Deloitte SA Blog

Dr Rob Davies, The Minister of Trade and Industry, has launched the Manufacturing Competitiveness Enhancement Programme (“MCEP”), to assist the manufacturing sector. In this context it is important to remember that, in the past five years, the manufacturing sector has been plagued by the global economic meltdown, rising electricity costs, escalating wage cost and the threat of a carbon tax. Unlike other countries with specific “bail-out” plans, there were no specific measures announced to benefit the ailing manufacturing industry, until it was announced in this year’s budget speech, that a new incentive would be launched during 2012 which would inject R5.8 billion into the distressed manufacturing sector.

If you require more information or a more detailed discussion on the MCEP, contact Newton Cockcroft (Deloitte Research & Development and Government Grants Leader for South Africa) at ncockcroft@deloitte.co.za

In terms of the budget speech, the aims of the program would be “to provide a credible support package to stabilise and grow output, grow employment and grow confidence in the manufacturing sector in the of face or uncertain local and export market conditions arising from the global economic crisis”.

It is heartening to see that the Department of Trade and Industry launched MCEP within 3 months from the announcement in the budget speech. It is also very encouraging to note that the programme will go live on 4 June 2012.

Although this is not aimed to provide the reader with a detailed summary of the MCEP, we hope to raise awareness about the existence of the programme and its benefits.

Who will benefit?

The new incentive programme will focus on providing assistance for participants in the manufacturing and engineering sector including conformity assessment agencies. It should be noted that this incentive programme will not be available to start-ups or companies without at least one year’s manufacturing track record. It is, however, important that all enterprises that are in the manufacturing value chain should take cognizance of MCEP as it may affect them, whether directly or indirectly.

How to qualify for the benefits

Successful applicants will be assigned a benefit ceiling based on entity level manufacturing value add which the applicant will have to claim through the 7 sub-programmes of the MCEP within a 2 year period.

The benefit ceiling is calculated as follows:

MCEP consists of  two categories, a production incentive and industrial financing loan facilities. The two categories have seven components in terms of which an applicant can benefit from MCEP. These are:

1. Production Incentive
1. Capital Investment
2. Green Technology and Resource Efficiency Improvement
3. Enterprise Level Competitiveness Improvement
4. Feasibility Studies
5. Cluster Competitiveness Improvement
2. Industrial Financing Loan Facilities
1. Pre- and Post-dispatch Working Capital Facility
2. Industrial Policy Niche Projects Fund

The cash benefit, based on the MVA, which is available through the above listed seven components will amount to the following percentages of the calculated MVA:

It is also important to note that an applicant can apply for a combination of the seven components of MCEP and that the benefits can be substantial. As example, benefits for capital investment and green technology and resource efficiency improvements are capped at R50 million per component. If one adds the job creation bonus payment in these 2 categories to this, an applicant meeting all the requirements and creating sufficient job opportunities, can obtain a benefit of as much as R110 million in these two categories. This benefit, if tax exempt as expected, may make the incentive in some instances more attractive than the section 12I Income Tax additional tax allowance. It is in this light, important to note that it seems to be Government’s intention that projects under R200 million should apply for either the Manufacturing Investment Programme (MIP) or the MCEP whilst projects over R200 million should apply for benefits in terms of section 12I of the Income Tax Act. Despite this it is important that any applicant should consider all mandatory and other criteria of all the applicable programmes in order to ascertain which would be the best fit for the company.

The Automotive, Clothing, Textiles, Leather and Footwear sectors that qualify for support under AIS, APDP, MIDP, CTCP and CTCIP have been disqualified from this incentive programme. Automotive manufacturers which earn less than 25% of its turnover from the motor vehicle supply chain may, however, apply for the MCEP.

There are more stringent requirements for certain industries, as listed below:

The swift release of the MCEP incentive programmes is welcomed by Deloitte. It should however, be noted that an applicant’s benefit will be based on the historical asset cost and, if one adds the 20% expansion requirement in order to qualify for the programme to this, we feel that this may lead to a large scale disqualification of large manufacturers from the programme. Large manufacturers have, as their smaller counterparts, suffered as a result of the recession and one must hope that measures would be implemented that will prevent the disqualification of large manufacturing companies from the programme.

It is also concerning that more difficult qualification criteria have been set for certain industries, which have been specifically earmarked in IPAP 3 as priority sectors, which should be grown and supported. One would have expected that these priority sectors would have received beneficial treatment or easier qualification criteria.

Other aspects that must be seen as positive are the relative short timespan within which and successful applicant will be able to claim benefits. It was expected that a B-BBEE hurdle (Level 4) would be in place and the fact that non-compliant companies would be given four years to achieve such status would also tend to be on the lenient side.

In closing, it is important that MCEP, and the substantial benefits that it will inject into the manufacturing industry, be implemented and administered swiftly and efficiently. In this regard the relative short timespan between the announcement of MCEP in the Budget and the release of the final programme shows that the DTI and Government realise the needs of the manufacturing industry in South Africa.

If you require more information or a more detailed discussion, contact Newton Cockcroft (Deloitte Research & Development and Government Grants Leader for South Africa) at ncockcroft@deloitte.co.za

Did you find this useful? We welcome your comments and feedback! Please share this article with your colleagues and network!

The corporate world is currently debating the Protection of Personal Information Bill (PPI) which will soon be promulgated. Much of this debate centres on how onerous the minimum requirements for compliance will be, how long organisations will be given to comply and what the cost implications are likely to be.

Want to learn more about the Protection of Personal Information Bill? Visit the Deloitte Protection of Personal Information Bill website or contact Dean Chivers at dechivers@deloitte.co.za or Daniella Kafouris at dkafouris@deloitte.co.za.

Some companies have chosen to take a ‘wait and see’ approach. “Those companies that see regulatory changes as an opportunity for increasing business value adopt a more positive, proactive approach and also spend considerably less in achieving compliance over the long term,” comments Dean Chivers, Director Deloitte Legal, at Deloitte. “They are able to link compliance requirements to the entire value chain of the business so that each functional area buys into its importance, realises the value that can be delivered to the business and collectively bring about change to realise this value.”

Chivers cautions that companies should implement PPI compliance as prudently as possible. “Be realistic – your organisation may not be completely compliant by the time the Act is promulgated. PPI is not exclusively an IT or legal or a process or a security issue, it’s a combination of all of these. Create the framework within which PPI will be managed within your organisation, and then build awareness amongst staff around both PPI and your entities PPI compliance framework. This will start to drive PPI issues into your framework, thereby facilitating a proactive, self-regulating model.

Chivers recommends that a response strategy be established, with the responsible person being one who understands what the law requires.

“Decide on your corporate ethics policy and define and communicate it, teaching your organisation to look out for problems,” says Chivers. “If and when a problem arises, react quickly and correctly to deal with it and close the loophole. Look for triggers that indicate your processes are not working properly.”

According to Chivers, the PPI Bill will be the catalyst for companies to add value while achieving compliance. They should engage with their customers in the process and use it as an opportunity to build customer trust in the company by highlighting the company’s efforts to treat customer’s personal information with respect and confidentiality.

The following are just some of many opportunities:

There is tremendous advantage to be gained from proactively engaging customers ahead of promulgation, for example:

• Positive customer approvals are more likely to be obtained prior to promulgation and prior to the market being flooded with requests
• Valuable insights can be obtained from a company’s existing customer database now, ahead of customer requests for data deletion.
• Customers will become aware of the fact that PPI  will result in the protection of their personal information, something most  people will appreciate.
• Companies who lead the market in becoming PPI  compliant will gain customer respect and loyalty.

PPI can also deliver many potential positives within a company, to name a few:

• Technology gets the budget go-ahead for  middleware and data warehouses, new SAP modules, data security upgrades, etc, which  add value when linked to the overall business strategy.
• Data analysis of personal information for  purposes of PPI compliance can yield significant useful information around  customers and markets.
• Provides positive motivation to interface with  customers, alumni, potential employees, personal networks.
• Employee files get updated and remain up-to-date.
• Contracts are reviewed and updated and may even  be better than before.

Chivers recommends that the initial step should be a quick  start process prior to promulgation, followed by detailed design and implementation of value-adding initiatives. This will allow the company to gain  momentum and build a platform for future opportunities. Firstly, understand the  extent of PPI impact on customer and channel strategy, brand positioning and  employee proposition; determine possible impacts on people, processes,  technology and systems; and define key data requirements for business  sustainability.

Thereafter, look at the following opportunities:

• Identify value-adds beyond minimum compliance
• Design customer interactions to increase market share
• Realign processes for a more customer focused organisation
• Link to other initiatives such as process streamlining, productivity improvement and employee communication
• Select technology to support more than just data integration, e.g. non-intrusive technology options ranging from cloud technology, to separate software and simple upgrades
• Build the customer focused organisation by digging deeper into existing customer data
• Use an approach that first establishes the organisational needs and gaps before moving to an ‘all ends at once’ implementation
• Adopt a ‘build to last’ approach for ongoing organisational sustainability

In summary, organisations can gain measurable business performance improvements by approaching the Protection of Personal Information Bill as a strategic opportunity rather than an onerous compliance cost. Realising this potential value from the Bill, however, requires a shift in organisational mindset.

“Don’t be limited or restricted by your existing database,” says Chivers. “Use it as a contact list and first cut segmentation, design a meaningful database for future strategy and populate it by means of an automated permission campaign; don’t be restricted to a single tool or methodology – select those which are most appropriate for your needs; ensure your approach is strategic. Include change management in your implementation; don’t be purely focused on data analytics, ensure that your approach is aligned to your business priorities as well as people, process, technology and system enablers.

Chivers goes on to say “Understand how PPI affects your IT, legal, process and security options before jumping on the analysis bandwagon. Analyse the options and consider the best process for your company. There are a number of options, so give yourself the best chance of adopting the most appropriate one for your company.”

Want to learn more about the Protection of Personal Information Bill? Visit the Deloitte Protection of Personal Information Bill website or contact Dean Chivers at dechivers@deloitte.co.za or Daniella Kafouris at dkafouris@deloitte.co.za.

Is there anything you would like to add? We value your feedback and comments! Please share this article with your network!

This Deloitte report identifies the 250 largest retailers around the world, based on publicly available data. The report also provides an outlook for the global economy, trends for retailers to consider in the coming months, and an analysis of market capitalisation in the retail industry.

Download the full report . . . .  Global powers of retailing 2012

If you have any questions or require a more detailed discussion, contact Rodger George at rogeorge@deloitte.co.za

Please share this article with your colleagues!

Sometimes in life, a phrase is bandied around so much that it eventually becomes “truth”.

One such “truth” is the commonly used phrase “South Africa is the gateway to Africa” and, interchangeably, “South Africa is a springboard into the rest of the continent”. These phrases somewhat imply that foreign companies would set up in South Africa while surveying the landscape in the rest of the continent before deciding which markets to enter from South Africa. On closer examination of the facts, this “truth” does not hold water and quickly unravels. So what are the facts then?

Download the thought piece here

If you have any questions relating to this article, or require a more detailed discussion, contact Dr Jacqueline Chimhanzi (Africa Desk, Deloitte Consulting) at jchimhanzi@deloitte.co.za

For those who have been sleeping under a rock over the past six months, or been basking in the sun on a warmer continent to get away from the Highveld winter, American giant Walmart has acquired 51% of South African retailer Massmart Holdings. The world’s largest retailer definitely showed confidence in South Africa with its R16,5bn takeover bid and clearly was looking for more emerging market exposure and growth from the African continent.

The deal was finalised in June 2011 after much deliberation by the Competition Commission and vocal intervention by the South African labour unions. The Competition Tribunal stated that there were no competition concerns, but did raise some public interest issues, especially around job losses and local procurement.

The important question on the minds of most South Africans is: What does this acquisition mean for me, the South African consumer? Will we indeed benefit or will quality deteriorate?

Firstly, despite the lobbying from public interest groups, the deal highlights the attractiveness of South Africa as an international investment destination. The inflow of funds will have a positive impact but the question is what benefits will there be in the long term in terms of pricing and quality of products.

Despite the fact that South Africa is at the southernmost tip of Africa and on the assumption that this, to an extent, does have a negative impact on the pricing of imported goods, it is in our  opinion that the deal should still result in increased local competition. This should then translate into lower prices as competitors will now be competing with an international retailer that has significant economies of scale and advanced procurement processes. There may be a “price war” or competitors will need to find other ways to lure consumers onto the shop floor. It is also likely that Walmart will introduce additional merchandise categories which will compete further with existing businesses.

Currently the purchasing power parity (PPP) which is based on the law of one price, does not exist in South Africa. “The law of one price means that in the absence of transaction costs and official barriers to trade, identical goods will have the same price in different markets when the prices are expressed in terms of one currency.” ^{Source:  wikipedia.org.}

Let’s use an example of what is meant by the above statement. Let’s say that you or I want to buy a MacBook Pro 15” 2.2GHz laptop. What will this laptop cost in South Africa, and let’s compare the cost to the United States and United Kingdom.

Note: all prices were researched on the respective websites on 28/06/2011

$/R=6.837

£/R=10.954

Note: exchange rates obtained from http://moneycentral.msn.com/ on 28/06/2011

For the same product, you or I will pay almost R5 000 more in South Africa as compared to the United States.

How is this possible? Is the statement correct that PPP does not exist or are South Africans bearing the brunt of significant transaction costs resulting in higher mark ups being passed on from suppliers? When a product is imported the following costs are born by the supplier: import taxes, excise duties and VAT which are generally recovered through higher selling prices. If these costs will still be incurred by the Walmart Group, how will the group be able to reduce costs?

Walmart is a global competitor and has established relationships with international suppliers from whom the company will be sourcing most of its products. The significant purchasing power of Walmart will most likely result in sourcing discounts being achieved and a portion of these savings will in all likelihood be passed on to the South African consumers through lower prices.

In addition to lower prices South African consumers will also be introduced to new products and more choice in store, particularly in the food sector as this is a stated objective of Massmart. Competitors in the South African retail market will have no other choice but to respond to the competitive pressure by matching prices, introducing new products or increasing service levels (the customer experiences) in order to attract feet onto the shop floor. This means that Walmart will become a South African retail market mover with its competitors trying to predict its next move in order to maintain market share.

In conclusion, the merger will shake up the South African retail sector as the global retail powerhouse enters the region looking to grow its business. Local retailers will no longer be able to rest on their laurels as they now face international competition in the domestic retail space. Despite the public interest concerns the Walmart transaction has again put South Africa on the map and is likely to bring benefits to both the local economy, and more importantly the consumer.

Article compiled by Kuvani Naidoo (Consultant at Deloitte Corporate Finance) , Evelyn Moodley (Senior Manager at Deloitte Corporate Finance) and Sean McPhee (Partner at Deloitte Corporate Finance)

And how it challenges the fundamentals of businesses…

 Background to the CPA

As of the 1^st of April 2011, South African consumers became some of the most protected in the world, thanks to the implementation of extremely progressive legislation which is comparative to those of developed markets.

Overview of the Act

 Broadly, the Act seeks to protect consumers who are natural persons and small businesses. It covers most areas of conduct for businesses including agreements, warranties, direct marketing, product liability, advertising, sales, exchange of goods, rentals, services and goods. And, for the average South African, who is weary of poor service delivery, they will be pleased to know that ‘goods’ includes gas, water and electricity.

The intention behind the legislation is to promote a culture of consumer rights and responsibilities, as well as to encourage business innovation and enhanced performance. In addition, it is hoped that the new legislation will improve access to, and the quality of, information that will enable consumers to make informed choices and protect them from hazardous goods.

Significant themes will be explored in the coming months

• Strict Liability

The strict liability and warranty provisions which the Act brings about in respect of goods sold to consumers are onerous and apply to anyone in the supply chain of the particular good.

• Marketing

The CPA covers a variety of new marketing regulations to prohibit certain unfair marketing and business practices.

• Fixed Term Contracts and Contractual Content

Future publications will cover the extent to which the expiry and renewal of fixed term agreements is applicable within the Act.

• Implied warranties of quality

The Act creates warranties which override the ‘standard’ product warranties given by the business. The warranties will apply even though the product warranties say differently.

• Franchise agreements

Remarkable protection is now afforded to those entering into franchise arrangements as franchisees.

• Delivery of goods

Delivery times and dates will have to be strictly managed to avoid goods from becoming “unsolicited goods”, for which there are significant consequences.

• Unsolicited goods

This includes “demo” goods which sales people may leave with a consumer, the management of which will have to be stringent.

Join our legal experts on 28 July 2011 who will provide insights into, and understanding of, the Consumer Protection Act. They will unpack everything you need to know to help you navigate your way through the Act, with practical applications and a session dealing with your business’s unique implementation challenges. The presentation and workshop will cover best practice, the latest trends and case studies.

For the full article http://ow.ly/5GwsM

Can advanced analytics extract additional value from your supply chain, or do approaches based on traditional metrics deliver the best ROI?

Every company with a supply chain devotes a fair amount of energy to making sure it adds value. But new tools and disciplines now make it possible to drill deeper into supply chain data in search of savings. Is more analysis better?

Download the full debate – Supply Chain Analytics: How Hard Should You Squeeze?

Visit the Deloitte Consulting home page

Consumer shopping habits have changed. Perceptions of brand have changed. This transformation in the consumer packaged goods and retail industry sheds new light on the increased competition between traditional national brands and store brands. Specifically, consumer perceptions of store brand quality have improved, there is a renewed focus on and investment in store brands by retailers, and a byproduct of the recession is that it induced trials of less expensive brands.

Like others, we have seen store brands gain market share over the long run in the U.S. across a number of personal care, household goods, and food categories. We have also seen U.S. retailers become more sophisticated with their store brands, like some European retailers, in terms of branding, multi-tier product portfolios, and use of point of sale data. As the differences between national and store brands seem to narrow, we perceived a blurring of the two and in some cases, a scenario in which traditional national brands seem to be ceding too much ground in terms of market share to the grocery and mass merchandiser store brands. We also heard a debate concerning the impact of the recession and eventual recovery on consumers’ buying behavior related to store brands.

With this in mind, it is my pleasure to present a Deloitte Research survey of consumer product (“CP”) and retail executives on the challenges that national brands face, and the actions they are taking.

Read the full article . . . . A walk down the grocery aisle

Visit the Deloitte Consulting home page

Welcome to this our 13th Deloitte Annual Year End Holiday Survey. Nineteen countries are included in our 2010 survey. This year has certainly been challenging for retailers and consumers alike, not only in terms of the tough economic environment that provides the backdrop for this year’s holiday season spending outlook, but also in terms of the different and sometimes conflicting market messages that are filtered through to consumers almost on a daily basis.

As has been the case in prior years, we have sampled the spending habits and the underlying moods of consumers across all 19 countries ahead of the 2010 year-end festive season in order to assess their frame of mind and intentions toward planned spending on gifts, food, out-of-home entertainment and leisure over the coming holiday season.

Read the full article . . . . Deloitte Annual Year End Holiday Survey – 2010

Visit the Deloitte Consulting website

In the decade prior to the current economic crisis, there was strong consumer spending growth in the United States as well as in smaller economies such as the United Kingdom, Spain and Ireland. To simplify what happened, such growth was funded, in part, by borrowing against the increased value of homes, itself the result of a flood of liquidity from surplus countries such as China. This excessive consumer spending growth was not only the principal source of economic growth in these countries, it also fueled export-driven growth in surplus countries such as China, Japan and Germany. In fact, the symbiosis between these “consuming” and “producing” groups of countries was the hallmark of the global economy in the first decade of the twenty-first century.

All that will now change.

Read the full article . . . Global consumers and the economic imbalance

Visit the Deloitte Consulting website