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What big business wants for the future

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By Jonathan JosephsBusiness reporter, BBC News

Getty Images A ship-to-shore crane stands above shipping containers on the dockside at the Port of Durban in 2018.Getty Images

A leading figure in South Africa’s second biggest political party has warned that a failure to fix the economy “might end up with violence that nobody wants”.

In the aftermath of the elections Dion George, who oversees economic policy for the Democratic Alliance (DA), has told the BBC that political parties need to “set aside our deeply entrenched ideological perspectives” to get the economy growing again.

The African National Congress (ANC), the party that ended white-minority rule in 1994, came first in last week’s polls, but did not win an outright majority and is trying to put together a government of national unity.

South Africa’s President, the ANC’s Cyril Ramaphosa, has said the concerns of citizens must be the priority.

“These issues include job creation and the growth of our economy that will be inclusive, the high cost of living, service delivery, crime and corruption,” he said recently.

Nearly eight million people are unemployed across the country, meaning the jobless rate is 32.9%.

It is one of the highest in the world and has been called a “ticking time bomb” in a UN report.

Amid ongoing power cuts that make it difficult for businesses to function, this week the statistics agency said the economy shrank in the first three months of this year – with manufacturing, mining and construction suffering in particular.

Last year South Africa’s economy grew just 0.6%.

“A whole lot of small businesses have actually shut down” because of widespread problems with energy supplies as well as the state run transport and water networks, says Busisiwe Mavuso, the chief executive of the influential lobby group Business Leadership South Africa.

Its members include local names such as the Bidvest conglomerate and Absa bank as well as international firms such as Amazon, Volkswagen and Nestle.

Ms Muvaso says the “trading environment is not conducive” and that her members’ “plea is for the government to really fix the basics”.

The central bank says foreign investment fell by a third last year, given the difficulties of trading in a country that the International Monetary Fund (IMF) forecasts will nonetheless return to being Africa’s biggest by the end of this year.

French bank BNP Paribas and UK oil giant Shell are amongst the big, foreign names pulling out of South Africa.

In a recent aborted takeover bid for the mining firm Anglo-American, Australia’s BHP made it clear it did not want the company’s South African assets.

Despite having a presence in South Africa for more than 120 years Shell says its exit is part of a broader review of its business.

The competition for investment is fierce and Ms Mavuso says “we’ve really made it difficult for capital to land here”.

“East Africa is eating South Africa’s breakfast,” she jests, while remaining hopeful that the size of the domestic market and the rule of law will ensure the return of investment once the economy is back in better shape.

Lobbyist Busisiwe Mavuso in her office

Lobbyist Busisiwe Mavuso says some investors are eyeing East Africa instead

For both foreign and domestic companies, Ms Muvaso says, the government has to “create an environment that is conducive for investment” – and that will bring the jobs South Africa so badly needs.

With so many people out of work there is widespread inequality, and she warns that means “you’re never going to be able to attain social stability. So we are definitely at risk of the erosion of social cohesion”.

Amongst 15 to 34-year-olds the unemployment rate is 45.5% and the frustration caused by a lack of jobs is easy to find amongst young people in Johannesburg.

“Business opportunities for young people” must be the new government’s priority, says unemployed 23-year-old Tebogo Mokobane. “I’ve been looking for a job for two years as an animator and I couldn’t find anything so far.”

Siphiwe Masila, a 24-year-old financial analyst, agrees: “More opportunities and work for the youth” are paramount and should be “more accessible”.

Constant power cuts concern her and 24-year-old student Philasande Mnguni, who says his “greatest frustration is just service delivery” at a time that is tough for “a lot of South Africans”.

South Africa has been described as the most unequal country in the world, and there is a critique from the left that the economy simply does not work for the majority of the population.

The Economic Freedom Fighters (EFF) – the fourth largest party – has called for greater nationalisation and the expropriation of land so that the wealth of the country can be more evenly shared.

The party says that some of the more business-friendly policies of the ANC and its broad-based black economic empowerment legislation have not tackled the underlying problems the country has, which are the legacy of the racist apartheid system that ended 30 years ago.

A woman with purple braids responds to a photographers questions.

Siphiwe Masila, 24, says good work prospects are out of reach for too many

The difficulties many are facing in making ends meet in a stagnant economy led the government to increase a range of welfare payments in February’s budget.

More than 24.5 million people, or 39% of the population, receive some form of financial help from the government. It is one reason why government debt has increased to 74% of the country’s annual income and that the IMF warned in April that “decisive efforts are needed to cut spending”.

South Africa’s own treasury has warned that “debt-service costs are choking the economy and the public finances”. They now account for 20% of all government spending, more than basic education, social protection or health.

Looking at the electricity problem, the DA’s Dion George says that it is “probably” important for the government to borrow money to fix the country’s crippled energy network, railways and ports. But he admits that will be difficult to afford.

Another option he says is to “change the model, inject the private sector into it”, which would lessen the strain on government finances.

With centre-right DA getting 22% of the vote, it may have some influence on future policy and also wants labour laws such as minimum wage rules relaxed to boost employment.

“It’s priced workers out of the market, employers are not willing to employ people at the rate of the minimum wage,” says Dr George. His white-led party proposes an exemption for 18 to 35-year-olds who have been unemployed for two years.

A man smiles in front of a DA party background

Dion George is part of the DA party which wants to rein in the strength of trade unions

But it is the sort of policy which puts the DA at odds with South Africa’s trade unions, an important ally of the ANC.

The unions have warned the ANC against forming any agreement with the DA.

“We reject any coalition with the DA,” Solly Phetoe, general secretary of South Africa’s power trades union federation Cosatu, said earlier this week.

“This is one political party that called for scrapping of the minimum wage, NHI and saying workers have too many rights.”

NHI refers to National Health Insurance Bill, which promises universal healthcare for all, and was signed into law by President Ramaphosa just before the election.

Mr Phetoe’s comments shows the real fears from the ANC’s support base that the DA will not support their social welfare programme.

The DA, for example, opposes both the NHI and the ANC’s black empowerment policies.

Dr George counters that “we need to rein back the strength of the trade unions in our economy”.

He says that while the ANC’s Finance Minister, Enoch Godongwana, agrees with him that South Africa has a growth problem, they disagree on whether the ANC has a spending problem.

“Choices need to be made” to get the economy to grow again, “because if we don’t do that… we’d end up with a bailout, we’ll end up with an economy that doesn’t grow. And of course, heaven forbid, we might end up with violence that nobody wants.”

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Macron’s ‘irresponsible’ snap election casts shadow over Olympics

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Emmanuel Macron’s move to call snap elections has cast a shadow over the Paris Olympic Games, raising the possibility of political unrest and a far-right government in charge of the world’s biggest sporting event.

The far-right Rassemblement National (RN) is projected to become the biggest parliamentary party after the run-off vote on Sunday. While a hung parliament appears the most likely outcome, if the RN were to win a majority, its 28-year-old party chief Jordan Bardella could be prime minister when the Games open on July 26, with his team greeting top athletes and dignitaries from across the world.

The timing of Macron’s decision to dissolve parliament was “catastrophic for the Games”, said Pascal Boniface, head of Paris-based think-tank Iris and an expert on the politics of sport. “We are in the thickest of fog over the future.”

Pierre Rabadan, a senior official responsible for Olympics planning in the Paris mayoralty of Socialist Anne Hidalgo, told the Financial Times he was “stupefied” by Macron’s “irresponsible” decision.

While he said the main strategic decisions had already been made, the move had raised “pragmatic and operational questions”, including deploying mayoral staff and city police for both the elections and the Games.

“We had thought about all the possible scenarios, except for the dissolution of the Assembly,” added Rabadan, a former professional rugby player with Stade Français.

Security experts had already warned of big policing challenges for the opening ceremony, in which thousands of athletes will sail down the River Seine watched by around 300,000 spectators along the quays. Pressure on security services would further be aggravated if anti-RN protesters were to take to the streets, they said.

People gather at Republique to protest against the far-right which came out strongly ahead in first round legislative elections
Demonstrators in Paris protest against the far right after Rassemblement National came out ahead in a first-round vote © Louise Delmotte/AP

Rabadan said his main concern now was the image of France that a far-right government, with an anti-immigration and nativist policy platform, would present.

“The Games are about welcoming the entire world and showing that we are an open country,” Rabadan said. “That clearly goes completely against what the Rassemblement National wants.”

Hidalgo told France 2 on Tuesday that “the party would not be spoiled” by an RN government.

But dozens of athletes have voiced concerns about the elections. Prior to the first round, French football star and captain of the national team Kylian Mbappé called on the electorate to vote “against the extremists”, while almost 300 sportspeople, including Rabadan, signed a column in French sports publication L’Equipe opposing the RN.

“In my memory, I have never seen athletes engage to this extent in the political field,” said Boniface.

Macron’s sports minister Amélie Oudéa-Castera told journalists ahead of the first round that despite the extensive preparations for the Olympics, an RN majority would mean far-right politicians with no experience in national government would still have to make important decisions “in a geopolitical context that is difficult, delicate and tense”.

Bardella has said he would not change the officials running the Games.

Guy Drut, a former 110m hurdles Olympic champion and sports minister under President Jacques Chirac, and one of the few athletes to publicly back the RN campaign, told Le Monde: “There is no reason the Games would go badly under an RN government.”

Scattered protests were held against the RN after the first-round vote. Paris police commissioner Laurent Nuñez told France Inter that the authorities were ready for further unrest but that this would not interrupt the Games.

“We’re preparing for this type of protest and we will have an extremely large [presence] in the Greater Paris region of 45,000 officers to manage [disorder],” he said.

In a further potential risk to smooth running, four unions representing airport management staff have threatened to strike in pursuit of “a uniform and fair bonus” for working during the event. Police, air traffic controllers, rubbish collectors and train and bus staff have already been promised bonuses.

Despite his confidence that policing and organisation were well in hand, Rabadan lamented the impact of the elections on the build-up. “There is very, very strong enthusiasm and popular support,” he said. “But the president’s decision . . . has put a stop to that rise in excitement we were hoping for, so that’s really quite disappointing.”



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Hong Kong’s IPO market is set to improve over the next five years

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Hong Kong Exchanges and Clearing celebrates the 24th anniversary of its listing on June 21, 2024.

China News Service | China News Service | Getty Images

BEIJING — The market for initial public offerings in Hong Kong is set to improve significantly over the next five years, starting in the second half of this year, George Chan, global IPO leader at EY, told CNBC in an interview Wednesday.

“I think it will take a couple years to go back to the peak [in 2021] but the trend is there,” Chan said. “I can see the light at the end of the tunnel.”

High U.S. interest rates, regulatory scrutiny, slower economic growth and U.S.-China tensions have constrained Greater China IPOs in the last three years.

EY said in a report that while the volume of IPOs and proceeds in the U.S. increased significantly in the first half of 2024 compared to the same period a year ago, mainland China and Hong Kong saw a sharp decline in listings.

Many of the macro trends are now starting to turn around, which can support more IPOs in Hong Kong, said Chan, who is based in Shanghai.

“We are seeing a reversing trend,” he told CNBC. “We are seeing more of these [U.S. dollar] funds, they are moving back to Hong Kong. The main reason is that Hong Kong has already factored in these uncertainties.”

The Hang Seng Index is up more than 5% year-to-date after four straight years of decline — which was the worst such losing streak in the history of the index, according to Wind Information.

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“Our HK cap markets team is very busy and has a strong pipeline for H2.  We expect to see many HKSE listings,” Marcia Ellis, global co-chair of private equity practice at Morrison Foerster in Hong Kong, said in an email Wednesday.

Many companies that were waiting for a listing in mainland China’s A share market have decided to switch to one in Hong Kong, she said. “Previously [China Securities Regulatory Commission] approval was slowing things down but recently our team has gotten CSRC approvals pretty quickly.” 

In June, China issued new measures to promote venture capital, and authorities spoke publicly about supporting IPOs, especially in Hong Kong. Investors and analysts said they are now looking at the speed of IPO approvals for signs of a significant change.

Chan said another supportive factor for Hong Kong IPOs is that many of the companies listed in the market are based in mainland China, where economic growth is “quite satisfactory.”

He expects consumer companies could be among the near-term IPO beneficiaries.

“As the economy slowly recovers, a lot of people in China are willing to spend,” he said, noting that was especially the case in less developed parts of the country.

Official national-level data have showed that retail sales are growing more slowly in China — up by just 3.7% in May from a year ago versus growth of nearly 10% or more in prior years.

Also significant for global asset allocation, the U.S. Federal Reserve and other major central banks are pulling back from aggressive interest rate hikes. High rates have made Treasury bonds a more attractive investment for many institutions instead of IPOs.

“I would say if the interest rate can be further cut down, 1% maybe, that would have a significant effect on the IPO market,” Chan said.

Hong Kong IPOs raised $1.5 billion during the first half of the year, a 34% drop from a year ago, EY said in a report released late last month. Back in 2021 and 2020, the Hong Kong Stock Exchange saw nearly 100 or more IPOs a year raising tens of billions of dollars, according to the report.

In comparison, mainland China IPOs raised $4.6 billion in the first six months of 2024 — a drop of 85% from the year-ago period, according to EY.

HKEX CEO aims for more large-scale IPOs this year

Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said during a conference last week that so far this year, the Hong Kong exchange has received 73 new listing applications — a 50% increase compared to the second half of last year. She is not related to EY’s George Chan.

“The pipeline is building up nicely,” she said, noting about 110 IPOs in total are in line for a Hong Kong listing. “All we need is a set of good market conditions so these things get to launch and price nicely,” she added.

Improving post-IPO performance

“What we need is a strong pipeline,” EY’s Chan said. “We need an interested investor with the money to invest, and we need a good aftermarket performance.”

Hong Kong IPO returns are improving. The average first-day return of new listings on the Hong Kong stock exchange in the first half of 2024 was 24%, far more than the average of 1% in the same period last year, according to EY.

“The aftermarket performance of Hong Kong IPOs has been doing quite good compared to the past five years,” Chan said. “These things added together are projecting an upward trend for the Hong Kong market [in the] next 5 years.”

Chan said he expects the number of deals to pick up in the second half of 2024.

Goldman Sachs says it remains positive on Hong Kong capital markets activity

He said those will likely be medium-sized — between 2 billion Hong Kong dollars to 5 billion Hong Kong dollars ($260 million to $640 million) — but added he expects better market momentum in 2025.

Slowing economic growth and geopolitical uncertainty have also weighed on early-stage investment into Chinese startups.

Total venture funding from foreign investors into Greater China deals plunged to $19 billion in 2023, down from $67 billion in 2021, according to Preqin, an alternative assets research firm.

U.S. investors have not participated in the largest deals in recent years, while investors from Greater China have remained involved, the firm said in a report last month.

U.S. IPO outlook

As for IPOs of China-based companies in the U.S., EY’s Chan said he expects current scrutiny on the listings to be “temporary,” although data security rules would remain a hurdle.

In early 2023, the China Securities Regulatory Commission formalized new rules that require domestic companies to comply with national security measures and the personal data protection law before going public overseas. A China-based company with more than 1 million users must pass Beijing’s cybersecurity review to list overseas.

“As time goes on, when people are more familiar with the Chinese [securities regulator] approval process and they are more become comfortable with geopolitical tensions, more of the large companies … would consider [the] U.S. market as their final destination,” Chan said.

“When the time comes I think the institutional investors would be interested in these sizeable Chinese companies, as they pretty much want to make money.”

He declined to comment on specific IPOs, and said certain high-profile listing plans are “isolated incidents.”

Chinese ride-hailing company Didi, which delisted from New York in 2021, has denied reports it plans to list in Hong Kong next year. Fast-fashion company Shein, which does most of its manufacturing in China, is trying to list in London following criticism in the U.S., according to a CNBC report.



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Microsoft hack affected Veterans Affairs and State Departments, government says

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The US Department of Veterans Affairs and an arm of the US State Department are among a growing list of Microsoft Corp. customers that have acknowledged they were impacted by a breach of the technology giant that was blamed on Russian state-sponsored hackers.

The US Agency for Global Media, part of the State Department that provides news and information in countries where the press is restricted, was notified “a couple months ago” by Microsoft that some of its data may have been stolen, a spokesperson said in an emailed statement. No security or personally identifiable sensitive data was compromised, the spokesperson said.

The agency is working closely with the Department of Homeland Security on the incident, the spokesperson said, declining to answer additional questions. A State Department spokesperson said, “We are aware that Microsoft is reaching out to agencies, both affected and unaffected, in the spirit of transparency.”

Microsoft disclosed in January that a Russian hacking group it calls Midnight Blizzard had accessed corporate email accounts and later warned that they were attempting to use secrets shared between the technology giant and its customers. The company has declined to identify the customers who were impacted.

“As our investigation continues, we have been reaching out to customers to notify them if they had corresponded with a Microsoft corporate email account that was accessed,” a Microsoft spokesperson said on Wednesday. “We will continue to coordinate, support and assist our customers in taking mitigating measures.”

In addition, the Department of Veterans Affairs was notified in March that it was impacted the Microsoft breach, officials for the agency said.

A one-second intrusion

The hackers used a single set of stolen credentials — found in the emails they accessed — to break into a test environment in the VA’s Microsoft Cloud account around January, the officials said, adding that the intrusion lasted for one second. Midnight Blizzard likely intended to check if the credentials were valid, presumably with the larger intention of breaching the VA’s network, the officials said. 

The agency changed the exposed credentials, along with log-in details across their Microsoft environments, once they were notified of the intrusion, they said. After reviewing the emails that the hackers accessed, the VA determined that no additional credentials or sensitive email was taken, the officials said.

Terrence Hayes, the VA’s press secretary, said an investigation is continuing to determine any additional impact.

The Peace Corps was also contacted by Microsoft and notified about the Midnight Blizzard breach, according to a statement from its press office. “Based on this notification, Peace Corps technical staff were able to mitigate the vulnerability,” according to the agency. The Peace Corps declined further comment.

Bloomberg News asked other federal agencies for comment, and none of the others disclosed that they were impacted by Midnight Blizzard’s attack on Microsoft. Bloomberg previously reported that more than a dozen Texas state agencies and public universities were exposed by the Russian hack.

Midnight Blizzard, also known in cybersecurity circles as “Cozy Bear” and “APT29,” is part of Russia’s foreign intelligence service, according to US and UK authorities. 

In April, US federal agencies were ordered to analyze emails, reset compromise passwords and work to secure Microsoft cloud accounts amid fears that Midnight Blizzard may have accessed correspondence. Microsoft has been notifying some customers in the months since then that their emails with the tech giant were accessed by the Russian hackers.

The Midnight Blizzard breach was one in a series of high-profile and damaging security failures at the Redmond, Washington-based technology company, which has drawn strong condemnation by the US government. Microsoft President Brad Smith appeared before Congress last month where he acknowledged security failures and vowed to improve the company’s operations. 



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