Hosken Consolidated Investments (HCI) will be overseeing a test case in job protection when it takes control of struggling clothing maker Seardel through its R250 million rights offer.

Some might say that this is throwing good money after bad and that sectors with better growth prospects should rather be sought for job creation, but HCI is convinced it can limit retrenchments.

Seardel says it has already made some improvements in managing working capital, which sucked up cash flow in the year to June, forcing the company to borrow more and eventually leading to the rights offer. This after the clothing and textile group’s bankers insisted on the cash raising exercise when the firm regularly exceeded credit limits.

But Seardel will have to do a lot more to return to profitability than achieve a small improvement in managing working capital. Its biggest customer extended terms and retailers, importing cheaper goods, did not take as much product as scheduled. It is hard to see how the situation will change as the downturn continues.

Clients that need Seardel less than Seardel needs them will continue to pay as slowly as possible; competitive imports won’t go away, even with a weaker rand; and Seardel will still have to take the risk on buying raw material that might have no market.

Retailers will no doubt have been working out a plan for a worst case scenario where the country’s biggest clothing maker no longer exists.

Bottom-end retailers of commodity clothing will be looking at how they can increase Far Eastern imports. The long lead times for shipping in products won’t keep them awake at night, as they don’t need to sell the latest items.

The fashion retailers, which need to respond quickly to changing consumer tastes, will increasingly look to the nimble little local players that cut, make and trim. These houses might be the best placed firms in this embattled sector. Without the need to buy textiles themselves, they don’t have the same onerous working capital scenario and don’t need to predict demand.

Cheap plonk is still plonk South African wines, which for many years have been regarded in the UK and some European markets mainly as affordable plonk, are benefiting in export markets from the rand’s weakness.

Wine exports have risen by 31 percent in the past year, with packaged wine accounting for half this rise. The wine harvest for this year is expected to be 49.5 million litres more than last year, at 1.093 billion litres.

This is not causing fears of a glut in the domestic market, due to the prospects of a continuing strong export market. Australia, our main competitor, is still recovering from a drought. California and Europe are also experiencing lower harvests.

But Grant Dodd, the chief executive and a partner in Haskell Vineyards in the Stellenbosch Golden Triangle and the managing director of Grant and Haskell Fine Wines, cautioned at the annual Nedbank Cape Wine seminar against building market share by discounting instead of putting more emphasis on quality.

He said the volatile currency could suddenly make South African wines more expensive in overseas markets. Wine writer Michael Fridjhon supports this view, saying that there has been massive underinvestment in Brand South Africa, with producers trading on price instead of building a positive image of the country and its quality wines, which would enable them to operate in less price sensitive areas of the market.

He said producers relying on rand weakness for export success would find life difficult if the currency strengthened.

Ramos points the way A fish rots from the head down. This is the graphic analogy used by one commentator to describe how the lack of talent at the top can seep through a business, resulting in mediocrity and non-performance.

In contrast, the retention of successful executives in South Africa implies returns for shareholders and growth for businesses and their suppliers, which in turn will support economic growth and create jobs.

Maria Ramos, the group chief executive of Transnet, is a case in point. Top executives earn handsome rewards – although, according to the Mabili Directors’ Remuneration Report 2008, the rate of increase slowed in the year to March this year, with the median salary for a chief executive rising 9.3 percent to R4.7 million. Some earn half this – and, of course, others far more. In the year to March 2007 Ramos earned R7.9 million. In the following year, her package topped R11 million.

Believe it or not, retaining the top men and women who lead local businesses is not all about money.

Laurence Grubb, the managing director of Mabili Reward, said this week that when a candidate looked at a package it was not just the guaranteed pay, bonus and share schemes that counted. Executives also looked for opportunities for career growth in a company.

While some executives who are being head-hunted will not find a struggling business appealing, if, like Ramos, they succeed in turning a firm around, there will be more lucrative opportunities ahead.

If Ramos’s success in achieving financial stability and greater efficiency at port terminals extends to improvements in rail and ports, then well-oiled transport networks should facilitate the export and import of goods more cost effectively, making other businesses more efficient and profitable. The result, hopefully, will be more jobs. Then Ramos’s salary would be considered well worth it.

Headlines have homed in on the huge disparity between executive pay and the wages of workers, which is hard to accept. But the Mabili report says a bigger problem is the gap between the employed and the unemployed, as many of the country’s social problems revolve around the high level of unemployment.

Source: Business Report – Tom Robbins and Audrey D’Angelo