Free State residents put down their pens and take to the streets

Written by Ciaran Ryan. Posted in Journalism

Protests started in Ficksburg and spread within hours to Fouriesburg and Clocolan, with taxi associations and farmers’ groups blocking all traffic into and out of the towns. From Moneyweb.

The road to Bethlehem. Image: Supplied
The road to Bethlehem. Image: Supplied

Taxi associations, farmers’ groups, businesses and community members blocked roads into and out of Ficksburg in the Free State on Wednesday in protest against the “deadly” state of roads in the area.

The protests quickly spread to the neighbouring towns of Fouriesburg and Clocolan. Protest organisers from all sections of the community say their genteel letter-writing campaigns came to nought, so they decided to take to the streets and bring the towns to a standstill.

The protests appear to have yielded immediate dividends: Free State MEC for Police, Roads and Transport Sam Mashinini was on the scene within hours to hear the residents’ complaints. He got first-hand insight into what has riled the local residents when he had to navigate his vehicle through 18 kilometres of what residents describe as one of the worst roads in the country.

“We’re not talking about potholes,” says Ficksburg resident Bruno Muller. “These are volcanos.”

Mashinini promised to commence repair work on the three most problematic roads by Monday next week, overseen by the province’s chief road engineer. The poor state of the roads has resulted in several avoidable deaths, according to one of the protest organisers, Selloane Lephoi.

Non-political community action

The protest organisers were determined to keep political parties and politicians well away from what they say is a completely non-political campaign that has the full support of the community.

According to one protest organiser, Laiki Coccosulis, roads in the area have fallen into such a state of disrepair that up to 90 vehicles a week are damaged due to potholes that have been neglected for years.

“Dozens of heavy tankers and trucks use this road every day on their way to Lesotho, yet the municipal budget for road maintenance is a ridiculous R4 million a year – which in any event has been redirected for PPE [personal protective equipment].

“What we are very proud of is that all sections of the community were involved, and there was not a single incidence of violence,” says Coccosulis.

“This was a peaceful protest, but we decided we had to get the attention of the authorities.”

Adds community organiser Morgan Barrett: “We are not looking for confrontation. We met with the MEC and we came up with suggestions on what projects to prioritise, and how best to fix the most urgent problems. Our objective was to open the channels of communication with the provincial government, which I believe we’ve done.”

Action promised

So far, the talk has been productive – but residents want to see this translated into action. The provincial roads department has promised to have its maintenance teams on site by Monday next week.

If not, the protests are likely to be stepped up a notch.

Ficksburg lies within the Setsoto Local Municipality, part of the wider Thabo Mofutsanyana district that includes the towns of Clarens, Harrismith and Bethlehem. It’s a beautiful part of the country, surrounded by mountains and rich farming land, with plenty potential for tourism.

Ficksburg hosts an annual Cherry Festival as a way of attracting visitors to the town, but residents say the decrepit state of the town’s infrastructure is a turn-off for tourists.

Municipality’s financials

The Auditor-General has issued qualified audit opinions on Setsoto for the last two financial years that are available (to June 2019). The latest report found that the municipality made a loss of R644 million for the year to June 2019 and deducted PAYE from employees’ salaries, but held back paying over R12.6 million of this.

It also owed R25 million to Eskom, up from R15 million the previous year.

There was also unauthorised expenditure of R616 million and irregular expenditure of R76.9 million.

Read: AG: How to improve the state of our municipalities (Jul 2020)

Some road repairs are being done in the town of Ficksburg, but these amount to “filling potholes with gravel so now we have bumpy patched surfaces,” says Coccosulis.

Setsoto is regarded as one of the most dysfunctional municipalities in the Free State, with residents complaining of sewage spilling into primary schools in the area, and broken water pipes going unrepaired for weeks – quite apart from the dilapidated roads.

Parallel local government set up

Selloane Lephoi is director of Ficksburg My Home, which has been set up as a parallel local government to repair and maintain local infrastructure that is neglected by the municipality.

“We’re taking over functions from the municipality in a way that does not require us to go to court and fight battles that may take years to resolve,” she says.

“We clean up litter, fix broken pipes and leaking sewage systems, and then we will present the municipality with the bill.”

Does the municipality have the money to pay? “It might take a long time, but yes, they will have to pay,” says Lephoi.

“We do rely on funding from local businesses and concerned residents, but in the end we will get the municipality to refund us.”

As to the legality of this approach, Lephoi says the Constitution of the Republic of SA obligates the municipality to deliver services paid for by ratepayers. “If the municipality cannot perform the role it is constitutionally required to do, and the residents do it on their behalf, it is perfectly legal to by-pass it and present them with the bill afterwards.”

Crime is down, says group

By clearing out overgrown brush in and around the town which served as cover for criminals, Ficksburg My Home says it has been able to reduce the town’s crime rate.

In other parts of the country, residents have taken over water and sewage services from the local municipality, in one case with the blessing of the high court, while others are engaged in a ratepayers’ revolt.

In January 2020, history was made when the Makhanda High Court in Grahamstown ordered the dissolution of the Makana Local Municipality and an administrator be appointed to run its affairs.

Ficksburg residents say they are aware of these different campaigns to restore responsible local government, but have decided on a different route: protest action, running a parallel municipality, and engagement with the provincial leaders.

Where to now

Setsoto is presently without a municipal manager, a post that is currently covered by the chief financial officer. The law requires municipal managers to have specific skills, and acting municipal managers may only act for a period of three months, unless this period is extended by the provincial MEC.

Lephoi says residents long ago ceased to participate in the drafting of the Integrated Development Plan (IDP) for the town, as their voices were ignored.

“We have a situation where an IDP agreed upon by a few dozen people in local government gets approved over the heads of tens of thousands of residents. No one is listening to them. This is now going to change.

“In the next few weeks, we – the residents of Ficksburg – will be presenting our own IDP with suggestions on how to fix the problems in the town, and we will make sure our voices are heard.”

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Covid risk is over, says Bank of America

Written by Ciaran Ryan. Posted in Journalism

The bulls are back, and optimism is at record levels. From Moneyweb.

Inflation is seen as a bigger risk than the coronavirus by fund managers. Image: Michael Nagle, Bloomberg
Inflation is seen as a bigger risk than the coronavirus by fund managers. Image: Michael Nagle, Bloomberg

The bulls are back and Covid is no longer the primary “tail risk” risk facing investors, says Bank of America’s latest Global Fund Manager survey.

A record 89% of fund managers surveyed expect profits to improve over the next 12 months, surpassing the levels of optimism last seen in December 2009 and February 2002.

Fund managers regard inflation a bigger risk than Covid, though the vaccine roll-out and possible disruptions in the bond market are still regarded as potential risks, but not as severe as they were a year ago.

Inflation expectations are at an all-time high, with 93% of fund managers expecting higher inflation in the next 12 months.

Investor optimism is at the highest level since February 2011 when Brent crude oil was over $100 a barrel.

Source: Bank of America Global Fund Manager survey

Only 15% of investors believe we’re in a bubble, though 55% believe the markets are now in a late stage bull market, with 25% saying this is an early stage bull market.

Fund managers have slightly increased cash holdings to 4%, which is high by historical levels.

Low returns on alternative investments and possible concerns about market shocks may account for this.

Swing to cyclicals

A year ago fund managers were piling into defensive assets such as cash, healthcare, staples and utilities, but are now rushing for cyclical assets like commodities, industrials, banks, materials and emerging markets.

There is growing pessimism over tech stocks, but rising optimism over banks for the first time in a year. Funds are cutting their allocations to tech stocks to levels last seen in 2008.

Most funds are still heavily invested in tech, deemed the most “crowded trade” among fund managers, according to Bank of America, though with declining enthusiasm.

“Long bitcoin” is creeping up on tech as a favoured trade among fund managers.

This is followed by “long ESG” (environmental, social and governance stocks) and “short US dollar”.

A record 52% of fund managers now believe value will outperform growth stocks – a sharp reversal in sentiment over the last year, when growth stocks were seen as likely to outperform growth value stocks.

Equity correction

“Nobody believed that rates at 1.5% would cause an equity correction,” says the survey. “But the move from 1.5% to 2% is critical, as 43% of investors now think 2% is the level of reckoning in the 10-year Treasury that will cause a 10% correction in stocks.”

Yields of 2.5% on 10-year treasuries makes bonds attractive relative to stocks, though most fund managers believe the Federal Reserve will only start hiking interest rates in 2023.

A year ago chief investment officers were predominantly concerned with improving balance sheets.

Now their attention has shifted to the need to use cash for capital spending, reflecting the increasingly positive outlook in business conditions.

Expectations of a steepening yield curve in the bond market (where longer-term interest rates rise faster than short-term rates) are at near record levels, though there was a noticeable softening in these expectations over the last month, says Bank of America.

On the economic front, a record 91% of fund managers expect a stronger economy, with 63% expecting it to be a lot stronger.

Crypto exchange iCE3x suspends trading after discovering account discrepancies

Written by Ciaran Ryan. Posted in Journalism

Some withdrawal requests are being processed, but not on bitcoin and litecoin. From Moneyweb.

The news was received with some alarm by the crypto community. Image: Chris Ratcliffe, Bloomberg
The news was received with some alarm by the crypto community. Image: Chris Ratcliffe, Bloomberg

SA-based crypto exchange iCE3x posted an announcement on Tuesday that it had suspended all trading and deposits on the platform after discovering “discrepancies in the balances pertaining to bitcoin and litecoin.”

An update posted on the website on Wednesday says the company is processing withdrawal requests on cryptocurrencies, with the exception of bitcoin and litecoin.

The news was received with some alarm by the crypto community, though iCE3x is a relatively small player in the crypto space, representing just a few percent of the total daily volumes of cryptos traded in SA.

“This is not good news for the industry,” says one crypto executive who asked not to be named. “We take no joy in seeing a competitor taking themselves down.”

iCE3x was founded in 2013 and is one of the oldest crypto exchanges in SA; it is reckoned to have roughly 80 000 customers, though a much smaller percentage of these would be active traders.

Others in the industry say the suspension of trading at iCE3x does little to boost confidence in a crypto sector that is often viewed with suspicion due to lack of regulation, and which is working to build public trust.

The statement posted by iCE3x on Tuesday provides little insight into the reasons for the account discrepancies, other than to say: “After consultation and deliberation with our partner Merkeleon.com and their subsidiary Coinspaid.com, we have not been able to reach a satisfactory conclusion.

“On the advice of our legal & auditing team, we have suspended all Deposits & Trading. Furthermore, we have suspended BTC (bitcoin) and LTC (litecoin) withdrawals with immediate effect, pending the outcome of a full investigation and reconciliation. This is being done for the protection of all clients.”

Merkeleon is an Austrian-based company providing trading platform and other technical software to crypto exchanges. CoinsPaid is a crypto payments processor.

Moneyweb reached out to iCE3x CEO Gareth Grobler for comment, but had not received a reply at the time of publication. The story will be updated when and if we receive a reply.

According to Globalcrypto.tv, Grobler is quoted as saying that “he won’t run to Brazil” – a nod to MTI’s CEO Johann Steynberg who is believed to have fled to Brazil in December last year with billions of rands worth of bitcoin owing to tens of thousands of investors around the world.

Grobler is also reportedly a managing partner at Merkeleon.com, according to Blocknewsafrica.com, which suggests a possible dispute with his partners over the reported discrepancies at iCE3x.

Here is the announcement released on Tuesday:

Dear Trader,

It has come to our attention that there are discrepancies in the balances pertaining to Bitcoin and Litecoin we hold on the platform. After consultation and deliberation with our partner Merkeleon.com and their subsidiary Coinspaid.com, we have not been able to reach a satisfactory conclusion. On the advice of our legal & auditing team, we have suspended all Deposits & Trading. Furthermore, we have suspended BTC (bitcoin) and LTC (litecoin) withdrawals with immediate effect, pending the outcome of a full investigation and reconciliation. This is being done for the protection of all clients.

Currently, clients who hold any other currency (excluding Bitcoin & Litecoin) on the platform will be still able to withdraw their funds.

We urge you to do so as soon as possible.

Should the domain/email/service desk become unavailable as a result of 3rd party actions, we will engage via the status update page.

We apologize for the inconvenience caused and will update you with progress throughout.

Yours Sincerely

GC Grobler

Director

Internet Currency Evolution Cubed (PTY) Ltd

And the update released on Wednesday:

The email system is currently working again and withdrawals (except BTC and LTC) are being processed.

As always we can still be reached via help.ice3.com or email us help@ice3.com

Thank you for your support and patience.

Kind regards

The iCE3 Service Desk Team.

Domestic leisure sector could lead tourism recovery

Written by Ciaran Ryan. Posted in Journalism

Provided we avoid more alcohol and beach bans. From Moneyweb.

South Africans are eager to get out of their homes after being cooped up for months on end. Image: Shutterstock
South Africans are eager to get out of their homes after being cooped up for months on end. Image: Shutterstock

There are signs that domestic leisure is starting to spark, particularly around major South African cities, after a dreadful year with self-inflicted wounds such as a ban on alcohol and beach visits that have been heavily criticised.

There are also signs that millions of people fed up with Covid restrictions are ready and primed to travel. The Travel Technology Association says after a year of quarantine, 82% of families surveyed have plans to travel in 2021, and the travel industry is adapting to prioritise safety as the world emerges into a post-Covid environment.

Tourism-dependent regions such as Cape Town have been gutted by the Covid lockdowns, a situation made worse by the beach and alcohol bans (now lifted), as well as the shutdown on international travel. SA received slightly less than 200 000 foreign arrivals in December 2020, compared with nearly 1 million over the 2019 December period – a drop of about 80%.

Read:Alcohol sales remain banned and most beaches closed (Jan 12)

Dlamini-Zuma again given five days to amend lockdown regulations (Feb 25)

Independent tourism consultant Gillian Saunders says Smith Travel Research (STR) figures show hotel occupancies in Cape Town averaged 17% in January, despite a 36.6% drop in tariffs, compared with previous levels of 71% for this time of year.

Hotel cancellations increased dramatically after the lockdown announced in January, along with the beach and alcohol bans.

Read: Hotel occupancies collapse to almost zero

Across the country, January 2021 occupancies averaged 20% compared with 57% in January 2020. Most hotels require occupancy levels of 40% or more to turn a profit.

“Businesses with strong balance sheets rode out 2020, but are now running out of cash,” says Saunders.

Signs of change

However, there are shards of light appearing through the gloom.

“There are encouraging signs that domestic leisure tourism is picking up, though the evidence is tentative and anecdotal at this stage,” adds Saunders.

“What we are seeing is a huge pent-up demand for travel, both in the domestic and international markets. Once the vaccine roll-out accelerates and we see borders opening up again later this year, we could see growth in tourism after a terrible year for tourism worldwide.”

Lee-Anne Bac, director in advisory services at BDO, told Moneyweb that the lockdown forced hotels and tourism providers to adapt to customers’ changing requirements by stepping up sanitary and social distancing practices.

“I think the rise of domestic leisure tourism in SA is going to be a permanent feature of our sector,” says Bac.

“People who would normally travel abroad but couldn’t because of the shutdown on international travel have become domestic tourists. This is particularly evident among middle class South Africans who are eager to get out of their homes after being cooped up for months on end.”

Harsh blow

A survey by the International Finance Corporation details the havoc wrought by the lockdowns: by October 2020, 28% of tourism businesses had closed, and 5% of these had closed permanently.

Some 92% of tourism businesses reported a 50% or more drop in revenues; 58% were unable to service their debts and 61% were unable to cover their fixed costs. More than three-quarters had furloughed staff, and 11% had made more than 50% of their staff redundant.

Read: Lockdown causes ‘total devastation’ to tourism & hospitality

Plettenberg Bay Tourism estimates that R674 million was lost between October and December due to the shutdown of beaches, the curfews and the alcohol ban.

A final straw for many foreign tourists was the alcohol ban – people don’t want to holiday without alcohol, says Saunders.

Hospitality businesses in Eastern Cape and along the Garden Route lost most of their usual seasonal trade over the peak October-December period, with KwaZulu-Natal and the Western Cape losing the latter part of the season.

Easter weekend

Saunders says the upcoming Easter break could turn out to be something approaching a normal leisure season, provided there is no reprise of the beach and alcohol bans or night-time curfews.

“It will take another year or two before world tourism recovers, but I think when it does, it could be huge. People want to travel, and advance bookings are steadily climbing. Unfortunately, international bookings to SA may take a bit longer to recover given the perceived risks of visiting a country seen to have a particularly lethal strain of the virus, though the stats show that our second infection wave did not spread more rapidly than the first. There is no doubt that the tourism sector will bounce back, hopefully starting later this year.”

Tourism crises and recoveries

A 2019 World Travel and Tourism study entitled Crisis Readiness analysed how rapidly tourism recovers from different types of crises. None of the crises analysed had the same level of impact globally as Covid, though there were devastating impacts on specific regions and countries from events such as terrorism and natural disasters.

Where tourism was hit by terrorism, the recovery time was 11.5 months on average.

Civil unrest and political instability cases had the highest average recovery time at an average 22.2 months with a range of 10 to 45 months. Natural disaster recoveries took 16.2 months on average.

The recovery time from disease cases took 19.4 months on average, with a range in recovery from 10 months to 34.9 months.

If this is any indicator of what is in the near future, the world’s tourism sector could start to recover by the final quarter of 2021, accelerating into 2022, but with normal levels returning only in late 2023/2024.

Resilience and ‘repurposing’

Bac says tourism businesses have shown remarkable resilience in repurposing their operations to cater to a more local market, and in finding new ways to reach out to new markets.

“There are a lot of things guest houses and hotels can do to attract new customers. For example, offering meals in rooms rather than in a common dining area, providing spaces to safely work and stay, and by promoting their health and safety protocols. Many are already doing this.”

Read: Minister asks tourism to be creative post Covid-19

Hurdles

There are still major hurdles to overcome to see any return to normal for the tourist sector.

The British Lions tour scheduled for July may be cancelled, postponed or hosted with few or no spectators, according to a presentation by Tourism Business Council of SA (TBCSA). Fans from the UK and Ireland have already started cancelling bookings for a sporting fixture that was expected to attract 27 000 visitors and R1.1 billion in revenue.

The TBCSA recommends more radical action from government to rescue tourism businesses, including extending its Loan Guarantee Scheme to the travel and tourism sector, and vaccinating tourism frontline staff as a priority.

What also needs to be tackled is the narrative of SA’s dangerous Covid-19 variant, particularly as the stats don’t support this exaggerated claim.

Lockdowns needs to be less ‘stop and start’ should a third wave of the virus hit during the winter season, and government needs to provide better advance warning of any future lockdowns.

Capital Economics reports that tourism sectors in Africa will be among the slowest to recover from the coronavirus crisis, inflicting further economic pain in economies most dependent on the industry.

Hotel searches and bookings offer a gauge of demand for tourism and on both of these metrics, all other regions apart from Europe outperform Africa. African destinations seem unlikely to be the first port of call for many travellers when pent-up demand is released.

Source: Capital Economics

Platinum stocks soar on kick from recovery in auto sales

Written by Ciaran Ryan. Posted in Journalism

PGM prices are up on supply tightness and tighter environmental regulations. From Moneyweb.

Image: Waldo Swiegers/Bloomberg
Image: Waldo Swiegers/Bloomberg

A recovery in global auto sales and tightening emissions standards have driven rhodium prices to dizzying levels over the last month, propelling platinum to levels not seen in a decade.

Last month autocatalyst manufacturer Johnson Matthey said the rhodium demand of roughly 1 million ounces a year was under-supplied by 84 000 ounces in 2020, and that shortfall will likely continue in 2021 as global vehicle sales are expected to record a sharp bounce after a slump in 2020.

Global car sales are expected to rise almost 9% in 2021 after recording a 15% decline in 2020 as a result of Covid-related disruptions.

Rhodium, palladium and platinum are essential in cleaning exhaust emissions in vehicles. Rhodium is also used to reinforce glass for consumer electronics products. It accounts for a relatively small proportion of total mining output, but is a significant cash earner due to rising demand and prices.

Platinum prices are down by nearly half over the last 12 years, having been eclipsed by what were previously considered by-product metals – rhodium and palladium. Ironically, platinum fell victim to its own success, having traded at a high of over $2 200/oz in 2008 during the commodity super-surge.

Source: Statistica

Rhodium, once a relatively minor part of the platinum group metal (PGM) basket, is now a game changer, and a key factor behind the surge in platinum share prices in recent months.

A year ago rhodium traded at $13 000 an ounce, but this week it tore through $28 000/oz on the spot market, more than doubling in price over 12 months due to the rebounding auto market and a scramble by major producers in the US, Europe and Asia to secure supply in a tight market.

Rhodium, Platinum and Palladium prices

Source: Share Magic

Royal Bafokeng Platinum’s share price is up 553% from its March 2020 low. Its 2020 annual results are due out next week, and the market is expecting a maiden dividend from the platinum producer, adding a bit of extra spice to the price move. Impala Platinum (Implats) is up 380% and Anglo American Platinum (Amplats) 354% over the last 12 months.

SA is the world’s major source of PGMs and the Covid-related disruption to supply in 2020 accounts for the supply shortage in all three metals. Johnson Matthey says the 7 million to 8 million-a-year platinum market was undersupplied by nearly 400 000 ounces in 2020, while the 10 million-ounce-a-year palladium market was under-supplied by about 600 000 ounces.

Supply was further hit by an explosion at an Amplats processing plant in 2020, which contributed to a 42% drop in refined production for the last financial year. Overall PGM production was down 14% to 3.8 million ounces.

Implats rebounded sharply after the shutdown earlier in 2020, reporting a 29% increase in production over the same period in 2019. Though rhodium accounts for a small percentage of total ounces mined, it has an outsized impact on overall financial results.

Royal Bafokeng Platinum share price

Source: Share Magic

The average price achieved for rhodium sales at Implats for the six months to December was $12 454/oz, a figure which will be substantially higher in the current period.

Implats v Amplats share price

Source: Share Magic

The last super-cycle in platinum shares ended in 2008; shares then entered a steady decline over the next seven years. The market bottomed in 2018 and has been on a tear since then.

Impala still has some headroom to recover to its previous all-time high of R33 000 reached in May 2008, but Anglo Platinum has been breaking new all-time highs in the last two months.

Capital.com argues that the recent momentum in the platinum price is partly due to vaccination efforts worldwide, which will allow a return “to some form of normality.”

Nor is it likely that the emergence of electric vehicles will dislodge demand for platinum. Hybrid cars will be around for decades, and electric vehicle sales are only expected to surpass that of fossil-fuel cars by 2038, which means demand for platinum (and other PGMs) will be around for some time yet.

Why some companies are switching their cash into bitcoin

Written by Ciaran Ryan. Posted in Journalism

MicroStrategy CEO Michael Saylor recently held a conference to explain why he has moved his company’s cash into bitcoin. From Moneyweb.

A credit card purchase may be immediate but settlement can take days, while bitcoin allows for transfers at the speed of light. Image: Shutterstock
A credit card purchase may be immediate but settlement can take days, while bitcoin allows for transfers at the speed of light. Image: Shutterstock

Ross Stevens, CEO of Stone Ridge and executive chair of New York Digital Investment Group, was an early corporate adopter of bitcoin. The only cash he keeps is for the payment of immediate bills.

“Cash is now a liability, it’s no longer an asset. That has profound implications for corporate balance sheets,” he told a recent bitcoin conference for senior executives, explaining the logic of adopting bitcoin rather than cash as a store of value.

“A CEO has two jobs, executive and capital allocator. The first one is obvious, the second one is the CEO’s most important job,” said Stevens.

The conference was convened by MicroStrategy CEO Michael Saylor, who challenged Tesla CEO Elon Musk to follow his example and shift some of his balance sheet cash into bitcoin. Shortly thereafter, Tesla announced that it had put $1.5 billion of its $19 billion cash and near-cash into bitcoin.

Dollar depreciation

The US dollar has depreciated by 3.38% a year since the end of the Second World War, and is today worth just 7% of its value in 1946. That depreciation has accelerated in the last decade, and any CEO planning 10 or 20 years into the future must now consider what is a safer store of value – cash, bitcoin or gold. The evidence is strongly in favour of bitcoin, says Saylor.

You can check out this interview by Bloomberg with Saylor here.

Saylor says with M2 money supply growth in the US at 25%, the cost of capital has exploded. Holding cash yielding negative returns is the road to serfdom. The S&P 500 index is up nearly 25% over the last year, so any executive would have to beat that return to justify their existence, otherwise return cash to shareholders.

On the other hand, bitcoin is up 460% over the last year, compared to 53% for the Nasdaq, 9% for gold and a negative 7.7% for US Treasury long bonds.

“Why bitcoin? You can’t hold traditional treasuries [because] you’re looking at a negative real yield of 15-25% a year. I have to manage shareholder value, and to grow that you have to grow your assets at a rate faster than the cost of capital,” says Saylor.

Any manager offering to generate returns of 1-3% return on capital will face shareholder demands for that capital to be returned. Bitcoin’s annual compound growth rate is 198% a year.

“Bitcoin is the hardest money on earth. It’s an institutional grade safe haven asset. It’s gold without all the imperfections of gold on a digital monetary network that moves at the speed of light that you can programme to do a million transactions a second,” adds Saylor.

“Why would you want it? For the same reason you would want to run electric power to your city or running water to your building.”

Primary benefit

Bitcoin’s primary benefit as a money and store of value is that its issuance is capped at 21 million coins (there are currently 18.6 million in issue). It can never be inflated beyond that. The fact that it is electronic allows for payments and transfers at the speed of light.

“I think conventional treasury strategy is now intellectually and morally bankrupt and is a road to serfdom,” says Saylor. “You’re going to find increasingly there’s haves and have nots. There’s the elite that has incredible power like the Googles and Amazons and the Apples and they have more money and power and distribution than God.

“Then you have conventional businesses that have conventional cash flows and they are being increasingly marginalised.”

It is these conventional businesses that are expected to invest all of their capital in a currency that is devaluing at 15% or 20% a year, while the Big Tech monopolies are easily able to outpace the cost of capital because of the power they have accumulated – what Saylor calls the Main Street versus Wall Street dichotomy.

All conventional currencies are correlated to the US dollar, creating a race to the bottom as the dollar continues to devalue.

Companies that are asset-rich benefit from central bank money printing. Those that are cash-rich and asset-poor are subject to the steady debasement of their currency holdings.

In an environment where money supply was expanding at 0% a year, executives could focus on manufacturing or delivering services. Instead, money supply is being expanded at 25% a year, pushing businesses towards a Venezuela or Argentina situation, where business values in local currency terms tend towards zero as money supply accelerates (unless they switch into harder currencies).

Regulation has upsides

More regulation of cryptos is sometimes seen as negative for bitcoin, but Saylor believes it could increase institutional demand 10 to 100-fold due to the added regulatory oversight. In other words, there are virtually no downsides for bitcoin.

When China and India tried to regulate bitcoin, this merely increased the price for those already holding the asset, proving it is relatively immune to negative regulatory interference.

MicroStrategy is not just buying bitcoin with its available cash, it’s also leveraging its balance sheet to acquire more of the crypto. “We believe there is $100 trillion market total addressable market for a digital monetary network. It makes sense to buy as much of that asset as we can,” Saylor told Bloomberg.

What about the famed volatility of bitcoin?

Ross Stevens says bitcoin is not volatile.

“Learning bitcoin is like learning a foreign language. I now think in bitcoin. Bitcoin is not volatile – fiat is volatile. Fiat keeps getting cheaper in bitcoin terms.

“Money is technology. There’s not a line of distinction between what’s money and what’s not. No money is the best money, there’s always trade-offs. Bitcoin likely won’t last forever, because at the end of the day it’s a good.

“Why is bitcoin better than fiat? Because, young as it is, it holds its value over time.”

Stevens adds that bitcoin is the first store of value in history where supply is entirely unaffected by demand.

“Another requirement of money is its saleability across space – can you move it? Gold is hard to move. Bitcoin moves faster than fiat across space, with settlement completed in about an hour. There is no credit risk with bitcoin.”

Visa and Mastercard may allow you to purchase a coffee in seconds, but settlement can take up to a few days. That’s because of the various intermediary players in the transaction chain.

Another argument against bitcoin is its excessive consumption of electricity for mining it. Stevens says as bitcoin prices rise, mining it will become the most profitable use of energy in the world. Bitcoin mining will enable the monetising of clean energy sources such as waterfalls and rivers in remote areas. “In time, people will migrate to cheap, clean energy sources. That’s a fundamental shift in energy supply and demand. In the past, the challenge was to move energy to population centres. This could reverse that.”

Stone Ridge has maintained all its reserves in bitcoin since 2017, and only keeps sufficient cash for paying the immediate bills.

The Yemen conflict has been great business for SA arms dealers

Written by Ciaran Ryan. Posted in Journalism

New Open Secrets report says South Africans should demand an end to the flow of weapons to this tragedy. From Moneyweb.

Image: Glen Carey/Bloomberg
Image: Glen Carey/Bloomberg

Yemen is the locus of the world’s worst humanitarian crisis, leaving 80% of the population in need of humanitarian help.

Schools, factories and hospitals have been destroyed and there is evidence that civilians have been deliberately targeted. It’s a complex conflict with abuses on all sides. In September 2020, a UN report concluded that both Saudi Arabia and the UAE, along with the government of Yemen and secessionist forces, have committed acts that may amount to war crimes. These actions include targeting and murdering civilians, rape and sexual violence, torture, and use of child soldiers.

A new report by Open Secrets, a non-profit group investigating and exposing economic crimes, shows SA arms companies have profited from the Yemen conflict to the tune of R11 billion since 2010, most of this coming since 2014.

In 2015 and 2016, two years after the conflict began, nearly half of all SA’s approved weapons exports were bound for Saudi Arabia and UAE, two states that are shoring up the Yemeni government.

“In 2019, there was a brief respite from South African complicity in arming these warring parties when a dispute over the terms of the end-user certificate (EUC) delayed the granting of export permits to several countries, including the UAE and Saudi Arabia,” says the report.

Open Secrets explains that an end-user certificate is intended to prevent munitions from ending up just anywhere. It effectively means that a purchasing country needs to agree that the munitions bought will not be transferred any further without the selling country’s permission.

The report focuses mainly on Rheinmetall Denel Munition (RDM), a South African-based joint venture between Denel and Rheinmetall Waffe Munition GmbH (which holds a 51% stake in the JV).

RDM has been supplying weapons to Saudi Arabia and UAE since before the conflict began, and has set up a munitions factory in Saudi Arabia that produces, among other things, mortars that are believed to have been used in human rights abuses.

It’s difficult to identify the source of munitions because they fragment when exploded and local forces prevent local civil society groups from retrieving fragments for identification. But Open Secrets says there is compelling evidence to suggest these weapons were used in the 2018 attack on the port city of Hodeidah by Saudi and UAE forces and their allies attempting to dislodge Houthi resistance fighters.

Denel-built armoured vehicles were spotted being used by militia groups allied to the UAE, and fragments of munitions most probably made in SA were detected by UN inspectors and investigative journalism group Bellingcat.

When asked to respond to these claims by Open Secrets, “RDM declined to provide a response to this specific question, saying only that it applied to the NCACC (National Conventional Arms Control Committee) for all necessary permissions to export weapons from South Africa. Open Secrets prompted RDM to provide an answer to the specific question on the Hodeidah attack, but it has chosen not to do so,” says the report.

By far the biggest supplier of arms to the conflict is the US, followed by Britain, France and Spain. SA ranks fourteenth in terms of arms supply.

“For all of these countries and the companies based in each, the war in Yemen has been an endless bonanza of profit as the thirst for bombs and guns never ceases,” says Open Secrets.

Rheinmetall faces a ban in Germany against exporting any weapons to Saudi Arabia, in large part due to concerns about human rights violations committed by Saudi Arabia and their partners in Yemen. While the report focuses on RDM, all roads lead back to Germany, says Open Secrets. “Ultimately Rheinmetall Waffe Munition GmbH, and executives in Germany higher up in Rheinmetall’s corporate food chain, are effectively responsible for RDM’s operations in South Africa and so they too should be held accountable for human rights violations.”

The NCACC is guilty of regulatory failure over an extended period of time.

When asked to respond to these claims, the committee revealed “not only a lackadaisical approach to regulation but an absolute failure to appreciate the seriousness of their task and the magnitude of the consequences.”

The NCACC is unique in that it is made up of ministers and deputy ministers appointed directly by the president. Its most crucial regular function is to assess and decide on whether to grant or refuse export permits for weapons and other controlled items. The law requires the defence minister to appoint an independent inspectorate to ensure the weapons conform with international and local laws, treaties and regulations.

Despite being swaddled in laws and regulations, the evidence suggests that arms companies face few questions from the NCACC when applying for permits to enter contracts with foreign states and export weapons. The NCACC’s annual reports show that between 2015 and 2019, it approved 1 108 applications by South African companies for permission to enter supply contracts with foreign persons and companies. In that period, it denied only 10 applications. In both 2017 and 2019, not a single application was denied, says Open Secrets.

“By law, the NCACC may not permit the export of weapons where those weapons will contribute to human rights violations or worsening conflict. It must take into account ‘all publicly available information’ when making these decisions.”

The reports concludes that the NCACC is failing to uphold its mandate, given the well-documented reports of atrocities in Yemen.

As for the role of inspectors in the arms trade, Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula conceded that democratic South Africa has only ever conducted one inspection of exported defence equipment – “hardly a commitment to enforcing the regulatory framework,” says the report.

The NCACC appears to be weak under pressure from arms producers seeking exports permits. When the regulator attempted to enforce tighter controls on exports – by allowing inspectors to ascertain whether SA arms ended up in the wrong hands – the arms producers pushed back, and got he NCACC to settle on a more accommodating wording which would allow for a “diplomatic process” rather than inspection by a seasoned weapons expert. In no time at all, exports to the region were back on track.

Co-author of the report, Michael Marchant, says the Middle East has become a cash cow for arms producers from all over the world, particularly as the conflict has escalated. “From a South African perspective, we can see from the figures that exports to those countries engaged in the Yemen conflict exploded from 10% to 15% before 2013 to 38% and more than 40% after 2014 when the conflict really picked up.“

The human costs of this conflict are staggering: in 2020, the United Nations put the death count at 233 000, while Human Rights Watch estimated that up to 14 million people were at risk of starvation – something Saudi Arabia was using as a tactic in the conflict. By the end of 2019, roughly 18 million Yemenis had no drinking water and more than a million were impacted by a cholera outbreak.

The Yemeni revolution was part of the wider Arab Spring that swept the Middle East in 2011. The Houthi rebels and their allies took over large parts of the north and west of the country in March 2015, prompting Yemeni President Abd-Rabbu Mansour Hadi to retreat to Aden and declare it the provisional capital.

Saudi Arabia’s intervention in Yemen is framed as a way of preventing Iranian “aggression and expansion” in the area, and though Iran’s involvement has grown in recent years, the Houthis are a home-grown movement pushed closer to Iran by the escalating war.

Open Secrets concludes by arguing SA should stop approving export permits for SA weapons destined for Saudi Arabia, the UAE or another party involved in the conflict; NCACC should provide quarterly reports to Parliament (instead of filing often two years late); make human rights central of SA’s foreign policy (instead of mouthing off about our “concerns” about the crisis while allowing arms to gush into the region); get the Hawks to investigate RDM for its possible complicity in war and other crimes; and get SA civil society to stand in solidarity with the people of Yemen.

RDM responds

Open Secrets wrote to RDM in December 2020 and asked questions about its exports to Saudi Arabia and the UAE, as well as on the value of contracts to these countries since 2015, and whether measures were put in place to ensure its clients did not violate the provisions of the end user certificates they are required by law to sign.

According to Open Secrets, RDM declined to answer these specific questions. Instead, the company’s CEO Jan-Patrick Helmsen offered a brief blanket response to the issues raised. Helmsen described the South African munitions as ‘highly regulated’, pointing out that:

“RDM can only supply its products after receipt of the required national South African governmental  approval, such as a marketing and contracting permit from the NCACC and the required export permits from the Directorate of Conventional Arms Control (DCAC). RDM also needs to adhere to various other national and international legislation. RDM will at all times adhere to the South African legislation and its requirements. It must be noted that these requirements are at par with all our international counterparts and RDM will always adhere to South African legislation and its requirements.

“RDM cannot deliver its products to its clients until receipt of a EUC and an export permit from the DCAC has been issued. The South African government, in terms of Clause 4.3 of the issued End-User Certificate, also maintains the right to attend to inspections of such munitions after delivery with an inter-governmental bilateral agreement.

“RDM needs to comply with stringent internal Rheinmetall compliance checks and approval procedures prior to receiving authorisation to enter into supply agreements. These compliance checks are based on international best practice and make use of international processes and systems to confirm that all information is correct and that no compliance risks will arise.”

As to why RDM would not engage with the specifics about their exports to Saudi Arabia and the UAE, RDM simply stated that: “In line with industry norms and requirements, RDM is not at liberty to share any information relating to agreements entered into with its clients. RDM is committed to being an ethical corporate citizen, which entails always abiding by the laws of the Republic of South Africa. As such, RDM strictly adheres to and is restricted by all relevant legislation, including export regulations, of the Republic of South Africa.”

NCACC’s response

Some 21 questions were also sent to the NCACC by Open Secrets, which says the specific questions were ignored. The following reply was received instead:

“From the ensuing criteria it would be clear that the NCACC would rely on various South African Organs of State mandated to provide information that is analysed and refined to meet the strict requirements of s15 of the Act. The NCACC relies on Official sources for its risk assessment. Key among these entities are Department of International Relations and Cooperation (DIRCO) State Security Agency (SSA) and Defence Intelligence (DI).

“Therefore, what informs other countries in relation to Yemen and the possible involvement of Rheinmetall Denel Munitions of Germany (sic) with regard to using their subsidiary in South Africa to procure controlled items, while it is noted is no concern of the NCACC, unless flagged as such.

“South Africa receives queries related to South African produced and exported controlled items, through the South African Mission at the United Nations in New York. Entities that do verification and who provide evidence are being responded to without fail. This means that this office will deal with all verified claims and as per usual respond through our Mission at the UN. Therefore the Hodeidah matter has not been directed to this office. The cost and the exploration of insufficient/unsupported claims would render efforts at addressing the concern(s) or such claim(s) not feasible and not effective.”

To which Open Secrets replies: “This is frankly a staggering admission of the NCACC’s failure to fulfil its legal mandate, and a feeble attempt to pass on responsibility to other parts of the state.”

MTI final liquidation hearing postponed until May

Written by Ciaran Ryan. Posted in Journalism

In the hope the failed bitcoin scheme can still be saved. From Moneyweb.

Image: Shutterstock

The application for the final liquidation of Mirror Trading International (MTI) has been postponed until May 31, apparently by groups who believe the company can still be saved.

Moneyweb understands three groups are opposing the final liquidation in favour of business rescue, alternatively that they be allowed to restructure the company’s debts in terms of a Section 155 (of the Companies Act) compromise.

MTI was placed in provisional liquidation in December last year when investors tried without success to withdraw funds from the scheme, which was rated by Chainalysis as by far the world’s biggest crypto scam of 2020.

Provisional liquidator of MTI, Riaan van Rooyen, told Moneyweb that the reason for the postponement was due to “certain parties intervening who believe that the company can be saved. I think it is unlikely (that the company can be saved).”

Van Rooyen says some traces of the estimated 23 000 bitcoin (worth R17 billion) transferred to MTI by tens of thousands of investors had been located, but a full accounting of what happened to investor funds will take more time. Van Rooyen adds that there is still no sign of MTI CEO Johann Steynberg, who disappeared last year, apparently to Brazil.

Read: MTI’s statement on missing CEO

“We can’t confirm the amount of bitcoin at this stage. We are busy with a section 417/418 inquiry (which is a secret inquiry), and seen in the context of the estate, we are reluctant to comment at this stage,” adds Van Rooyen.

Brandon Topham, head of enforcement at the Financial Sector Conduct Authority (FSCA), says it is impossible that an unlawful scheme like MTI could be saved.

“It was a Ponzi scheme. This is a business that never traded. It was operating without a licence. How can you save an unlawful scheme?”

The FSCA advised the public to steer clear of MTI in August last year on the basis that it was operating without a proper licence and was making extravagant claims of returns of up to 10% a month, using a computerised trading system.

Read: FSCA investigating Mirror Trading International (Aug 19)

When the FSCA investigated, it found no evidence of any successful trading. In November 20202, the regulator conducted search and seizure raids on the offices of MTI and homes of some of its senior executives, and in November opened a criminal case against the company.

Read:
MTI placed in provisional liquidation and damage could be huge (Dec 29)
FBI jumps onto MTI investigation (Jan 4)

MTI was structured as a multi-level marketing scheme that rewarded members for signing up new investors, for which they could earn 10% commission on sums invested. The scheme was astonishingly successful at attracting new investors, even after repeated warnings by the FSCA to steer clear of the company and its promises of high returns. By some accounts it managed to attract more than 60 000 investors, some with multiple accounts. There were an estimated 280 000 accounts in existence at the time the company was placed in provisional liquidation in December, though some of these were certainly fake accounts opened to generate extra commissions for participating scheme members.

The MTI database was hacked by Anonymous ZA, and appears to show some outrageous returns by those at the top of the multi-level marketing scheme. The top earners managed to accumulate more than R100 million by building a “downline” of hundreds and even thousands of new members. One lead member started with $100 in April 2019 and ended up making R37 million 20 months later.

MTI members will now have to wait until May to see if the company can be rescued or will be placed in final liquidation. The FSCA has warned that those who profited unlawfully from the scheme will be asked to repay the money, and SA Revenue Services will also likely be keeping an eye out for its share of the take.

For a Section 155 compromise to succeed, it must have the support of 75% of creditors, but this route does not provide any moratorium against legal action during negotiations with creditors, nor does it protect those who signed surety for the company.

How to invest in stocks exposed to bitcoin

Written by Ciaran Ryan. Posted in Journalism

Tesla, MicroStrategy and Square are three companies offering indirect exposure to bitcoin, but there are others. From Moneyweb.

Tesla’s move into bitcoin, while massively beneficial to the share price recently, adds volatility to the company outside of its core business of electric vehicles. Image: Chris Ratcliffe, Bloomberg
Tesla’s move into bitcoin, while massively beneficial to the share price recently, adds volatility to the company outside of its core business of electric vehicles. Image: Chris Ratcliffe, Bloomberg

Some investment mandates specifically preclude a direct investment in cryptocurrencies, but there are ways to invest in stocks that provide an indirect exposure to bitcoin.

Perhaps the most high profile of these is Tesla, which recently announced a $1.5 billion investment in bitcoin, equivalent to nearly 10% of its treasury assets. “Having some Bitcoin, which is simply a less dumb form of liquidity than cash, is adventurous enough for an S&P 500 company,” tweeted Tesla CEO Elon Musk on February 19.

Musk was persuaded of the benefits of bitcoin as a store of value by MicroStrategy CEO Michael Saylor, who challenged Musk to convert the Tesla balance sheet from US dollars to bitcoin.

Musk later clarified his interest in bitcoin with this tweet (see second tweet):

That news sent bitcoin, and Tesla’s share price, on a rampage, before both gave back some of their gains. The strong move into bitcoin, though massively beneficial to the share price over the last month, adds risk and volatility to the company outside of its involvement in the production of electric vehicles.

Tesla share price

Source: Marketwatch.com

Saylor has become a bitcoin cheerleader, recently hosting a bitcoin corporate strategy conference for thousands of senior executives to explain how, and why, they should adopt this new form of money. His reasoning: the inevitability of the US dollar’s further decline as fiat money issuance has gone into overdrive.

MicroStrategy last week announced that it had spent another $1.03 billion on bitcoin at an average price of $52 765 per coin (the price has since dropped to about $43 600).

The company provides business intelligence, mobile software, and cloud-based services, but has recently attracted attention for its embrace of bitcoin as a treasury reserve asset, based on expectations of further US dollar weakness, declining returns from cash, and macroeconomic instability.

“The company now holds over 90 000 bitcoins, reaffirming our belief that bitcoin, as the world’s most widely-adopted cryptocurrency, can serve as a dependable store of value,” said Saylor in a statement last week. “We will continue to pursue our strategy of acquiring bitcoin with excess cash and we may from time to time, subject to market conditions, issue debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase additional bitcoin.”

The company spent over $1 billion in 2020 acquiring bitcoin at an average price of about $16 000. The 175% surge in bitcoin since then powered MicroStrategy’s share price briefly above $1 000, before retreating to $752. The stock is now widely regarded as a proxy for bitcoin.

MicroStrategy share price

Source: Marketwatch.com

Grayscale Bitcoin Trust has become the default entry point for companies and firms to gain exposure to bitcoin where their investment mandates specifically preclude them from directly investing in cryptos.

This is a dilemma that is facing many investment firms now realising they can no longer ignore the outsize returns generated in this new asset class. Grayscale takes care of issues such as bitcoin custody. Though the stock price tends to mimic bitcoin, this is an imperfect correlation. Investors are often paying a hefty premium for entry, and the swings in the stock price can be more exaggerated than bitcoin itself.

Grayscale Bitcoin Trust stock price

Source: Marketwatch.com

Another evangelist for bitcoin is Jack Dorsey, CEO of Twitter and founder of electronic payments firm Square, which has about 3% of the $150 billion digital advertising market.

Square owns more than 8 000 bitcoin, acquired in the last six months, equivalent to about 5% of its total assets at the end of 2020.

“The investment is part of Square’s ongoing commitment to bitcoin, and the company plans to assess its aggregate investment in bitcoin relative to its other investments on an ongoing basis,” the company said in its earnings statement.

Square stock price

Source: Marketwatch.com

Silvergate Capital is a digital asset bank with nearly $5 billion in crypto-backed deposits, and only went public in 2019. It allows customers to switch between fiat and crypto through its Silvergate Exchange Network. Clients include Square and Coinbase, a crypto exchange that launched in 2012 and recently announced that it intends to list on the Nasdaq exchange.

Silvergate is a new type of banking enterprise, fully enabled for the crypto revolution underway, targeting the largest fintech and digital currency companies and investors around the world.

Silvergate Capital stock price

Source: Marketwatch.com

Mogo is a Canadian fintech company involved in developing digital financial solutions. In December 2020, it announced it would invest $1.5 billion in bitcoin, equivalent to about 1.5% of its total assets as of the third quarter of 2020. The company says it will make additional bitcoin investments in 2021. Its MogoCrypto app was launched in 2018 to allow Canadians to buy and sell bitcoin in real-time.

“We are strong believers in bitcoin as an asset class and believe this investment is consistent with our goal to make bitcoin investing available to all Canadians. In addition, we believe bitcoin represents an attractive investment for our shareholders with significant long-term potential as its adoption continues to grow globally,” said Greg Feller, president and CFO of Mogo.

Mogo Inc stock price

Source: Marketwatch.com

Galaxy Digital is a diversified financial services and investment management innovator in the digital asset, cryptocurrency, and blockchain technology sector. The company had assets under management of $407 million at the end of the third quarter of 2020, including $82.4 million in passive bitcoin and index fund products.

Galaxy Digital stock price

Source: Marketwatch.com

Other stocks with exposure to bitcoin and blockchain include:

  • Hut 8 Mining Corporation (a bitcoin miner, whose stock price has gone up from C$1.47 to C$10 since December 2020);
  • Bitfarms (also a bitcoin miner; share price up from C$0.6 to C$5.90 since December);
  • Voyager Digital, which offers the ability to buy and sell more than 50 cryptocurrencies and earn interest on 22 of them (its stock price went up nearly 10-fold to C$19.63 since December); and
  • Hive Blockchain Technologies (stock price up from C$1.20 to nearly C$5 since December). Hive is a crypto mining firm. The company last week announced the purchase of 3 000 next generation “miners” to generate additional cash flow from its crypto mining activities. Cash and coin assets are currently worth $65 million.

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Another citizen group takes its local municipality to court

Written by Ciaran Ryan. Posted in Journalism

In this case to get rid of a municipal manager who just won’t leave, despite repeated accusations of mismanagement. From Moneyweb.

A legal opinion commissioned by the municipality itself found that the municipal manager does not have the required qualifications. Image: Mamusa Local Municipality website

A legal opinion commissioned by the municipality itself found that the municipal manager does not have the required qualifications. Image: Mamusa Local Municipality website

It seems the citizens of North West province have had it with dysfunctional local governments.

Moneyweb recently reported on a judgment in the Mmabatho High Court handing over control of water and sewage services in Kgetlenrivier to local residents after they had been left to rot.

Now a non-profit group called the Centre for Good Governance and Social Justice has brought a case before the same court, asking it to remove the municipal manager of Mamusa Local Municipality in North West province (based in Schweizer-Reneke), arguing that the manager is unqualified for the job and has run it into the ground.

Political pressure

“This court case came about because the municipality was placed under tremendous pressure by one local political faction to employ the manager, despite the fact that the interview panel did not recommend him for the post for want of qualifications and experience,” says Mandla Mpempe, executive director of the Centre for Good Governance and Social Justice.

And it’s not just Mpempe saying that.

A November 2020 legal opinion commissioned by the municipality itself found that Reuben Gincane had been appointed as Mamusa’s municipal manager between 2012 and 2017 despite not having the required qualifications.

Gincane was again appointed as municipal manager in late 2020 despite objections from residents, and in disregard of the recommendations of the interview panel.

The legal opinion on his appointment concludes that his lack of qualifications renders his appointment null and void.

Taking back control

“We have to start taking back control of local government in this country from the corrupt factions that have infiltrated it if we are to provide any kind of decent life for the people who live in these areas,” says Mpempe, a veteran ANC member and anti-apartheid activist who has now turned his attention to bringing accountability to local government.

Mamusa residents complain that sewage is spilling into the streets and even into houses, water supply is inconsistent and of poor quality, and broken street lamps and potholes remain unrepaired.

Yet rates and taxes are collected with ruthless efficiency – with a current debtors collection ratio of more than 100% in 2019.

This is according to Municipal Money, a website that tracks municipal performance across the country.

The same website shows that Mamusa relies on rates and taxes for about 58% of its spending, and the balance from national and provincial government.

Municipal council dissolved

The provincial government dissolved the municipal council in 2019 and placed it under administration after service delivery protests turned violent.

Even the mayor of Mamusa, Gotsilekgosi Batsi, has urged the local Member of the Executive Council (MEC) for Cooperative Governance and Traditional Affairs (Cogta) to intervene in what is claimed to be a highly irregular appointment of the municipal manager – apparently to no avail.

Batsi points to Gincane’s record of poor governance and lack of experience as reasons for demanding his removal.

Evidence in the financials

In a letter to the MEC, of which Moneyweb has a copy, Batsi spells out his reasons for demanding Gincane’s removal:

  • He presided over eight years of audit disclaimers issued by the Auditor-General;
  • In 2015/16, unauthorised expenditure amounting to R26.3 million was incurred;
  • Misrepresentations of fact were observed in the municipality’s cash flow statements; and
  • Payments amounting to R24.5 million were made without following supply chain management processes.

There is another intriguing aspect to this story.

Arson, forgery, criminal case

Mpempe says that in June 2017 the South African Municipal Workers Union (Samwu) embarked on violent protests and burnt down the municipal offices.

“Their reasons had nothing to do with labour issues, but politics. They demanded that the then mayor, Aron Motswana, resign.

“In the process they burnt down the municipal offices.”

Three of the protesting workers were arrested for arson and public violence. Two were acquitted and one was sent to prison. It was later found that three internal municipal workers were involved in the arson attack, for which they were dismissed. The dismissed municipal workers applied for review at the SA Local Government Bargaining Council and were found to have been correctly dismissed. They then purported to have approached the Labour Court.

On January 24, 2020, a few days after local by-elections in Mamusa, a settlement agreement was apparently signed and the workers were reinstated.

Mpempe and the Centre for Good Governance and Social Justice say this settlement agreement is a forgery. The centre has opened a criminal case of fraud, corruption and forgery under case number 13/7/2020 with the Schweizer-Reneke police.

“This matter is receiving attention, however, these employees are at work,” says Mpempe.

Legal challenge

The centre is emboldened by the recent success of Kgetlengrivier residents who have been ordered by the court to take over water and sewage services. Mpempe has been meeting with the lawyers for the Kgetlengrivier residents and plans to launch a similar legal challenge against the Mamusa municipality.

“We’ve suffered through years of broken service delivery, electricity outages, water supply interruptions and incompetent management,” says Mpempe.

“We would like nothing more than to have the court hand over control of local services to residents so that we can appoint service providers who are actually willing and able to do the job.”

Moneyweb reached out to Mamusa municipality and the North West provincial Cogta for comment.

The municipality promised a reply to emailed questions by Friday, February 19, but no reply was received, despite follow up.

Similarly, no reply was received from the provincial department of Cogta.