Author Archive

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.

I was groomed for corruption – Agrizzi

Written by Ciaran Ryan. Posted in Uncategorized

Daily prayer meetings and bags of cash: a day in the life of a Bosasa executive. This was first published in Moneyweb.

The whistleblower says he has received several death threats … and an offer of R60m to keep his silence. Picture: Siphiwe Sibeko, Reuters

Bosasa whistleblower Angelo Agrizzi says he has received several death threats … and an offer of R60m to keep his silence. Picture: Siphiwe Sibeko, Reuters

The day would start with a prayer meeting. Then the bags of cash would be arranged for delivery to the army of corrupt officials and politicians whose patronage built Bosasa into a multi-billion-rand-a-year enterprise.

This was a typical day at Bosasa, according to Angelo Agrizzi, former chief operating officer at Bosasa turned whistleblower. 

“No-one wakes up and decides to create a corrupt organisation,” he told Moneyweb on the sidelines of the CFO Talks anti-corruption debate in Sandton on Wednesday. “There is a grooming process that takes place.”

It starts with small gifts, then larger ones, until you are captured by the corrupt organisation and become part of the conspiracy of silence. “Then I got handed a envelope with R20 000 in cash and was told I should take my family to Mauritius for the weekend. The gifts keep getting bigger.

“Then one day you are asked to drop off a parcel for someone, and God help you if you don’t. You are told ‘if we go down, we’re all going down together’. There is a very clear threat in this, which is how they buy your silence.”

Agrizzi says he has received several death threats, as well as an offer of R60 million to keep his silence.

Capturing the captors

Earlier this year he told the Zondo commission of inquiry into state capture how bags of cash had been delivered to key correctional services personnel, including former correctional services commissioner Linda Mti and the department’s chief financial officer (CFO) Patrick Gillingham.

Read: SA cancels Bosasa prison contracts after bribe accusations

Agrizzi, Mti, Gillingham, and former Bosasa CFO Andries van Tonder were arrested by the Hawks in February on charges of corruption, money laundering and fraud. Numerous high profile ANC figures have been named by Agrizzi as recipients of bribes from Bosasa (later renamed African Global).

Speaking at the debate, Agrizzi said the system of graft at Bosasa was so endemic that staff turnover (out of 6 800 employees) was just 0.02%. Corruption was the business model, despite the existence of an ethics and governance committee that met once every four months. The 15-strong committee, populated by professors and PhDs, but was powerless against Bosasa’s “narcissistic leader” Gavin Watson, who surrounded himself with people who would do his bidding.

Read: Top prosecutors implicated in graft investigation

Watson boasted that Bosasa had a “flat organisational structure” but this was a euphemism for no structure at all. The company burned through 12 chartered accountants in two years, some of them because they could no longer stand being errand boys in a corrupt organisation.

Agrizzi bemoaned the lack of whistleblower protection in SA. “Protections for whistleblowers are non-existent. In fact, you get arrested [for blowing the whistle],” he said.

“How do you go about challenging CEOs who have captured the government?”

Under former president Thabo Mbeki, corruption was at “manageable proportions”, said Corruption Watch head David Lewis. “Under [former president Jacob] Zuma it consumed the state. The Arms deal under Mbeki was a serious episode, but it was discreet. The state capture project [under Zuma] involved the capture of the key decision-making structures of the state. State-owned enterprises [SOEs] were targeted because that’s where the money is.

”You had this dream team of Brian Molefe and Anoj Singh who came from Transnet to Eskom. The Zuma-Gupta syndicate was the best of the lot. Zuma had influence over the boards of SOEs and didn’t need to do anything else.”

Not enough to have captured No 1

But Zuma was only useful to the Guptas so long as he was president of the country, which meant the ANC itself had to be captured. This involved infiltrating local, provincial and national structures with bribable agents of corruption.

It’s time to prosecute individuals involved in corruption and send them to jail, said Lewis. The recent arrest of eThekwini mayor Zandile Gumede on charges of fraud, corruption and racketeering relating to a R208 million tender within the Durban Solid Waste unit was a good start.

Corruption is the CFO’s fault, added Agrizzi: “You are the ones who control the purse strings.”

Nicolaas van Wyk, CEO of the SA Institute of Business Accountants (Saiba), said corruption would be slowed if there was a change in the Companies Act, or a dedicated CFO Act spelling out the duties and obligations of the CFO.

Ethics training, legal counsel needed

“CFOs should be obliged to attend an ethics course once a year, and must make a declaration any time [they become] aware of an attempted or successful bribe or corrupt transaction. Furthermore, if the CFO resigns, [they] must state the reasons for resigning. This is similar to the obligation placed on an accounting officer in the Close Corporations Act.”

The question before the delegates was: What role did CFOs play in SA’s corruption scandals and what needs to be done to stop it?

“The King Report [on corporate governance] gives us guidance, and the Institute of Directors trains people on the expected role of board members,” said Sasha Monyamane, professor of governance and ethics at the University of SA (Unisa). “Every organisation proclaiming themselves as having good governance should send their people for training.”

Professional bodies need to provide more than just advice to finance executives reaching out for help in corrupt organisations. They need legal counsel and protection, said Van Wyk.

Dr Kelvin Kemm, suspended chairman of the Nuclear Energy Company of SA (Necsa), says there are far too many political appointees in state-owned companies (SOCs).

“Far too often we see ministers running the departments and SOCs. What’s the point of having a board if the minister has the power to override them?”

SA’s nuclear reactor shut down – again

Written by Ciaran Ryan. Posted in Journalism

The paperwork, it seems, was not in order. From Moneyweb.

The shutdown is costing an estimated R3.5m a day in lost sales and resulting in unnecessary deaths due to the non-availability of life-saving medicine. Picture: Matthew Lloyd, Bloomberg

The shutdown is costing an estimated R3.5m a day in lost sales and resulting in unnecessary deaths due to the non-availability of life-saving medicine. Picture: Matthew Lloyd, Bloomberg

The Pretoria nuclear medicine production unit NTP Radioisotopes, part of the state-owned Nuclear Energy Company of SA (Necsa), has been out of operation since February.

This is the third time in two years that the Safari-1 reactor has been shut down. Not because there was radiation leakage or anything as frightening as that, but because the safety paperwork was not in order.

The shutdown is costing NTP an estimated R3.5 million a day in lost sales, and – according to one person close to the company – unnecessary deaths due to the non-availability of life-saving medicine. This has also wrecked the financials of one of the few state-owned companies that had consistently made profits and won clean audits.

The reason for the shutdown? Precisely the same one given for shutting down the reactor in 2017 and 2018. This time energy minister Jeff Radebe cannot blame the board members he suspended late last year.

Technical explanation

In response to questions from Moneyweb, NTP replied: “During a production cycle in February 2019, NTP’s internal monitoring systems detected instantaneous pressure variations as monitored by the sensors in the plant. While these happen within seconds and are corrected and balanced by the plant’s ventilation system, they still require further investigation in terms of NTP’s SOPs [standard operating procedures]. Further, it is important for NTP to make sure that issues such as these are corrected at the time they take place, and before large customer production runs are in progress.”

Last year Radebe suspended three members of the Necsa board on various charges, one of which was the undue delays in restarting the Safari-1 reactor at Pelindaba, which produces world-leading nuclear isotopes used in the treatment of cancer. The three board members were then chairman Kelvin Kemm, CEO Phumzile Tshelane and chief financial officer Pamela Bosman.

Read: Suspended nuclear company execs smell rat over adverse audit

City Press reported at the weekend that Tshelane was about to be fired after going through an internal disciplinary process. One of the reported grounds for his dismissal was the signing of a non-binding agreement with Russian nuclear company Rosatom to develop modular nuclear reactors, which the charge sheet claimed would conflict with an agreement already in pace with the Australian Nuclear Science and Technology Organisation (Ansto).

Ministerial interference

This is denied by the suspended board members. Says Kemm: “The agreement with the Russians was floated with the previous minister of energy, and with Radebe when he became energy minister, but he sat on this for months and never gave us an answer one way or the other. It is a non-binding agreement that in fact does not need ministerial approval, so here we have another case – one of many involving state-owned companies – of ministers interfering in the running of their boards. I hope President Ramaphosa bears this in mind as he prepares his new cabinet.”

Tshelane says he intends to challenge his dismissal because of the irregular process followed. “I subsequently received notice of my dismissal. I am convinced that the dismissal is unjust and premature and I will be appealing the Necsa ruling,” he says.

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

The suspended board members say they are fall guys for a governance crisis, orchestrated by the minister, whose real ambition is to sell the nuclear facility to a US company, Lantheus Medical Imaging (LMI). If true, this would put decades of hard-won nuclear secrets in foreign hands, and infuriate the trade union movement since this would amount to privatisation of a key national asset.

Some see NTP as a pawn in a nuclear geopolitical game involving the US and Russia.

Tina Eboka remains MD of NTP despite being suspended and replaced by Tshelane last year after the first reactor shutdown. Kemm says the minister ordered that she be reinstated, overriding a Necsa board decision.

“We pointed out to the minister that we had determined the faults which had occurred under the management of Eboka and that remedial action had been implemented and that we were due to restart in days,” says Kemm. “I also pointed out that CEO Tshelane was doing exactly what good governance required and that I supported his decisions. I said that it was not correct for the minister to instruct the CEO how to run the operations. The minister then told the media that I was defiant.”

NTP’s full response to questions from Moneyweb:

NTP’s isotope production facilities were shut down between November 2017 and February 2018, and again from May 2018 to November 2018.

Because of the extended period of disuse and other work done to return the plant to its original operating specifications (following some interim changes that were made during 2018), it is essential that operations are conducted within the strict limits, guidelines and standard operating procedures (SOPs) to ensure safe operations for personnel, the environment, and the product, as determined by various licences and registrations as well as NTP’s own SOPs.

All operating and technical specifications are closely monitored by NTP production managers and the Nuclear Facility Manager (NFM), who reports to the NTP board and communicates to the National Nuclear Regulator (NNR) through various reports. The NTP NFM works closely with Necsa Licencing since Necsa is the licence holder of the NTP radiochemical facility.

During a production cycle in February 2019, NTP’s internal monitoring systems detected instantaneous pressure variations as monitored by the sensors in the plant. While these happen within seconds and are corrected and balanced by the plant’s ventilation system, they still require further investigation in terms of NTP’s SOPs. Further, it is important for NTP to make sure that issues such as these are corrected at the time they take place, and before large customer production runs are in progress. 

NTP adheres to world-class nuclear facility and isotope production standards, and always endeavours to manage and operate a safe plant for the safety of its personnel, the environment, and infrastructure, as well as product quality. This facility has been run safely since it was commissioned in the 1960s and has been compliant with all relevant safety regulations as they have been introduced over the years.

In accordance with the facility licence and our operating protocol, isotope production was temporarily halted in order to complete an internal investigation to identify the causes of these deviations, and also to remedy the identified issues. The investigation has been completed and remedial actions have been implemented, in line with our prescribed processes. In accordance with our SOPs, any technical or procedural updates have to go through rigorous change control protocols and safety assessments, as well as training all production personnel on any changes made. Once NTP has submitted its report on the investigation and corrective actions to the NNR, production will resume.  

Companies planning to go off the grid

Written by Ciaran Ryan. Posted in Journalism

Anglo Platinum, Sibanye-Stillwater, Makro and the City of Joburg are loosening their ties to Eskom. This article first appeared in Moneyweb.

The solar installation at Makro Carnival on the East Rand was created to generate 60-80% of the store’s energy needs during the day. Companies are however urged to take sound independent advice before plunging into self-generation solutions. Picture: Supplied

Forward-thinking businesses in SA are now starting to confront life without Eskom by putting plans in place to generate their own energy.

Anglo Platinum and Sibanye-Stillwater are two high profile companies at an advanced stage of planning for solar plants to generate their own electricity. The City of Joburg wants to cement a deal with Harith-owned Kelvin Power Station to purchase power as a way to prevent load shedding, which has done incalculable harm to businesses in the city.

Other companies are further advanced in their plans to reduce their dependence on Eskom power. In 2016 Makro erected solar panels on the roof of its Makro Carnival store on the East Rand to generate 60-80% of its energy needs during the day, equivalent to 30% of the store’s annual energy needs. Many smaller businesses have invested hundreds of thousands of rands in generators to serve as back-up power sources in the event of outages.

‘No plan’ from government

In his state of the city address last month, Joburg mayor Herman Mashaba said load shedding would be a reality in the coming years, and the national government had not come up with a plan to solve it. Though Eskom has attempted to block the city from sourcing electricity directly from Kelvin Power Station, Mashaba said he was looking at legal options as well as a direct approach to Kelvin over the prospect of securing a supply contract.

Kelvin has a 600 megawatt (MW) capacity, but is currently producing just 200MW, and even that will be shut down within the next two to three years. One of the options being explored is the installation of gas turbines from about 2023 onwards to ramp up output to the original design capacity of 600MW, pending the availability of a reliable gas supply. This is still just a fraction of Joburg’s total electricity consumption, but sufficient to prevent most of the outages experienced by businesses over the last six months.

The City of Joburg’s 2018 financial results show a 6% drop in electricity sales. Though some of this was due to outages, there is also evidence of businesses switching to alternative energy sources, according to Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) for 2018.

Read: Municipal sector faces collapse – Ratings Afrika

Des Muller, MD of energy advisory group NuEnergy Developments, says there is a direct correlation between SA’s declining economic growth and the commencement of electricity blackouts starting in 2007.

“Stable and sufficient electricity supply is a precondition for any growing economy, and there is plenty evidence from around the world that those countries that can guarantee reliable power at a good price are those countries that grow the fastest,” he says. He warns that South Africa’s electricity challenges will remain in the foreseeable future and companies need to be prepared, but urges taking sound independent advice before plunging into self-generation solutions.

Aluminium businesses have already left SA

In 2012 Eskom paid energy-guzzling aluminium smelters to shut down furnaces so it could redirect power for use elsewhere in the economy. This has driven energy-intensive businesses to other countries in the Far East where power supply is stable and affordable.

As part of its medium- to long-term energy management strategy, Sibanye-Stillwater is pursuing the first 50MW phase of its solar photovoltaic (PV) project to be built on a site strategically placed between the Driefontein and Kloof mining complexes on the West Rand. “The project, originally envisioned in 2014, represents a partial solution to securing an alternative electricity supply, representing approximately 3% of our total electrical energy requirements in SA, and enables the power generated to be fed directly into the mine’s electrical reticulation while reducing our overall electricity expenditure and carbon footprint,” says the group’s head of investor relations, James Wellsted.

“We cannot disclose costs of the plant or the cost of the electricity through the PPA [power purchase agreement], however, we can state that solar PV power offers a cost-effective alternative to Eskom already.”

Sibanye-Stillwater ran a competitive tender process to appoint a developer to build, own and operate the project, and sell power back to the mining group through a PPA. This approach has a minimal upfront capital requirement for Sibanye-Stillwater and allows capital to be prioritised for core mining projects. The tender was successfully concluded in 2017, suggesting a significant forecasted return to Sibanye-Stillwater over the course of the agreement. Although several regulatory delays (including policy uncertainty and contracting issues relating to Eskom) were experienced in 2018, resolutions are expected to be reached in 2019. A decision to proceed with the PPA will then be made.

AngloPlat still to make final decision

Though Anglo Platinum has yet to make a final investment decision, it is exploring a 167 gigawatt hour (GWh) per annum solar PV plant at Mogalakwena, representing roughly 21% of its annual 777 GWh consumption.

Anglo Platinum says it wants to optimise the value of its overall portfolio, including improved energy management and planning for future energy sustainability in response to rising cost pressures in the mining sector. Efficiency measures have been implemented since 2013; however, this is not enough to counter the projected cost increases and the requirement for sustainable energy.

In 2017 the mining group started formalising its alternative energy strategy by transitioning to sustainable energy sources that reduce carbon emissions and provide predictable cost and energy efficiency.

Anglo Platinum is considering one of two options for the project development: the IPP option, or to self-build, own and operate.

These projects require a generation licence from the National Energy Regulator of South Africa (Nersa) and exemption from the minister of energy.

The mining group says it is currently negotiating land sites, host-community participation and Mining Charter 2018 compliance.

Based on current progress, the solar generation plant should be operational by mid-2021.

The Bus King of Africa

Written by Ciaran Ryan. Posted in Journalism

The IDC is taking a R2bn bet on Pat Nodada of Busmark.

Busmark CEO Pat Nodada, the man behind smart factories, tough buses and 24-hour support even in outlying areas. Picture: Supplied

Busmark CEO Pat Nodada, the man behind smart factories, tough buses and 24-hour support even in outlying areas. Picture: Ciaran Ryan

This article first appeared in Moneyweb.

The man being called the Bus King of Africa is a 42-year-old chartered accountant.

Having conquered the South African bus market, Busmark CEO Pat Nodada is now partnering with the Industrial Development Corporation (IDC) to build bus factories across Africa, starting with Zimbabwe, Kenya, Nigeria and Ghana.

It’s a bold move that will increase Busmark’s monthly output from 100 to 500 buses over the next five years. The IDC is taking a R2 billion bet that Nodada can pull this off by replicating the same formula that turned Busmark into the dominant bus maker in SA, with an estimated 40% of the local and 20% of the Zimbabwean market.

Nodada bought into the company a decade ago, retooled its Randfontein factory to supply city transporters such as Metrobus and MyCiti and promptly won a contract to supply the Gautrain fleet. That fleet is now being retired and replaced with a new one – again supplied by Busmark.

Big-brands busmaker

Busmark is a second-tier original equipment manufacturer (OEM) supplying buses to first tier OEMs such as Mercedes, Volvo, Scania and Real African Works. The engines and powertrains are imported, but everything else is made locally.

The Randfontein factory turns out 100 units a month, with the capacity to produce double this, and recently added battery-powered and hydrogen fuel cell buses to its production capability. This, says Nodada, is where the future lies.

“One of the big challenges we had to overcome was to reduce the weight of the batteries so that we could carry more passengers, and we managed to do this by making design improvements with the help of the CSIR and several local universities.”

The battery-powered bus – which is now in development and will be in action around Joburg as part of the Gautrain fleet pilot – can achieve a range of 150km before recharging. The hydrogen-powered bus is likewise attracting interest from city transport fleets under pressure to reduce their carbon footprints. Though the buses cost more than diesel ones, they are far cheaper to maintain (with just five moving parts as opposed to nearly 2 000 for diesel engines). 

Output up threefold in 10 years

Busmark’s output has shot up threefold since Nodada bought the company a decade ago, the result of a decision to diversify away from commuter to luxury city buses.

You won’t hear much about Busmark because its buses carry the OEM branding like Mercedes, Man and Volvo, but the buses boast a local content of 90% with the engines and powertrains coming from abroad. The company is 75% owned by the Nodada family, putting it beyond the prying eyes of the public, with the rest held by staff and management. 

This month 30 buses left the Randfontein factory destined for Kenya, part of an order for 90 units. The buses are designed in SA to withstand the most tortured roads, with rubber undercarriages and reinforced suspension. 

This is a prelude to the opening of a new bus assembly plant in Nairobi later this year in a joint venture with Mercedes Toyota Tsuscho that will turn out 20 units a month. A similar-sized factory will open up in Harare in July this year. A much larger factory with the capacity to churn out 250 units a month will open in Nigeria next year, followed by a fourth factory in Ghana by 2022. Smart factories are also in the works for Port Elizabeth and Durban.

Robotics and AI

Even more impressive is the plan to consolidate the scattered Randfontein plants into a single ‘smart’ factory within the next year, where robotics and artificial intelligence will churn out a new generation of SA-made buses conforming to the highest standards in the world.

Busmark is already compliant with SA, ISO and European quality standards, but Nodada is particularly proud of the fact that the company is regarded as a world leader in battery and hydrogen fuel-cell powered buses, but with a twist – these buses are built for some of the most testing roads in the world.

“We guarantee a 15-year life for any bus that comes out of our factories, regardless of where the buses are required to operate,” says Nodada.

“And we offer 24-hour support, which can be a challenge when you have a breakdown in rural Zimbabwe – but we can do it. We have had to modify our buses to withstand some of the worst roads in the world.”

What’s next once Busmark has taken the East and West African markets?

“That’s a discussion for another day,” says Nodada. “For now, our hands are pretty full with six new factories to open in the next three years. We are investing in the very latest technologies and our new factories will reflect this.

“The bus market in Africa is huge, and the push from bus operators is for more durable buses with lower operating costs. That is where we are focusing our energies: making it more profitable for bus operators across the continent. And we know how to do this.”

Standard Bank accused of ‘double dipping’ in home repo case

Written by Ciaran Ryan. Posted in Uncategorized

Outcome could be explosive for banks, opening the door to floods of claims.

Legal consultant believes tens of thousands of homes may have been unlawfully repossessed in SA since 2007. Picture: Shutterstock

Legal consultant believes tens of thousands of homes may have been unlawfully repossessed in SA since 2007. Picture: Shutterstock

This article first appeared in Moneyweb.

In a case due to come before the Eastern Cape High Court this month, Standard Bank is accused of double charging the arrears amount owed by a mortgage client, resulting in a guest lodge being repossessed and sold at auction for a fraction of its market value.

Guest lodge Homewood in Albany in the Eastern Cape was repossessed in January 2017 after falling R833 000 in arrears on an outstanding loan of R3.77 million.

The lodge owner is now asking the court to compel Standard Bank to provide a detailed breakdown of its arrears calculation, which he says was grossly overstated and resulted in him losing the lodge. He says he was forced to approach the court after the bank had failed to respond to several requests for this information. Standard Bank replies that the case has no merit, and has already been decided in its favour by the court.

Read: Are banks routinely overcharging on vehicle loans in arrears?

What is unusual about this case is that Homewood has accused the bank of ‘double dipping’ or charging twice for the same thing. This is believed to be the first time this has been argued in a South African court, though similar cases have been decided in favour of banking clients elsewhere in the world.

In its court papers, Homewood concedes that it fell into arrears on the mortgage loan after a fire broke out, prompting the bank to ‘accelerate’ the loan by calling up the full amount outstanding. Once a loan is accelerated (the full amount owing is claimed by the creditor), the law does not allow further instalments to be charged. Yet Standard Bank continued to add monthly instalments to his home loan account after accelerating his mortgage loan and obtaining judgment against him in January 2017.

Explosive admission

The bank concedes in its court papers that it made an error in calculating the arrears due to a computer glitch.

Legal consultant Leonard Benjamin, who is advising Homewood, says this is an explosive admission by the bank, and urges home owners to carefully interrogate their monthly statements if they have been sued by the banks after falling into arrears.

“I believe many people have had their homes repossessed when they were not in fact in arrears.”

Homewood claims in its court papers that each time the bank adjusts its prime lending rate, it automatically capitalises any arrears – in other words, the arrears are added to the full amount outstanding, to be repaid over the remaining term of the loan.

This has the effect of extinguishing any arrears and increasing the principal sum of the loan.

The ‘double dipping’ comes in whenever there is a change in the bank’s prime lending rate. When the prime lending rate is adjusted, the banks typically capitalise any outstanding amounts owed (which should extinguish the arrears), but in many cases continue to run parallel monthly instalment charges. In other words, banks are charging twice for the same thing.

Illogical jump

Benjamin came to this conclusion after Homewood’s arrears jumped from R833 000 to R1.39 million over a period of 18 months. The escalation made no sense, which is why Homewood is now asking for an exact breakdown of how the bank came to the arrears figure, which Benjamin says is possibly hundreds of thousands of rands less than what is being claimed.

The bank has conceded that it made an error in arriving at an arrears amount of R1.39 million, saying the correct figure was R833 000, though this too is disputed. The bank argues that it should not be compelled to provide the figures requested as the court has already ruled on the matter. It also denies that it’s arrears calculations on the adjusted figure of R833 000 is incorrect.

Yet it proceeded to cancel the mortgage bond based on an arrears amount that was more than R400 000 in error, claiming this is immaterial to its case. Homewood is asking the court to declare invalid the bank’s cancellation of the mortgage bond.

The bank then turns on Homewood and claims the lodge could not have been under any misapprehension that a mistake was made by the bank, and that the actual arrears amount was R400 000 less than originally claimed.

Going by this logic, every time the bank makes an error, it blames the customer for not picking it up.

In any event, Standard Bank argues, error or not, Homewood had stopped paying the monthly instalments and it was therefore within its rights to cancel the mortgage agreement. The bank also says it has supplied a comprehensive account statement. Benjamin says this is meaningless as it does not show how the arrears are calculated.

“I am astonished that double dipping has not been argued before in the SA courts,” says Benjamin.

“What this means is that possibly tens of thousands of homes have been unlawfully repossessed since the National Credit Act came into force in 2007, for two reasons: the banks have been incorrectly calculating arrears through double dipping, and then approaching the courts for judgment and sale in execution orders [giving sheriffs the right to sell repossessed properties at auction] based on this incorrect information. Secondly, once the bank adjusts its prime lending rate, all arrears are extinguished.

“The courts need to start paying much more attention to this, and the tremendous social upheaval caused by booting people out of their homes based on false figures and bogus legal arguments.”

The owner of Homewood also claims the bank has added unauthorised legal charges to his home loan account. Legal charges may not be added to a client’s bank account unless subject to ‘taxing’– in legal terms, this means costs must be authorised by an independent authority.

The bank is asking for the case to be dismissed with punitive costs, saying the allegations are speculative and unsupported by evidence.

Africa’s resource curse is more like a governance curse

Written by Ciaran Ryan. Posted in Uncategorized

SA’s huge offshore gas find could be a blessing or a curse.

This article first appeared in Moneyweb.

Total estimates that the recent gas discovery at the south of Mossel Bay is worth about one billion barrels. Picture: Shutterstock

Total estimates that the recent gas discovery at the south of Mossel Bay is worth about one billion barrels. Picture: Shutterstock

South Africa has just come into a huge gas find south of Mossel Bay, estimated by Total at about one billion barrels. That’s the good news. The bad news is that oil and gas are often accompanied by conflict and ‘resource curse’. That’s when an over-reliance on commodity exports leaves a country prone to wild cyclical economic swings.

Read: Brulpadda: Let’s not squander the ‘money toad’

SA has a sufficiently diversified economy to avoid resource curse, but any benefit to the economy from gas-related tax and royalties could be squandered if we follow the examples of other oil-rich countries such as Nigeria, Equatorial Guinea and Angola. All three have huge oil deposits and massive corruption. Nigeria’s discovery of oil in the Niger Delta in 1956 fuelled ethnic tensions and coups. The agricultural sector was neglected to the point where Nigeria went from food exporter to importer, as all attention went on the easy money to be made from oil exports. It still has to import refined fuel.

Good examples

If we are looking at good examples to follow, Botswana and to a lesser extent Gabon are two countries worthy of mention – Botswana for diamonds and Gabon for oil.

Gabon has been ruled by a single family since 1967. There was an attempted coup in January this year, but the government managed to avoid fiscal deficits until 2015, when the once-lofty oil price that sustained government spending came tumbling down.

Botswana, despite its massive reliance on diamond exports, has likewise avoided the resource curse. It did this by avoiding external debt and promoting economic diversification. Speaking at a recent International Mining and Oil & Gas Law, Development, and Investment conference in Brazil, Peter Leon, a partner at law firm Herbert Smith Freehills, pointed out that the Botswana government accumulated international reserves and ran budget surpluses earmarked for stability spending in leaner periods. “This policy avoided having to drastically cut expenditures during bad years and reduced inflationary pressures.”

Checks and balances

Another key factor in avoiding resource curse is maintaining strong institutional structures, with checks and balances to root out corruption and maladministration.

When Norway discovered oil in the North Sea in the 1960s, it put in place policies to ensure that there would be economic benefits long after the oil was gone. Key among these policies was an insistence on developing the local oil and gas sector, rather than leaving it all to outsiders. Petroleum accounted for 43% of exports in 2018, and great care is taken to ensure that exports exceed imports – which in turn provides currency stability. Compare this to Venezuela, where oil accounts for 95% of exports, a key factor behind its current political instability.

Leon says one way countries attempt to inoculate themselves against resource curse is by creating sovereign wealth funds (SWFs). These are state-owned funds that invest in real assets such as precious metals and real estate, and financial assets such as stocks and bonds.

Saving and diversifying 

Norway has been particularly adept at using its SWF to hedge against oil price volatility and as a means of saving wealth generated from its petroleum sector for use by future generations. Another benefit of SWFs is to diversify away from cash holdings or low-yielding US Treasury bills.

“A well-managed and effective SWF can help protect the economy’s non-commodity sectors from destabilising currency fluctuations while helping to spread the country’s wealth more equitably across generations,” says Leon. “SWFs help to achieve this by aiming explicitly at developing a broader base for economic growth. Developing an efficient and diversified economy reduces the impact of commodity price volatility and helps to prepare the economy for a post-commodity era.”

The danger in any country running budget deficits is the temptation to raid SWFs to plug budgetary gaps.

One way to overcome this is to set firm rules for the withdrawal of funds, and to create governance structures to keep greedy politicians’ hands off the loot.

All this is becoming relevant as some political parties have started introducing SWFs into their party manifestos as a solution to economic growth and job creation. But experience over the last decade shows that when the government runs out of cash, it starts looking in the wrong areas, such as the Reserve Bank’s accumulated assets which are (frustratingly for some) unavailable for state spending.

Read170 billion reasons why the state would want to capture the Sarb

A government will inevitably look to the country’s sovereign wealth fund to bail itself out of a tight fiscal spot. These funds belong to future generations and have to be kept well away from the transients who occupy political positions.

Afriforum fights to prevent banning of old SA flag

Written by Ciaran Ryan. Posted in Journalism

The Nelson Mandela Foundation and Afriforum are opposing each other in the Johannesburg Equality Court. From Groundup.

Photo of people in military clothing burning old SA flag

MK veterans burn an old South African flag in November 2017 following the #BlackMonday protestsby farmers against farm murders. Archive photo: Nomfundo Xolo

The Nelson Mandela Foundation is asking the Equality Court in Johannesburg to declare the display of the old South African flag hate speech and harassment under the Equality Act. The case is likely to set the boundaries between constitutionally-protected free speech, however offensive to some, and hate speech. Opposing the action is Afriforum, a group set up in 2006 to promote the protection of Afrikaner culture.

The background to the case is that on 30 October 2017 nationwide protests, in which Afriforum played a leading role, were held to protest over attacks on farmers. The protests were named #BlackMonday. It is disputed to what extent old South African flags were displayed at the protests.

In a press release following the protests, the Nelson Mandela Foundation decried the display of the old flag as indicative of support among some protesters for the old apartheid system.

Was the old flag displayed prominently?

On social media, photos of protesters carrying the old flag were circulated, but at least some of these photos were fake or for a different event. In an SABC2 debate the following week, Afriforum’s CEO Kallie Kriel dismissed reports of the old flag being displayed as fake news. The mayor of Midvaal in Gauteng, however, claimed he had seen them. Two Groundup reporters covered part of the Cape Town protest and did not witness conspicuous displays of the old flag.

Kriel said that Afriforum discourages its members from displaying the flag as it offends people, but that it should not be banned. Banning the old flag would be the same as banning communist symbols, which Kriel considered offensive, as communism, he asserts, was a crime against humanity.

The Promotion of Equality and Prevention of Unfair Discrimination Act, also known as the Equality Act, defines hate speech as showing a clear intention to be hurtful, incite harm and promote hatred. All three conditions must be present for hate speech to exist. This does not include genuine engagement in artistic creativity, academic and scientific inquiry and fair and accurate reporting in the public interest.

Farmers demonstrate against farm murders at Cape Town Stadium in the #BlackMonday protests in October 2017. Archive photo: Ashraf Hendricks

Mandela Foundation’s arguments

The Foundation’s CEO Sello Hatang affidavit says he was personally offended by the display as it recalled instances of racial abuse from his youth. “Gratuitous displays of the old flag, which serve no genuine journalistic, academic or artistic purpose in the public interest, are not about remembering but about forgetting our painful past. They do nothing to advance social justice, national unity and human dignity; quite the opposite. They cannot be protected by our Constitution, or defended in the name of tolerance, reconciliation and all of the values underlying the Constitution.”

On its website, the Foundation states that Germany has passed laws criminalising gratuitous displays of Nazi symbols, as they signify only oppression, hatred and the Holocaust. But the Foundation says it is is not pressing for criminalisation of gratuitous displays of apartheid symbols. “Instead we are using law to discourage their use.” The Foundation says that the Promotion of Equality and Prevention of Unfair Discrimination Act of 2000 empowers Equality Courts to order remedies such as an apology, community service, or sensitivity training.

Johannesburg Pride, representing the LGBT community, has joined as a friend of the court, and argues that the apartheid regime oppressed people not only on grounds of race but sexual orientation.

Displaying the old flag “demeans, humiliates, and creates a hostile and intimidating environment toward members of the LGBT+ community who were also victims of apartheid and its legacy,” says Khuresha Ally, director of Johannesburg Pride.

Afriforum’s arguments

Afriforum says the Foundation’s court case, if successful, would be an attack on free speech. Deposing for Afriforum, deputy CEO Ernst Roets says the organisation has no particular love for the old flag and what it represents. “In the exceptionally rare instance that anyone participating in one of our events brings an old flag with them, we ask them to put it away.”

However, a wide-reaching ban on the flag, such as that sought by the Foundation, would be “an unconstitutional infringement of the right to freedom of expression.”

Freedom of speech is the pre-eminent freedom guaranteed under the Constitution, argues Roets: “Freedom of expression is the cornerstone of a functioning democratic state. It gives people the opportunity to be exposed to differing viewpoints to make informed and legitimate decisions about their political lives.

“If citizens are under the impression that the ideas they are exposed to have gone through a filtering process to remove all inappropriate forms of expression, then they are less likely to be critical of the material that they consume. Societies that allow for a broad selection of opinions create an environment that strengthens people’s analytical skills and trains them to question the views that are presented to them.”

Afriforum also argues that ideas that are suppressed can later result in violence.

Banning displays of the old flag is inappropriate as those displaying it may have different intentions, argues Roets, who presents evidence of Sharpeville residents burning the new South African flag to protest Human Rights Day commemorations being moved from Sharpeville to Soweto. “By way of analogy, it may be thought that anyone who burnt the new flag was motivated by hatred towards black South Africans and a desire to reinstitute apartheid,” says Roets.

He adds that displaying the old flag is not hate speech, nor does it amount to a call for action or an incitement to cause harm.

Roets then turns on ANC and SA Communist Party symbolism, recounting atrocities committed by its foot soldiers against South Africans. If the old SA flag is banned, a precedent is set for the banning of the ANC or SACP flags, or indeed the British Union, on the grounds that they may be distressful to victims of violence committed under these banners.

Roets dismisses the claim that the old flag represents harassment, which “must amount to a torment that is persistent and repetitive”. The best remedy for offensive speech is counter-dialogue.

The #BlackMonday protests were sparked by the murder of Western Cape farmer Joubert Conradie. Roets says the subsequent reporting on the protests ignored the farm murders and focused instead on the claims that some protesters carried old flags.

He argues that the Nelson Mandela Foundation is dismissive of farm murders. There were 357 incidents recorded in 2016/7 with 553 victims of whom 74 were murdered. “The notion that the #BlackMonday marches were only concerned with violence against white farmers is outrageous. All violence, regardless of the race of the victims or the perpetrators is unconscionable,” says Roets.

Former Sasol Coal miners claim more than R80 million for coal-related illnesses

Written by Ciaran Ryan. Posted in Journalism

Photo of South Gauteng High Court

Former miners at Sasol Coal are taking the company to the Johannesburg High Court to get compensation for the lung diseases they allege they contracted because of their work environment. Archive photo: Ashraf Hendricks

This article first appeared in Groundup.

Twenty-two former underground miners are claiming more than R80 million in damages from Sasol Coal after they contracted serious lung and other diseases as a result of years of inhaling coal dust while working in underground coal mines.

They are arguing that Sasol Coal was negligent in failing to take adequate care to maintain healthy working conditions underground, in violation of several health and safety laws. Even if it was not negligent, the miners say the company bears the liability of their ill-health and loss of income for being unable to work.

The miners are represented by Richard Spoor, the attorney who last year reached a R5-billion settlement with seven gold mining companies for miners afflicted with silicosis contracted after years of breathing silica dust in underground mines.

In papers before the Johannesburg High Court, 12 of the miners say they were dismissed from employment because they contracted lung-related illnesses which made them unable to continue working. They are claiming for the loss of income, aggravated by their inability to find alternative work due to age, illness, low educational levels and lack of qualifications. The largest individual claim is R10.2 million, and the smallest is just under R1 million.

“The plaintiffs have suffered permanent physical impairment. Such impairment includes shortness of breath, generalised weakness, chronic chest discomfort, tiredness and disturbed sleep,” states the miners’ particulars of claim before the court.

One of the principle hazards to which they were exposed was noxious coal dust that cause lung diseases such as Coal Workers’ Pneumoconiosis (CWP) and Chronic Pulmonary Disease (COPD). These diseases can lead to respiratory symptoms such as a persistent cough and shortness of breath, resulting in a reduced ability to perform physical tasks. These can eventually develop into Progressive Massive Fibrosis (PMF), which reduces life expectancy. If coal miners with CWP or COPD are further exposed to coal dust, the severity of the disease is likely to increase.

The miners argue that Sasol Coal should have known of these health hazards, and through dust sampling and measurement should have been aware of the quantities of coal dust to which miners were exposed. Routine medical surveillance, if undertaken, would have established whether miners were at risk from the levels of dust in the underground mines.

Sasol denies liability

In its reply, Sasol argues that the matter has prescribed – meaning it is now too late to bring before the court. The Prescription Act requires such matters to be brought within three years of the alleged offence. Summons was served on the company in April 2015, more than three years after most of the miners had left Sasol’s employ.

Sasol’s court papers show several of the miners were dismissed for illegal strike action, and some had received medical compensation once their conditions had been diagnosed. One of the miners has since passed away. In other cases, workers’ medical conditions were deemed not severe enough for compensation. Some of the miners had previously worked at other mines, which may have aggravated their medical conditions. In other cases, Sasol denies the miners suffered from any lung disease, and no occupational diseases were diagnosed, so no benefits were paid out on their dismissal.

Sasol also questions some of the medical assumptions on which the miners base their claim, adding that CWP seldom causes significant disability. It also denies that COPD is developed by everyone who breathes coal dust.

The company argues that it provided proper mine ventilation to reduce dust particles to acceptable levels, and all workers were given adequate protective gear. To reduce the risk to miners’ health, remote-controlled mine machinery was employed, allowing operators to control the machines from a safe distance. It further argues that the miners have not been able to identify any act or omission that caused their injuries, and that the company took reasonable measures to address and reduce the risk of harmful exposure to dust on its mines.

Sasol also argues that in the event of dust hazards, the miners themselves would have been negligent in not noticing, avoiding and reporting the hazard (to which the miners reply that the harmful dust is invisible to the eye, and therefore almost impossible to detect). Should the court find Sasol Coal guilty of negligence, the corresponding negligence of the miners should reduce the amount of damages to be paid, says Sasol.

The Mine Health and Safety Act (MHSA) sets out the health and safety obligations on mine operators, who are expected to provide a work environment that is safe and does not pose a risk to workers’ health. Mines are also required to periodically measure the health dangers and investigate every serious illness so that the causes can be isolated and mitigated. It is also claimed that the company failed to properly ventilate the mines.

The miners argue that Sasol violated mining legislation by failing to ensure its mines were safe and healthy.

Expert medical reports show several of the miners on pain medication for lung-related complaints and other diseases. The reports suggest dust masks were available only some of the time while working underground.

The Sasol mines named in the court papers are Bosjesspruit, Brandspruit, Middelbult, Syferfontein, Twistdraai and Sigma.

The case is about to enter the pre-trial stage where the opposing parties will narrow down the areas of dispute. If settlement is not reached before then, the matter will likely go on trial in 2020.

Protests grow over defamation suits against environmentalists

Written by Ciaran Ryan. Posted in Journalism

Lawsuits can keep activists out of commission by forcing them to focus on the court case, but often backfire by drawing even more attention to an issue – as Australian mining company MRC is discovering. Picture: Shutterstock

Lawsuits can keep activists out of commission by forcing them to focus on the court case, but often backfire by drawing even more attention to an issue – as Australian mining company MRC is discovering. Picture: Shutterstock

This article first appeared in Moneyweb.

Environmental activists are headed to court next month in a bitter defamation suit brought last year by Australian mining company MRC, which is planning to mine titanium sands at Xolobeni on the Wild Coast.

The case involving three of the six environmentalists who are being sued for defamation by MRC and its CEO Mark Caruso is a curtain raiser to the main hearing and is intended to discover documents the environmentalists say they need to properly defend themselves.

Other environmental and civil groups are rallying around the environmentalists, claiming the court actions are nothing but ‘Slapp’ suits (Strategic Litigations Against Public Participation) intended to silence legitimate criticism of the company and its environmental practices.

“Around the world, Slapp suits are used by companies, particularly in the mining and energy sectors, to intimidate environmental defenders, in an effort to suppress debate about the negative impacts of their operations on local communities and in relation to environmental degradation,” says Leanne Govindsamy, head of corporate accountability and transparency at the Centre for Environmental Rights (CER). Two of CER’s attorneys have been sued by MRC and Caruso for defamation over criticisms made of MRC’s environmental practices.

Read: Defamation suits fly over mining controversies

Earlier this month CER and several other civil bodies – including groundWork, Earthjustice and Human Rights Watch – released a report highlighting threats against activists in the form of harassment, intimidation, violence and the use of Slapp suits.

“Judging from the response to the report, including the response to the report’s findings around the Slapp suits brought by MRC, the company is likely to find itself facing a wall of opposition from other civil society groups which resist the notion of censorship over issues that are in the public interest,” says Govindsamy.

Activists harassed

The Human Rights Defenders report says activists are frequently harassed by companies seeking court orders to prevent protests, filing vexatious lawsuits and seeking financial penalties. Slapp suits are a growing trend around the world, prompting calls for anti-Slapp legislation such as exists in some US states.

MCR does not enter this contest with a clean slate. Its subsidiary Mineral Sands Resources was fined R1.25 million for environmental transgressions at its Tormin operations on the west coast, a fine many consider woefully inadequate relative to the damage caused.

The chances of getting rich off defamation suits in SA are not good, reckons human rights lawyer Advocate Mark Oppenheimer. The top award for defamation in SA was R50 000 plus costs to former head of the Independent Police Investigation Directorate Robert McBride, who successfully sued The Citizen in 2011 over its claims that he was an unrepentant murderer for the Magoo Bar bombings in Durban in the 1980s. This award was the result of several articles in The Citizen that the Constitutional Court found to be malicious and defamatory.

One of those being sued by MRC and Caruso is environmental lawyer Cormac Cullinan. Both Cullinan and Caruso were on a Cape Talk radio show discussing the Xolobeni mining story, when Cullinan suggested that pro-mining representatives of the local community had been bought off, and that forged names were used in support of the pro-mining lobby.

Diversionary tactic 

“Caruso had the opportunity to defend his position on the radio show, but chose instead to bring a lawsuit,” says Cullinan. “One of the effects of these cases is to keep you out of commission while you spend time defending a court case. My statements were fair comment and I don’t think MRC’s case has any merit.”

What seems to have irked environmentalists in relation to MRC is the visit last week by mining minister Gwede Mantashe to its Tormin operations in the Western Cape. In a letter to the minister, CER executive director Melissa Fourie wrote: “Attempts to silence criticism and debate on matters of public interest are the most egregious forms of attack on constitutional rights and undermine not only the rights of those who are sued but undermines constitutional freedoms, which are central to democracy and civil society’s ability to advance transparency and accountability.”

One of the defendants in a separate case brought by MRC is social worker John GI Clarke, who denies defaming the company, but also appears to have doubled down on his criticism of MRC and Caruso. He faces 19 claims totalling more than R5.5 million, a figure that seems to keep growing each time he opens his mouth. But Clarke shows no signs of going anywhere quietly.

He has been highly critical of the way MRC and Caruso went about trying to secure mining rights in Xolobeni, apparently against the wishes of many people living in the area.

“All I have simply done is what social workers are obliged to do, in terms of our professional code of practice,” says Clarke.

Doubling down

“As part of the discovery process I have given Caruso’s lawyers enough evidence, without disclosing my confidantes of course, to cause him even more anxiety. That perhaps explains why [they are] now doubling down on me by increasing the quantum of damages Caruso is claiming. He started with seven claims totalling R2.25 million, then doubled that to 18 claims totalling R5 million and then again, adding another 10% on that by suing me for statements I made in another recent article,” Clarke told Moneyweb.

In Caruso’s affidavit before the Cape High Court, he lists the 19 instances of alleged defamation by Clarke. One of them is an interview Clarke gave to the Daily Maverick in which he is claimed to implicate MRC in the murder of Pondoland community activist Sikhosiphi ‘Bazooka’ Rhadebe in 2016 – a claim which, it must be said, MRC has always denied and Clarke says he never made.

The offending sentence could with a stretch be interpreted this way, but is so grammatically mangled as to make hardly any sense at all.

Caruso supplies the passage that he says defamed him:

“‘The key issue is whether human rights trump mining rights,’ said John Clarke, a social worker and Daily Maverick contributor, who has been working closely with the community. The area, which was the site of the Pondoland revolt, is fiercely resistant to being told from the outside what to do,” said Clarke, and after MRC continues to try for a mining licence the killing of Rhadebe he said it shows it’s trying to increase the pressure on those in its way.”

For this sentence, MRC and Caruso are claiming R500 000 from Clarke. In reply, Clarke says the offending sentence is not a direct quote and makes no logical or grammatical sense. It must be read in the broader context of growing hostility between pro and anti-mining activists in the area.

Rhadebe’s killing was a tragedy that gutted the local community, especially as the killers were never found.

Mining licence ‘supported’ by the dead?

Clarke also claimed that some of the local residents’ signatures presented by MRC in support of its mining licence showing “prior, free and informed consent” were forged and included many who had died. Clarke added that Caruso had attempted to hide this fact. Caruso’s affidavit says this statement wrongly suggests criminality on his part. For this statement by Clarke, Caruso is claiming another R500 000. There are 17 other claims against Clarke alone.

MRC and Caruso are also claiming R1 million from community activist Mzamo Dlamini, R1 million from Cullinan and R250 000 each from CER lawyers Christine Redell and Tracey Davies, and community activist Davine Cloete. The CER lawyers were sued for comments they made during a presentation at the University of Cape Town claiming poor environmental practices by the company’s Tormin project. All are defending the claims.

Are Slapp suits effective in silencing criticism? Govindsamy says they are intended to promote self-censorship and place a huge financial burden on those forced to defend them. “However, civil society organisations in South Africa are committed to defending the right to freedom of expression, particularly around issues which are in the public interest and we are committed to ensuring that activists are not silenced through the use of Slapp suits, especially bearing in mind the integral role which freedom of expression has played in our nascent democracy.”

The ‘Streisand effect’

Slapp suits very often backfire on the plaintiffs by rallying support for the defendants. This is known as the ‘Streisand effect’, where attempts to silence free speech end up drawing even more attention to the issue. It is named after US performer Barbara Streisand’s attempts to have a picture of her house removed from a public collection of California coastal images. Her attempt to avoid public scrutiny had the opposite effect once it became known.

There is a push for anti-Slapp legislation in several US states, making it easier for judges to dismiss cases deemed to be attempts to silence criticism. The most frequent targets for these suits are civil society and environmental groups, and the press. 

Former finance minister Trevor Manuel has reportedly filed a suit against the Economic Freedom Fighters (EFF) for claiming the appointment of Sars Commissioner Edward Kieswetter was irregular. Manuel was part of the recruitment selection panel, and the EFF claimed he was related to Kieswetter and that the two had close business ties. Manuel demanded a retraction, calling the claims racist and libellous. The EFF appears to be sticking to its guns, saying it will defend any action brought by Manuel.

Many worthy stories are buried without having to go this far. PR agencies are sometimes able to do it with charm offensives. Sometimes all it takes is a phone call. In the opening section of Gangster State, author Pieter-Louis Myburgh recalls receiving a phone call from Ace Magashule, ANC secretary-general and the subject of the book, trying to fish for information on what Myburgh was planning to write about. That didn’t stop Myburgh, but it did stop a Free State reporter who received a similar call, says Myburgh.

Municipal sector in SA faces collapse

Written by Ciaran Ryan. Posted in Journalism

Of the seven metros analysed, Cape Town came out tops for financial sustainability. Picture: Jose Cendon/Bloomberg

Of the seven metros analysed, Cape Town came out tops for financial sustainability. Picture: Jose Cendon/Bloomberg

This article first appeared in Moneyweb.

SA’s municipal sector faces collapse as financial governance continues to deteriorate, says Ratings Afrika’s latest Municipal Financial Sustainability Index (MFSI) for 2018.

Unless corrective action is taken, a crisis is inevitable. And when service delivery is poor, violence is never far behind. Political leaders need to look at the interests of residents and businesses rather than their own, says the agency. They need to root out corruption, appoint managers with the right skills and experience, and apply sound budgetary practices and strict financial discipline.

Read: Amalgamation no silver bullet for struggling municipalities

Very little of this is in evidence in the latest MFSI. “The current political leadership in control of the majority of municipalities has demonstrated over the last five years and more to not being capable of sound governance,” says Ratings Afrika. “This is the main cause of the deteriorating financial sustainability of the municipal sector in SA.”

Of the seven metros analysed by Ratings Afrika, Cape Town came out tops for financial sustainability. Joburg came last.

Both are DA-run, so gloating rights ahead of the national elections are severely curtailed.

Tshwane, too, looks like it needs a financial reboot with a working capital deficit of R3.2 billion. It’s also DA-run, but is starting to show signs of improvement, reporting a R336 million operating surplus in 2018.

Joburg reported a deficit of R250 million in 2018 and has suffered a deterioration in its MFSI score from 43 to 29 over the last five years.

Ratings Afrika analyst Leon Claassen says it is difficult to draw political inferences from these scores, since many municipalities and metros are grappling with long-standing legacy and debt issues. However, it is well known that the governing party in each jurisdiction stacks management with political appointees.

Drop in electricity sales for Joburg

An analysis of Joburg’s revenue shows electricity sales dropping nearly R900 million to R13.5 billion – a decline of roughly 6%. Part of this would have been the result of electricity outages, but some of this is also certainly due to users switching to alternative energy sources. Non-payment is adversely affecting the working capital position of Johannesburg, which was R3 billion negative (shortfall) as at June 2018. Eskom’s annual report for the last year shows an arrears bill of nearly R17 billion in Soweto alone – this amount is not included in Johannesburg’s financial results.

Presenting the latest MFSI for 2018 on Tuesday, Claassen points out that only 23 of the top 100 municipalities in SA reported operating profits last year. The remaining 77 made combined operating losses of R13.3 billion and recorded a combined working capital shortfall of R23 billion. This means they have run out of cash and have stopped or delayed paying creditors.

Ratings Afrika’s MFSI uses a model that scores municipalities out of 100 based on operating performance, liabilities management, budget practices and liquidity.

Overall, the picture for municipalities is bleak and getting worse. The national average slipped below 40 to 38 for the first time since the index was calculated in 2012. Of the top 100 municipalities, 56 scored less than 35. Worst of the lot was Modimolle, formerly Nylstroom in Limpopo, which scored just 2 out of 100. It has virtually ceased to function and service delivery is almost non-existent – a recipe for protest and violence.

Redemption

Best of the lot is Swartland in the Western Cape with a score of 86. And herein lies a tale of redemption. When the index was first published in 2012, Swartland scored in the low 50s. After huffing and puffing about the low score, municipal managers asked what they should do to improve performance. “It came down to making basic financial corrections, such as reining in expenses, no new hires, improving revenue collection and implementing proper budgeting,” says Claassen.

Another municipality on the mend is Midvaal in Gauteng, whose score has improved from 53 to 72 over the last five years. It has consistently won clean audits from the Auditor General. In 2013 the ANC attempted to merge the DA-run Midvaal with the disastrous ANC-run Emfuleni in what was seen as a cynical attempt to capture the province’s best-run municipality. The attempted merger was defeated in the North Gauteng High Court in 2015.

Moving in the opposite direction is Msunduzi in KwaZulu-Natal, which was once rated among the best-managed municipalities in the country. All that has gone as new management took over, squandered the reserves, and let revenue and arrears collections go to the dogs.

The political question

How much does politics play in the management of municipalities?

Ratings Afrika director Charl Kocks relates the story of one metro that soft-peddled on arrears collections so as not to lose votes ahead of an election. The obvious solution seems to be to get professional managers in to run the municipalities, rather than using them as playthings for dispensing political favours.

The main revenue source for metros and municipalities is electricity sales, followed by water charges, refuse and sewage charges, and property tax.

“Given that the financial sustainability of key local municipalities in SA is weak, our expectation is that the quality of service delivery is likely to deteriorate over the short to medium term,” says Ratings Afrika. “Weak service delivery impacts quality of living as well as the economic growth and development that are desperately needed to reduce unemployment in the country.”

What differentiates the high-scoring municipalities from the weak are skills, experience, financial discipline and quality of management backed by sound governance.