerges down under

STOCK TAKE | Allan Gray takes shine to Gold Fields - and Anglo's Kusile-sized generator

STOCK TAKE | Pick n Pay's big bet - and should you follow Gerrie?

STOCK TAKE | Is Sasol's hydrogen plan just hot air?

STOCK TAKE | Karooooo grows its Os and Ackerman states it like it is

STOCK TAKE | A German cure for SA labour woes - and what’s Schadenfreude in Swedish?

STOCK TAKE | Allan Gray takes shine to Gold Fields - and Anglo's Kusile-sized generator

STOCK TAKE | Telkom avoids signal loss amid the Rain - and the Woolies wage way

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