Portfolio Manager, Peter Brooke, shares his latest weekly perspectives, this week applying an investment lens to unlocking productivity and revenue in response to local societal challenges.
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Peter Brooke 00:00
Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 14 of 2022, and I want to talk about crime. This is due to a couple of recent anecdotes.
For instance, we own some shares in York, the forestry company. This investment is to provide diversification by an uncorrelated real asset with a self-help story. But in their recent results presentation, they complained about high incidences of log theft, and the need for additional security. In the same week, I attended a meeting with Andre De Ruyter, the Head of Eskom. I didn't quite get the number, but I think he said we lose around 7 billion rand through electricity theft. If the municipalities paid what they owe, and we could stop the theft of electricity, Eskom wouldn't need the 32 billion rand subsidy that they got from the government in the budget. These two anecdotes highlight the pervasive nature and the vast scale of theft in South Africa, which is a cost all of us must bear through higher prices and lower profits.
01:08
South Africa has just completed our investment conference. There's lots of talk about red tape and unlocking productivity. One of the huge opportunities is the recent announcement of privatizing some of the Transnet rail services. But once again, the problem was crime. The lines are riddled with theft, meaning low safety, and it can't be enforced.
My simple view is that if government delivered an effective police force, that would be the best incentive programme that we can get. However, this is easier said than done. The standard response is to throw money at the problem, with our Finance Minister, Enoch Godongwana, allocating an extra 9 billion rand to hire 12,000 new constables. However, while more than 4,000 police officers have criminal records, I don't think this will help. Internal disciplinary hearings have dropped by 71% from 2013 to 2020 and is therefore no surprise that the latest surveys show only 26% of the public trust the police. This level of trust has declined from levels of around 40% in the period from 1998, when the survey started, to 2009 with Jacob Zuma took over as president.
We need a competent police force, not a bigger one. Hope springs eternal as the President has just appointed a new Head of Police in General Masemola. Let's pray that he has superpowers like Hercules in clearing out the Augean stables.
02:43
One ray of light though is the recent report from SARS. SARS highlighted that through compliance interventions, they collected an extra 210 billion rand. Very clear evidence of how a change in management has turned around a critical area. For South Africa to succeed, we need to turn around the South African Police Service. The change in leadership is the first step on a long trek.
I hope you enjoyed this perspective. Until next week.