This issue is not going away. Rob has now told Parliament that
funds would be prioritised to support productive sectors of the economy, namely agriculture, mining, manufacturing and value-added services such as tourism, business process services and the creative industries. Government agencies should make every effort to find local suppliers of finished, intermediate and capital goods, he said. He stressed that the government's industrial and procurement programmes were focused on deepening industrialisation, value addition and job creation. This meant productive sectors of the economy had to be prioritised. "Our resources and incentives ought not to be deployed to support the import of finished products," he said.
Whilst the deal still leaves me a little uncomfortable I still think there is nothing wrong with the NEF loaning money to a black woman in principle. Any person who is able to easily access funds because of their nationality, race, gender, sexual persuasion etc would do so. We know that under apartheid that if you were Afrikaans speaking and white (and a good Nat) then you would be granted all sorts of favours by the government. This is nothing new. The question that is not being answered is "Why did the banks not want to fund this business?" The press are not picking up on this. Surely if your name is Judy Dlamini and you are the wife of FirstRand CEO Sizwe Nxasana then some financial institution will make every attempt to give you finance for this deal. But they didn't. Therein lies the issue.
I suspect that the banks wouldn't go for it because it's a bad business model. It's that simple. I'm going to expose my ignorance of loan repayments under these circumstances in an attempt to illuminate the inherent risk of this venture. I know from a shop owner who had a shop in Hyde Park that they paid R30k/month rent for 33m² – that makes it R910/m² (Luminance has 700). Here is an estimate of the overheads to be paid on a monthly basis.
Description |
Monthly cost |
Rent |
R500,000 |
Loan repayment |
R400,000 |
Salaries |
R200,000 |
Other costs |
R50,000 |
TOTAL |
R1,150,000 |
My figures work like this:
Rent – 700m² at R910/m² comes to R636,500. I believe that you can negotiate this rate based on a variety of criteria – I dropped the rent to R500k.
Loan repayment – I used a very simple calculator from ABSA's website. I based it on a capital amount of R32m at a prime rate of 8.5% (the calculator doesn't let me vary this). The payment period would be 120 months (10 years). When I asked those in the business of these kinds of loans they couldn't give me a straight figure so I made up my own. It is most likely that they are paying a different rate
Salaries – 20 people at an average of R10k/month. I think there might be more people than that in the business.
Other costs – security, stationery, telephone etc.
What am I missing here? Stock. Stock is an important one and this stock is not cheap. Also those in the retail business tell me that fashion is a difficult business as well, which adds to the complexity. I suppose we should add on another R500k for stock. Here is the re-calculated table.
Description |
Monthly cost |
Rent |
R500,000 |
Loan repayment |
R400,000 |
Salaries |
R200,000 |
Other costs |
R50,000 |
Stock |
R500,000 |
TOTAL |
R1,650,000 |
These figures are no doubt completely out, so to be fair I'll halve them – R825,000. This means that Luminance has to turnover R9,9m to break even. To do this they would need to sell 396 dresses at R25k per dress. To make a profit they'd need to sell 397 dresses. This requires a lot of people who have a lot of money coming in and buying Luminance stuff. Also every other boutique in Hyde Park is competing for the same spend, and most of those have established clientele with much lower overheads.
I put out it again – this is not a business that any savvy banker would ever want to bankroll for now very obvious reasons and this is where the mettle of the NEF will be tested. If Luminance's lights get switched off before the loan is repaid then we will see the true colours of this deal. Should this happen then we have every right to question the NEF – if not then we need to leave this deal alone altogether.
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