State power has been expanded, but does the degree to which it’s being exercised violate government’s constitutional obligation to behave with legality? From Moneyweb.
In the first of what looks like a slew of cases challenging aspects of the Covid-19 lockdown in South Africa, the Fair-Trade Independent Tobacco Association (Fita) is hauling government to court on an urgent basis to have the ban on the sale of cigarettes lifted.
Papers were served on Monday to President Cyril Ramaphosa and Minister of Cooperative Governance and Traditional Affairs Nkosazana Dlamini-Zuma.
Normally fratricidal tobacco manufacturers have parked their differences to take on government over what is a business-threatening shutdown. British American Tobacco (BAT) last week sent a letter to Dlamini-Zuma demanding that she lift the ban, failing which it would bring an urgent application before the court.
Fita, of which BAT is not a member, beat it to the punch. It wants the court to lift the ban, and for government to account to all South Africans on how it came to the decision to impose the ban in the first place.
It’s also asking the court for a “declarator” that the export of tobacco products and cigarettes isn’t prohibited, and that cigarette manufacturing can resume.
Fita says the previous Level 5 lockdown did not specifically ban cigarette sales, but that manufacturers and retailers had buckled under threats and contradictory statements from various ministers and law enforcement officials, and had stopped either manufacturing or selling tobacco products.
Ramaphosa announced the lifting of the cigarette ban in April, but this was countermanded by Dlamini-Zuma a week later.
Fita says the ban “directly affects the freedoms previously enjoyed under law by approximately 11 million cigarette smokers and tobacco users in South Africa,” as well as their physical and mental wellbeing.
Tax Justice South Africa estimates that the fiscus has lost about R1.5 billion due to the ban, while fostering a rampant illicit trade in cigarettes.
Cigarettes are reported to be pouring across the borders with relative ease from Zimbabwe and Mozambique.
In a letter attached to the Fita application, Gold Leaf Tobacco CEO Ebrahim Adamjee points out that the company paid R437 million in excise and R60 million in value-added tax (Vat) over April and May 2019.
Two-month loss to SA of R519m from one manufacturer
Because the company has been shut down, the fiscus will lose out on R457 million in excise and R62 million in Vat for the same months in 2020.
The company says it is making an operating loss of R801 000 a day, while fumigation and maintenance costs are spiralling due to the lockdown. The company employs 354 workers, not counting its supplier and distribution networks.
“The current status quo will likely result in Gold Leaf Tobacco having to enter a process of liquidation and/or business rescue, placing further strain on these individuals and their families as well as government,” says Adamjee.
State ‘deaf to the voices’ of citizens
Fita chair Sinenhlanhla Mnguni says the ban is irrational and that government has been deaf to the voices of those opposed to it.
A petition to lift the ban had garnered more than 496 000 signatures by late Monday.
In addition, says Fita, there is no evidence that the ban stops the spread of Covid-19. “There has been a clear failure to balance the interests of citizens who are legally entitled to purchase cigarettes and tobacco products with measures that may responsibly and legitimately be taken to combat the pandemic,” says Mnguni in his affidavit.
The Fita case will hopefully shed some light on the limits of state power in emergencies such as Covid-19.
Mnguni says the regulations imposing the cigarette ban are unlawful and invalid, and violate the constitutional obligations on government to behave with legality.
Lift ban – or explain your process
If cigarette sales are not allowed, Fita wants the government to explain how it came to determine its list of “essential goods” that could be sold during the lockdown.
None of the ministers making pronouncements about the ban have demonstrated how it prevents the spread of the virus. Public comments have been limited to smoking as a health hazard, in which government could have used the same rationale to ban fizzy drinks and chocolates.
Consumers’ rights to body and psychological integrity have been infringed, says Fita, including their “right to security in and control over their own bodies”.
Dlamini-Zuma’s imposition of a ban on cigarettes was motivated by “health reasons”.
“’Health reasons’ is not in law a basis for prohibiting the sale of tobacco and cigarettes under the regulations,” says Mnguni’s affidavit. “The [Disaster Management] Act and regulations have a very specific ambit – not delineated by ‘health reasons’.”
The gold share rally happened in the teeth of the Covid-19 lockdown, when production was shut down. The latest price spurt coincided with the announcement that deep level mines will be able to operate at 50% capacity. It will take four to six weeks for shuttered mines to get to this level of production, a feat complicated by the intricacies of maintaining social distancing and sanitary conditions underground.
Last week Bank of America raised its projections for gold to $3 000 (R55 600) per ounce within 18 months, which is 50% above the previous high of $1 921 (R35 600) set in 2012. The bullish outlook for gold is based on central banks’ commitment to virtually endless monetary expansion to prop up economies brought to their knees by the Covid-19 pandemic.
Alasdair Macleod of Goldmoney takes a more adventurous view, arguing in a recent article that fiat currencies are headed for the dumpster, which leaves just gold and silver (and possibly bitcoin) as the only remnants of sound money left standing. He says infinite money printing by central banks to rescue their economies from the current collapse will accelerate the demise of fiat.“History, economic theory and even common sense tell us governments and their central banks will rapidly destroy their currencies.”
Even the US dollar will struggle to retain its status as global reserve currency as foreigners start to ditch US dollar-denominated investments.
To understand why local gold stocks performed so spectacularly while production was shut down, you have to look at the rand price of gold.
The weak rand is the key culprit here, but as local mining costs are primarily priced in the local currency, and with fuel prices dropping, this provides an extra kick to local stock prices as mines recommence operations.
Rand price of gold
SA used to be the gold capital of the world, but the number of pure gold plays can now be counted on one hand. To get a broader exposure to gold stocks you have to look abroad at companies like Newmont, Barrick Gold, Kinross and Franco-Nevada, all of which are expected to deliver strong earnings growth in 2020.
Investment research house Zacks rates all of these as buys, despite strong recent gains, based on earnings growth forecasts for 2020 of 51% for Barrick Gold, 41.2% for Kinross and 15.9% for Franco-Nevada. These are considered by Zacks as the stocks most likely to double in 2020.
One way you can accumulate some of these shares is by opening an account with Mexem, a SA-based low-cost brokerage which allows you to trade stocks in more than 120 markets around the world.
How to invest in gold
There are three primary ways to invest in gold:
Buy the physical metal
Buy exchange-traded funds (ETFs) such as Investec Gold and Standard Bank Linker.
You can own physical gold in the form of Krugerrands or minted bars of various sizes, but this poses the challenge of safely storing it. However SA Bullion offers secret vaulting facilities both in SA and abroad.
The advantage of buying Krugerrands (stick with the ‘bullion’ coins, not the ‘proof’ ones) is they are considered legal tender and so do not attract Vat.
Hilton Davies, founder of SA Bullion, says demand for physical gold is reaching almost unprecedented levels due to fears of economic collapse and the devaluation of paper currencies: “The rand has devalued against the US dollar by 7% a year for the last two decades, and many people understand that owning physical gold is one of the best ways to hedge against this.
“We source our gold from Rand Refinery and, more recently, from overseas suppliers which we’ve had to do to keep up with demand.”
While Krugerrands of various sizes make up much of the demand, buyers are also looking for minted bars to be vaulted in secure (and secret) locations both locally and abroad.
Owning gold shares in SA comes with its own risks. Peter Major, director of mining at Mergence Corporate Solutions, says he thinks gold has run up a little too high and will likely fall a bit , with the rand likely to strengthen somewhat.
“Hence, I am shorting SA gold shares at the moment and am marginally in the money,” he says.
Davies says owning physical gold has advantages over shares, even though it pays no dividend or interest.
“I’m worried about SA gold mines. They are businesses and their margins can vary wildly. Our gold mines in SA are deep level with very high labour and operating costs, and of course now they are allowed to operate only at reduced capacity. The higher rand price of gold has certainly helped them over the last few months, but they remain quite speculative. Owning physical gold may be less exciting, but I would say the prospects for good returns over the next few years are excellent.”
As a final note, it is worth pondering the latest move up in bitcoin, which touched $9 000 (R166 337) this week. The run-up in price was attributed to central bank money printing programmes, and a process known as ‘halving’ – a technical event where fewer new coins are released onto the market, thereby constricting supply.
But mining in the era of social distancing poses unique challenges. From Moneyweb.
Some 60% of recalled miners have returned to work in preparation for the lifting of the Covid-19 lockdown. The mining sector is among the first to be partially reopened after the government-imposed lockdown began in March.
Coal mines supplying Eskom were allowed to continue operating during the lockdown, but the new regulations allow coal and open cast mines to operate at 100% production capacity, and underground mines at 50%.
At a press briefing on Tuesday, the Minerals Council SA and several mining groups outlined the steps being taken to ensure the health of workers in the post-lockdown workplace:
Thermal scanners at access control points to detect unusually high body temperatures;
Quarantine facilities for the sick;
Masks and protective gear for miners gathering in close quarters; and
Most mines have deployed cellphone tracking apps to see where miners have been and who they had contact with.
This is the new world of mining until further notice.
So far, just nine miners have tested positive for the virus, and most of these had contact with people who had arrived from abroad or had themselves travelled across provincial borders.
Getting workers back to the mines has had its own unique challenges: taxi associations are reported to have been stopping buses transporting miners and impounding vehicles, complaining that mines were interfering in their transport business.
Miners were sent essential services permits via their cellphones, which in some instances were not accepted by police who wanted to see hard copies. That appears to have been resolved after intervention by the Minerals Council.
A further complicating factor is a court challenge being brought by the Association of Mineworkers and Construction Union (Amcu).
Amcu wants Covid-19 declared a health hazard in terms of the Mine Health and Safety Act.
It also wants the industry response standardised in terms of regulations rather than left to each mine to come up with its own plans.
The Minerals Council says this is a legally incorrect application of the act’s health provisions, although it is not opposed to all of Amcu’s claims. The case is due to be heard this week.
Tebello Chabana, public affairs spokesperson at the Minerals Council, says early estimates indicate that the industry is currently operating at about 30% capacity, and that it could take more than a month for underground mines to reach 50% capacity.
Addressing concerns over the preparedness of the industry for a partial return to work, the Minerals Council said it has developed a 10-point action plan covering:
Health worker readiness
Use of masks, sanitisers and temperature monitors
Proactive influenza vaccinations
Dealing with immunocompromised employees
Management of suspected cases or contacts of cases
Isolation of employees where required
Industry reporting, and
Communication and monitoring.
At the press briefing on Tuesday, mining groups outlined steps being taken to tackle the virus in a coordinated manner with government health authorities, municipalities and local communities.
Gold Fields is issuing workers with a ‘Coronavirus passport’ for travelling to and from work, and to remind them of the do’s and don’ts of Covid-19 social behaviour. Sven Lunsche, vice-president for corporate affairs at Gold Fields, says the new normal means workers are considered employees 24 hours a day, because what they do outside of work hours can impact what happens in the workplace.
AngloGold Ashanti vice-president of health Dr Bafedile Chauke says the group has strengthened the health care systems in countries where it operates, and has launched mass Covid-19 educational campaigns both nationally and in surrounding communities. In SA, it has made two hospitals available to government in North West province and Gauteng as isolation and treatment facilities, and – together with Sasol and Imperial – is supplying 1 000 litre bulk sanitisers to four major hospitals in Gauteng.
Anglo American spokesperson Nomonde Ndwalaza says the group’s Covid-19 campaigns are focused on critical areas such as water, energy, food supply and making sure banking and cash is available to those in need. It is providing support to 160 clinics, and ensuring that water tankers are getting to municipalities and villages in areas where it operates. The group donated $2 million support to the Solidarity Fund, aimed at supporting small businesses, and is distributing 66 000 food parcels in communities in SA, Namibia and Zimbabwe.
Sibanye-Stillwater head of investor relations James Wellsted says executives have taken a 30% cut in salaries, with more than R20 million being donated to the Solidarity Fund and the SA Future Trust Fund. The group paid out R1.5 billion in wages during lockdown, and is now gearing up for the return to 50% production capacity.
Exxaro head of stakeholder affairs Mzila Mthenjane says the group had been allowed to continue operating during lockdown as it is considered an essential supplier of coal to Eskom. It had a jump start on other mining groups in its Covid-19 preparedness, conducting self-screening of workers, with suspected cases of infection being reported to medical practitioners for quarantining. Thermal scanners are used at all business unit access control points, and those registering body temperatures above 38 degrees are sent home and referred to medical practitioner.
Harmony head of corporate affairs Harry Mashego says the group kept tabs on the geographic location of employees as they departed the mine during lockdown. Joint operation centres with health authorities, police and transport officials have been created to coordinate the return to work. It is left to the human resources department to determine which of the 50% of workers will be allowed to return to work.
The relief packages offered by banks could be the cause of untold legal cases in the months to come. From Moneyweb.
The banks have been commended for their debt relief measures in response to the Covid-19 crisis, but let’s not get too excited about this. The repayment holidays are fraught with legal risks which will only become apparent later in the year.
Some of the banks have adopted a one-size-fits-all approach that makes no concessions for customers’ individual circumstances as a result of the lockdown. They have ignored solutions that are more viable and beneficial for customers, and this will open up all sorts of interesting legal problems in the months and years to come should those customers default.
In good standing
Those who are “not in good standing” – such as those already in arrears on mortgage payments – do not qualify for a repayment holiday, but that’s not necessarily a bad thing, says legal advisor Leonard Benjamin. Banks are still required to negotiate with all customers in good faith, based on each customer’s individual circumstances.
“They cannot refuse to negotiate, and simply institute legal proceedings that may eventually result in the sale of their customer’s home to recover the debt,” says Benjamin.
“As the banks cannot possibly know each person’s personal circumstances, it is up to customers to make debt relief proposals that reflect their own particular circumstances.
“They must then follow through with their proposal, whether the bank accepts it or not, by paying the bank in accordance with their proposal.
“Banks that ignore properly motivated and viable solutions do so at their own risk, particularly when backed up by actual payments.”
Customers do not need the bank’s permission to take a repayment holiday
This means that even those who do not qualify for a three-month payment holiday can take matters into their own hands.
Anyone whose income has taken a knock during the lockdown need only start paying again when their finances improve, and then they can pay what they can afford, even if it is not what the bank demands.
This chimes with the National Credit Act, which is intended to balance the rights of lenders and borrowers and encourages the eventual satisfaction of the consumer’s obligations.
From the consumer’s perspective, spreading the accumulated arrears over the full remaining term is probably the easiest way to catch up on any missed payments. You can do this without the bank’s permission, say Benjamin.
In effect, you can award yourself a repayment holiday.
In most cases, this will mean paying just a few hundred rands extra each month once you are in a financial position to do so. The banks will get short shrift from the courts should they try to claim you are in default. All you need to do is show that you can again start making payments on your mortgage bond.
How interest rates changes automatically extinguish arrears
All home loan agreements allow the banks to adjust repayments whenever there is an interest rate change. The effect of the adjustment, if done in terms of the loan agreement, is to spread the arrears over the remaining term of the loan, which extinguishes the lump sum arrears.
Banks have denied the arrears are extinguished by any change in interest rates, but they are flat wrong, says Benjamin. All you have to do when there is a change in interest rate change is pay the new instalment on your loan to bring your account up to date.
Therefore, any attempt to claim the customer remains in default when the bank has spread the arrears over the remaining term of the loan amounts to ‘double-dipping’ – claiming twice for the same thing.
There’s no question that the banks are bracing for a wave of defaults. Should they rush to foreclose later this year, the courts – once they reopen – will be faced with a jurisprudential nightmare: whether to grant judgments against defaulting homeowners who fell into arrears through no fault of their own, but will be able to resume payments in the near future.
The banks have up to now had everything their own way and have faced little opposition in the courts. After the 2008 financial crisis, tens of thousands of South Africans were booted out of their homes after falling into arrears by as little as R6 000.
This time it’s going to be a lot tougher for the banks, if only because consumers are better informed and there are more legal resources on their side, such as Stellenbosch University’s Law Clinic and the Legal Resources Centre.
The government has already anticipated the potential legal timebomb by placing a freeze on evictions during the lockdown. But what happens when the lockdown is lifted?
Forensic accountant Andre Prakke says anyone finding themselves facing foreclosure as a result of the lockdown must ask the court to hold the matter over until those cases with substantially the same arguments are properly decided by the court.
“One reason for doing this is it will stop courts in various jurisdictions giving conflicting rulings. It will also allow people in the same boat to get a proper team of experts together.”
Prakke says a collective approach obviates the need for individuals facing foreclosure to each hire their own attorneys.
This is an excellent idea says, Benjamin. “It contemplates that the issues are dealt with before a full court rather than on a piecemeal basis. The various banks will, for instance, be able to explain to the court how they can calculate different instalments when there is a rate change, when the evidence suggests they are trying to win judgments against consumers who are not in default. It will also give the various public interest organisations that focus on this area of law the opportunity to come on board as a Friend of the Court to add their considerable acumen and input to the deliberations.”
Debt counsellor Michelle Barnardt says the National Credit Regulator needs to be added as a respondent in any case brought by the banks, since its job is to balance the rights of lenders and consumers.
Finally, the constitutional issues of snuffing out someone’s income
Several lawyers have already pointed out constitutional issues surrounding the lockdown. A bank foreclosing on a homeowner whose income was snuffed out by the government lockdown could argue a laundry list of constitutional violations, from arbitrary deprivation of property to the rights to life and dignity.
We are in for interesting times on the legal front in the months ahead.
Cooked food ban ‘unlawful’, tourism enterprise assistance ‘discriminatory’ and cigarette sales seemingly not actually prohibited. From Moneyweb.
On Monday the Fair-trade Independent Tobacco Association (Fita) issued government with notice that it may bring an urgent application before the high court, to clarify whether cigarette sales are banned in terms of lockdown regulations.
The ban could cost thousands of jobs and more than R1.2 billion in excise revenue to the fiscus, and Fita wants government to explain where it gets its power to shut down the industry.
Trade union Solidarity and civil rights organisation AfriForum have already issued summons on the Department of Tourism and its minister, over race preferences in the distribution of financial relief to small businesses hit by the Covid-19 lockdown.
The AfriForum case is due to be heard on an urgent basis in court on Tuesday (April 21). Solidarity’s case will be heard next week.
AfriForum CEO Kallie Kriel says it is disgraceful that government has decided to misuse assistance for struggling enterprises to promote a race-based agenda at a time when everyone in the country needs to stand together. He says the Department of Tourism’s racial requirements amount to unfair discrimination and are therefore unconstitutional.
“The expressed aim of the department’s fund is to offer assistance to tourism enterprises that are being adversely affected by Covid-19. Seeing as everyone, notwithstanding their race, is being adversely affected by Covid-19, the department cannot use Section 9(2) of the Constitution, which justifies correction of discrimination from the past, as justification for discriminating assistance against the consequences of Covid-19.”
AfriForum has urged all tourism businesses affected by Covid-19 to apply for relief from government, and if rejected on the basis of BEE requirements, to notify the organisation so that it can mount a legal attack.
Snooker move on cooked food
Over the weekend, the Democratic Alliance (DA) wrote to Trade, Industry and Competition Minister Ebrahim Patel, asking him what legal advice he was relying on to shut down the supply of cooked food.
The DA had been set to approach the North Gauteng High Court to lodge urgent papers to have Patel’s comments in this regard declared unlawful and to seek a personal costs order against him, according to DA Shadow Minister of Trade Dean Macpherson.
But the weekend saw Cooperative Governance and Traditional Affairs Minister Nkosazana Dlamini-Zuma amend the lockdown rules to specifically ban the sale of cooked food.
“This was clearly unlawful,” says Macpherson, adding that Patel had to rely on his cabinet colleague to cure his legal nightmare.
“[This] amendment now makes what was illegal legal, and is short-sighted and mean-spirited, especially for frontline health care workers, members of the security services, essential service workers and transport workers like truck drivers who rely on cooked food due to the work they are doing.”
Macpherson says it is important to ensure that government does not overstep its powers and in the process treat citizens with disrespect.
Business organisation Sakeliga has also threatened to drag Patel to court unless he reverses his pronouncements on the production and sale of “prepared”, “warm” and “cooked” food.
Sakeliga CEO Piet le Roux says the Department of Trade, Industry and Competition’s attempts “to legislate by mere pronouncement are, irrespective of the merits of its instructions, a danger to the rule of law”.
“Even in the face of our unusual circumstances, the principles of constitutionality and legality must be followed.”
Ministers, government officials and public servants are issuing directives without due process and outside the bounds of law, says Le Roux. This is an abuse of power and detracts from public health rather than adding to it.
Sakeliga is offering to subsidise personalised legal opinions for “essential service” providers. The purpose of the legal opinion is to offer businesses legal certainty and provide them with something to present in good faith to law-enforcement officers who might be acting upon unclear or even unlawful instructions.
Adding fuel to the flame
One of the prickliest legal issues is the apparent ban on cigarette sales.
Fita chair Sinen Mnguni says various government officials have issued statements implying that cigarette sales are forbidden during lockdown, but this is not explicitly stated in the emergency regulations. The tobacco organisation representing smaller producers has written to government to ask for clarity on the ban.
“We are constrained to point out that, properly interpreted and despite what state officials have said, the regulations do not prohibit the sale of cigarettes,” says Fita’s letter to the president and other state officials.
It also wants government to explain how a ban on cigarette sales, if it in fact exists, assists in stopping the spread of the Covid-19 virus, and what law empowers government to impose such a ban. It also points out that the sales ban has allowed a black market to flourish, with packets of cigarettes selling for three times their listed price.
Yusuf Abramjee of Tax Justice South Africa (TJSA) says the ban on cigarette sales is costing the fiscus R35 million a day, which means a 35-day lockdown translates into a loss in excise of more than R1.2 billion.
“We have disturbing evidence that rogue cops are conniving with illegal traders, and it is feared that large caches of illicit cigarettes confiscated by police are finding their way back into the market,” says Abramjee.
“President Ramaphosa has rightly earned great respect for his handling of the coronavirus crisis. But this ban is backfiring badly.”
Abramjee adds: “TJSA fully supports a lockdown designed to stop the spread of a virus that could devastate our country. But it’s a painful process and everyone has to buy into it. If the irrational ban on cigarettes is not lifted, we fear that public confidence will be lost and our national sacrifice will be wasted.”
Fita has given the government 24 hours to respond. Depending on the response, Mnguni says an urgent legal challenge may have to be mounted in the high court this week.
Moneyweb is also aware that individual companies deemed ‘non-essential’ as interpreted by public officials, are also planning court challenges to clarify whether they have the right to continue operating.
Until now, ‘going digital’ was still a discussion point for many businesses. Now it’s the only reality. From Moneyweb.
Last month Pick n Pay launched an online scheduled delivery service to help quarantined customers get their grocery essentials. Customers can select the products they want delivered routinely, and have them delivered on a set day of the week or month.
Last week it upped the ante, announcing the introduction of its new same-day grocery delivery app. This came shortly before President Cyril Ramaphosa announced that the country’s lockdown was being extended by two weeks – for a total of five weeks.
In November last year Shoprite launched a one-hour delivery service called Sixty60. Makro has offered online buying for years. Takealot resumed online selling of essential items at the start of this month, after a brief shutdown in March.
Officially, South Africans do just 1.4% of their buying online according to card company Visa, but that figure is likely exploding during lockdown.
While the real economy could contract 10% for calendar 2020, it is already likely down 40-50% of normal production for this time of year and will require a robust reboot later in the year to salvage the country from an economic wipe-out.Read: SA economy could crater up to 10% this year
That’s not to say that segments of the economy aren’t booming. Content streaming services such as Netflix, anime content provider Funimation, Prime View and Disney+ couldn’t be happier as millions plonk themselves in front of screens to stave off boredom during lockdown.
As Moneyweb previously reported, online conferencing tools such as Microsoft Teams, Zoom, Google Hangouts and Slack are having to scale up to handle a massive increase in new subscribers.
Global Internet Protocol (IP) traffic, a proxy for data flows, grew from about 100 gigabytes (GB) per day in 1992 to more than 45 000 GB per second in 2017. And the world is only in the early days of the data-driven economy; by 2022 global IP traffic is projected to reach 150 700 GB per second, fuelled by more and more people coming online for the first time and by the expansion of the Internet of Things (IoT). That’s according to the 2019 Digital Economy Report by the United Nations Conference on Trade and Industry.
Events go online
Conferences that were planned for this time of year have been postponed or have gone online. The SA Institute of Business Accountants (Saiba) moved its planned Practice Management Conference online, making it available to its 10 000-plus members scattered across the sub-continent.
Nicolaas van Wyk, CEO of Saiba, says in years to come we will evaluate the world as pre- and post- Covid-19, in much the same way as our calendars refer to BC and AD.
“Everything is digital now. Going digital was only a discussion point for many businesses but now it’s the only reality. A shrinking economy means fewer sales and if we want to maintain profit levels the only thing left is cost cutting. Digital technology empowers you to do this.
“Our whole business environment is undergoing a cataclysmic transformation. As a result, we see clear fault lines appearing.
“As a service organisation we handle hundreds of membership applications each month. These will now all be automated. Support will be provided via video and robots with consultants having to focus on sales.”
Performance will count for more
Van Wyk says many companies will be forced to overhaul their remuneration models, with salaries based on sales rather than hours spent. Companies are going to have to work smarter and harder to attract clients.
The post-Covid environment will drive convergence with a sense of urgency.
“Combining and integrating service sectors will become the norm. As a professional body we will sell memberships, insurance and software,” he says.
Slow-mo services get fastracked
Even government departments are having to embrace digital engagement with urgency. While the South African Revenue Service (Sars) has offered eFiling of tax returns for years, Namibia required source documents for Vat to be hand-delivered to its offices in Windhoek.
Since lockdown, these can now be submitted electronically.
Sars has closed its physical offices and opened electronic channels for virtually all services, including disputes, complaints, account queries and requests for statements of account.
Service companies such as law firms, accountants and consultants have been subjected to a crash course in remote delivery and digitalisation.
Banks too are having to accelerate the roll-out of their digital platforms as reports abound of customers seeking loan repayment holidays being unable to speak to a banking consultant. This opens the door for online competitors and fintechs with more flexible lending arrangements that typically offered by banks.
Hands being forced
A Gartner survey of 192 chief financial officers and finance executives in small organisations suggests 54% of them plan to slow payment to vendors to preserve cash in the coming weeks. Larger organisations are already drawing down on existing credit lines, while smaller organisations are twice as likely as large organisations to withhold rent for April and May.
Another Gartner study shows three-quarters of companies surveyed plan to shift some employees to remote working permanently as part of cost-cutting.
Expect to see more office rental space going for bargain prices in the coming months, while real estate prices take a tumble.
Fintech companies offering short-term financing to cash-strapped businesses are being slammed with online enquiries for help.
Responsiveness a growing advantage
The advantage some of these companies offer over traditional banking is a fully automated application process with a turnaround time of 90 minutes or less. For that the company applying needs QuickBooks Online or a similar accounting package, or if that’s not possible the company’s bank statements, which allow the fintech to plug into its financials and make a rapid risk assessment.
Bridgement CEO Daniel Goldberg says the speed with which applications are assessed and money transferred to borrowers contrasts with the typical banking process, where reams of documents are required, often resulting in delays of weeks or even months before loan applications are accepted or rejected.
“Especially in these times, businesses need quick turnaround times and a simple application process. They are struggling to meet their month-end payroll, and are having to stretch their creditors.
“They cannot wait weeks to find out if their application has been successful or not.”
Bridgement’s average loan size is R500 000, either through revolving credit facilities or advances of up to R5 million available through its invoice discounting scheme.
A week ago, Business Partners went live with its portal accepting applications for R25 000 grants and interest-free loans for 12 months (whereafter loans are charged at prime lending rates) but shut it down after a few days after being 2.8 times oversubscribed.
Surprisingly, only 60% of the R100 million set aside for grants had been taken up, probably because of the need for sole proprietors to be tax-compliant.
Compliance versus educated prescience
Bridgement and other fintechs are less concerned about tax compliance or the so-called commercial solvency test being imposed on applicants for small business funding at Business Partners and other official providers of assistance to small businesses. Goldberg explains that solvency can easily be misinterpreted: many companies get through brief periods of insolvency as a result of seasonal trading patterns. Such tests do not mean it is unable to repay its bills.
Another fintech riding the digital wave during lockdown is Merchant Capital, which has an online application process and an approval process that is usually completed in hours. Founder and CEO Dov Girnun says the company has seen a spike in enquiries for short-term funding as a result of the lockdown.
“We’re not lending recklessly, and our focus right now is on essential businesses.
“For example, we are trying to support essential businesses with working capital to ensure they have sufficient stock on their shelves to match the demand. Supporting non-essential businesses such as a restaurant that is shut down because of the lockdown is more difficult.”
Merchant Capital’s loan repayment model also makes it attractive for businesses that might have short-term cash flow problems, particularly for retailers: it takes a small percentage of every card or electronic purchase until the loan is settled, which makes it less painful for business owners who are experiencing lower turnover due to the Covid-19 pandemic.
Once 70% of the loan has been repaid, the borrower qualifies for a new loan on the same terms or better. Four out of five borrowers come back for second or third loans as their business expansion requires, says Girnun.
It’s naive to imagine the world will return to normal once the Covid-19 crisis has passed.
Virtually every aspect of our working lives will have changed. Bills will be delayed and some may never be paid as potentially thousands of businesses go bust. Workers will be nervous about their jobs and union power will surely be weakened. Confronted with this emergency, however, companies can now attack costs in a way that was inconceivable just two months ago, through enhanced use of technology.
As some doors close, others are opening – and they are increasingly likely to be online.
Most common payment methods of online shoppers in South Africa as at January 2020
Keeping six months’ stock of essential supplies, considered wasteful a year ago, now seems like a good idea. From Moneyweb.
The shutdown of the deep level and non-essential mines to stop the spread of the Covid-19 virus last month has forced mines to re-examine their supply chains.
Last week, in response to the 21-day lockdown, Anglo American and AngloGold Ashanti issued a statement clarifying their business survival strategy. “In general, we are targeting inventories of three to six months on primary consumables, while recognising we have the support of strategic partnerships with key suppliers who themselves are maintaining inventories in the respective regions for many critical items.”
While everyone is hoping the lockdown lasts just three weeks, it now seems prudent to plan for much longer periods. Hence, holding three to six months’ worth of inventory may become the new normal.
The next issue to be confronted is where to source supplies to avoid an over-reliance on a single producer, such as China.
Research by Accenture shows 94% of Fortune 1000 companies anticipating supply chain disruption as a result of Covid-19. Well, that’s already happened.
Risk Planning 101
Companies’ risk assessments cater for all sorts of potentialities such as drastic changes in exchange rates and commodity prices, even political upheaval, but few anticipated a pandemic of the kind unleashed on the world three months ago.
The staggering disruption caused by the global lockdown will require far greater supply chain resilience against future disruptions, which essentially means having a plausible Plan B and Plan C. This might be easier said than done, given China’s massive pricing advantage over other countries, an advantage that is likely to be extended as China powers up its factories at a time of reduced global demand. Instead of price gouging, hefty discounts will likely be on offer in the months ahead.
Much of SA’s mineral production finds its way to China. Kumba sells more than half its iron ore output to China, with most of the rest going to Japan, South Korea and Europe. In February, chief executive Themba Mkhwanazi said the coronavirus outbreak in China forced a halt to steel production, prompting “proactive discussions” with customers in China and elsewhere to minimise the impact on sales. That was before other countries went into lockdown.
The Covid-19 lesson is clear: spread your customers as well as your suppliers to avoid over-reliance on a single country or market. This is Risk Planning 101, but many companies seem to have forgotten it.
Sibanye Stillwater’s senior vice-president for investor relations, James Wellsted, says the group sources most of its supplies locally, so it suffered little disruption from the Chinese economic shutdown. This is partly a legacy of apartheid-era sanctions which spawned a muscular local mining supply sector.
Lockdown extension risk
Perhaps the biggest risk facing SA is the government deciding to extend the lockdown, even in some relaxed form which would allow mines and factories to slowly ramp up production.
The Minerals Council has warned of irreparable damage to the mining industry if the lockdown is not lifted on April 16. Mines say they are able to pay workers’ salaries for the duration of the lockdown, including contributions to medical aids and pension funds, but that arrangement becomes less certain should there be any extension of the lockdown.
Last week Impala Platinum issued force majeure letters to all contractors and consultants, legally notifying them that their contracts had been suspended. Similar letters had been issued to suppliers, while offtake agreements to refine concentrate on behalf of other mining partners had also been suspended.
For thousands of mining supply businesses and contractors that rely on the big mining houses, these are worrying times. Mines’ first duty is to their employees and payment of their salaries, which leaves contractors and suppliers wondering whether their services will be required once the lockdown is lifted.
Those mining groups that managed to build cash war chests and reduce debt in recent years are better prepared to withstand the lockdown crisis.
Gold Fields reduced its debt from about $1,7 billion to $1.33 billion since late 2018, and expects to reduce it further this year by $300 million to $400 million. It has about $600 million in cash and more than $1.5 billion in undrawn debt facilities. “As a result, management believes that the Group has sufficient liquidity to withstand an interruption to our operations for a considerable period of time, but that notwithstanding, we will continue to work towards minimising the impact of Covid-19 on our employees, mines and offices,” says CEO Nick Holland in the latest annual report.
AngloGold Ashanti is responding to the lockdown crisis by implementing cash conservation measures, such as prioritising capital spending and reducing non-essential expenditure. At the end of 2019, it had $463 million in cash, $2 billion in debt and revolving credit facilities. It says it is well positioned to weather the current market uncertainty.
Similarly, South32 is reducing controllable costs, such as its ongoing share0buyback scheme. Several groups have suspended exploration and capital projects to conserve cash. For Harmony Gold, cash preservation is key, which means it has suspended its exploration and capital projects for the time being.
African Rainbow Minerals’ (ARM) joint venture, Assmang, has received authorisation from government to operate its stations at Khumani and Beeshoek mines in the Northern Cape for shipment to Saldanha Bay. Transnet has reactivated the rail and port export system from the Northern Cape to the port of Saldanha, allowing for the export of about 40% of usual volumes.
Coal and iron exports are vital for the generation of foreign currency, which explains why many of the mines in these sectors are able to continue producing.
If there’s any silver lining in all this, it is that our creaky national infrastructure suddenly looks up to the task: no power outages, and seemingly abundant rail and road capacity.
All it needed was for the economy to be shut down.
Netflix, of course. Also teleconferencing provider Zoom, toilet paper makers – and gold. From Moneyweb.
It seems just about everyone has watched (and enjoyed) Tiger King on Netflix: a quirky tale of big cat collectors and breeders in the US. Viewership figures were bumped by the launch of the series coinciding with a global lockdown.
Forced to stay at home, millions have turned to online content providers such as Netflix, Prime View and Disney+ to stave off boredom. It got so bad the European Union asked Netflix to throttle its bandwidth usage to medium rather than high definition.
But if this recession deepens, discretionary spending such as Netflix subscriptions could be among the first to be ditched.
Needham & Co says Netflix could suffer a 6% drop in streaming revenue in the US and as high as 28% elsewhere.
Online retailer Amazon has fared better than most, with its stock price falling just 12% during the coronavirus pandemic – a far smaller decline than other content providers such as Disney and Comcast have experienced.
Amazon’s stock price drop was cushioned by its Prime Video content streaming service, and Amazon Web Services (AWS), its fastest growing division. AWS will be launched this year in SA, bringing reduced latency and advanced technologies such as artificial intelligence and machine learning to sub-Saharan Africa. Ironically, Amazon has maintained a strong presence in Cape Town since 2004 where developers worked on new networking technologies and customer support.
Other companies surfing the lockdown wave are teleconferencing startup Zoom, which allows people to host virtual meetings. It signed up more than two million new users in the first two months of 2020, more than the whole of 2019, and its free app topped the most downloaded list on Apple and Google mobile app stores in recent weeks.
Thousands of SA companies are taking to Zoom, Google Hangouts and other products as we enter what may be a prolonged period of remote meetings. The longer the coronavirus threat remains, the more businesses, training colleges and clubs are going to ditch rental office space and replace it with virtual offices and online meeting rooms such as Zoom.
Some SA companies were already well positioned for the transition to virtual training. SA Accounting Academy provides continuous professional development for accountants and for years has used webinars to deliver training. It started putting some of its content on YouTube to make it freely available to the public, and this is pulling in scores of new users.
“Online training made sense, even before the outbreak of the coronavirus,” says the academy’s CEO, Rob Murray. “It allows you to reach people anywhere in the country, or indeed the world, provided they have an online connection. There’s no doubt this crisis is forcing everyone to relook at their business models to see how online delivery and customer service can be offered remotely. There is no doubt this is a big market going forward because we don’t know how long the pandemic will last or if there will be another one.”
Perhaps the most astonishing beneficiary of the virus is Microsoft Teams, a collaborative tool allowing teams to work together and share information in a common space. It added 44 million new users in recent weeks, doubling its user base in a matter of three months. Its competitor Slack, though much smaller, is also reporting a rush of new customers.
Health stores appear to be doing a decent trade. The share prices of Dis-chem and Clicks have held up well so far this year, though it’s unknown whether sales have been impacted by the lockdown. Byron Yan of Yan Health in Bedfordview, Johannesburg, says his store remains open during lockdown and, though sales are lower than usual, people are stocking up on immune boosters, sanitisers and other essentials. At times like these, health is uppermost in everyone’s mind.
Turning to the local bourse, gold shares such as DRDGold, Gold Fields and AngloGold Ashanti have largely shrugged off the coronavirus panic, assisted by a weak rand and a relatively steady gold price. The gold bulls are out in force, propelled by news of ten million newly unemployed people in the US and a rapidly deteriorating global economy.
BNP Paribas sees a gold price of around $1 675 an ounce in the second quarter of the year, declining to $1 550/oz in the further quarter, based on a progressive return to normal economic conditions in 2021.
Gold price per ounce
Not everyone sees it this way. United Overseas Bank (UOB) is forecasting a gold price of $1 800/oz by the first quarter of 2021, as central banks drive interest rates to the floor and embark on massive quantitative easing programmes.
“These significant stimuli bode well for gold and will be the fuel for gold’s rally once the USD funding crunch abates across Q2,” according to UOB’s head of markets strategy Heng Koon.
The longer interest rates remain low, the better it is for gold.
There’s little certainty around the impact on global gold production of Covid-related mine closures in SA, Quebec, Peru and Argentina, though mines in Australia, Russia and the US are still operating normally. Metals Focus says total gold production for 2020 is likely to be significantly lower than the 3 541 tons it projected at the start of this year, which could add a bit more zing to the price in the coming months.
Other SA shares holding reasonably firm are Naspers, kept aloft by its substantial shareholding in Tencent, retailer Clicks, and British American Tobacco, which got a boost with news that smokers in the Western Cape can again buy cigarettes. Metrofile has held up well, but probably because it is in the midst of being bought out by the Housatonic Consortium.
I’m going out on a limb here. There’s something terribly wrong with the reported numbers of deaths from Covid-19. Let’s just call it the virus, since it’s the only one being talked about.
My social media is ringing non-stop with dire forebodings of the holocaust that is about to befall us. Then there are those who say this is mass insanity.
This is vitally important because the country’s economy has been shut down and will take years to recover. Just looking at the restaurants and hotels, most of the 270,000 people who work in this sector have lost their incomes and don’t know if they will have a job when the crisis is over. People are in a panic, fearing for their lives, their children, their parents and their jobs. We better make sure we are making the right decisions based on unimpeachable data.
Let’s start with South Africa, where there are 1,380 reported Covid-19 cases and five deaths – a fatality rate of 0.003%. That, of course, may change, but let’s stick with the figures we have so far.
We just don’t know how many people have the virus and have not been tested. Is it double the number of reported cases, or 100 times? Or is it just 1,380?
The average death rate for South Africans from all causes is 9.5 per 1,000 per year – slightly less than 1%. Is Covid-19 going to jolt this needle, even slightly? It could be argued that the quick action taken by the government to impose a lockdown may have saved thousands of lives, but that’s pure guess work.
The three leading causes of natural deaths in SA are listed as tuberculosis, diabetes and cerebrovascular diseases, according to government health stats.
Those in favour of an aggressive lockdown point to Italy, where the fatality rate appears to be a staggering 8-10% of cases testing positive. Rather be safe than sorry, they say.
In Spain, the fatality rate is 5-6%.
A closer look at Italian fatalities
Taking a closer look at Italy, we learn it has the second highest old age population in the world, where some 87% of those dying are over the age of 70, and of those dying more than 90% have other complicating diseases.
Prof Walter Ricciardi, scientific adviser to Italy’s minister of health, puts it this way: “The way in which we code deaths in our country is very generous in the sense that all the people who die in hospitals with the coronavirus are deemed to be dying of the coronavirus.”
In fact, just 12% of reported Covid-19 deaths in Italy had coronavirus listed as the cause of death. Eighty percent had at least two other diseases. Only 1.4% had no other diseases. This is according to the Italian government’s own report.
In other words, those dying who test positive for coronavirus are assumed to have died from coronavirus, ignoring other pre-existing illnesses. Which means Italy’s Covid-19 fatality rate could be a massive over-count. Adjust for this – as some have suggested should be done – and Italy falls into line with fatality rates elsewhere in the world.
It’s a similar pattern in Spain.
Captured by alarmists
Has the world been captured by alarmist virologists who have the ears of presidents and lawmakers everywhere?
If so, they must be held to account for the damage they have unleashed on the world. Because there will surely be other “coronavirus” epidemics in the future. Can the world sustain much more of this?
The University of Oxford’s Our World in Data group has stopped using data from the World Health Organisation (WHO) because its figures cannot be trusted. “The lack of good data available during the coronavirus outbreak has been a major source of frustration for economists, statisticians, scientists, and public policy professionals.
“A Stanford University epidemiologist and professor of medicine, in a widely circulated Stat article, recently said the COVID-19 pandemic could end up being “a once-in-a-century evidence fiasco.”
Author of the Stat article, Professor John Ioannidis, says data on how many people are infected and how the epidemic is evolving are utterly unreliable. “We don’t know if we are failing to capture infections by a factor of three or 300. Three months after the outbreak emerged, most countries, including the U.S., lack the ability to test a large number of people and no countries have reliable data on the prevalence of the virus in a representative random sample of the general population.”
This evidence fiasco creates tremendous uncertainty about the risk of dying from Covid-19. Reported case fatality rates, like the official 3.4% rate from WHO, cause horror — and are meaningless, adds Ioannidis.
Patients who have been tested for the virus are disproportionately those with severe symptoms and bad outcomes. As most health systems have limited testing capacity, selection bias may even worsen in the near future.
The one situation where an entire, closed population was tested was the Diamond Princess cruise ship and its quarantine passengers, where 700 passengers were infected and seven died. The case fatality rate there was 1%, but this was a largely elderly population, in which the death rate from Covid-19 is much higher. Assuming a more equally distributed population age, the case fatality ratio could range from 0.05% to 1%.
A population-wide case fatality rate of 0.05% is lower than seasonal influenza. German physician and member of the Bundestag, Dr. Wolfgang Wodarg, points to a Glasgow study showing coronavirus (of which there are many strains) accounting for nearly one-in-five common cases in of flu. Ioannidis adds that these “mild” coronaviruses may be implicated in several thousands of deaths every year worldwide, though the vast majority of them are not documented with precise testing. “Instead, they are lost as noise among 60 million deaths from various causes every year.”
UK epidemiologist Neil Ferguson, who has Covid-19 himself, recently slashed his original projections of 500,000 UK Covid-19 deaths to less than 20,000 and expects the crisis to peak in 2-3 weeks. This reduction in estimates is based on evidence that the virus moves much quicker than was originally thought. Oxford University researchers have suggested potentially half the UK population may have been infected, in which case the fatality rate is far, far lower than reported.
If so, the much-maligned “herd immunity” (when enough people get the virus and build immunity) has already taken effect. As with previous epidemics such as Swine flu, the early prognostications of fatalities turn out to be wildly over-stated.
We better demand our government acts on correct data. Because when this blows over and South Africans survey the wreckage, they will look for someone to blame.
Even before the latest fatality stats, ETM Analytics economist Russell Lamberti questions whether the lockdown is proportionate to the threat from the virus. Nicolaas van Wyk, CEO of the SA Institute of Business Accountants (Saiba) says the damage to the business sector will not be easily repaired: “We really need to be sure government is making the right decisions based on the right data. What comes after the virus is what is most worrying, because people will be hungry and many businesses will have folded.”
This week, Impala Platinum announced that all consultants and contractors at its operations had been issued force majeure letters to legally suspend its obligations under those contracts.
“Force majeure letters have also been issued in respect of offtake agreements with both group companies and third parties, as well as customer supply contracts, to legally suspend our obligations under these contracts,” says the Implats statement. “With respect to offtake agreements, deliveries from all parties to the smelter were suspended on 24 March 2020 to enable the smelting operations to prepare for an orderly shutdown. With respect to customer supply contracts, deliveries can resume once the force majeure is lifted, provided delivery logistics permit.”
ARM announced that its Two Rivers Mine received notice of force majeure from Implats, saying it could no longer take delivery of concentrate for processing until the lockdown was lifted.
Anglo American has moved the bulk of its operations to care and maintenance for the duration of lockdown. “As a result, we’ve unfortunately had to declare force majeure on certain supplier contracts for goods and services that fall outside the scope of approved essential services and the limited scaled-back operations we’re allowed to continue,” says a company statement.
Anglo American spokesperson Sibusiso Tshabalala says this is not a blanket force majeure, and applies only on certain supplier contracts. The good news is that employees will continue to receive basic salaries and housing allowances, as well as company contributions to medical and pension funds, throughout the 21-day lockdown period.
Sibanye Stillwater’s senior vice-president for investor relations, James Wellsted, says all companies that stop operations for an extended period will be stretched to meet contractual arrangements – both with customers and suppliers and contractors. “As will most of the SA mining companies who have been impacted by this lockdown, we have obviously given our partners force majeure notices.”
On Monday Gold Fields announced that its South Deep mine had been placed on care and maintenance for the current three-week lockdown period. Sven Lunsche, vice president of corporate affairs at Gold Fields, says 7% of the usual staff complement remain on site at South Deep, though it has been able to continue delivering product to the bullion banks. Apart from South Deep, the rest of the group’s production has been largely uninterrupted, though stricter regulations are being put in place by governments around the world, which poses a risk during the current financial year.
Royal Bafokeng Platinum has placed its operations on care and maintenance and told a large number of employees and contractors to stay at home.
Other mining groups supplying essential products, such as coal to Eskom, are likely to experience minimal interruptions due to the lockdown. The government is also desperate to get its hands on foreign currency over the coming weeks, and will want to see companies ramp up coal exports to the [greatest] extent possible. ARM Coal says its supply to Eskom will continue during the lockdown, though exports will need to be approved by the Department of Mineral Resources and Energy, and will be subject to the availability of rail capacity.
Likewise, coal producer Exxaro says it will be able to continue with its production activities “subject to the approval of an application that demonstrates that these activities are essential and that the necessary measures have been taken to prevent possible coronavirus infections.”
South32 says it is preparing for a potentially extended period of low commodity prices, and has announced a $160 million cut to capex and exploration in response to the spread of the Covid-19 virus. It has also suspended a $121 million share buyback programme, which will be reviewed later in the year. Its SA manganese operations, along with export coal production from South Africa Energy Coal, have been placed on care and maintenance. “The Hillside Aluminium smelter and domestic coal production from South Africa Energy Coal are considered businesses essential for the maintenance of power generation, given the role they play in the sustainability of Eskom’s generation network and will continue to operate during the lockdown,” says the group in a Sens statement.
For those mines invoking force majeure (or unexpected calamity making it impossible to perform on contract terms), the big question is whether or not the lockdown will be extended beyond 21 days.
For the time being, mines appear sufficiently cash-flush to pay employees, but any extension beyond the 21 days could start to hurt. Then you can be sure mining executives will be knocking on President Cyril Ramaphosa’s door.
The country might be able to sustain a 21-day shutdown, but anything longer could be fatal.