Well Mr Zuma, where’s the plan?

Wednesday, 5 June 2013

Have you heard of a game called FarmVille? It started on Facebook in June 2009 and was based on the simple concept of managing a farm, planting crops, raising livestock, buying seed and fertilizers from suppliers...

Many people found it to be immediately addictive and FarmVille had 10 million active players within six weeks.

(Yes, I said 10 million people in six weeks.)

The company which produces the game, Zynga, began trading on NASDAQ in December 2011 with an opening price of $10 which climbed steadily to $14,50 by March last year.

And then, it went south. Analysts began questioning the viability of Zynga's business model, and when second quarter earnings failed to make projections, investors fled. The share price dropped to $2,09 by last year.

Zynga has been taking steps to cut expenses and expand its business into areas such as licensed board games, online gambling, its own gaming platform (Zynga.com), and mobile game apps.

The share price improved 27 percent until last month when Facebook (which is Zynga's main platform for revenue) parted ways.

Zynga's share price dropped 12% this week after trading was suspended.

It's a perfect example of how the markets behave. Investors look for whether there is likely to be an increase in revenue and an increase in the value of the company.

If the company is likely to announce new products likely to take the market by storm, investors will flock there. If the company beats its trading forecast, investors will generally be happy.

If a company does worse than expected, investors watch to see what the company will do to fix the problem. If they are unhappy with the explanation, they will generally show their displeasure by selling off their shares.

Investor action is not always rational. For example, Apple remains one of the world's most valuable companies and makes more money in an hour than most African countries make in a year.

The company is sitting on a huge pile of cash too. Nevertheless, perception is that after Steve Jobs's death, there is nothing innovative emerging from the company, so the share price has fallen.

On Thursday morning, Mandy Wiener of Eyewitness News told twitter "President Zuma will hold a special media briefing on the economy ... today at 11h00."

Alex Parker who writes for Business Day responded: "Oh dear. R11/$ anyone?"

The president delivered his press conference. When the markets reopened the next day, the rand crashed through the psychologically significant level of R10 to the US dollar. "Zuma sinks the rand" became the headline into the weekend.

The spin doctors and commentators were quick to voice their take on the matter. The Australian dollar had already fallen against the US currency, they said. The rand's fall is not too different, they said. It's not Zuma's fault, they said.

Yes, and no.

Think of the country as a company. Think of the currency as our share price. As with every company, the chief executive gets to announce results on a regular basis as well as to forecast what earnings are likely to be for the next period.

If the chief executive has built up a reputation for promising and delivering specific results, investors will look upon that CEO with trust.

If the results are different to what was expected, the investors will look to see what the CEO intends doing to remedy the situation.

Jacob Zuma is our Chief Executive. After the disaster of Marikana last year, the plunge in demand for platinum, and the ongoing strike action, the world was looking to him to indicate what he was doing to fix it.

And what did he say?

“Strikes are a normal thing in a democratic country. It is only in undemocratic countries where there are no strikes,” he said. “I don’t think we should take strikes as a problem because workers in democratic countries are allowed by law, by the constitution, to go on strike.”

The president is correct, but he was not answering the right questions. In democratic countries, are officials from rival unions routinely assassinated? In democratic countries, does government intercede on behalf of illegal strike action?

The mining industry is the single most important source of revenue for us. If that revenue source is threatened, it affects our share price.

We need to hear the president saying decisive things. Calling in the deputy president and the finance minister is not enough.

He needs to stamp his approval on the National Development Plan and tell Cosatu that, come hell or high water, this country will move forward.

Watch how quickly the rand rebounds then.