Apple, Facebook and Google are dinosaurs in the world of blockchain, says author George Gilder. From Moneyweb.

A decade ago the world’s leading companies were Exxon, Walmart, China National Petroleum and the Industrial and Commercial Bank of China.

Today it’s Apple, Alphabet (Google’s holding company), Amazon, Microsoft and a little further down the list, Facebook.

In Life After Google, author George Gilder wonders which titans of business will dominate 10 years from now. Historical evidence suggests it won’t be Google, Amazon or any of the other familiar tech names (though Microsoft gets an honourable mention for its decades-long durability as a business leviathan).

It’s hard to imagine a world where Google isn’t the dominant search engine.

It currently accounts for 88% of all global searches, a figure only moderately lower than the 90% recorded in 2013. It is used 5.6 billion times a day. It digitised the entire earth, the sky, gave street maps away for free, and has changed the world as we know it. It built massive data centres to process the unfathomable quantity of information spewing out into the world each day and then dish out search results in a fraction of a second.

Google was, and is, brilliant. Information became free and instant.

Google’s business model is to offer all this free to users, while selling advertising linked to searches. Last year parent company Alphabet’s revenue sailed past US$100 billion, most of this from ad revenue which has been growing at about 20% a year but is now slowing down.

Google may dominate information search, but by 2017 Amazon captured 52% of product searches. Amazon’s product reviews, dodgy though some of them may be, are more trusted than Google’s paid ads. Amazon has also beaten Google in selling cloud services. Google’s next big gamble was artificial intelligence (AI), but here again Amazon appears to be winning the race with voice activated AI.

Justifiable fear

The ability to gather massive volumes of information and then discern social and other patterns has landed on our doorsteps with such suddenness that there is a justifiable fear that humans will become slave stock, lorded over by AI machines and robots. That fear is overblown. Alan Turing, whose development of the Turing machine decoded Germany’s war-time codes, learned that computers needed ‘oracles’ to give them instructions and judge their outputs. Otherwise they go in loops, forever. There is no observer to make sense of the information.

This is why Turing also believed physics stumbled on its own self-referential measurements: you cannot measure atoms and electrons using instruments made of atoms and electrons. The oracle is absent.

Gilder doesn’t see much of a future for Google, principally because it has lost sight of the internet primarily as a means of communication that also allows information to be copied and replicated. There is huge backlash against Google and Facebook for allegedly skewing search results and censoring views they deem disagreeable. They have gone from town square, a place where people interact online, to town crier, where the tweak of an algorithm can sway voters and potentially unseat governments.

A new breed of company is about to swallow it.

“Emerging is a peer-to-peer swarm of new forms of direct transactions beyond national borders and new forms of Uber and Airbnb beyond corporate gouges,” says Gilder.

Unbundling the huge centralisation of the money system?

Google’s fatal business flaw is its aggregation and centralisation of digital information. It takes your data, pays nothing for it, and dishes it out to billions of users. What if companies were to pay you for your web visits, as does the Brave browser, developed by Brendan Eich, formerly of Mozilla and author of JavaScript?

Gilder claims the next phase in societal evolution, accelerated by the decentralisation implicit in blockchain, will undo Google and unbundle the huge centralisation of the money system. 

Blockchain is the coming wave. New forms of currency, detached from any form of central bank or government control, potentially threaten the very notion of nation states. Once you weaken money control from governments, you weaken their power to rule. Blockchain allows peer-to-peer transactions without an intermediary. Currency restrictions and central bank controls are entirely hollow in this new universe. You can become your own bank, store your money on a flash drive, and send it to whoever you want at the speed of light.

Legal contracts can be liberated from lawyers and their tortured English and logged on the blockchain. It is a way of removing those in the middle, the go-betweens, and creating true peer-to-peer transactions in a secure and private manner.

That none of the overblown claims for crytpos or blockchain have yet materialised is seen by some as evidence that they are fuelled by hype and little else.

But as Gilder points out, we are just 10 years into the blockchain revolution. The naysayers whine from the womb of an established financial system that has crippled world capitalism with a 10-year global recession. They see only incremental improvements built around central banks, forex markets and giant banks feasting off the entitlements of banking and legal tender laws.

Their monopoly on money creation is coming to an end and it will be deadly for them, but invigorating for humanity.

Bitcoin’s flaw is the same as all other fiat currencies in that its price changes with demand. Currencies are mere measures of value creation, they are not wealth in themselves. No basic unit of measure – whether the second, the kilogram or the ampere – changes in value. They are standards based on physical constraints. Bitcoin mining will end abruptly in 2140, which means no new currency will thereafter come into being.

New crypto developers are learning from these shortcomings of artificial scarcity and the time value of money, and will be able to build better currencies without these flaws. Bitcoin’s founder ‘Satoshi Nakamoto’ was correct to mimic gold’s scarcity and slow-feed release by way of ‘mining’, but did not fully grasp the sources of gold’s success.

The Google era is coming to an end, says Gilder, “because Google tries to cheat the constraints of economic scarcity and security by making its goods and services free”.

Google’s success was built on brilliant algorithms and centralised data.

The next wave will be decentralisation of the kind promised by bitcoin and blockchain, where no single entity can end up in control of so much data.

In other words, individuals may no longer be prepared to hand over their data (search requests and internet trail) to companies such as Google and Facebook for free, when others are prepared to pay them for that.

The free lunch may be coming to an end.

With the attempted assassination of Zimbabwean cigarette baron Simon Rudland in Johannesburg last week. From Moneyweb.

South Africa’s tobacco industry has long had a stench of the underworld. That much we know from former tax investigator Johann van Loggerenberg’s book Tobacco Wars, where he details the battles between established manufacturers such as British American Tobacco (BAT) and smaller but up-and-coming players such as Gold Leaf Tobacco Corporation, as well as several transport firms for which cigarette smuggling is their bread and butter.

Read: Illicit tobacco trade: Cheap manufacturer fights back

“No tobacco manufacturer, regardless of size or brand, can claim not to have some skeletons in the cupboard,” writes Van Loggerenberg, whose name has been mentioned repeatedly as a key operative in the so-called ‘rogue unit’ operating within the South African Revenue Service (Sars), and tasked with hunting down tax dodgers. Van Loggerenberg left Sars in 2015 under a cloud, and many of the 15 criminal cases he was investigating against tobacco manufacturers and importers “died quiet deaths”, according to an interview he gave to City Press in 2018. That likely cost Sars R3 billion in lost revenue. The existence of the ‘rogue unit’ of which van Loggerenberg was supposed to be a part has been called into question.

Last week Gold Leaf’s founder Simon Rudland survived an apparent assassination attempt while entering the offices of the Fair-Trade Independent Tobacco Association (Fita) in Norwood, Johannesburg.

Read: Philip Morris launches first Africa store to spark alternative cigarettes demand

CCTV footage shows Rudland and a companion entering Fita’s front gate in a Porsche when a white VW pulls up behind and a gunman fires several shots at the car. Norwood is covered with CCTV cameras operated by local firm CAP Security, so there will be plenty video footage of the shooters’ vehicle and its escape route. Rudland was struck three times, but miraculously survived. After a brief visit to hospital, he was discharged and immediately returned to his home in Zimbabwe.

Gold Leaf has offered a R10 million reward for information leading to the conviction of the attackers.

Rudland is quoted in News24 as saying he is 100% sure the hit came from one of his fellow Fita members.

Fita is a tobacco association with eight registered members, including Gold Leaf, Afroberg Tobacco, Amalgamated Tobacco, Carnilinx, Protobac and Folha.

Rudland cautioned about comments

Fita chair Sinenhlanhla Mnguni distanced himself and his organisation from Rudland’s comments. “We have discussed with Mr Rudland the issue of comments attributed to him in the media regarding the incident on August 14, 2019 [where he says a fellow Fita member must have arranged the hit]. He is rightfully upset given the circumstances, but we have cautioned him against making bold public statements at such an early stage in the investigations into the shooting incident.

“Mr Rudland has expressed to us that he simply wants whoever is responsible for the cowardly act perpetrated against him and his attorney to meet the full might of the law. In this regard we give Mr Rudland our full support and backing collectively as an organisation. At this stage we have decided to just allow the police to conduct their investigations in relation to the aforementioned incident. We want whoever is responsible for this senseless and evil act to be apprehended and prosecuted swiftly,” says Mnguni.

He adds that most of Fita’s members have business interests outside of the tobacco industry, and that this, together with other factors would make it “too simplistic to limit the incident as emanating from within the industry despite its history”.

“We continue to maintain that the police should be allowed to conduct their investigations, and any comments in relation to the shooting at this stage are merely speculative.”

An industry with ‘strong’ and ‘colourful’ characters

There are also claims that fellow Fita members were unhappy about loss of market share after Gold Leaf lowered prices on certain brands of cigarette. This, too, is disputed by Mnguni. “Our members regularly sit around the table and the discussions are generally robust in nature. These are all strong characters, but at the end of the day they all come to an agreement on the way forward. Never have I once seen threats being thrown around by our members.”

Mnguni concedes that the industry is populated with “colourful characters” who don’t always agree on things. Fita represents many of the smaller manufacturers, though Gold Leaf is reckoned to have grown to the point where it will soon rival some of the bigger players, such as BAT, who are members of the Tobacco Institute of Southern Africa (Tisa).

Gold Leaf brands include Voyager, Sharp, RG, Savannah, Chicago and Sahawi, which are priced at the lower end of the price spectrum. Smokers are paying excise of R16.66 a packet of 20 cigarettes, making a massive annual contribution to the fiscus.

Outlaws

One thing is for sure: cigarette manufacturing is big business. Fita says it has been assisting Sars in clamping down on cigarette smuggling from Zimbabwe, Botswana and Mozambique, and has thrown its weight behind efforts to rid the sector of outlaws.

Tisa estimates sales of about 30 billion cigarette sticks a year in SA, with one third coming from illicit trade. The legal industry contributes R17 billion a year to the fiscus in excise and value-added tax. Mnguni says Fita members paid R4 billion in excise to the fiscus last year, and have gone a long way in cleaning up the image of the sector (though last week’s assassination attempt will not have helped in this regard).

Sars is losing R8 billion a year due to the illicit cigarette trade, says Tisa. The tax agency recently put out a multi-billion tender for the tracking and tracing of cigarettes as part of a campaign to clamp down on the illicit trade, though Tisa says this is a high-tech system that will impose excessive and impractical regulatory burdens on small retailers, which account for 80% of cigarette sales in SA.

“The system specified in the tender will capture only the legal market and could drive illicit trade up further,” said Francois van der Merwe of Tisa in a statement. “Tisa is acutely aware of the urgency of reversing the phenomenal growth of the illicit tobacco trade since the disastrous [former commissioner] Tom Moyane era at Sars and we applaud the revenue service’s determination to do so. We have already seen some positive results from new Sars crackdowns and tax revenue seems to be stabilising for the first time in many years.”

Tisa says cigarettes are the world’s most illegally traded consumer product, and cost the SA fiscus more than R40 billion in lost revenue between 2010 and 2018.

“This is due to the illegal industry’s high-profit margins, because of the non-payment of taxes, relative ease of production and movement and low detection rates and penalties. The World Health Organisation (WHO) estimates that approximately 600 billion counterfeit and contraband cigarettes are sold annually, accounting for more than 10% of global cigarette sales,” says Tisa, adding that organised crime is behind the illegal trade in cigarettes, and that this is used to fund drug smuggling, human trafficking and other serious crimes.

Friction

Relations between Tisa and Fita are less than cordial. In a recent press release, Fita bemoaned the fact that government had invited a delegation from BAT – and no other manufacturers – to provide input on the proposed Tobacco Amendment Bill, which is expected to introduce plain packaging for cigarettes, and rope e-cigarettes under the same legislation as tobacco.

A statement from the portfolio committee on health says other interested parties may also be invited to provide input.

There is a scene from the film Thank You for Not Smoking where a cigarette executive is lambasting his team for falling sales:

“We sell cigarettes,” he says. “And they’re cool, and available, and addictive. The job is almost done for us.”

Cigarette sales in SA are doing fine. The number crunchers at National Treasury know this. Yet the white coats at the Department of Health want people to stop smoking. The schizophrenia at the heart of government policy could not be starker. If everyone were to give up smoking, Treasury would have to find another R17 billion a year from elsewhere. In other words, they are delighted that smokers exist and are addicted.

Judge overturns his suspension of the previous Nuclear Energy Corporation board. From Moneyweb.

The Pretoria High Court on Friday overturned former energy minister Jeff Radebe’s suspension of the then SA Nuclear Energy Corporation (Necsa) board in December last year.

Read: Nuclear company burns through six CEOs and two chairmen in seven months

It means Dr Kelvin Kemm is to be reinstated as chairman, and Pamela Bosman as head of audit and risk. Legal experts say the effect of Friday’s judgment is that the current Necsa board is dissolved. This flows from other court judgments, notably the 2017 judgment in Popo Molefe against the Minister of Transport, where the court found the minister had unlawfully removed the former board of the Passenger Rail Agency of SA (Prasa). The subsequent appointment of a new board is therefore also illegal and its decisions are subject to review.

Read: Axed Necsa board blames resistance of ‘privatisation by stealth’ for dismissal

The status of former Necsa CEO Phumzile Tshelane is less certain, as the court found that the minister was within his rights to suspend Tshelane pending a disciplinary hearing, which is still ongoing. However, lawyers for the suspended board members say all decisions taken by the board since December last year are unlawful and must be reviewed. That being the case, Tshelane must also resume his position as CEO.

Read: Nuclear chair resigns as governance crisis boils on

The grounds for suspending Tshelane were substantially similar to those used to dismiss the board, which makes his suspension equally suspect, Tshelane told Moneyweb. “The effect of this damning judgment is that Necsa currently has no board in place. Further implications are that the decisions that the unlawfully appointed board makes and has made stand to be reviewed and set aside.

“This judgment makes it clear the former minister was drunk on his power and went on a frolic of his own, with plans to unlawfully change a sitting board before he had properly engaged with it.”

Nehawu (the National Education, Health and Allied Workers’ Union) and the suspended board members say the minister’s “destructive” intervention at Necsa had cost it at least R500 million in lost revenue, which it is now attempting to recover from the state.

‘Numerous irregularities’

The judge found numerous irregularities related to all three suspensions, not least of which was the fact that none of the suspended board members was given a proper opportunity to reply to Radebe’s accusations of “defiance and ineptitude”.

In the case of Kemm and Bosman: “I find the minister did not consider their written representations before making a decision to remove them as directors of Necsa,” wrote Judge AJ Mtati.

Within an hour of receiving over 2 000 pages worth of documents requested from the suspended board members, Radebe had sent out termination letters to Kemm and Bosman. “Once again, in these letters [of termination], the minister does not deal with each response raised by the applicants [Kemm and Bosman] but comes to a generic all-encompassing response emphasising his dissatisfaction about the performance of Kemm and Bosman,” wrote Mtati.

The court adds that a careful reading of the minister’s correspondence shows that he had already made up his mind to axe the board as early as November last year.

While the minister had every right to be frustrated over the shutdown of the medical production line at subsidiary NTP, he did not follow the legal processes.

Accusations

Radebe had specifically accused the suspended board members of unauthorised foreign travel by senior scientists and managers, dissemination of false information to the media, unauthorised increases in remuneration, the months-long shutdown of the NTP medical isotope production facility, and the “unlawful” signing of a memorandum of understanding with Russian nuclear healthcare company Rusatom.

The Companies Act requires the state, as shareholder of Necsa, to raise issues of concern with directors. Radebe called a meeting in Cape Town on November 28 last year, which went on for just 20 minutes. “This meeting cannot be viewed as an intention to comply with provisions of section 71 of the Companies Act,” reads the judgment. There was no proper notice given to the directors and no agenda was provided ahead of the meeting.

Radebe instructed Kemm to bring the entire board to Cape Town, at a cost of R60 000, for a 20-minute meeting.

Zolani Masoleng, Nehawu branch chairperson at Necsa, welcomed the court finding as the first step in bringing stability back to the company.

Vindication

“This judgment vindicates our long-held position as the union that [former minister] Jeff Radebe has been nothing but a disaster to the nuclear industry in general and Necsa in particular. His intervention at Necsa was not in the interests of the organisation and SA at large but appears more to advance his own agenda and those of a clique-pursuing self-interest,” says Masoleng.

“He interfered with corporate governance when he among others undermined the Necsa board and directed that its subsidiary NTP report to him directly. It is also therefore no coincidence that the board he appointed in December 2018 embarked on a misguided path to retrench 400 employees, planned to sell some parts of Necsa and were reversing the transformation gains achieved through the years.

“In light of this judgment and our submission to the ministry, we are making a call to the Minister of Mineral Resources and Energy to sack the current Necsa board and institute a full-blown investigation on the intellectual property of Necsa that has found its way into private hands without any benefit to Necsa, and whether there are no deliberate acts of sabotage taking place in the organisation.

Necsa’s downward spiral ‘engineered’

“We further call on the minister to interrogate the role played by his officials at [the Department of Mineral Resources and Energy] in engineering this unlawful conduct.”

Masoleng says the company has been reduced to a financial wreck as a result of Radebe’s actions.

“Had Radebe left the company alone, it would not be in this position. What consequences are there for rogue ministers who go around on a campaign of destruction like this?”

Prior to Radebe’s intervention, Necsa was a profitable company, winning awards and accolades from the Auditor-General for its clean audits (under Pamela Bosman) and from the Institute of Directors for its good governance.

Two years ago Necsa made a profit of about R300 million and paid tax of R80 million to the state.

In the last six months, the company has burned through no fewer than six acting CEOs and two chairmen. Its radiochemical plant has been shut down multiple times in the last 18 months, mostly for non-compliance with safety procedures.

Disciplinary proceedings

Necsa’s chief legal advisor Vusi Malebana is now under disciplinary proceedings after being suspended by the current board for publicising governance and legal lapses to the minister, Nehawu and other parties. Necsa acting CEO Ayanda Myoli launched the disciplinary hearings a week ago. He accused Malebana of disseminating confidential and misleading information to Nehawu and others relating to, among other things, alleged plans to retrench workers. Malebana is seeking to interdict the disciplinary hearing and says in an affidavit to the court that he was acting within the law and that all information disclosed was protected by law.

Some at Necsa believe the latest court finding against Radebe takes the oxygen out of this attempt to bring Malebana to heel. In terms of the court finding, the acting CEO may have to vacate his chair within a matter of days and any decisions he has taken will be reviewed.

In response to a statement issued by Malebana last week claiming further irregularities at the nuclear company, Necsa issued the following response: “Necsa is aware of a media statement circulating on social media, however the authenticity remains unverified. Furthermore, Necsa wishes not to be drawn into commenting publicly on employer-employee contractual issues. It will therefore not add its voice on this particular document.”

Necsa subsidiary NTP produces life-saving nuclear isotopes that are used worldwide in the treatment of cancer. In a recent public meeting, new mineral resources and energy minister Gwede Mantashe berated those responsible for the repeated shutdown of the medical production and warned that the company was losing market share internationally.

The best example of which is Curro. From Moneyweb.

Curro just released its interim results for the half year to June 2019 and the figures tell a story of a company that has prospered at the expense of an overburdened public education system.

Read: Curro to invest R223m in four new campuses

Not all public schools are terrible. Several rank among the best in terms of matric pass rates, and the better resourced public schools are able to match the academic achievements of the private sector. But Curro and other independent schools are clearly filling a gaping hole left by an overstretched and under-resourced public sector.

Figures from South African Market Insights show there are just short of 2 000 independent schools in SA with slightly more than 400 000 students. Put another way, about 8% of schools in SA are independent, accommodating 3% of the student population. The public sector has about 23 800 schools with 12.5 million students. This means the public sector is carrying a huge burden, with nearly three times as many students per teacher as in the private sector.

Read: Coding in SA schools: what needs to happen to make it work

Since 2014, Curro has grown its number of campuses from 31 to 68 and schools from 79 to 164. It has more than doubled the number of students to 57 173 over the same period, a compound growth rate of 16% a year. Not all of this growth has been from the building of new schools. It has embarked on a programme of acquiring existing schools, which can be bought at a fraction of their replacement value, and applying its proven formula of ‘add water and mix’ to get these schools to the desired rate of profitability.

Curro has ventured into poorer ‘township’ markets and appears to be making a success of this.

Its mix of schools caters for budgets from R1 900 a student per month to R10 000 a month at the top end. That is still well short of the nearly R300 000 a year you would pay to put your child through one of the top boarding schools, such as Hilton or Michaelhouse. Businesstech put together a useful series of tables to show what kind of value these top schools offer in terms of academic achievements.

Read: Curro to build more private schools in townships

One way to retain students within the Curro ecosystem up to Grade 12 is to build extra capacity in existing schools to accommodate increased student numbers at the higher grade levels. Student fall-out rates are also contained by making it financially softer on the parents and by placing students who relocate to other parts of the country in a different Curro school. The success of this strategy is evident in the drop in school leavers (excluding those who finish school at Grade 12) from 21.4% to 18% over the year to December 2018.

Investing in learner retention

Speaking yesterday at the half year results presentation, Curro CEO Andries Greyling said rather than lose students whose parents had run into financial difficulty, softer financial plans are being put in place to improve student retention. This has resulted in bad debts as a percentage of revenue increasing from 0.6% to 0.8% since 2016, but the group has been able to recover 80% of bad debts within five months of year end. Some 60% of bad debts written off are eventually recovered.

One concern is the sharp rise in debt since 2015: to R3.5 billion in 2019 from about R1.5 billion in 2015. Greyling says the group’s generous earnings margin and robust cash flows are comfortably able to service this debt. The cash flow statement shows a near doubling in finance costs to R109 million over the last six months, but this is easily covered by cash generated from operations, and the group intends maintaining an interest cover rate of about three times.

“If we look at the growth in interest, it is high, but would we do it again – yes,” said Greyling.

“The growth in our Ebitda [earning before interest, taxes, depreciation and amortisation] will easily cover this [higher interest expense].”

It was important to increase capex in schools to increase capacity at the higher grades and improve student retention through the school life cycle, added Greyling. The real earnings benefit will come as student numbers increase at the higher grades. Having expended the necessary capex to build capacity, Curro will then be able to grow revenue by building up its student numbers at the higher grades without significant increases in operating costs.

The key numbers are:

• Group Ebitda increased by 21% from R342 million to R415 million
• Schools’ Ebitda increased by 20% from R409 million to R491 million
• Headline earnings per share increased by 44% from 34.8 cents to 50 cents
• Learner numbers are up by an above-average 13% from 50 691 to 57 173
• Revenue increased 19% to R1.48 billion
• Operating expenses increased 19% to R1 billion.

Going forward, the group expects to build just five new schools in 2020 and increase its focus on building capacity at its existing schools.

A clutch of tech-savvy lenders is providing innovative financing solutions to a market neglected by the traditional lending sector, reports Moneyweb.

Banks have traditionally shied away from lending to small businesses, and this has created a lucrative gap for a new type of lending institution catering to a sector that is reckoned to generate up to 45% of GDP and employ more than half the formal labour force.

While no one was looking, these institutions have found a way to make lending to small business profitable. Banks have approached the small business sector with trepidation because of the perceived risks of default. Their credit approval processes are seen as cumbersome and approval often takes months. Credit approval requires cart-loads of documents, including financial statements, cash flow forecasts and – of course, personal sureties and collateral.

Read: How government can achieve its ‘entrepreneurial state’ vision

As Moneyweb previously reported, SA Reserve Bank figures show that despite steadily rising personal debt levels, 34.5% of total bank credit in 2018 went to households. Less than 1% went to construction. Banks have moved away from their traditional function of lending to the ‘real’ economy, such as construction and manufacturing. A paper on finance and human rights prepared by the Centre for Human Rights at the University of Pretoria and the Institute for Economic Justice shows that most bank lending involves the recycling of already existing assets, rather than loans to new businesses. Clearly, a new approach is needed.

Read: Finance dominates SA economy, and that’s a problem

Most entrepreneurs pour their life savings into their businesses, and lack the kind of net equity required for bank lending. Yet their businesses are generating decent monthly cash flows which could be used to service debt for expansion or working capital.

The new lending institutions are sometimes called fintechs because of their use of technology to handle the onboarding, application and credit scoring processes involved. They have shredded the conventional banking model by making it possible to sign up in minutes and get loan approvals within 24-48 hours.

Flexibility

One of them is Merchant Capital, which started six years ago and has since lent more than R1 billion to over 5 000 clients. What’s attractive about its business model is that repayment is not term based, so the borrower can pay back in six months or six years and this doesn’t change the cost of the product, which is fixed and agreed upfront. Each time the business swipes a card through its point of sale terminal, a small percentage of that goes to the lender for repayment of the cash advance.

“We look at the entrepreneur’s previous monthly turnover, which we use as a proxy for future turnover allowing us to discount their future turnover in exchange for an upfront lump sum,” says Merchant Capital CEO Dov Girnun. “So, for example, if the cash flow projections show that the company will make R100 000 over the next 12 months, we would discount that and advance an amount of say R80 000.

“In our experience, small businesses use the funds for anything that will be additive to the growth of their business: to hire more employees, buy new equipment, refurbish their store or buy more stock. They can even use them for marketing. They don’t necessarily have to be elaborate plans, but each funding step is crucial to the next.”

Merchant Capital CEO Dov Girnun says small businesses tend to use the funds for anything that will be additive to the growth of their enterprises. Picture: Supplied

Once 70% of the loan has been repaid, the borrower qualifies for a new loan on the same terms or better. Four out of five borrowers come back for second or third loans as their business expansion requires. The typical client is in the retail sector, with monthly turnover of R200 000 to R1 million. Most loans are repaid within 12 months. In 2018 Merchant Capital saw new client growth of 150%.

“Business expansion is a phased process, and banks don’t really understand this. Growing businesses need cash injections at various stages in their expansion, and our business model caters for that,” says Girnun.

The cash flow imperative

Another of the new generation lenders is Bridgement, which offers a similar easy-access loan facility to businesses. It says cash flow is one of the critical bottlenecks impacting businesses, and can affect the company’s ability to pay creditors, salaries, raw materials and other expenses – including tax.

Hence, the growing demand for this type of fast turnaround, uncomplicated lending.

Merchant Capital’s loan default rate is in the low single digits, which is lower than those of the major commercial banks. Standard Bank recognised the potential of this new approach and acquired a strategic equity stake in the company, which now offers its Merchant Capital Advance product to Standard Bank clients with a Standard Bank point of sale device. Rand Merchant Investment Holdings, which has substantial interests in OUTsurance, Discovery and MMI Holdings among others, bought a 25.1% stake in Merchant Capital in 2015.

Read: Banks waking up to fintech threat throw billions into digital

Another fintech servicing the small business sector is Retail Capital, which offers a repayment model similar to Merchant Capital. Borrowers are required to have a card-based turnover of at least R30 000 a month and must have been trading for at least six months. The funding is unrestricted, which means business owners can use it for whatever needs they may have, such as working capital, stocking up for a busy period, advertising, remodelling, expansion, paying taxes and more. Roughly 80% of loan applications are approved, and 70% of successful applicants come back for additional loans. Once you have been approved as a client, loans can be approved in 24 hours.

Another fintech, JSE-listed Transaction Capital, focuses on the alternative financing and minibus taxi markets, and grew its headline earnings by 17% to R363 million in the half year to March 2019.

This segment of the lending market is unregulated, prompting the establishment of the South African SME Finance Association (Sasfa) in 2017 to self-regulate industry standards and ethics. Girnun says part of Sasfa’s mission is to educate entrepreneurs on the types of products now being offered to the market, and to ensure that they understand the mechanism of repayments and the benefits and risks.

Read: SA to get fintech innovation hub

Other members of Sasfa include Cash Flow Capital, Bridgement, Lulalend, FundingHub and AirAdvance, all of which offer variations on the type of lending described above. Tweet

It lends to the poorest of the poor and has created close to 200 000 jobs. How does it do it? From Moneyweb.

All major banks have at various times attempted to tap the low end of the banking market, and all – to a greater or lesser extent – have withdrawn from it. Most are involved in payroll-based lending to the low income market, but outside of that have failed to make this a viable business.

Their lending models rely on proof of income and collateral, something the poor simply do not possess.

One lender that has upended the conventional banking model is the Small Enterprise Foundation (SEF), a South African micro lender modelled on the hugely successful Grameen Bank in Bangladesh.

Founded in 1992 by John de Wit and Matome Malatji, it has disbursed R8.7 billion in loans to people who do not qualify for traditional bank loans – and created 200 000 jobs in the process.

The percentage of its portfolio at risk is just 0.2%, a fraction of that of the very best of the commercial banks.

Overall, about 3% of SA banks’ combined loan books are non-performing, according to a 2018 PwC analysis of the banks. Last year Capitec, which has the highest exposure to unsecured lending among the commercial banks, reported a 12.2% provision for doubtful debts as a percentage of gross loans and advances. Figures from the National Credit Regulator show unsecured lending has multiplied four-fold to R200 billion since 2009. Unsecured lending grew 21% last year, a rate of growth that should be a cause for concern. Nearly four of 10 South Africans qualifying for credit have impaired records.

Shining in a troubled sector

How does SEF manage to shine in a sector where others have burned their fingers? Borrowers are introduced by existing and trusted clients, which serves as the first line of credit defence. They are then allocated to a cell of five or six other borrowers. Every member of the cell undertakes to cover the loan repayments of the others. This peer pressure keeps cell members honest and ensures loans are recovered.

SEF targets not just the poor, but the ultra-poor: those who live below the poverty line.

What really differentiates SEF from other lenders is that it is not trying to make a profit. Surpluses are ploughed back into new loans and a highly effective poverty reduction programme that involves financial education and savings mobilisation.

Getting the poor started

“What we do is get the poorest of the poor started on their journey in business,” says de Wit. “But it is not good enough just to lend money without also providing the tools and education that go into making a successful business.”

SEF clients have accumulated net savings of R109 million as a result of its education intervention, which is almost 25% up on the previous year.

SEF has been in operation for almost three decades and the bad debt ratio remains very low.

It started off in Limpopo, but now offers loans in seven of the country’s nine provinces (the Western Cape and Free State are not yet covered). What’s also interesting about SEF’s business model is that it actively seeks out borrowers through a network of nearly 600 loan development facilitators.

The average loan size is about R4 000, and 84% of clients re-borrow after paying back the initial loan. The average rate of interest is 32% a year, which is well within limits defined under the Usury Act.

Bear in mind that SEF is targeting what is generally considered the highest risk segment of the market. Some 99% of borrowers are poor, black women.

There are some astounding success stories.

Some micro entrepreneurs have gone on to run decent-sized businesses, including furniture factories and fleets of taxis.

The major banks that tiptoed around unsecured lending have seen decent improvements in credit loss ratios in the last three years: the ratio was 0.73% for Absa in 2018, 0.8% for FirstRand, 0.53% for Nedbank and 0.56% for Standard Bank.

Traditional banks’ business models, based as they are on collateral and legal processes to recover debts, have been unable to crack this market.

Hands-on approach

At the first sign of trouble, SEF facilitators contact the borrower and see what intervention is required to get the borrower up to date on repayments. In some cases, payment obligations are rescheduled, particularly where the client is unable to meet payment obligations due to long-term illness. Rescheduling can hide a lot of poor quality lending, and is regarded as something of a last resort. It is this flexibility and hands-on intervention that makes the difference between success and failure in the micro-lending market.

The unsecured lending boom took off in earnest in 1993 with the amendment of the Usury Act, which lifted the ceiling on interest rates with the express intention of stimulating lending to the poor. This contributed to the collapse of African Bank (now back on its feet again) and battered retailers such as Stuttafords and Edcon. At the other end of the scale, SEF has shown what can be done with a fresh approach to lending and debt recovery.

“There is a way for banks to get involved in this market and make it work,” says de Wit. “We would be willing to collaborate with them and share our hard-won knowledge. But our experience tells us they cannot ditch their traditional approach to lending, which involves credit assessment and collateral. Probably a better way for them to participate in this market is to give us the money to lend on their behalf.”

InvestSure had made payouts on nine events in the past year, including those related to MTN, Tongaat and EOH. From Moneyweb.

InvestSure was started a year ago by two entrepreneurs, Shane Curran and Mbulelo Mpofana, to provide insurance cover to shareholders against allegations of management fraud or dishonesty.

Curran is a chartered accountant, and Mpofana has a degree in actuarial science. They were introduced to each other by reinsurance company Hannover Re, which has thrown its financial and technical might behind the company.

Given what has been happening just this year in terms of corporate scandals, this looks like a gold mine. There are other hedging products that protect against a decline in share price, but none that specifically protect against claims of fraud and dishonesty.

The investment fraud insurance product is a world first and will soon be offered to the international market.

The insurance pays out on allegations of fraud or dishonesty. Bear in mind that it often takes years for actual fraud or dishonesty to be proven. It offers insurance on 123 Johannesburg Stock Exchange (JSE) stocks, and the timing of InvestSure’s launch could not have been more fortuitous, with multiple corporate scandals fanning shareholder fears of more to come.

To date, 6 500 shareholders have bought insurance and the company has paid out on nine events, including MTN’s well-documented troubles in Nigeria, Tongaat’s announcement that it will have to restate its financial results, and allegations of corrupt public sector contracts at EOH.

The cost of the insurance is 0.6% of the share value and is valid for a year. A payout requires a minimum 10% move in share price over two days. The company itself flags claimable events on its website, and payouts are made within a minute or so of a valid claim being made, says Mpofana.

The product is offered on the Easy Equities share trading platform, but will soon be available on other platforms.

What shares are currently hot for the insurance fraud product?

Capitec, Discovery, Naspers and Dis-Chem, says Curran. MTN was a big hit several months ago, and remains a favourite for those looking for insurance protection.

“I think there is a general nervousness about the potential for fraud and dishonesty in the market because of the number of corporate scandals we have read about over the last few years,” says Mpofana. “People are taking out insurance on some very respectable companies as an additional layer of protection.”

The product does not cover losses due to macro or micro economic factors, political risks or any general business risk such as failure to execute a business plan or meet estimates or market expectations. Directors and their immediate family who hold shares in the company in which they are directors do not qualify for the cover.

Buyers of the insurance can keep an eye on the InvestSure newsboard to see what events are being flagged and whether there has been a payout.

It is important to note that a payout for allegations of misconduct is not proof of misconduct, says Mpofana.

“Once we notify clients of a claimable event, they have to sell the shares within 30 days in order to get a payout. This is paid immediately into their investment accounts.”

A sampling of the payout history

The two entrepreneurs are looking at other risks that can be isolated and insured, but for the moment have their hands full with this one.

Vultures are circling the bank. The omens are not good. This article first appeared in Moneyweb.

The South African Reserve Bank (Sarb) is a clear target for capture by politicians intent on spending their way out of trouble.

This much is clear from the debate within the ANC over expanding the Sarb’s narrow mandate to curtail inflation, and growing pressure from more radical elements in the party that want the central bank nationalised.

Read: ANC still wants central bank to be nationalised – party official

The reality is that the Sarb is already on the slow path to nationalisation, says Russell Lamberti, economist at ETM Macro Advisors, speaking at a recent Free Market Foundation debate. It started in 2010 with amendments to the SA Reserve Bank Act, which effectively gave the state a swing vote on the board of directors. Prior to that, the board was weighted 7-7 between state-appointed directors and shareholder representatives.

Read: SA determined to nationalise central bank, Ramaphosa says

The Reserve Bank Act already allows the central bank to purchase equities and properties, and to authorise gratuities and other benefits for Sarb employees. It can also make rules and delegate powers to any of its officers.

“As we have seen in Zimbabwe and Venezuela, central banks quickly become a honey pot for politicians,” says Lamberti. “Vultures are circling our central bank. Fiscal decay is a reliable predictor of monetary corruption. As things stand, the Reserve Bank could push Ctrl-P and start printing money. It has been rather restrained in recent years, but as political pressure builds, this is a very real threat.”

Former Zimbabwe president Robert Mugabe printed money with abandon when that country was unable to tax its way out of calamity. The same is happening in Venezuela.

When governments start down the path of money printing, it is highly addictive and difficult to stop, adds Lamberti.

“Inflation is running at 4.5%, but should be at zero. The goal of economic progress is to make things cheaper. That’s what the free market does.

Printing instability

“There are plenty other examples of where central banks have caused huge damage. In 2013 and 2014 the Ghana currency, the cedi, lost half its value when the central bank went on a printing spree, creating huge instability for the country.”

None of the Sarb’s new and expanded powers are particularly unique: the Swiss central bank is buying Apple and other stocks; the Japanese central bank is likewise a relatively new stock investor. What this means for SA is that the Reserve Bank is now perfectly within its rights to acquire private companies and other assets, leading to slow nationalisation of the economy, says Lamberti.

Theoretically, the bank could come under political pressure to acquire mining stocks as a form of nationalisation by stealth.

Or it could purchase Discovery Health as a way of capturing its cash flows and redistributing them to a national healthcare system.

Powers

The Reserve Bank’s powers are breathtaking in their scope. It is empowered to nationalise any payments system it chooses and can make unsecured loans. It can issue credits and guarantees, borrow any foreign currency, and set reserve requirements for commercial banks as a way of limiting their loan-making capabilities. It can also fine bankers for breaking rules, and investigate any company it suspects of being a bank.

These are very loose and broad powers that, if fully exercised, would be disastrous for the country.

The exercise of these powers would be a radical departure from the Reserve Bank’s traditional role as printer of notes and coins, and arbiter of interest rates – which it is constitutionally mandated to do in defence of the rand.

Fortunately, there are market restraints such as those imposed by the rand exchange rate (too much money expansion would devalue the currency and kill off businesses) and the commercial banks’ natural aversion to too much inflation and interest rate risk.

Commercial banks are empowered to create money through fractional reserve lending, but they generally do so prudently so as to avoid excessive bad debts. The only other source of money creation is the central bank itself, which creates physical notes and coins and creates reserves in the banking system using digital ledger entries on computers.

Current Sarb respected globally 

The Sarb is venerated among its peers around the world as a beacon of transparency and independence, and Reserve Bank Governor Lesetja Kganyago has stood his ground with wayward politicians. When an ANC official called for a team to be established to look into quantitative easing (QE), Kganyago fired back that QE can only be considered when inflation and interest rates are virtually at zero.

As the graph below shows, the last great venture into a kind of QE was between 2004 and 2011. The graph also shows a high correlation between money supply and inflation.

Soure: Macrobond, ETM Macro Advisors

The perils of QE are less obvious: the Sarb purchased almost US$40 billion worth of US bonds by creating extra rands in the banking system, sparking a credit expansion that eventually resulted in the failure of African Bank.

Lamberti argues that the Corporation for Public Deposits (CPD), which holds roughly R70 billion in public sector deposits, is already functioning as a quasi-state-owned bank. Its directors are appointed by the minister of finance, and it is empowered to accept deposits from sources outside the public sector.

The Sarb should be increasing rather than decreasing interest rates, says Lamberti. SA offers marginally positive real interest rates on bank deposits. Contrast this with the rest of the world, where there an estimated US$15 trillion is invested in bonds at negative interest rates.

Central banks gone wild

“Central banks everywhere are behaving in an unconstrained fashion by keeping interest rates as close to zero as possible, and often below zero,” says Lamberti. “That is an invitation for capital misallocation and overconsumption, which never ends well.”

He adds that there is no immediate concern in South Africa that money supply and inflation will rise. “The problem with cutting interest rates now is that it removes a barrier to credit and money creation. This discourages savings and raises consumption, which diminishes growth potential. Moreover, 4.5% inflation remains too high and hurts poor households. What households now need is deflation, not inflation.”

SA’s measurement of money is also skewed: it measures deposits in the banking system, but excludes government and foreign national deposits in SA.

Inflation measures are also prone to bias. For example, if something gets too expensive, stores stop stocking them, and these items will no longer be counted in the Consumer Price Index (CPI).

Counting this as wealth creation is misleading. From Moneyweb.

It is fashionable to point to the growth in SA’s public sector as a chief cause of our economic misery, but far less attention is paid to the finance sector, which includes banks, insurers, and pension and mutual funds.

Counting the massive financial transactions from this sector as a contribution to economic growth is dangerously misleading. What’s being counted for the most part is investment in already-existing assets rather than the creation of new ones.

Banks lend money for the purchase of residential homes, mutual funds invest in stocks being sold by someone else. It’s the same with pension funds. Already-existing assets are being traded and recycled at ever more bulbous prices.

SA’s finance sector has come to dominate the economy over the last two decades, accounting for 23% of total GDP. That compares with 15% in 1995.

How finance has taken over the economy

Source: Stats SA

Source: Stats SA

Despite its economic dominance, finance is not contributing much to economic growth, according to a paper on finance and human rights prepared by the Centre for Human Rights at the University of Pretoria and the Institute for Economic Justice.

About 85% of the business of banking in the US involves the buying and selling of existing assets rather than the development of new assets. About 65% of bank lending in the UK is for residential property, with another 14% going to commercial properties – much of which is for already-existing assets.

Banks moving away from the ‘real’ economy 

SA Reserve Bank figures show that despite steadily rising personal debt levels, 34.5% of total bank credit in 2018 went to households. Less than 1% went to construction. Banks have moved away from their traditional function of lending to the ‘real’ economy – such as construction and manufacturing – to lending to households in an “exploitative and discriminatory” manner, according to the study. That is explained away as risk avoidance and this is true, but it’s not the whole story.

Household debt as a share of disposable income grew from an average of 44% in the 1970s to a peak of 86% in 2008. Meanwhile, investment in fixed capital has dropped to 13% of GDP in 2017 from 19.3% in 2010.

In other words, GDP growth includes a hefty dose of asset price inflation, fuelled by the finance sector.

If finance has come to dominate the economy, where has all that ‘wealth’ created gone?

Much of it has gone into the pockets of finance executives and shareholders. US economist Michael Hudson, in his book J is for Junk Economics, highlights the dangers of money printing (quantitative easing) and fire-hosing this money into non-productive assets such as bonds, stocks and real estate. The end result is a bubble economy calculated to redistribute wealth upwards. He argues that the way we measure GDP is fictionalised by the inclusion of unearned income such as interest and rent paid to the ‘Fire’ sector – finance, insurance and real estate. Strip these figures out of the calculation, and our economy shrinks to a fraction of what is claimed.

The new rentier class

Hudson points out that banks have become the new rentier class – earning income from rising property and asset values they had no part in creating. For example, the building of a new highway increases the value of nearby properties, and banks automatically benefit through mortgage lending in the area. He recommends taxing that ‘unearned rent’ (or value) and using that revenue to further enhance services and productive capacity in the area, rather than hand it over to the banks.

Read: Review: J is for Junk Economics by Michael Hudson

SA has a sophisticated finance sector that displays a far greater level of financial openness than is the norm for middle-income countries, according to a PhD study by Gilad Isaacs entitled ‘Financialisation in post-apartheid SA’.

The problem is that millions of South Africans are unable to access credit of any kind, and that inequality poses a human rights problem. The conventional banking model deems the poor too risky for lending. Their credit processes require borrowers to show formal sector employment with payslips, collateral and a clean credit record. Those in the informal sector are therefore unable to acquire loans.

A model that is working

Yet one organisation, the Small Enterprise Foundation (SEF), lends exclusively to the poorest of the poor to help them establish small businesses, and has a bad debt record that is a fraction of that of the banks. Its bad debt profile is so small as to be negligible. SEF was able to achieve this by adopting a different lending model, based on peer pressure. All its borrowers must be introduced by an existing client, and they form part of a group or cell where all members of the cell take responsibility for the loan repayments of everyone else.

That’s a model that surely needs greater exploration. Banks are terrified that the kind of unsecured lending frenzy that put African Bank into administration will wash up on their shores if they are compelled to extend lending to the poor. The alternative is ‘safer’ lending for the trading of already-existing assets, and that does little to boost the economy.

The over-financialisation of the SA economy has jumped the fence to the productive sector. Companies such as Tongaat and Steinhoff decided to game the financial system for the benefit of executive bonuses and hubris. Land sales were apparently counted before there was any sign of cash, liabilities were bundled into special purpose vehicles and buried away from view.

Emasculating local labour

There is another aspect to financialisation of the economy that is subtle but more destructive than open warfare: shifting production offshore and then pressuring suppliers to reduce costs. That emasculates the bargaining power of local labour and pits them against the Chinese and Vietnamese in a highly distorted global bazaar where banks are effectively agents of state economic policy.

The inequality of SA is in large measure a product of the financial biases built into the system. The big financial players have written the rules of the game.

Back in 1990, the government amended the Usury Act and introduced a R5 a month admin charge to compensate banks for opening their lending spigots to the poor (black) customers. That was bumped up to R50 a month when the National Credit Act came into force in 2007. Yet there seems little appetite from banks to venture into the very low-income market. They’ve all tried it to a greater or lesser extent and then largely abandoned it.

This is raising pressure for the state to launch its own bank and nationalise the Reserve Bank. If that happens, expect artificially low-interest rates, credit expansion and taxpayer-funded bailouts.

The finance sector is leaving the have-nots behind. Their risk models seem incapable of lending of the kind done by SEF or, on a far larger scale, by Grameen Bank in Bangladesh.

At least 100 years, provided mines clean up their act. From Moneyweb.

The idea that coal mining is a sunset industry was put to rest at the Coal Industry Day in Johannesburg this week.

Coal’s outsized contribution to mining and the energy grid cannot be wished away, no matter how many wind turbines are erected in honour of environmental correctness.

Xavier Prévost, senior coal analyst at XMP Consulting, ran through the numbers and it’s clear coal will be here for a long time yet. Coal is found in 70 countries and mined in 50 of them. At current rates of consumption, the International Energy Agency forecasts that coal will last another 114 years, compared to 53 years for gas and 51 years for oil.

Demand

Source: International Energy Agency, XMP Consulting

China is siphoning most of the world’s coal, and this will remain the case for much of the next decade. Coal-fired power plants will provide roughly half of the energy requirements of South East Asia up to 2040, with most of the rest coming from gas and renewables.

The UK plans to exit coal power generation by 2025, and has reduced coal’s contribution to its energy grid to 5% from 40% six years ago.

Empowerment changing the landscape

Coal is arguably the most transformed sector within mining, and that in itself wins it a receptive ear from policymakers. Last year Anglo American sold its three Eskom-tied mines (Kriel, New Denmark and New Vaal) to BEE company Seriti.

Another company exiting thermal coal is South32, which has set up a 27.5 million tons a year coal business as a standalone entity. What’s driving this disinvestment is Eskom’s requirement that coal suppliers be 51% black empowered. South32 CEO Graham Kerr says Eskom’s stiff BEE requirements would leave it a minority participant in its mines, which prompted the disinvestment.

“The withdrawal of the majors from coal has opened up opportunities for BEE companies.

“It is also a way to empower workers and communities,” said Sakhile Ngcobo, director at Sibambene Coal.

New entrants to the coal sector include Black Royalty Minerals, which went from start-up to producing 200 000 tons a month, and Sibambene Coal, which is on the hunt for coal assets and aims to be the country’s largest coal group.

One of the concerns for domestic coal producers is the financial and operational mess at Eskom, the largest buyer of coal in SA. The state of the country’s ports and transport infrastructure is another risk. “I hope Eskom gets its house in order for the sake of SA,” said Ndavhe Mareda, CEO of Black Royalty Minerals.

Top five SA mineral producers, 2017-2018

Source: Department of Mineral Resources, XMP Consulting

Steam coal prices have been all over the place in the last year, another risk facing miners. Prices veered between US$50 and US$100 a ton, with the trend towards the downside for much of this year. However, recent shipments from Richards Bay are priced at around US$65 per ton.

Prices are likely to remain volatile, with some futures contracts locking in at US$70 per ton. One reason for the recent spike in futures prices is summer demand from Japan, the world’s third-largest importer after China and India, and new import restrictions in China. A surge in power demand has prompted China to restart coal-fired generation that had earlier been shelved.

Coal producers also identify environmental pressure groups as a clear threat, but this may be over-stated.

A University of Chicago study found that solar panels and wind turbines are making electricity significantly more expensive – by 17%, 12 years after the adoption of Renewable Portfolio Standards in the US. This cost consumers in 29 US states US$125.2 billion more for electricity than would have been the case in the absence of the policy. This is because power utilities have to fire up natural gas and hydroelectric plants when the wind stops blowing and the sun stops shining.

Former Harmony boss Bernard Swanepoel took a poll of how many people in attendance believe coal contributes to CO₂ emissions: 71% agreed, 29% didn’t.

Carbon tax

A second poll asked whether the newly introduced carbon tax was a positive step forward for SA. This time the result was a bit more equal: 60% voted in favour of the tax, which is small enough not to trouble most miners, but could easily be ramped up in later years. Swanepoel urged those who are climate doubters to take a hard look at the science, which was clearly settled in favour of man-made climate change. But as one delegate pointed out, the real question is whether this was catastrophic, not whether man was increasing CO₂ emissions.

Coal versus other commodities, 2016-2018

Source: Department of Mineral Resources, XMP Consulting

For policymakers, the debate is certainly settled. Coal’s future in SA will depend on its embrace of clean coal technologies. “Deploying high efficiency, low emission [HELE] coal-fired power plants is a key first step along a pathway to near-zero emissions from coal. HELE technologies are commercially available now and, if deployed, will reduce greenhouse gas emissions from the entire power sector by around 20%,” said Prévost.

Read: Standard Bank withdraws funding of new coal IPP projects in SA

Improving efficiency increases the amount of energy that can be extracted from a single unit of coal. A one percentage point improvement in the efficiency of a conventional pulverised coal combustion plant results in a 2-3% reduction in CO₂emissions.

Read: Nedbank withdraws funding for new coal IPPs

Jacques Badenhorst, CEO of Maatla Energy in Botswana, said that country’s quest for energy independence creates an opportunity to convert coal into gas for electricity generation, using similar technology to Sasol. This technology has negligible CO₂emissions.

The future of coal is secure. “Although there are other many other sources of energy in the country, they will never be able to compete with coal in price and reliability of supply,” said Prévost.