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South Africa’s Russian Ties Endanger Economy: Johann Rupert on Trade Partners

Published by
WIlliam Dube

The CEO of Johann Rupert’s Remgro, Jannie Durand, has expressed concerns over South Africa’s close relations with Russia, warning that this association could potentially alienate its main trade partners in the European Union, the United Kingdom, and the United States, thereby affecting foreign investment. Durand discussed these concerns during a presentation for the investment holding company’s half-year results that ended in December.

  1. Remgro CEO Jannie Durand warns that South Africa’s close relations with Russia could alienate main trade partners in the EU, UK, and US, negatively impacting foreign investment.
  2. Durand raises concerns about controversial joint naval exercises between South Africa and Russia, suggesting that the country should remain neutral to maintain good relations with key foreign investors like MSC and Heineken.
  3. Alongside the issue of Russia ties, Durand discusses challenges in infrastructure and the need for trust-building between the private sector and the government to address broader economic issues, including crime, corruption, and an overburdened criminal justice system.

Durand stated that South Africa’s “quite close alignment” with Russia in certain areas was of “concern” to the group, as the country’s trade with the rest of the world was significantly larger than its trade with Russia. He added that the seemingly close ties to Russia could have an “impact on some of our trading partners” who may view South Africa “unfavourably” as a result.

Military Exercises Raise Concerns

In an interview with News24, Durand specifically mentioned incidents such as South Africa’s controversial joint naval exercises with Russia last month, which could potentially send the wrong message to the wider investment community. He suggested that South Africa would be better served remaining “neutral” and pointed out that the country did not conduct military exercises with the UK or the US.

Durand emphasized the importance of not jeopardizing relationships with major foreign investors in South Africa, such as European companies MSC and Heineken, which have significant corporate ties with South African businesses Mediclinic and Distell, respectively.

Challenges in Infrastructure and Trust Building

Durand also highlighted issues with Transnet’s rail and port infrastructure as factors affecting South Africa’s investment case. He claimed that “inefficient rail and port operations” have been costly to the country in terms of export revenue, with congestion resulting in spoilage of fresh fruit destined for export markets. However, Durand did mention some “green shoots” in the government’s plan to privatize certain port operations and the rail corridor between Gauteng and Durban, with Remgro participating in bids for these projects.

Durand also noted that some conditions imposed by the government were “quite restrictive,” which could reduce the attractiveness of these opportunities for the private sector. Despite this, he expressed optimism that collaboration between the private sector and the government could lead to positive outcomes.

Addressing Broader Issues Affecting South Africa’s Economy

Other areas of concern for Durand include South Africa being greylisted, the pervasive effects of crime and corruption across various sectors (such as Eskom, construction, and logistics), and the country’s overburdened criminal justice system. Durand stressed the need for the private sector to work closely with the government in finding solutions to these problems and bridging the trust deficit that exists between the two parties.

Remgro’s Performance and Future Prospects

As for Remgro’s results, the company continues to grapple with the significant disconnect between its share price and the value of its underlying investments. Durand reported that the intrinsic net asset value per share as of the end of December was R223.86, which was up approximately 5% since the end of June the previous year. However, the company’s share price at the year-end of R133.03 traded at a 40.6% discount to the intrinsic net asset value.

When asked about the challenges in reducing this discount, Durand admitted that there was “no silver bullet for it.” He mentioned that uncertainty surrounding Remgro, as well as pending transactions like the decision to take Mediclinic private and Vodacom’s partnership with Remgro’s fiber business CIVH, could affect the discount. Additionally, Durand cited “global uncertainty” due to higher inflation as another factor influencing valuations in general. He also pointed out that a significant amount of equity had left South Africa, affecting both the equity and bond markets with net outflows being the dominant trend.

Despite these challenges related to the discount to intrinsic net asset value, Durand confirmed that the company had every intention of remaining listed on the Johannesburg Stock Exchange (JSE). He expressed his strong support for investment holding companies, stating that they had the potential to drive significant economic growth by providing capital to establish new businesses.

The Importance of Investment Holding Companies in South Africa’s Economy

Durand highlighted the success stories of businesses like Mediclinic, Vodacom, Tracker, CIVH, and the latest energy investment vehicle Ubiquity, which were all initiated by investment holding companies like Remgro. He emphasized the crucial role these companies play in South Africa’s economy, providing access to capital for new ventures and startups.

WIlliam Dube

William Dube is a finance and economic news expert with over 10 years of experience in economic anaylsis, financial product assessment and market analysis. With a numerous certificates from prestigious universities including but not limited to Yale University and the University of Pennyslivenia. William specializes in providing insightful news developments in South Africa and commentary on investment strategies, risk management, and global economic trends. You can contact him on william@rateweb.co.za

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Published by
WIlliam Dube

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