What you may have missed in the business news last week:
1. South Africa’s New Austerity Measures.
Finance Minister Pravin Gordhan gave his mid-term budget speech last week.
In it, he announced dramatic “cuts” to government spending. Being the spending that the government does on itself in order to carry out the task of spending money elsewhere. Fortunately, Pravi is taking care of it by removing all government credit cards, limiting the number of officials that can travel as part of a ministerial posse, halting compensation for the use of personal cars, capping entertainment budgets at $200 per month*, forcing non-minister government representatives to fly coach when they’re allowed to fly at all**, and revisiting the necessity for the parliamentary split between Pretoria and Cape Town.
*how will fast food queen Sylvia Lucas (the Northern Cape Premier) cope?
**and no more route diversions – biatches will fly straight to destination.
Thank you ETM Analytics for the following graph:
Pravi assured the South African public that the savings “could be billions” (which is both an optimistic statement and an extraordinary one about the current cost of government), and rejected the idea that this move has anything to do with next year’s general election.
I realise that I sound like I’m being derogatory (it’s the typical upper class South African reaction that I see on facebook). But let me clarify: I think this is an excellent excellent idea.
As you know, I’m a massive fan of the exponent function (read about it here: Have you really done the math?). Small and seemingly insignificant changes tend to grow into bigger ones; and not in a linear fashion.
When Alcoa (the world’s third largest aluminium producer) was struggling in the 1980s, it revived after the new CEO (Paul O’Neill) made worker safety the company’s primary business objective. Why did it work? Because safe workers are more productive, and less production time is lost, and the worker safety principle became the pivot point for more generalised renewal. Seemingly insignificant and definitely counter-intuitive – but it worked.
When Harley Davidson was on the verge of bankruptcy, it returned to prosperity by creating fan clubs and focusing on not-making-defective-spare-parts. These were not big and sweeping changes: it was a small-step success program*.
*Attention: Theo Mano – you see that I listen when you tell these stories!
Frankly, I think that a government official that spends less time on takeaway runs and trying to get himself/herself attached to giant delegations to NYC is more likely to refocus his attention on his job. But more than that: it’s a principle and spirit thing.
2. Cuba’s two currencies to unify.
Cuba has two currencies: the Cuban peso (CUP) and the Cuban convertible peso (CUC), neither of which is convertible to foreign currency.
However, the “convertible” one is pegged against the US dollar, meaning that it’s worth 25 times as much as the normal one. Which, when you think about it, makes sense from a practical standpoint. If you have a fluctuating currency, then it would be super bothersome to be a shop owner, because you’d have to continuously change prices on your shelves.
Solution: have one currency that’s fixed to the US dollar, price everything in that, and then just do a conversion to the usable (second) currency at the till.
Simpler solution: drop the fixed currency, price everything in US dollars instead, and then just do a conversion to the usable currency at the till.
So that you know: this simpler solution? It was the one in place between 1993 and 2004. And then in 2004, Cuba introduced the convertible peso in order to, um, complicate the process. And, it seems, make the government workers less conscious of the fact that they were getting paid in pesos when the rich Cubans were earning dollars.
Now Cuba has announced that it will unify the CUC and the CUP. Which will be chaos.
Because how do you do it? People now hold both CUCs and CUPs. The minute the government lets on which of those currencies will be removed from circulation, there will be rampant speculation and banks runs.
Perhaps this needs to be a post of its own later in the week!
3. Starbucks gets told off by China.
What has been going on in China? First they told off Apple for its pricing. Then they told of GlaxoSmithKline for its pricing (and its general whoring about with government officials). Then Samsung was forced to apologise for its pricing (or something like that – either way, Samsung had to apologise).
Now Starbucks is under fire for charging more for a latté in Beijing than it charges in Chicago.
Um – I’m not sure where and when we decided that products must always cost the same in different countries. Because it just doesn’t work that way.
If the Chinese are willing to pay more for coffee, then more power to Starbucks. And if the Chinese government wishes to charge high tariffs on coffee imports, then that cost will get passed along to Chinese coffee drinkers.
It doesn’t sound at all like an attempt to push Chinese consumers in the direction of Chinese coffee shops (and other related products).