Lessons for SA from Brazil

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

When it comes to attracting investment, SA could learn a thing or two from Brazil. The fact that Anglo American is Brazil’s largest mining investor should tell us something about ourselves.

Anglo is betting big time on Brazil, with a US$10 billion investment in the Minas-Rio iron ore project expected to reach production capacity of 26.5 million tons of iron ore concentrate a year, and the exploration and development of the massive Alta Floresta copper deposit in northern Brazil, covering some two million hectares. Anglo’s discovery has attracted other companies to the area, with mineral claims now expanded to 3.5 million hectares, explained Carlos Vilhena of law firm Pinheiro Neto Advogados at a recent presentation on mining in SA and Brazil.

Brazil recently created a mining agency headed by five independent professionals to fast-track the awarding of mining licences. Agency staff, who are mandated for five years and may not be sacked, will take over many of the functions formerly carried out by the Brazilian mining ministry. This is the same kind of fast-tracking agency that has attracted investment into other sectors, such as aviation and telecoms.

Approvals ‘within weeks’

Soon, mining companies will be able to apply online for exploration licences and get approvals “within weeks”, according to Vilhena. In contrast, exploration in SA has been dying a slow death at the hands of an insouciant department of mineral resources, though new mines minister Gwede Mantashe has promised to change this with a R20 billion investment in geo-mapping to assist explorers. SA’s share of global exploration has dwindled to 1%, despite the country accounting for 94% of the world’s known platinum reserve, three-quarters of its chrome and nearly 20% of global vanadium.

Brazilian president-elect Jair Bolsonaro, known for his colourful language and disdain for criminals, plans to leave key finance and economic posts in the hands of market liberals. Like US President Donald Trump, he wants his legacy to be economic prosperity and massive job creation.

“This is the first time in a generation that Brazil has not had a socialist leaning government,” says Victor Salinas, a Brazilian business consultant. “It shows how fed up people are with the government.”

Brazil seems to have been through many of the brutal lessons SA is currently experiencing in attracting foreign investment and decided to get the government the hell out of the way. It’s applying the same fast-track methodology to infrastructure investment through its Investment Partnerships Programme (IPP), which has so far pre-approved 191 projects worth $62 billion.

In SA, major infrastructure projects are for the most part originated by state-owned companies such as Eskom, Transnet or government departments. In Brazil, the IPP allows private companies to motivate projects and has introduced new rules and tax benefits to encourage investment. Key areas for infrastructure investment have been identified, and public and private financiers are encouraged to get involved.

A case in point is the expansion of the Carajás Railway involving the construction of 570km of rail to link Serra Sul, the largest iron ore mine in the world, to the coast. Unlocking the huge wealth of Serra Sul would not be possible without the rail ink. This type of infrastructure project is seen as an enabler of economic growth and Brazil is pouring massive resources into rebooting its economy through projects of this nature. Similarly, SA will need the cooperation of other state-owned companies such as Transnet and Eskom to unlock mineral wealth. The 861km Sishen-Saldanha railway line was built in 1976 to provide port access for iron ore in the Northern Cape. More projects of this nature will be required to unlock SA’s mineral wealth, along with a long-term solution to Eskom’s faltering power supply which has been a key bottleneck frightening new mining investment away.

The dangerous state of provincial finances

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

It’s hard to find a kernel of good news in the auditor-general’s (AG) 2018 report on provincial and national departments, other than the Western Cape and Gauteng leading the way in terms of financial accountability.

Elsewhere, the results are mostly dreadful. Only 23% of the entities audited had clean audits. The Western Cape is way ahead of everyone else with 83% of audits in the province proclaimed “clean”, but even here there was some slippage.

In Gauteng, where irregular expenditure remains a problem, the figure was 53%. This does not necessarily mean money spent was wasted or the result of fraud – it could mean that correct processes were not followed.

One has to empathise with AG Kimi Makwetu’s near-impossible task of pointing out and curtailing misspending at government level. Being an auditor is no longer a safe occupation in SA. A female auditor working as part of a team dispatched by the AG to clean up maladministration in Emfuleni Municipality, south of Joburg, was shot twice in the leg two months ago in the guest house where she was staying. The assailants made off with two laptops and a cell phone, all presumably containing vital information on wrongdoing at the municipality. Makwetu decided to withdraw his team.

Last month two AG staff members were held hostage by subcontractors in Tshwane when they were conducting routine asset verifications. An audit team sent to eThekwini was withdrawn in May after one of its staff members received death threats. Police must now accompany audit staff on dangerous assignments.

It’s clear from the report released on Wednesday that Makwetu is not the most popular man in SA’s administrative ranks. In his report, he says provinces and administrators prefer to contest his audit results rather than address the problems identified.

The number of departments reporting fruitless and wasteful expenditure was up 10%, and most of these have been on the list for the last three years. Even more disturbing is the 200% increase in fruitless and wasteful expenditure over the last year to R2.5 billion. Audited irregular expenditure came to R51 billion, but nearly R80 billion when entities not audited are included.

The days of easy evictions are drawing to a close

Written by Ciaran Ryan. Posted in Journalism

This article appeared in Moneyweb.

Following the lead recently set by the South Gauteng High Court, a full bench of the Cape High Court will decide this week whether to set reserve prices on repossessed homes.

In the Gauteng case, the banks argued against reserve (or floor) prices, except in exceptional circumstances. The court found otherwise and now insists on reserve prices in all but exceptional circumstances. Having lost that case, the banks have now decided the matter is not worth arguing and have agreed to abide by the Cape court’s decision.

Until now, the courts have allowed repossessed homes to be sold at sheriffs’ auctions without a reserve price, resulting in homes selling for a fraction of their market value and leaving the defaulting borrower with a large outstanding debt to the bank. This is no longer possible in Gauteng. Now the Cape court wants to decide whether it should follow Gauteng’s example.

Evictions

This follows a change in court rules a year ago which allowed judges to set reserve prices in home repossession cases. The Lungelo Lethu Human Rights Foundation (LLHRF) has campaigned for a change in court rules to stop easy evictions by banks. It says more than 100 000 families have been evicted from their homes since the Constitution came into effect more than two decades ago due to the ease with which banks have historically obtained court judgments.

The LLHRF, which has been admitted as a friend of the court, says in its court papers that many of these evicted families end up destitute and cut off from any chance of economic recovery. It wants the court to balance the Constitutional rights of those in financial distress with the banks’ right to recover loans.

Lawyers defending debtors against the banks say this practice of selling repossessed homes without reserve prices was an open invitation to bid-rigging syndicates to pick up properties for a song and then flip them for a quick profit.

A directive issued by Western Cape Judge President John Hlophe wants a full bench of the high court to decide on eight home repossession matters, six of them involving Standard Bank and one involving Absa.

Hlope wants the court to decide whether the change in court rules allowing reserve prices introduces “substantive legal requirements” before judges can grant banks an order declaring a property “specially executable” – which is required before a property can be sold at auction. The Cape court must now decide how judges should go about setting reserve prices prior to properties being sold at auction.

Judge Kathy Satchwell interrupts Sasol board lunch

Written by Ciaran Ryan. Posted in Journalism

 

 

 

 

 

 

 

 

 

 

 

This article first appeared in Moneyweb.

Sasol’s annual general meeting at the Sandton Convention Centre started off sedately enough until group chairman Mandla Gantsho attempted to limit the number of questions from the floor.

Judge Kathy Satchwell leapt to her feet and, microphone in hand, let rip at the board for trying to wrap things up with obvious haste so they could retire for lunch. “This is the one opportunity in the year for shareholders to ask questions and you are limiting the number of questions. I know you want to rush off to lunch, but you can stay where you are until we are done.”

Gantsho asked her to sit down, but Satchwell, representing the Raith Foundation, wasn’t having any of it. “Judge, please sit down – you will get your chance,” said Gantsho. Satchwell’s microphone went quiet but she continued lambasting the board regardless.

Gantsho asked for a moment’s silence for the four Sasol workers who died in the last financial year. When Satchwell again got the microphone, she asked whether any of the directors had visited any of the injured, whether they attended their funerals of those who died, and whether they would donate any of their bonuses to improve safety. “I realise your lunch is waiting,” she added.

Shareholder activist Theo Botha questioned why the group’s key performance indicators gave such a low weighting to fatalities. Sasol replied that weightings were higher at the operational level.

Company secretary Vuyo Kahla said that senior management members visit the scene of all fatalities and assess what can be done to help the families of the deceased. Joint president and CEO Stephen Cornell said the company now tracks the severity of injuries and has introduced stringent safety rules to prevent further deaths. Because most work-related deaths are the result of collisions with machines, proximity detectors are being installed to shut down machines when they get too close to humans.

Transnet’s R100bn dagger pointed at the heart of SA

Written by Ciaran Ryan. Posted in Uncategorized

 

 

 

 

 

 

 

 

 

 

 

This article first appeared in Moneyweb.

Transnet pensioners have fought a decade-long battle to get their former employer to cough up an estimated R100 billion in benefits as a result of a 1989 promise made in the dying years of apartheid as Transnet assumed the legal responsibilities of SA National Transport Services.

This staggering sum of money is sufficient to sink the economy should Transnet lose the case, says Advocate Anton Alberts, chairperson of the Freedom Front Plus, which has campaigned on behalf of pensioners. “Transnet is holding the country to ransom. If they lose this case, SA is finished. We will straight away be downgraded to junk.”

Not that Transnet would have to pay out R100 billion in one go. But it would have to fork out several billion rands a year to top up the pension funds, putting additional strain on its already tattered balance sheet.

While the case has careened through the courts, the number of pensioners has declined from 80 000 to 50 000. According to some estimates, they are dying off at the rate of 300 to 400 a month. The question some pensioners are asking is whether there will be any pensioners alive to witness the successful conclusion of the case.

The case originates with a promise made by management in 1989 to top up the pension funds by 70% of the rate of inflation plus 2% each year, as was the case in the years prior. This promise was upheld until 2003 when all but the 2% annual payments were stopped. With inflation running at about 6%, this meant pensioners’ benefits were sliding back at the rate of about 4% a year. The pensioners’ lawyers, based on 2013 figures, claimed 80% of pensioners were receiving less than R4 000 a month.

“Some pensioners have nothing left at the end of the month after paying their medical bills. Now it seems that Transnet is reneging on its responsibility,” says one of the pensioners, Nicky Oelofse.

Transnet has fought the case every inch of the way, first by contesting the right of pensioners to be recognised as a class of claimants with substantially similar arguments. The case has been mired in technical argument and exceptions raised by Transnet, all of which were struck down in the Constitutional Court in April. The ConCourt case dealt mainly with exceptions raised by Transnet, rather than the merits of the pensioners’ claims.

Time running out

Pensioners saw this as a major victory and it looked for a time as if they were close to settling the case a few months ago, as Transnet itself reported to Parliament. But this turned out to be false. This means the case must go back to the High Court for argument. This is likely to happen next year, by which time a few more thousand Transnet pensioners will likely have died.

Head of e-tolls company was an e-tolls boycotter

Written by Ciaran Ryan. Posted in Journalism

 

 

 

 

 

 

 

 

 

This article first appeared in Moneyweb.

Coenie Vermaak, CEO of e-tolls collections company Electronic Toll Collection (ETC), was an e-tolls boycotter in his previous life as an engineer working on the Medupi Power Station and SA National Roads Agency (Sanral) roads.

Like 70% of Gauteng motorists, he believed the decision to impose electronic tolling was ill-conceived and done without proper public engagement. That changed when he was hired two years ago as CEO of ETC, owned 100% by Austrian company Kapsch.

“I was an e-tolls boycotter because I didn’t like being charged another tax for something that I had no decision over,” says Vermaak. “But I was also ignorant. I had not applied my mind to the matter. When I joined here, I didn’t even want my in-laws to know I worked at the toll collections company.”

ETC’s contract expires in December 2019, and will be put out to tender in the new year by Sanral.

E-tolls have become a political rod with which to beat the ANC government, and Vermaak concedes it is a tough ask convincing non-payers to follow his lead and abandon the boycott. With an election looming in 2019, e-tolls will become a key election issue in Gauteng, and opposition parties will feast on the entrails of this failed project. To underline the point, the Congress of South African Trade Unions (Cosatu), Organisation Undoing Tax Abuse (Outa) and the ANC in Gauteng staged a march against e-tolls last weekend in Pretoria.

In his medium-term budget policy speech last month, newly installed finance minister Tito Mboweni gave no sign of the government abandoning its fealty to e-tolls or the user-pays principle. He said e-tolls had to be paid if the road network was to function. The project originally cost R22.5 billion, funded through the issue of bonds, but that cost has now escalated to more than R40 billion. Sanral’s 2018 annual report shows a finance cost of R4.4 billion at an average cost of capital of 9.43% a year. If Mboweni sticks to his guns, it appears government will have little choice but to find an extra R500 million to R1 billion a year to pay the interest on these borrowings. Scrapping e-tolls could impact SA’s sovereign status and increase the cost of all government-backed borrowings.

Just as the decision to build the loss-making King Shaka International Airport in Durban was a political decision, so government pushed Sanral to upgrade Gauteng’s roads ahead of the 2010 World Cup. It is now clear that government never anticipated the level of protest that would accompany the launch of e-tolls in 2013.

SA’s twisted history of pension fund plunder

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

South Africa has a grimy history of companies raiding their pension funds, and the fear is that two recent court cases, which found in favour of the pension fund trustees, will do little to curb the practice.

The first case, involving two pensioners against the Tongaat Hulett Pension Fund, wound its way through the lower courts to the Supreme Court of Appeal (SCA), only to be defeated on what the vanquished pensioners regard as a poor understanding of the law by the judges. They were denied an opportunity for review at Constitutional Court (ConCourt).

The second case involved Rosemary Hunter, former deputy pension fund registrar at the Financial Services Board (now called the Financial Services Conduct Authority), against the FSB over its attempts to deregister funds that still had assets owing to former employees. She too lost her case in the ConCourt, principally on the basis that the court assumed the FSB had competent and responsible people running it, and had investigated a few funds (less than 20%) that had been deregistered as part of the FSB’s cancellations project.

Both cases ended up in defeat at the ConCourt, with no further avenues of legal redress available to the applicants. But the findings of the judges in favour of the pension fund trustees and regulator should be a cause for concern for employees, past and current, with claims to a share of actuarial surpluses or other assets sitting in pension funds of which they are members.

The Tongaat Hulett pensioners, in a recent missive to the 54 fellow pensioners that supported their legal fight, spell out several false or erroneous findings they believe were made by the judges who heard their case.

They claimed in their court papers that the trustees were able to deceive the courts by mislabelling R1.43 billion in contingency reserves as “excess assets”, a term not found in the Pension Funds Act. “Assets in contingency reserve accounts” – a term that isdefined in the act – should be shared among the members when they are no longer needed to provide for contingent liabilities. It is at this point they become an actuarial surplus. The pensioners argued that by renaming these assets as something else, the trustees, who by law must balance the interests of employees and the company, were able to divert funds away from the members to the company.

Tom Moyane fired, leaving Sars in a state of “intrigue, fear, distrust and suspicion”

Written by Ciaran Ryan. Posted in Journalism

This article first appeared at Accounting Weekly.

President Cyril Ramaphosa has fired former SA Revenue Services (Sars) Commissioner Tom Moyane after receiving the Nugent Interim Report into the tax agency.

The President had little choice, though Moyane is taking his case to the Constitutional Court. It is clear from the report that Moyane was a one-man wrecking crew who instilled fear and distrust in the one state organisation that functioned reasonably well and was relatively untainted by corruption.

Moyane installed CCTV cameras so that staff felt they were under constant surveillance. He trashed the modernisation programme intended to use IT to replace the largely paper-based system that preceded it, thereby making it easier for cigarette smugglers and other tax dodgers to roam relatively unmolested.

Two weeks after Moyane took office in 2014, The Sunday Times reported the existence of a “rogue unit” within Sars, whose members had supposedly placed listening devices in the home of former President Jacob Zuma. A series of similar stories followed, causing immeasurable damage to Sars. It began to look like a set-up, a ruse intended to take the heat off criminals and tax cheats.

Nugent could find no evidence that the setting up of this unit was unlawful. When the press reports were published, Moyane called the Executive Committee (Exco) together and asked what they knew about these allegations. The Exco disavowed any knowledge. Moyane promptly announced he had no confidence in the Exco and disbanded it.

“That response is extraordinary in any rational terms. Mr Moyane had barely arrived at Sars, with no experience of revenue collection, yet almost immediately he denounced and humiliated senior management, with vast knowledge and experience, and dissolved the body through which Sars was being managed. All that on the basis of no more than a newspaper report, and moreover, a report on events of which at least most of the Chief Officers could not be expected to have had any knowledge,” says Nugent’s interim report.

Two senior members of the so-called rogue unit – Ivan Pillay and Peter Richter – were suspended and their reputations smeared. Moyane ordered the disbandment of the rogue unit (called the High Risk Investigation Unit) which had been legitimately set up to chase down smugglers and big-time tax cheats. In December 2014 KPMG was brought in at a cost of R24 million (the money has since been returned to Sars) which made damning allegations against Pillay, former finance minister Pravin Gordhan and ANC secretary general Ace Magashula.

Consulting firm Bain was brought in, and after a perfunctory “diagnosis” with little or no consultation with operational managers, and no communication with employees, a new operating model was devised and implemented. It was a disaster. The new operating model threw operational managers into uncertainty on their jobs. Some 200 employees were eased out and forced to re-apply for posts in the new organisational structure.

Another consulting firm, Gartner, was brought in to review Sars’ IT infrastructure. It was paid R200 million but virtually nothing it recommended was implemented.

By 2017 the Exco that existed when Moyane arrived in 2014 had been demolished. No responsible leader of so complex an organisation would have acted as Moyane did, says the report. Legislative changes were needed to make sure this kind of one-man wrecking crew could never get near the levers of so vital an organisation.