From Gareth Stokes, MoneyWeek editor,

Dear Money Morning Reader,

Did you have a chance to look at Shoprite’s latest interim results? The company ignored dreams of statistics on the struggling consumer to power ahead through the second half of 2009. Revenue from the company’s 1 413 stores (including franchises) surged from R29.6bn to R33.1bn, making a mockery of the latest Statistics SA retail sales number. If you think the group is being propped up by offshore activity, think again.

The group’s domestic Shoprite, Checkers and U-save brands reported sales growth of 14.5% against the local market average of 9%. Management was satisfied with the 6.5% improvement in ‘feet through the door’ and the 7.3% jump in average basket prices too. Shoprite gained 23% in 2008, 23% in 2009, and has already added another 19% year to date, 15 March 2010. Shareholders in the company can be excused for asking: What recession? Have loyal shareholders and optimistic investors pushed the retailer too high?

There are many analysts who think the retail sector is overbought. But they thought the same in 2007 and 2008 too! Shoprite’smanagement is confident they will grow again in FY2010. But their assessment of group prospects through 2010 doesn’t explain the stellar performance from local retailers over the past three years. Their scaremongering around slow economic recovery and the suggestion retailers will be the last to benefit from the turnaround contradicts the latest performance. Shoprite and its retail sector peers have simply ignored declining food price inflation and rising unemployment to achieve real revenue growth. Why are local retailers doing so well when Joe Average is queuing up at the debt counsellor’s door?

You can find the answer in Maslow’s hierarchy of needs, a structure proposed by Abraham Maslow in his 1943 paper A Theory of Human Motivation. Food is listed as one of our basic physiological needs. You will load up on groceries even if your mortgage and hire purchase repayments are months in arrears. Shoprite is arguably the best-equipped local retailer to service this basic need.

There are plenty of ‘basic needs’ stories doing the press rounds this week. The most worrying is courtesy the director general of rural development and land reform. Thozi Gwanya believes there are two solutions [sic] to South Africa’s land reform issues. One would be for all agricultural land to be declared national assets, and the other to cap individual land ownership. His comments make a mockery of President Jacob Zuma’s recent assurances, while on an official visit to the United Kingdom, that nationalisation was not on government’s agenda. It’s a crazy plan given recent admissions government is sitting on 5.9 million hectares of uncultivated land – and the rather dismal failure rate among previous ‘willing buyer / willing seller’ land deals.

Land reform will be the least of your concerns if the country’s collapsing water infrastructure isn’t addressed. Latest studies suggest only 32 of South Africa’s approximately 970 wastewater treatment works comply with requirements for safe discharge! For those of us lucky enough to receive water from Rand Water the problem is ‘back of mind’. But the long-term impact of only 3% of water treatment facilities being up to scratch is undeniable. South Africa – now is the time to panic! In today’s feature article Tim Bennet investigates opportunities to profit from the world’s most undervalued natural resource.