The arms manufacturer was ordered by the courts to pay outstanding salaries to workers, some dating back to 2020. From Moneyweb.
Critical strategic capabilities have been lost due to Treasury and the DPE failing to act sooner, say defence analysts and employees. Image: Moneyweb
State-owned arms manufacturer Denel has settled all outstanding salaries, as well as PAYE tax and pension fund payments, after unlocking excess funds in the Denel Medical Benefit Trust.
Denel ran into liquidity problems more than two years ago and fell behind on paying workers’ salaries. The company was taken to court by unionised and non-unionised workers to force it to catch up on outstanding payments. Revenue fell from a peak of R8.2 billion in 2016 to under R2 billion in 2022.
“We have turned an important page in Denel’s history. We can now proceed with the restructuring and repositioning of Denel as a sustainable enterprise and a valuable and strategic asset for South Africa,” said Denel chair Gloria Serobe at a press briefing on Thursday.
Riaz Saloojee, chief restructuring officer of Denel, said the company now has a clear and sustainable business case moving forward, with an order book of R12 billion – which is six times current annual revenues. There is potential to grow this order book to R30 billion, he added.
Saloojee said a streamlined Denel will focus on its areas of expertise in the fields of guided weapons, land defence systems, aircraft engineering and maintenance, and the delivery of complex integrated systems for security and cyber environments.
The new growth path is to create 1 000 jobs within three years, and 5 000 jobs by 2027.
Denel’s cash problems meant its 2 800 employees went without full salaries, some of them since May 2020.
The company was ordered to settle workers’ payments after trade unions Solidarity and the National Union of Metalworkers of South Africa (Numsa) took it to the Labour Court. A small group of (non-unionised) current and former employees took the company to the North Gauteng High Court, which ordered Denel to pay R13.2 million in outstanding pay.
Liquidity issues
In March, Minister of Public Enterprises Pravin Gordhan allocated Denel R3 billion to cover interest payments on the group’s escalating debt, but refused permission to use this for paying staff salaries.
Government provided recapitalisations to Denel of R1.8 billion in 2019/20 and R576 million in 2020/21, and extended a R5.9 billion guaranteed debt facility to Denel, according to DefenceWeb.
The loss of an Egyptian missile contract contributed to the company’s liquidity crunch.
Trust funds
Serobe said the Denel Medical Benefit Trust had an actuarial surplus of R1.47 billion in April 2022, but it took two years to unlock this funding due to the nature of the trust and the court processes that had to be followed.
The defined benefit fund was over-capitalised and it made no sense that Denel, as the trust’s sponsor company, was unable to access this surplus, she said.
Nearly R1 billion was transferred to Denel in July, allowing it to settle all outstanding salaries and associated benefits.
“The new restructuring plan supported by us as the board and the shareholder will create a self-sustaining business with a significant order pipeline,” said Serobe.
“The sale of non-core assets is well under way and together with the recapitalisation application – which the Department of Public Enterprises has applied for through the National Treasury – will address the legacy debt and the introduction of liquidity. This will immediately improve profitability, [and] enable the company to retain and appoint able skills and leadership.”
Treasury and the Department of Public Enterprises have come under fierce criticism from employees and defence analysts for failing to act earlier to prevent a crisis that has resulted in the loss of critical strategic capabilities.
The company will now focus on generating cash through the sale of non-core assets and forging new partnerships.
Denel plans to restore its operational and reputational status, providing “vital leadership to the local defence industry that exports some R7 billion of mostly advanced manufactured products per year,” said Saloojee.
Denel’s intellectual property in a rapidly changing global defence environment will create opportunities to market the company’s products and form deeper strategic relationships, he added.
Board claims damages of close to R250m from Umuthi Action Group members, led by motivational speaker Anthony Morris. From Moneyweb.
It appears that shares were being sold by some brokers and consultants without authorisation, and the proceeds never reached Umuthi. Image: Chris Ratcliffe/Bloomberg
Members of the Umuthi Action Group are being served with summons this week for roughly R250 million in damages for what Umuthi Healthcare CEO Gert Viljoen says amounts to sabotage of the company’s listing on the London Stock Exchange (LSE) last year.
Head of the Umuthi Action Group, Anthony Morris, is also wanted by members of the South African Police Service (SAPS) at the Kempton Park Police Station in relation to a charge of alleged extortion.
Umuthi is the South African company that was listed on the LSE in March last year, but trading in the shares was suspended after what the company says was a procedural error made by a consultant in releasing financial statements without consent.
That suspension was lifted when the discrepancies were addressed, but trading was again suspended when a group called Umuthi Action Group, led by Morris, raised further concerns, mainly around the claim that shares had been fraudulently sold before the listing.
In July, the LSE announced that it had discontinued the listing, without giving reasons.
Viljoen says the negative publicity from the Umuthi Action Group contributed to the LSE’s decision.
He says the company has accepted the delisting, but those responsible must be held to account. Hence, the damages claim for roughly R250 million.
Share transactions
While some share sales are claimed to be fraudulent, other buyers say they bought shares but were not issued share certificates.
Morris alleged that the fraud might be as much as R50 million, but Viljoen says a forensic audit of the share sales was undertaken, showing “99% of the Umuthi Action Group did not invest funds into Umuthi or its subsidiaries”.
Many of these shares were earned as sales commissions, but some of them as a result of fraudulent transactions conducted without the knowledge or authority of the company.
The claims of fraudulent share sales, however, led to the arrest of several individuals, including the company’s CEO Gert Viljoen, Tony McKeever and one of its consultants, Connie van Nieuwkerk.
Charges were dropped against Viljoen shortly after the arrest, McKeever was released on bail , and Van Nieuwkerk, who was arrested in relation to a separate charge, is also currently out on bail.
The problem appears to be that shares were being fraudulently sold by some brokers and consultants without authorisation by the company, and the proceeds of these sales never reached Umuthi. Those shares sold by Umuthi itself were legal.
Arrest warrant
It has now emerged that the police in Kempton Park issued a warrant of arrest for Morris related to alleged extortion. The police have yet to track him down, and he remains at large.
“He’s a fugitive from justice, and has been for months, and is intentionally delaying justice,” claims Viljoen.
“He should present himself to the police so that he can answer the charges against him and the charges to follow for his devious actions to destroy the company’s reputation and its board as part of an elaborate plan to claim from the listing advisor’s indemnity insurance.”
Morris denies the claim that he is a fugitive or that there was any extortion. “If the [investigating] detective wishes to know where I live in order to come and arrest me, he has my number and is welcome to ask,” he said via email in response to Moneyweb questions, soon after the arrest warrant was issued in February.
He further advised Moneyweb to contact the “provincial head of detectives” for verification.
He also claimed in a further communication that the investigating officer, Sergeant Mulaudzi of the Kempton Park Police Station, confirmed that the warrant was in the process of being cancelled and that it would not be executed.
Last week we contacted Mulaudzi at Kempton Park Police Station. The warrant is still very much alive, we were told.
“Where is he? Why doesn’t he come to the station?” said Mulaudzi.
“He knows we are looking for him.”
Anthony Morris, head of the Umuthi Action Group, denies that he is a fugitive. Image: Supplied
When we asked for an official SAPS statement on the matter, we were referred to the investigating officer, Mulaudzi.
In April, senior public prosecutor PF Erasmus also notified Morris that a warrant for his arrest has been issued.
Vassan Soobramoney of the central crime intelligence unit of the SAPS – who is named as an accomplice in the alleged extortion – told Moneyweb that there is no basis for the charge and agrees with Morris that the warrant of arrest, apparently based solely on the statement of the complainant, was irregularly issued.
As to the claims that the warrant was irregularly issued, Viljoen says: “Soobramoney and Morris can only speculate about the contents of the police docket and should leave the matter to the authorities in charge.”
On the Umuthi Action Group social media forum, Morris pours scorn on the detectives, prosecutor and even members of the group, several of whom have resigned.
Extortion charge
The charge of extortion against Morris stems from a meeting at Emperor’s Palace Casino in Kempton Park, east of Johannesburg, on 2 March 2020, where Viljoen met with Morris and Soobramoney.
“I was present at the meeting at Emperor’s Palace as part of an intelligence-gathering operation,” Soobramoney told Moneyweb.
“I wanted to find out whether Tony McKeever and Connie van Nieuwkerk were authorised to sell shares in Umuthi, and Gert Viljoen informed me they were not. Anthony Morris was there to find out why investors he had introduced to Umuthi had not been issued share certificates. Morris had been promised shares for introducing some investors, and without blinking, Viljoen said he would honour those shares. There was absolutely no attempt to extort shares from Umuthi.”
What appears to have happened is that Umuthi shares were being sold ‘off book’ and without the consent of the company.
Morris says the purpose of the meeting at Emperor’s Palace was to ascertain the status of the shares issued to his cohort, and adds that no extortion took place.
Viljoen has an entirely different recollection of that meeting: “I was present at the meeting at Emperor’s Palace, of all places, as part of an invite from Morris who I met for the first time to discuss business opportunities. Present in the meeting without prior notice Col. Soobramoney from Crime Intelligence bombarded me with queries about Connie and Tony, asking if they were employed by the company, and adding that there was an open investigation into the matter at the SAPS. Morris made [it] clear that they are intending to involve the media and that will halt the listing process of Umuthi in its entirety.
“I took this extremely seriously, particularly in the presence of Soobramoney from the SAPS.”
Viljoen says he consented to this alleged extortion and, to avoid negative publicity prior to the listing, issued Morris and his cohort 1.26 million free shares in Umuthi.
It later transpired that there was no case registered at the SAPS.
Soobramoney, who was involved as a lead investigator into allegations of corruption around KwaZulu-Natal businessman Thoshan Panday, says he has been medically boarded (placed on medical leave) due to a heart condition.
Viljoen and McKeever say the reputational loss and damage suffered to the company was orchestrated by Morris, who amplified false claims of people committing suicide due to the financial loss surrounding the listing.
“Furthermore, claims that investors lost R50 million are a complete fabrication. These were and are false claims that destroyed the listing process,” says Viljoen.
Claims of impropriety
While the Umuthi listing has been discontinued, Viljoen says the information required by the LSE for addressing the suspension has been supplied, and any questions of alleged impropriety have been put to bed after an investigation launched by the board and by IRS Forensic Investigations.
He says these investigations found there was unlawful selling of Umuthi shares, but this occurred outside the company and is a matter for law enforcement, not the company.
In some cases, shares were lawfully purchased, and share certificates were not issued due to delays caused by Covid-related lockdowns. This has been corrected, and the share register now accurately reflects Umuthi’s share ownership.
Key piece of evidence
A key piece of evidence in the claim of impropriety against Umuthi is an accounting opinion drafted by Michael de Lange who was a member of the Umuthi Action Group. The report, which was subsequently withdrawn, was compiled without access to source documents or the accounting assumptions used in the audit.
“Anyone is welcome to have an opinion. Fortunately listing requirements are audited reports,” says Viljoen.
De Lange’s resignation letter from the Umuthi Action Group, which was passed on to Moneyweb by a member of the group, prohibits Morris from using any information provided to him.
“… I do not agree nor support the media strategy and website that has been created nor the slanderous publications posted by you,” reads the letter. “I fully support the pursuit of justice but believe this must follow the correct channels … I cannot and will not provide you with funding to flee the country and I advised you not to flee the country as it will make you look even more guilty.”
Viljoen says the company will not appeal the discontinuation of its listing, and a number of other possibilities for the company are being explored.
But he has no intention of letting it rest there.
Viljoen says the alleged damage caused by Morris and his group is said to run to about R250 million and is now the subject of legal damages claims against Morris and his dwindling group.
Official deposing for the bank was found to have made false allegations against the homeowners. From Moneyweb.
Judge Jacqueline Henriques said the bank failed to disclose key bits of evidence, such as what efforts were made to find alternative means of settling the debt without taking the drastic step of selling the home in execution. Image: Naashon Zalk/Bloomberg News
In a home repossession case before the KwaZulu-Natal High Court, Standard Bank was blown out of the water with a damning judgement handed down on Thursday (4 August), when it was found to have made false allegations against a couple who stood to lose their home after falling into arrears.
In unusually stern language for a case such as this, Judge Jacqueline Henriques said she was referring the matter to the Legal Practice Council and to the Ombudsman for Banking Services.
Judge Henriques said the bank failed to disclose key bits of evidence, such as what efforts were made to find alternative means of settling the debt without taking the drastic step of selling the home in execution.
Standard Bank claimed it made eight telephone calls and sent SMSs to the homeowners prior to launching legal proceedings, but provided no supporting documents to prove this.
A supplementary affidavit from the bank suggests the only efforts to resolve the matter occurred after summons was served before the court on 1 February 2022.
Failing to disclose payments
The bank also failed to disclose certain payments made by the homeowners to settle the arrears.
“Given the serious nature of these proceedings and the fact that defendants stand to lose their primary residence, one would expect a deponent to the affidavit to disclose all circumstances and to accurately disclose the circumstances in a founding affidavit,” reads the judgment.
“To say that this was a discrepancy pointed out by the court is factually incorrect and may well amount to an act of perjury. The deponent to the affidavit clearly deposed to an affidavit concerning allegations which were not true.”
The bank was found to have served summons on a post box owned by the homeowners, rather than in person, as is required by South African courts.
Where the bank is seeking default judgment as a prelude to repossessions of a person’s primary residence, summons must be served in person.
Lungelo Lethu Human Rights Foundation, which provides defence against unlawful evictions, says it has dozens of cases on file of neighbours and children being served summons by major banks, and in many cases where the arrears are proven to be fictitious.
The only time the homeowner finds out about the legal action is when a new owner, who generally acquires these properties at auction for a song, arrives to evict them.
In this case, Standard Bank was claiming arrears of R93 606, and on this basis was attempting to call up an outstanding loan of R382 000. It served summons on the couple with a view to executing on the property (selling it via a sheriff’s auction).
Judge Henriques also berated the lawyers involved in the case on behalf of the bank for failing to make full disclosure of the facts before the court, as required in terms of rule 46A of the court rules and Section 26 of the Constitution which guarantees the right to adequate housing.
Also lambasted in the judgment was the bank’s home loans legal manager, Joy Ngcobo, who was found to have made incorrect statements to the court. The judge disagreed with her claim that these were discrepancies.
“The attorneys were either remiss or negligent in their obligations not only to the court but to the bank official to ensure that she deposed to an affidavit which was factually correct,” reads the judgment.
“The conduct of the attorney and bank official is to be deprecated and the only suitable way apart from refusing the application is to ensure that the costs of the application not be recovered from the debtors or levied by the attorney of record,” it adds.
Standard Bank’s application for default judgment was dismissed, and the case referred to the Legal Practice Council in KwaZulu-Natal as well as the Ombudsman for Banking Services.
Responding to a Moneyweb request for comment, Standard Bank said in a brief statement that it has noted the judgment and is reviewing the matter.
An interesting battle has been playing out … From Moneyweb.
A corps of Ethereum faithful believe Ethereum could soon surpass Bitcoin in value, an event known as the ‘flippening’. Image: Shutterstock
It takes some stomach to watch Ethereum (ETH) go through its characteristic gyrations.
Drawdowns of 80% are apparently coded into its DNA. That’s about how much it dropped between November 2021 and June 2022, when it bottomed around $1 000. It then promptly bounced 60% to trade at $1 600 this week.
Gold, meanwhile, remains relatively steady at $1 800/oz, proving once again its resilience in times of tempest.
ETH is the second largest crypto by market cap, currently worth $194 billion, less than half the size of bitcoin’s (BTC) market value of $432 billion.
An interesting convergence between ETH and gold is playing out, as shown in the chart below. ETH and gold have crossed paths numerous times over the last two years.
Those in search of safety should probably stick with gold, but there is a corps of ETH faithful who believe the time may not be far off when ETH surpasses BTC in value, an event known as the “flippening”. It would first have to break the “gold barrier” at $ 1800.
ETH v gold
Source: TradingView (Eth = Blue; Gold in USD = yellow)
The optimism surrounding ETH is driven by its move to a more energy-efficient form of mining known as proof-of-stake (PoS), which happens next month. This upgrade, known as the Merge, has been years in the making and will remove bottlenecks and allow it to scale more easily.
There’s a lot riding on this upgrade, given the number of related crypto projects perched on the Ethereum blockchain.
There are close to 200 decentralised finance or DeFi projects – think of them as types of crypto-backed banks – on the Ethereum blockchain. It also forms the backbone for most non-fungible tokens (NFTs), which is a growing marketplace for digital assets, as well as tokens such as Chainlink (LINK), Tether (USDT), Binance Coin (BNB) and the USD Coin (USDC).
The chart above shows some degree of correlation between ETH and gold, though ETH has a tendency towards parabolic moves, both to the upside and downside.
Commodities analysts have been anticipating a move in gold for several weeks. Even CNBC’s Jim Cramer is warming to gold, even though it’s been flat for the best part of a year.
“Last year, we had rampant inflation, and gold didn’t do much for you. I thought the culprit was crypto. That people who normally hide their money in gold were instead buying cryptocurrencies,” said Cramer.
“This year, the whole crypto ecosystem has collapsed. Meaning that gold doesn’t have much competition,” he added.
“And we’ve gotten insanely high inflation readings, the worst in decades. Yet gold is basically flat for the year.”
Legendary technical analyst Larry Williams discovered that gold tended to track oil price moves with a delay of about eight weeks. That being the case, gold is due for a rally.
Another indicator in favour of a gold rally, according to Cramer, is the relatively small number of trading positions that are currently long gold.
Historically, this has been a time when gold has rallied. There are currently 92 690 long positions for gold, the lowest it’s been since May 2019. When gold was at its peak above $2 000/oz in March this year, there were 200 790 long contracts, the highest it has been in four years. That was followed by a drop in the gold price.
Both ETH and gold appear to be lining up for a move up.
The only question is whether this is a sustained move, or a bull trap?
The lockdown was the ‘devil in human form’. From DearSA.
The best study we have says lockdowns pushed nearly half of informal sector operators out of business
The best data we have says just half of informal entrepreneurs remain in business post-Covid.
That’s despite all the hoopla from government about extending financial support to small entrepreneurs. A more ham-fisted policy concoction could scarcely be conceived: to receive government support, informal sector entrepreneurs were expected to transition to the formal sector by registering with an alphabet soup of regulatory agencies, from SA Revenue Services (SARS) to the Companies and Intellectual Property Commission (CIPC) and municipal licensing authorities.
The take-up of this government largesse was miserable. Just 12% of informal sector entrepreneurs surveyed by the Small Enterprise Foundation (SEF) were willing to formalise their business to get some of this government money.
Small businesses shuttered by government-mandated lockdowns were promised R200 billion in loan support to tide them through the crisis. President Cyril Ramaphosa promised 700 000 small businesses would be assisted, but in the crucial first few months of the crisis, just 10 000 received any form of support.
Compare this with the 184 000 loans made by developmental microfinance groups in the months following the lockdown to ensure small entrepreneurs could remain in business and support themselves and their families. The loan amounts are often tiny, but enough to buy stock or equipment needed to remain in business.
The following chart from the Small Enterprise Foundation (SEF), which extends loans to small-scale entrepreneurs and has 180 000 active loan clients on its database, paints a disturbing picture: the number of its clients still in business has dropped by almost a half post-Covid.
“This is disturbing,” says John de Witt, founder of SEF. “The informal economy got hit hard by the lockdowns. We thought it would bounce back when the lockdowns were lifted, but that has not been the case. The success of our clients depends on what happens with their customers. Initially, informal sector entrepreneurs could rely on savings, or family members, so they were able to keep going. But this could only go on so long. Remember, two million people lost their jobs during the Covid lockdowns and are still unemployed. A huge majority of these are low income people, and they would be the typical customers of our clients.”
The following chart, also from SEF, shows how business value among informal sector entrepreneurs have dropped from around R5 000 in the months immediately after the imposition of lockdowns, to the current level of around R3 500, though there has been some improvement in recent months.
When asked for the biggest change in their lives during the pandemic, the most common responses were lost employment, declining or closing businesses, increased cost of living, and lost family members,” says Colin Rice, social performance manager at the SEF.
Source: SEF
Now look at the graph below to get a sense of the financial harm caused by the lockdowns. Arrears, which used to average less than 0.3% of the loan book, has shot up to around 20%. Informal sector entrepreneurs are unable to service their loans, and will need possibly years to claw their way out of the financial hole created by Covid.
“The lockdown was the devil in human form,” says 63 year-old NE Phale of Taung, who sells a variety of goods, from traditional pots, to clothes, shoes and food. She also does a bit of sewing on the side. “The lockdown badly affected me as I was not free to sell in town, or anywhere for that matter. I didn’t even go to buy stock in Durban because movements were prohibited. But things are now starting to pick up.”
Sewing clothes is often the first point of entry for women to the informal sector.
When the lockdowns were relaxed, Phale says she was forced to adapt to the changing times, and expand the variety of goods she offered her customers.
Phale started her business in 2001 with capital of R500. It was slow going in the early years, but revenue and profits started to creep up with financial guidance and loans from the SEF. With her meagre income, she supports five people, among them three grandchildren.
Informal sector operators have noticed fewer people on the streets post-Covid, and those that are spending have less money in their pockets. Conditions have become especially perilous in recent months, with the Ukraine war ramping up the prices of just about everything.
TE Molapisi sells fruits, vegetables and cool drinks at the Vryburg taxi rank in North West Province, and has done nothing else for more than 30 years. This is how she raised all her children. Her tiny business currently supports 12 dependents, and this is not uncommon in the informal sector – often seen as the safety net of last resort for those who have no other way of making a living.
When the Covid lockdown was first announced in March 2020, Molapisi was forced to shut her business altogether, though some of her more loyal customers cut a path to her house to stock up on fruit and vegetables. Lockdowns smashed her income, but by continuing to sell out of her house, she was able to put food on the table for her children.
“Lockdowns created a lot of challenges because, even now, things are very expensive. That means the prices of my stock have increased, and that forced me to increase my prices,” she says.
There was never any thought of changing her product mix or line of work. The terror of surviving what seemed like a life-threatening virus was paramount.
“I never had that idea (of changing my product) because, by then, my mind was overwhelmed by Covid 19. The only thing I was thinking about was if we would come out alive from this disease.”
Shebeen owner in rural South Africa.
Tebogo Motsuku of Phokeng in North West Province is a single mother with two children who was forced into the informal sector – selling clothes and other items – to support her family during the Covid lockdowns. She has aspirations of becoming a journalist but the day-to-day necessities of feeding her family prompted her to postpone her career goals and focus on putting food on the table.
It’s a story repeated up and down the country, and confirmed by several academic studies. Isaac Khambule, senior lecturer at the Department of Development Studies, University of KwaZulu-Natal, in South Africa, surveyed 75 informal workers in KwaDukuza Municipality in KwaZulu-Natal, concluding that the lockdowns amplified the precariousness of their socio-economic status. “These challenges are also exacerbated by the lack of proactively targeted and timely interventions to cushion those in the informal economy against COVID-induced socio-economic shocks. Without necessary measures to support those in the most precarious jobs amid the pandemic’s prolonged and evolving socio-economic impact, the country is unlikely to address the high levels of poverty and unemployment,” writes Khambule.
Evans Maphenduka, the Development Microfinance Association (DMA) executive co-ordinator, insists that “unless the South African government realises and acknowledges that informal businesses are not the formalised small and medium businesses, they will not be able to come up with appropriate support packages to assist our struggling clientele.” He believes that the government should learn from other developing nations that have specific microfinance policies and regulations, and write South Africa-specific microfinance policies and laws that recognise the importance of the informal business sector. A microfinance policy will also protect informal businesses from being harassed by municipal by-laws that are in desperate need of reform.
Perhaps most concerning is that of the roughly 1.8 million jobs lost during the lockdowns, proportionately more (21.9%) were lost in the informal economy as compared with the formal sector’s 10.8% as a share of total employment. This disturbing trend challenges the notion that the informal sector as the employer of last resort. Another study shows that 31% of informal workers who were not completely displaced from their livelihoods could not work under the level 5 lockdown regulations, while this only affected 26% of the formally employed. The impact on the informal economy was largely unavoidable as the general public was barred from leaving their premises and further damaged any economic prospects for those in the informal economy.
Research by SEF shows some of the challenges faced by informal sector operators as a result of lockdowns. According to Rice, many are struggling to pass on cost increases to customers, while others have closed due to an inability to source certain products. Many entrepreneurs relied on credit sales, but have found it more difficult to collect on outstanding debts. Adding to their difficulties, new entrants to the informal sector have created conditions of over-crowding and competition. Some cite competition from foreign-owned businesses as a barrier. These foreign-owned businesses are better organised in terms of bulk buying and tend to support each other during times of difficulty.
There are lingering barriers introduced by lockdowns, such as schools introducing restrictions on the sale of food and snacks near the school premises, and a resistance to door-to-door selling by people still fearful of viral infection.
This article was prepared with the assistance of the China-Africa Reporting Project.
UK becomes the first Western country to apply penalties on Bain for its role in state capture. From Moneyweb.
Image: Supplied
Bain & Co has been banned for three years from tendering for UK government contracts, over its role in state capture in South Africa.
The Financial Times reports that UK Cabinet Office Minister Jacob Rees-Mogg has written to Bain UK Managing Partner James Hadley, informing him of the ban, which will be applied retrospectively from 4 January 2022.
Initially, cabinet office officials reportedly rejected taking any action against Bain, but pressure from anti-apartheid campaigner Lord Peter Hain appears to have shifted opinion within government.
Whistleblower Athol Williams, a former senior partner at Bain, said it is time for the SA government and companies to follow the UK’s example:
The Zondo report into state capture found that Bain colluded with former President Jacob Zuma and designed “a planned and co-ordinated agenda to seize and restructure Sars (SA Revenue Service),” well in advance of Tom Moyane being catapulted in as commissioner of the revenue service.
Things deteriorated even further when Moyane arrived at Sars in September 2014. He disbanded Sars’ entire executive committee on the “basis of an apparent Sunday Times exposé about a so-called Rogue Unit” that was set up to hunt down tax cheats.
The Financial Times says a letter from Rees-Mogg accuses Bain of being guilty “of grave professional misconduct which renders its integrity questionable”.
The consulting firm has won UK public sector contracts worth up to £63 million (R1.3 billion) since 2018, including £40 million (R814 million) worth of Brexit consulting work for the Cabinet Office, but the damage to the company will be mainly reputational.
SA influence
The Zondo report details how Boston-based consulting firm Bain was brought in, and after a perfunctory diagnosis with little or no consultation with Sars operational managers or employees, a new operating model was devised and implemented. It was a disaster.
An investigation by retired Judge Robert Nugent found that operational managers were thrown into uncertainty about their jobs. Some 200 employees were eased out and forced to re-apply for posts in the new organisational structure.
Listen: BLSA responds to Bain’s withdrawal (read transcript)
Bain’s former managing partner Vittorio Massone and Moyane planned to restructure Sars without Bain even having stepped foot into the tax agency. Massone, then Bain’s man in Africa, made one short appearance at the Nugent Commission, never to be seen again in SA. The commission found that “indeed, the evidence of Massone, both the evidence he gave before us, and his evidence in a subsequent affidavit, is littered with perjury, both in what he said and in what he didn’t say.”
Research organisation Open Secrets has recommended charges be brought against Massone, for violating the Public Finance Management Act (PFMA). “As head of Bain South Africa, he colluded with state officials and politically connected individuals to secure Bain’s contract with Sars, indicating potential violations of the PFMA.”
The Nugent Commission says what occurred at Sars “can fairly be described as a premeditated offensive against the revenue service … Mr [Tom] Moyane’s (former Sars Commissioner) interest was to take control of Sars. Bain’s interest was to make money”.
Bain was accused by Open Secrets of implementing changes that would effectively gut the tax agency’s capacity to track, trace, and tax the very wealthy and the very corrupt.
Other consulting and accounting firms named in state capture are McKinsey, which agreed to repay R650 million earned from irregular contracts in SA, and auditor KPMG, which apologised in 2017 for its mistakes in doing work with businesses tied to the Gupta family.
The Financial Times says bans on companies bidding for public sector work are rare in the UK. It adds that Britain is the first Western country to impose such penalties on Bain for its role in state capture, and there is already pressure on the US to follow suit.
Bain’s response to Moneyweb’s request for comment is included below:
We are disappointed and surprised by the Minister’s decision. We will be responding to express our concern about the process and its outcome, where recommendations from the Cabinet Office were apparently overruled, and to address inaccuracies in the Minister’s letter. If necessary, we will then consider other options for review of the decision. In the meantime, we will continue to work with the Cabinet Office to ensure that we do what is required to restore our standing with the UK government.
Bain [has] apologised for the mistakes our South African office made in its work with the South African Revenue Service (Sars) and we repaid all fees from the work, with interest, in 2018. Bain South Africa did not act illegally at Sars or elsewhere, and no evidence to the contrary has been put forward. Neither Commission of Inquiry in South Africa has recommended any charges to be filed.
We have offered our full cooperation to the relevant authorities and will continue to do so.
The Prescription Act extinguishes debt if not paid or acknowledged within a prescribed time. Yet some banks are still trying to collect on them, says Banking Ombud. From Moneyweb.
A good rule of thumb is never to talk to a debt collector on the phone; communicate only in writing. Image: Waldo Swiegers/Bloomberg
One would think the banks would know what debts they are legally entitled to claim, and those they are not. But apparently many of them are still collecting on debts they are not legally entitled to – known as prescription debt.
Most consumer debt lies in contractual credit agreements such as gym memberships, store accounts, overdrafts, personal loans, payday loans and cellphone contracts.
If, as explained by Debt Rescue here, the credit provider has made no effort to secure payment, communicate with the client, or take legal action, the money owed becomes prescribed debt; it is regarded as having expired and can be legally written off.
It’s important to note that legal action can be served even if the person has not physically received notification of such action being taken; this can happen if, for example, a person changes their address and neglects to update their details with the credit provider.
The Prescription Act is however a wonderful law that every South African should spend a little time getting to understand.
Independent legal specialist Leonard Benjamin provides a quick summary.
Prescribed (expired) debt isn’t payable
First, says Benjamin, understand the Prescription Act and the National Credit Act. In its simplest form, if a borrower defaults on a debt and three years has elapsed since the default, that debt is prescribed (expired) and therefore not recoverable. This applies to overdrafts, credit card and other debts (although in the case of mortgage debt or court judgment debt the prescription period is 30 years). However, the bank can keep the debit ‘alive’ by issuing summons within the three-year period after default.
Watch out for ‘prescription interruption’
Debt collectors will phone you and try to get you to admit that you owe the money (also called ‘interrupting prescription’).
They’ll get you on the phone and get you to verbally admit you took out a loan. If you admit to this, you’re cooked.
You have ‘interrupted prescription’ and kept the debt alive. Even if you feel a moral obligation to pay an old debt, never agree to it on the phone. The lesson in all this is never to communicate with debt collectors telephonically. Get them to put it all in writing.
Banking ombud weighs in
All this is relevant because of a new statement by the Ombudsman for Banking Services (OBS) that some banks are still trying to collect on prescribed debts to which they are not entitled.
“Unfortunately, in many instances, the protection afforded by the law is beneficial only to consumers who know about the legal principle as well as the ombud’s office. The majority of the public is left paying for debts that have prescribed and are therefore legally no longer collectable by creditors,” says Reana Steyn, the Ombud for Banking Services.
The Prescription Act is clear, adds Steyn. “Generally, contractual and civil debts will be extinguished if not paid or acknowledged as being owed to the creditor by the debtor for a period of three years from the date when the payment was due.”
The important part to note in the above sentence is the debt is extinguished if not paid or acknowledged.
Crafty lawyers and debt collectors know most people do not know about or understand the Prescription Act, so they will get you to acknowledge the debt on the phone. Benjamin advises never to talk to a debt collector on the phone. Only communicate in writing – but don’t ignore written communications either.
Ombud successes
Between January 2021 and July 2022, the OBS received and investigated a total of 193 complaints relating to allegations of collections on prescribed debts by banks, resulting in more than R1 million being written off or repaid to complainants.
The OBS says it received 118 complaints in 2021, about a third of which involved banks flouting the law by collecting or attempting to collect on prescribed debts.
“In 2022, the OBS has to date received 75 of these matters. In 29% of these cases, banks have again been found to have transgressed the Prescription Act as well as the NCA [National Credit Act]”, says Steyn.
She adds that as recently as last week, an amount of R216 197 (the outstanding balance) was written off in one case and the complainant was also refunded the R3 200 which he had paid towards the prescribed debt.
Is it legal or illegal for creditors to collect on a prescribed debt?
This depends on whether the debt falls under the NCA or not. Credit agreements falling under the NCA include overdrafts, mortgage loans, personal loans, credit card debt and vehicle finance agreements.
If you default and do not acknowledge the debt for three years, this debt is prescribed. Your correct response to anyone phoning you for a prescribed debt is: “What are you doing phoning me for a debt you know is prescribed? What you are doing is illegal and I will report you and your company to the Banking Ombud.” Put down the phone without any further discussion. And then file a report with the Banking Ombud.
Prescription was written into the NCA, making it illegal for banks and other creditors to collect or sell a debt that has prescribed. That was a big leap forward for consumers, since this meant debtors no longer had to be aware of the law of prescription, nor did they have to raise this as a defence to be absolved from paying old debts.
“It is important for consumers to be aware of the fact that once they have acknowledged owing the debt, even if they have not made payment, they will not be able to successfully raise the defence of prescription in court should they be sued by creditors on prescribed debts,” says Steyn.
When is prescription interrupted?
According to the Prescription Act, the running of prescription is interrupted if, during the three years after the payment was due, the following happened:
The debtor admitted, verbally or in writing, to owing the debt;
The debtor made a payment towards the debt; or
The creditor issued and served a summons on the debtor.
“If you are a bank customer and none of the above happened, and you receive a letter of demand from the bank or its lawyers for payment of a debt you believe has prescribed in law, you should raise prescription. If they continue to demand payment or take any other steps to collect the debt, you should log a complaint with the OBS,” advises Steyn.
She adds that while banks claim they have policies and systems in place to ensure that they do not breach the law and collect on prescribed debts, the OBS still regularly receives these kinds of complaints from bank customers.
Exceptions to the rule
Benjamin says there are exceptions to the NCA to bear in mind.
“Incidental credit agreements are a category of consumer agreements that don’t start out as credit agreements, and thus [aren’t] subject to the NCA, but are converted to credit agreements under certain circumstances, and become subject to certain sections of the NCA. Section 126B applies to incidental credit agreements.”
An incidental credit agreement is defined as:
“an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:
(a) a fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or
(b) two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date.”
For example, you go the dentist and get presented with a bill that must be paid on the spot. This is not a credit agreement.
However, it will become an incidental credit agreement if an arrangement to stagger payment is made, and interest is applied for the late payment. In this instance, the rules of prescription relating to the debt will be as described in the NCA.
This should not be an excuse to duck valid debts, but it is clear that banks are unlawfully collecting far more prescribed debt than the OBS figures suggest. And that needs to be stopped.
Third group takes legal action against the decision by Home Affairs to suspend the Zimbabwe Exemption Permit system. From Moneyweb.
There is a fear that the various court challenges will run out of time, as the ZEP system formally expires in December. Image: Philimon Bulawayo/Reuters
The Zimbabwe Immigration Federation, representing about 1 000 Zimbabweans working legally in South Africa, this week launched a challenge in the Pretoria High Court against Home Affairs Minister Aaron Motsoaledi and six other respondents over the decision to suspend the Zimbabwe Exemption Permit (ZEP) system.
The ZEP system, which allows Zimbabweans to work in SA, was suspended in November 2021, then extended until the end of 2022 to give permit holders more time to apply for other permits or face deportation or voluntary repatriation to Zimbabwe.
Two other cases have been launched challenging the SA government’s decision – one by Advocate Simba Chitando, representing the Zimbabwean Exemption Permit Holders Association (Zepha), and one by the Helen Suzman Foundation.
The Zepha differs in that it argues ZEP holders are legitimately entitled to permanent residence in SA.
The respondents in the case filed this week are the minister and director-general of Home Affairs, President Cyril Ramaphosa, the national commissioner of the SA Police Services (SAPS), the minister of police, the Border Management Authority and the SA National Defence Force.
The Zimbabwe Immigration Federation is asking the court to restrain and interdict the respondents from “arresting, issuing an order for deportation or detaining” any ZEP holder for deportation.
‘Disastrous impact’
The decision to suspend the ZEP system has had a disastrous impact on hundreds of thousands of people “including children and their poverty-stricken families in Zimbabwe, where unemployment, instability, and starvation are rife”, says the Federation in a statement. Many Zimbabweans rely for their survival on family working in South Africa.
“So many people are affected that this is probably one of the most far-reaching and important cases ever to come before a South African court,” adds the Federation.
It is asking the court to allow valid ZEP holders to freely enter and depart SA.
“The contention [by the Minister of Home Affairs] that the deportation of 178 000 permit holders in a population of 60 million – being less than 0.3% – will have any meaningful effect on unemployment has no merit and if anything such a deportation will cause economic and other disruption, itself causing unemployment where they are active,” says the Federation, which is also asking the court to review and set aside the decision not to renew the ZEP system.
There is a fear that these court challenges will run out of time, as the ZEP system formally expires in December 2022. The Federation has asked that the court expedite the granting of relief to prevent the pending loss of jobs to ZEP holders, as well as deportations and financial prejudice through loss of provident fund, unemployment insurance and pension funds.
The Federation’s legal team comprises Eric Mabuza and Zondiwe Longwe of Eric Mabuza Attorneys, as well as advocates Tembeka Ngcukaitobi SC and Tshidiso Ramogale, a Harvard graduate.
In a statement issued on Thursday, the Federation says the decision of the court will impact the livelihoods of Zimbabweans “and whether they continue to remain lawfully in the country, or whether they would be deported en masse”.
Various schemes have been introduced since 2009 to allow Zimbabweans to live, work, study and conduct business in SA. The first was the Dispensation of Zimbabweans Project (DZP), introduced in 2009, which gave legal status to more than 250 000 Zimbabweans who had fled political and economic instability in that country. This scheme was extended and renamed the Zimbabwean Special Permit (ZSP) in 2014 and the ZEP in 2017.
Border control tightened
The Department of Home Affairs recently launched the Border Guard under the Border Management Authority (BMA) to tighten border security and prevent illegal immigration. The first 200 border guards were deployed at the Beit Bridge border post with Zimbabwe earlier this month.
The BMA introduces a single authority for border management to replace the previous multi-agency approach which was widely regarded as cumbersome and inefficient.
In a recent statement in The Sowetan, Motsoaledi said the existing immigration system had gaps which allowed employers to practice ”modern-day slavery by pitting unionised South Africans against illegal foreigners”.
What was needed was an immigration board and court to speed up applications to hear disputed matters, said Motsoaledi.
Chitando says he welcomes the court application by the Federation. “I have been [in] contact with them, as well as the Helen Suzman Foundation, since the beginning of the year. They have briefed their own legal team. The litigation strategy has always been to attack government’s immoral decision from multiple angles, with as many legal minds as possible. All the parties involved in the matter are receiving additional support from retired Judge Ezra Goldstein. I am confident that ZEP holders will receive justice they deserve after contributing to the South African economy for more than a decade.”
Many of those who have ZEPs originally came here as political refugees, but they were encouraged to convert to the permit system and forfeit their asylum status.
“What about Zimbabweans who are married to a South African and have children who are citizens here? It’s not clear who is going to be deported,” says the Federation.
The group is hostage to commodity prices and inflationary pressures outside of its control. From Moneyweb.
Tumela, an Amplats open pit mine in Limpopo. Image: Siphiwe Sibeko/Reuters
The fact that Anglo Platinum’s share price has dropped more by more than 50% since its peak in March this year tells us how radically the fundamentals for platinum group metals (PGMs) have changed in just a few months.
Amplats’s share price is back to where it was pre-Covid, suggesting the post-Covid boom is well and truly behind us, and we have now passed peak platinum.
“People got used to the bigger numbers from precious metals producers and that was unsustainable,” says Peter Major, mining director at Mergence Corporate Solutions.
“These are big, mature operations. I’m not sure they can do much better under the circumstances. There’s not really much growth happening with the precious metals producers, unless one is talking about Northam. They are all totally hostage to these commodity prices.”
A worrying trend starting to appear in corporate income statements is inflation, particularly in key inputs such as diesel and fertiliser, which are up 61% and 55% respectively over the past year.
This is according to Craig Miller, finance director at Amplats, in a presentation to the media on Monday. Chemicals are up 17% over the last 12 months, which suggests the pressure on margins will remain for some time to come.
Earnings before interest, tax, depreciation and amortisation (Ebitda) dropped 32% to R43 billion in the six months to 30 June 2022.
The drop is due to an exceptionally good first half in 2021, when large stockpiles accumulated in the previous months were processed, at an earnings margin of 59%.
Sustaining a performance like that is a tall ask, and there are now signs that Amplats is reverting to more normalised performance.
The massive build-up in stockpiles in 2021 occurred as commodity prices were going through the roof.
It was fortuitous timing for Amplats, says Terence Hove, senior market analyst at Exness.
“What is being experienced now, and which explains the fall in the Amplats share price, is the future expectation of cash flows being lower and not as robust. Compounding this is China’s economic stop-start due to their zero Covid case stance. This has frankly damped sentiment globally as a slowdown in China translates to muted demand globally, and is reflected in oil prices each time an increase in Covid cases is reported out of China.”
The slump in profits for the first half of the year should not come as a surprise, given the inflationary build-up triggered by the Ukraine war and the knock-on effect on oil prices, adds Hove.
“Our own local perils in the constant power cuts have not exactly eased these pressures on production. With inflation persistently high, [and] continued monetary policy tightening for what seems to be the rest of 2022, production activity will remain subdued.”
Bright spots
Amplats CEO Natascha Viljoen highlighted some of the bright spots in the results, including the conclusion of a five-year wage agreement with trade unions at a 6.6% annual cost to the company, and the growth in the green economy, which relies heavily on PGMs.
Amplats recently launched the world’s largest hydrogen-powered truck – part of a fleet that will help decarbonise its operations and reduce greenhouse gas emissions at its Mogalakwena mine by 11%.
Viljoen says the group is ahead of target in rolling out renewable energy projects to wean itself off the grid and further reduce its carbon footprint.
PGM prices surged following Russia’s invasion of Ukraine in February, with palladium hitting a record high, but have since fallen back to pre-invasion levels. Russia accounts for about 22% of newly-mined PGMs, but nearly 40% of palladium. PGM prices peaked in March, with palladium at a record high.
Fears of further price spikes dissipated as no countries applied sanctions to Russian PGMs.
Prices eased as Russian metal continued flowing to end users.
Platinum, palladium and rhodium prices in USD
Source: ShareMagic
The first part of 2022 was characterised by supply chain bottlenecks as a result of the Ukraine war, while more recently the resurgence of Covid in China has put a crimp in demand.
This took some of the shine off production at the Mogalakwena mine, though the move to higher grade mining areas and longer concentrator run times at the PGM concentrator set up a stronger performance for the second-half of the year. Production was maintained at Amandelbult mine, but substantial improvements were recorded at the Mototolo and Unki mines due to concentrator debottlenecking projects.
Stay-in-business capex needed to keep operating for 2022, has been trimmed to R8.8 billion-R9.3 billion from the previous R9 billion-R9.5 billion. Expansion capex is likely to range between R2.9 billion and R3.7 billion for the full 2022 year.
Amplats ended the half-year period with net cash of R41.8 billion, down from R49.1 billion at the end of December 2021.
Cash generated from operations contributed R39 billion. The cash was used to fund capital expenditure and capitalised waste stripping, collectively amounting to R6.1 billion; pay taxation and royalties of R9.5 billion; and to pay dividends to shareholders of R33.1 billion.
An interim dividend of R81 per share, or R21.5 billion, was declared for the first half of 2022. This comprises a base dividend of R41 per share, and a special dividend of R40 per share. This compares with a dividend of R175 a share in the first half of 2021.
Says liquidators did not file returns and failed to carry out their duties as deemed public officers. From Moneyweb.
The South African Revenue Service (Sars) has lodged a claim for R931.1 million against Mirror Trading International (MTI), the collapsed bitcoin investment scheme.
The claim was lodged earlier this month with the Master of the Cape High Court in respect of the 2019 and 2020 tax years.
Astonishingly, Sars lays the blame at the feet of the company officers and liquidators for not submitting the relevant income tax returns and says they “failed to carry out their duties as the deemed public officers of MTI”.
This was after the liquidators provided Sars with the raw data from MTI systems and figures from forensic auditors. Sars says it relied on these figures to finalise its audit and to adjust the taxable income.
The revenue service says it reserves the right to revise its assessments should the received figures change or additional bitcoin be recovered.
Of the R931.1 million claimed by Sars, roughly R350 million is for normal income tax, R580 million is for under-statement penalties, and R1 million is for interest.
Sars says the amount is due and payable immediately, though MTI can dispute it later.
Undeclared income
In its filing with the Master of the Cape High Court, Sars says it only received income information from the liquidators on 14 February 2022, adding that they failed to declare income of R182.5 million for the 2020 year of assessment and R6.7 billion for 2021.
MTI was placed in final liquidation in June 2021. CEO Johann Steynberg fled SA for Brazil, where he was arrested in December last year and is awaiting extradition to SA.
The company promised returns of up to 10% a month, and attracted more than 200 000 members worldwide through multi-level marketing.
Participants had to ship bitcoin (BTC) to wallets controlled by MTI, and some 29 421 BTC (nearly R12 billion at current prices) is reckoned to have been under MTI control over the lifespan of the scheme.
MTI said it was able to offer returns as high as 10% a month because it made use of a computerised bot that had only one losing day out of 200 – though no evidence of any successful trading was ever discovered.
Sars ‘a preferential creditor’
Deposing for Sars, Johan Matthews of its Illicit Economy Unit says the revenue service is regarded as a preferential creditor of MTI in terms of the Insolvency Act.
MTI liquidators have recovered 1 281 Bitcoin from a Caribbean broker used by the company for forex trading, and sold this for the equivalent of R1.1 billion.
The liquidators can object to the Sars assessment, but may not disburse any recovered proceeds until such time as the Sars claim has been settled.
This is likely to be top of the agenda for the MTI creditors meeting being held on Friday (22 July).
Sars says MTI may not object or appeal the decision “unless the taxpayer submits a return within 40 days from the [date] of assessment and Sars does not issue a reduced or additional assessment”.
It adds: “Taking into account that the taxpayer [MTI] has been finally liquidated and that the liquidators are in the process of finalising the administration of the estate including the payment of interim dividends to proven creditors, there are reasonable grounds to believe that the taxpayer will not pay the full amount of tax and that the recovery of the tax may be difficult in future.”
Very few of the more than 200 000 MTI members bothered to lodge claims with the liquidators, apparently fearing this would draw the attention of Sars. That problem has been short-circuited by Sars claiming directly from the company rather than the individuals.
This story will be updated pending the outcome of the MTI creditors meeting on Friday.
