Advice to Tito from New Zealand: Get your balance sheet in order

Written by Ciaran Ryan. Posted in Journalism

There’s a reason New Zealand’s economic performance is as stunning as its response to Covid. From Moneyweb.

New Zealand Prime Minister Jacinda Ardern. Image: Loren Elliott, Reuters
New Zealand Prime Minister Jacinda Ardern. Image: Loren Elliott, Reuters

SA could learn a thing or two about state finances from New Zealand, which embarked on a series of radical reforms just over 30 years ago.

For the last 25 years New Zealand has run budget surpluses in all but the four years after the 2008 financial crisis and turned net liabilities of NZ$14 billion (R154 billion) into a net worth of NZ$146 billion (R1.5 trillion) at the end of the 2019 fiscal year.

That meant it had a huge war chest to deal with the coronavirus outbreak. The country recorded just 22 deaths from about 1 500 infected cases. Though the borders remain shut, the country has largely returned to normal, and shops and restaurants are open with no masks or social distancing. By some accounts, it has virtually eliminated the virus.

But the real story behind this is its fiscal preparedness. Just like a company, one of the key measures of New Zealand’s financial success is its net worth (value of assets less liabilities). But to measure that, you have to get your national balance sheet in order, and very few governments have gone to the trouble of accurately measuring and valuing their assets.

There’s been talk of getting SA’s state balance sheet in some kind of shape, but that’s a marathon project that could take years to accomplish.

We still have little certainty as to what exactly the state owns or its value. New Zealand has shown what can be done when you do that and then make those assets sweat.

In 2018 the International Monetary Fund did a study on public sector balance sheets across the globe and concluded that countries could generate about 3% more GDP through better management of their assets. In a post-Covid world, that’s a lot of money.

Fiscal turnaround

New Zealand is seen as a model of fiscal excellence – and for good reason. It started three decades ago with a series of reforms aimed at bringing greater transparency and accountability to public sector finances, and a key piece of legislation designed to achieve this was the Public Finance Act, passed in 1989. Prior to this, the country had run up budget deficits for two decades.

Take virtually any measure you want and New Zealand outshines not just SA, but most of the world.

Unemployment is 4.2%, inflation less than 1%, economic growth has ranged between 2% and 4% for the last decade. Debt-to-GDP is below 20%, versus the 86% that lies in SA’s near future.

The Public Finance Act was one of several fairly radical legislative economic and state-sector reforms. New Zealand introduced these reforms to overcome a fiscal crisis and over-regulated economy.

One of the architects of this Act was Ian Ball, professor of Practice-Public Financial Management in the School of Accounting and Commercial Law at Victoria University of Wellington. This is his advice to Finance Minister Tito Mboweni, or indeed any minister of finance: “One of the lessons we can take from the New Zealand experience is that you cannot run a government well unless you have good financial information. The idea of running an organisation as complex as a government without proper information is just not feasible in my opinion. You have to get your country’s balance sheet properly measured and put it to work.”

One of the spin-offs of this approach is enabling trust in government and democracy, says Ball. “Good information and the knowledge that public services are responsibly run is important in bolstering democratic satisfaction.”

Another reason to get the state balance sheet in order is it allows debt to be measured against assets rather than GDP, which can be a misleading measure as it ignores significant components of the balance sheet which also impact the fiscal position.

Says Ball: “New Zealand started a series of reforms about 30 years ago, beginning with the tax system, the removal of subsidies and import licensing, and the floating the New Zealand dollar, for example.”

“The country’s finances were in crisis and the government of the day decided it needed to get better performance out of the state sector. The State-Owned Enterprise Act was the first of several laws aimed at achieving improvements in the performance and fiscal management of the state sector as a whole.”

One of the key reforms mandated under the Public Finance Act was the move from cash to accrual accounting, similar to that of the corporate sector. Under cash accounting, government departments receive budget appropriations each year and spend them in that year, with no proper accounting for longer-term liabilities such as creditors and accrued leave for staff. Accrual accounting forces government departments to properly value their assets, recognise revenue when it is earned (rather than when received as cash), and to bring longer-term liabilities onto the balance sheet – for example interest payments, accrued leave and longer-term creditors.

Two other pieces legislation – the Fiscal Responsibility Act and the Financial Reporting Act (since included in the Public Finance Act) – require the government to conform with a number of principles of responsible fiscal management, and to report according to independently-determined financial reporting standards. The government is required to set out its financial targets, report on them monthly, and then provide an explanation when targets are not met. This system is a key factor behind the swing from budget deficits to surpluses.

Government has to set out clear targets in terms of public debt, net worth, revenue and expenses. It has to define what is a prudent level of debt, and report against this. If it does not comply with principle or what it said it would do, it has to explain to the country why this has occurred.

New Zealand budget deficit/surplus as % of GDP

Source: Trading Economics

Now compare this with South Africa, which last had a budget surplus 13 years ago.

SA budget deficit/surplus as % of GDP

Source: Trading Economics

The government is required to provide four-year forecasts of financial statements and cash flows. Appropriations from Parliament to government agencies are in accrual terms, which includes a cost of capital charge and depreciation. “As manager of a state department you have a level of expenses you must manage against certain deliverables,” says Ball.

“Why are we successful? Everyone runs off the same numbers. Under a cash-based system, you have a certain amount of money to spend in a year, which you can allocate to personnel, capex, travel, and so on.

In New Zealand, we say instruct state departments that this is what they have to produce in any particular year in terms of services, and this is the cash you have to do it – but you have to deliver results.

There’s still a lot of discretion to allocate expenses within that budget.”

Some 75% of Organisation for Economic Cooperation and Development (OECD) countries have adopted accrual reporting, but only 25% doing accrual budgeting and no other country doing accrual appropriations.

“The key purpose in these reforms is to create a culture of transparency and accountability. When you are seen to manage the state finances responsibly, a lot of other good things result, such as trust in democracy and public sector management.”

‘Reckless’ and ‘irregular’ new hires at nuclear plant during lockdown

Written by Ciaran Ryan. Posted in Journalism

Trade union says two of three new hires were re-employed after previously being subject to disciplinary hearings. From Moneyweb.

Misconduct charges against one of the returning employees resulted in a written warning. The whistleblower involved was not protected, and instead faced disciplinary charges, and eventually resigned. Image: Shutterstock

Misconduct charges against one of the returning employees resulted in a written warning. The whistleblower involved was not protected, and instead faced disciplinary charges, and eventually resigned. Image: Shutterstock

Nuclear Energy Company of SA (Necsa) seems to be getting back on its feet after the appointment of Dave Nicholls as chair earlier this year, following nearly two years of turmoil and repeated changes in directors and management.

But Necsa subsidiary NTP – which operates the Safari nuclear reactor and is the group’s main cash generator – is back in the spotlight, and for all the wrong reasons. It has come under fire for hiring three new executives, two of them previously subject to disciplinary hearings, during lockdown.

Trade union Nehawu (National Education, Health and Allied Workers’ Union), the majority trade union at Necsa, says it is angered by the “reckless decisions of NTP management to continue hiring new external people despite the financial difficulties imposed by the coronavirus situation and the consequences of the lockdown”.

“These external recruitments are also happening at a time when government is rationalising and repurposing state-owned enterprises.

“The Necsa Group has been given instruction to rationalise and repurpose itself. These appointments therefore are undermining that process.”

One of the new hires is Arno van Haght, who was cited in a December 2019 Public Protector’s report over a claim of tender irregularities relating to the hiring of two external contractors, Future of Fusion and Vuma Media. When whistleblower Lionel Adendorf brought the alleged irregularities to the company’s attention, he was charged with “gross insubordination and blatant refusal to obey direct lawful and reasonable instructions”.

Whistleblower not protected

This did not go down well with the Public Protector, who told NTP that Adendorf was a whistleblower and therefore entitled to the protections of the law – which include the right not to suffer occupational detriment for raising allegations of misconduct.

“The NTP did not properly address [Adendorf’s] protected disclosure of alleged maladministration and tender irregularities in that during the disciplinary hearing of Mr van Haght, he was not asked anything about the maladministration and tender irregularities relating to the procurement of Future of Fusion which he had disclosed to the NTP,” reads the Public Protector’s report.

Despite being informed that the whistleblower may not be subjected to occupational detriment under the Protected Disclosures Act, NTP went ahead with disciplinary charges against Adendorf, who eventually resigned from the company.

The Public Protector’s report shows Adendorf’s charges of misconduct against Van Haght were upheld in disciplinary hearings in 2017, and then appealed, resulting in a written warning against Van Haght.

The protector found that NTP had acted improperly by failing to treat Adendorf’s complaint as a protected disclosure.

Six-figure salaries

According to a well-placed source in the company, the three new hires are coming in at salaries of between R1.3 million and R1.7 million a year.

The Nehawu statement also claims another new appointee, Dillen Ramjee, previously resigned after being charged with serious counts of misconduct at Necsa. He worked as a licensing and safety manager and was charged in 2018 with unauthorised sign-off of documents to the National Nuclear Regulator.

“NTP brought him as a consultant in 2019. He was also absorbed permanently on 1 April 2020,” reads the Nehawu statement.

The trade union says none of the new appointments followed proper employment processes. “We are shocked by the extent to which NTP management is undermining the current Necsa and NTP boards,” says Zolani Masoleng, Nehawu branch chairperson at Necsa.

Board oversight?

“Necsa has taken over the NTP board yet it continues to accept this kind of behaviour from NTP management,” says Masoleng. “Where is the board oversight?

“How can they allow these extravagant hirings at a time of crisis in the company?

“It is time for Tina Eboka [head of NTP] to go.”

Moneyweb asked Necsa for comment on the hirings. Company spokesperson Nikelwa Tengimfene responded: “Necsa has no comment on this matter. There are proper channels and procedures in place for Nehawu to raise their concerns with management. Nehawu has not done so in this case.”

Nehawu pins the crisis at Necsa squarely on former energy minister Jeff Radebe, who sacked the CEO and several directors in late 2018 for “defiance and ineptitude”. Nicholls was brought in earlier this year to steady the ship.

Read:Axed Necsa board blames resistance of ‘privatisation by stealth’ for dismissalCourt issues damning judgment against Jeff Radebe

In August last year, the Pretoria High Court overturned the minister’s suspension of board members Pam Bosman and Kelvin Kemm, though it was moot victory as their terms of office had since expired. Former CEO Phumzile Tshelane is still battling to clear his name through a disciplinary process.

Necsa head of legal Vusi Malebana was suspended last year after raising serious governance issues – including plans to lay off 400 workers. The Labour Court found his suspension unlawful and ordered his immediate reinstatement. Malebana has yet to return to work, as his case is now the subject of arbitration proceedings.

The state purse seems to have no limit when it comes to paying lawyers to fight these personnel issues.

Read: Nuclear energy company’s not-so-secret plan to beat the courts

Nehawu has expressed its outrage over the fact that those who have been victorious in court remain sidelined, while others subject to serious disciplinary charges are welcomed back.

Get ready for an August peak in stock prices

Written by Ciaran Ryan. Posted in Journalism

Cycle theory has a pretty good track record in calling out the tops and bottoms. From Moneyweb.

Patterns and cycles are revealing, but they are still probabilities, not certainties. Image: Reuters/Alex Grimm

Patterns and cycles are revealing, but they are still probabilities, not certainties. Image: Reuters/Alex Grimm

These are indeed strange times. The coronavirus crash and rebound have stumped many professional fund managers, with some suggesting it is the so-called Robinhood investors gorging themselves on whacked-out travel, cruise ship and entertainment stocks.

These were hardest hit during the March crash, and many were priced for bankruptcy. Hundreds of thousands of young retail investors, many of them teenagers who get their stock tips from social media sites such as Reddit, have shredded conventional stock analysis to crest a wave that seems immune to both logic and gravity. Even bankrupt car rental firm Hertz has become a popular speculative stock among a new generation of online investors with just a few hundred dollars to their names.

Research by Goldman Sachs equity strategist David Kostin shows the most popular stocks on the commission-free Robinhood and Robintrack platforms – popular among retail investors – had gained 61% as of mid-June, thrashing the 36% rebound in the S&P 500 over the same period.

Rebound not reflective of real life

The fact that the US Federal Reserve pumped $2 trillion (R34 trillion) into the money system in recent months may also explain the strength of the rebound since March. It certainly doesn’t bear much relation to the global economy, which the International Monetary Fund expects to contract 4.9% this year.

The truth is that most of these traders rubbing their hands in profits will end up losing.

Don’t take my word for it. The European Securities and Markets Authority (Esma) requires European-registered brokers to disclose how many of their clients lose money. A survey of 30 brokers by the Finance Magnates Intelligence Department found that an average of 76% of clients lose money. That means only roughly a quarter are winning. The best broker had 35% of its clients in the win column, largely due to a tool that allows clients to follow trade suggestions.

“If any trend emerges from this data forced upon us by the Esma, it is that brokers should race to build up a client base which is better informed,” says Finance Magnates. “The number of additional tools and tools that actually work and provide insight will be crucial.”

Heeding this advice, Moneyweb reached out to the US-based Foundation for the Study of Cycles. We were referred to a few presentations, one of them by doyen of technical analysts, Sherman McClellan, who has been studying charts and cycles for more than four decades. He is also the inventor of the McClellan Oscillator and founder of the McClellan Newsletter.

McClellan turns charts upside down and inside out to reveal fascinating insights.

For example, there is a correlation between oil and gold prices – with a nine-year time difference. In other words, oil is nine years ahead of gold. So if you want to look into the future, take an oil chart, wind it back nine years and you’ll get a sense of what’s in store for gold.

Downturn in 2030?

McClellan also suggests that 2024 looks like a down year for stocks, followed by a weak recovery and a more serious downturn in 2030. That’s a galaxy away in stock market years.

There a reasonably tight correlation between the US stock markets and the JSE, so it is worth paying attention to the mother ship.

The number of US stocks going up versus those going down peaked in January this year, then started to shift lower – a key tell that prices were going to follow. This so-called advance-decline line has since roared back up to where it was in January, with prices following suit.

Gold is likely to top out in the second quarter of 2021, according to McClellan’s study of the charts. Interestingly, the massive $2 trillion monetary injection by the Fed may have interfered with the amplitude of these cycles, but it has not disrupted the timing.

Patterns and cycles pervade

Dr Richard Smith, head of the Foundation for the Study of Cycles, says most people understand that cycles are a feature of nature, whether we’re talking about the weather, politics or fashion.

“The longer we study the markets, the more we start to understand the patterns and cycles embedded in the prices. The question is how can people use this information to be better investors? Cycles are probabilities, they are not certainties. They can give you an edge in terms of probabilities.”

For example, the S&P 500 has been observed to have two particularly strong cycles, the longer one being 170 trading days, the shorter one 26 days. The 170-day cycle bottomed in mid-April 2020 and is expected to peak in early August. The same is true of the Dow Jones Industrial Average.

“This cycle is detecting cyclical pattern in price,” says Smith.

“These are like headwinds or tailwinds for a trader. You still need a proper trading set-up, trigger and follow-through.”

A trigger is a secondary indicator that tells you when is a good time to enter a trade. Many traders use advance-decline lines (which measure the number of stocks going up or down on any particular day), and look for a divergence with volume indicators that track the volume of stocks traded against up or down moves in price. At the start of a down cycle, big volumes are usually seen being traded in a small number of declining shares, yet the overall market continues rising. This can give a signal of a possible turn in the overall market.

Another interesting observation from cycle theory: bad things often happen in years ending in 0 (like 2020).

“There was a watchfulness in the cycle community for something like this,” says Smith. “The market topped on February 19 and our short-term cycle indicator anticipated this.”

Looking at the charts below, the pink lines anticipate market tops and bottoms. On this basis we should watch for a market top in the S&P 500 in August, followed by a weakening through to the later part of the year.

Gold may also go through a period of consolidation or weakness until September before its next up-cycle.

S&P 500 cycles forecast using 171 and 26 trading day cycles

Source: Foundation for the Study of Cycles

Gold cycles forecast using 53 and 179 trading day cycles

Source: Foundation for the Study of Cycles

How the auditors keep dodging the fraud bullet

Written by Ciaran Ryan. Posted in Journalism

A new report by Open Secrets puts them back in the crosshairs. From Moneyweb.

Scrutinising the scrutinisers … the problem is that audit and accounting regulations are heavily influenced by auditors and accountants. Image: Supplied

Scrutinising the scrutinisers … the problem is that audit and accounting regulations are heavily influenced by auditors and accountants. Image: Supplied

Of the roughly 1 000 people attending the virtual release of the latest Open Secrets report titled The Auditors, a good number were likely from the accounting profession. They must have been squirming in their seats as their crimes were read out in excruciating detail.

For example, in 2005 KPMG was fined $456 million (R10 billion) for defrauding the US tax authorities by designing, marketing and implementing illegal tax shelters to help wealthy individuals and corporations escape tax liabilities.

For this, KPMG received a deferred prosecution and paid a fine much smaller than the profits it made from the schemes.

KPMG wasn’t alone. The Big Four were all in on one of the biggest profit spinners of the last 20 years – ‘tax shelter’ structuring. In 2013 Ernst and Young (EY) paid $123 million (R2.1 billion) after admitting to US regulators that it had helped clients dodge taxes worth $2 billion (R34 billion). The other two members of the Big Four cartel – PwC and Deloitte – were likewise involved in schemes to escape tax.

Read: Big four auditors face investor calls for tougher climate scrutiny

Not all of these were illegal, but they were pervasive enough to characterise the Big Fours’ institutional behaviour as “skirting the rules and placing profit above principle for the sake of consulting clients,” says the Open Secrets report.

All this is lent a patina of respectability through the use of terms such as ‘tax neutrality’ and ‘tax minimalisation’ – euphemisms for paying no tax at all.

Nor are these tax avoidance schemes without human cost. They deprive the state of tax revenue for spending on social development, healthcare, education and pensions.

Closer to home, the auditors’ rap sheet is long and sad

Here’s a sampling:

  • KPMG auditor Sipho Malaba failed to raise any red flags in VBS Bank statements and provided a falsified regulatory audit opinion.
  • Deloitte failed to report suspicious activities and fraud at both Steinhoff and Tongaat Hulett. The Steinhoff fraud resulted in an overnight loss of R120 billion, to the detriment of 948 pension funds. The Government Employees Pension Fund (GEPF) alone lost over R21 billion.
  • PwC failed to identify major misstatements while the external auditors at SAA. PwC and its partner, Nkonki, earned R19 million for their work at SAA, but were only fined R200 000 for failing to disclose SAA’s noncompliance with legislation.
  • Deloitte’s audit of African Bank failed spectacularly in 2014. Deloitte missed red flags in the overstated future cash flow predictions for the bank and ignored the red flags raised in its own internal reports.
  • Deloitte earned R207 million in fees for an Eskom tender based on an irregular contract. In March 2020, Deloitte agreed to pay back R150 million, which allowed them to keep over R57 million earned between April 2016 and September 2017.

There’s no shortage of fodder for a report into the audit profession’s malfeasance in SA, most of it well reported, but when compiled into a single document it reads like a well-crafted crime novel.

Says the Open Secrets report: “In early 2019, former VBS chairperson Tshifhiwa Matodzi was allegedly trying to hide his Ferrari from liquidators and to stop them selling his R7 million mansion. They had already secured and were planning to sell at least four other luxury vehicles Matodzi owned. It is little surprise he was sitting on so many luxury assets: Motau’s report alleges that Matodzi was the number one beneficiary from the looting of VBS – taking R325 million.”

Read: Eight suspects arrested in SA’s ‘biggest bank robbery’ VBS fraud case

The VBS heist was not particularly sophisticated. Its financial statements in 2018 were signed off by KPMG, already under a monsoon of devastating evidence related to its involvement with the Guptas. For that you need to look at Steinhoff and its dazzling bouquet of complex financial instruments designed to hide the relative absence of actual value inside the company.

Lack of independence

One of the Open Secrets authors, Michael Marchant, said at the launch of the report on Thursday that audit firms are faced with a clear conflict of interest when allowed to conduct both audits and consulting for the same client.

Outgoing CEO of the Independent Regulatory Boards for Auditors (Irba), Bernard Agulhas, said auditors had stopped being skeptical and asking the right questions of clients.

“We’re very strong on this. Internal audit committee members are also telling us that they have been hoodwinked by management. Those charged with governance should be equally skeptical.

“Most auditors are too close to their clients to ask the right questions,” says Agulhas.

“Lack of independence is a major reason for the failures where they happen. It results not from lack of technical competence but that they are not behaviourally competent.”

Internal auditors suffer from the same level of confliction as external auditors. The report recommends that they be sufficiently independent of the entity where they work, and that their central task is to evaluate and improve “the effectiveness of risk management, control, and governance processes”.

Slap on the wrist

The continued role of the Big Four in enabling corruption and other economic crimes is unsurprising given the tender treatment they receive from regulators – and, as things stand, a maximum fine of R200 000.

New legislation being considered by parliament should allow for fines with no upper limit, but the accounting profession is fighting this tooth and nail.

And therein lies another massive conflict of interest – audit and accounting regulations are heavily influenced by auditors and accountants.

It is a fraternity looking after its own interests. With just four major firms to pick from, you will eventually cycle back to the old clients in this decade or the next. Irba has introduced Mandatory Audit Firm Rotation to force companies to change auditors every 10 years, and expects this will force auditors to adopt a more skeptical and independent approach to clients.

What to do

Open Secrets recommends several steps to reform the profession:

  • Separate audit from consulting services to prevent conflicts of interest;
  • Force the Big Four to higher levels of transparency as to the source of their revenue and relationships, with greater powers for Irba to conduct search and seizure raids (already before parliament);
  • Provide the Auditor-General with greater powers, and make audit firms answerable to the AG for the quality of their work;
  • Resist the cocked and loaded pushback from the Big Four as they vigorously defend their turf and cartel privileges; and
  • Don’t allow the foxes (the audit firms) to guard the henhouse. In other words, don’t let them capture the reform process.

The report is available here.

Read:How the accountants mangled capitalism

It may be time to liberate auditors from the accounting profession

Mmusi Maimane loses court bid to block schools reopening

Written by Ciaran Ryan. Posted in Journalism

Against trade union Solidarity and government, odd bedfellows in this case. From Moneyweb.

Continued school closures would likely deepen inequalities between learners at affluent schools, which are able to offer online learning, and those at poorer schools. Image: Shutterstock
Continued school closures would likely deepen inequalities between learners at affluent schools, which are able to offer online learning, and those at poorer schools. Image: Shutterstock

This was fundamentally an argument over lives versus livelihoods, and which should take precedence. More specifically, it was about whether schools should be allowed to reopen in the midst of a pandemic.

Mmusi Maimane and his One South Africa movement brought a case before the Pretoria High Court to block the government from reopening schools on the grounds that this would imperil the health of the country.

Read: Schools reopen in South Africa after initial delay

Government, with trade union Solidarity admitted as a friend of the court, took the view that the state had an obligation to balance the health of citizens with their right to earn a living. The court agreed, and threw out Maimane’s case.

Maimane’s team accused the government of irrationally, unlawfully and unconstitutionally abandoning measures aimed at effectively combating the Covid-19 epidemic, and replacing them with “constitutionally non-compliant measures” which are likely to result in the preventable deaths of human beings, especially the poor and vulnerable.

Emotionally charged

A full bench of the court found the language used by Maimane at times “highly charged and emotional”, while court decisions had to be founded in law, says the judgment.

An expert affidavit in support of government’s decision to reopen schools by Professor Salim Karim, chair of the Ministerial Advisory Committee on the Covid-19 epidemic, says “flattening the curve” means reducing the number of infections at peak, and reducing the number of infections at any given time to a level that healthcare services will be able to cope with.

“Although it is important to minimise the total number of infections over the course of this pandemic, the greatest risk to life currently posed by Sars-CoV-2 stems from the devastating collapse of the healthcare system,” says Kalim’s affidavit.

The government argued that the strict lockdown was successful in achieving its objectives. At the end of the five-week lockdown period, the “doubling rate” of the infections was about two days, but by the end of the lockdown, it was 15 days. This means the number of infected persons doubled only every 15 days, giving a clear indication of how the lockdown had managed to flatten the curve.

In his national address on April 23, President Cyril Ramaphosa said while a nationwide lockdown was probably the most effective means to contain the spread of the virus, it could not be sustained indefinitely. The economic impact of a sustained lockdown rendered it unsustainable.

People need to eat and earn a living.

A balance has to be struck between, as the first respondent put it, “lives and livelihoods”.

Balancing act

The court case provides some interesting insights into government’s decision-making during lockdown, and the need to balance the fight to stop the spread of the virus with the need to get the economy going again, with each month of lockdown resulting in a 3% contraction in the economy.

The Ministerial Advisory Committee argued that it is possible to save both lives and livelihoods. “The argument that we either ‘fight the virus’ or ‘reopen the economy’ is a false tension.

“With good planning, implementation and enforcement, both can happen concurrently,” according to the committee’s statement before the court.

Under Alert Level 3 announced on April 29, regulations were eased to allow people to travel to and from work and to exercise between 06:00 and 18:00. Learners were also allowed to leave their homes to attend school “once these are opened”, provided protective measures such as face masks and social distancing were applied. Schools were reopened on June 1 for Grade 7 and 12 learners, allowing roughly two million learners to resume classes, with other grades to be reintroduced in due course.

Read: Yes, it’s time to send kids back to school

The court found that in relaxing the lockdown to Alert Level 3, there was no evidence that the government had violated its constitutional duty to protect the lives and health of the population.

There was also no evidence that the healthcare system was overburdened as a result of the virus, as claimed by Maimane and One SA. The relaxed lockdown regulations contain sufficient flexibility to declare hotspots where viral infection rates are higher than elsewhere, and so declare stricter lockdowns in these areas.

Threat ‘cannot be avoided’

“The Covid-19 [pandemic] threatens the lives and health of the populace. However, all available evidence indicates that whatever measures are adopted, the threat cannot be avoided,” reads the judgment.

“The need to reopen the economy is an important government purpose that is also aimed at safeguarding other fundamental rights. It is also crucially important to ensure that the government has the fiscal resources available to it to meet its constitutional obligations to provide for, among other things, the realisation of socio-economic rights.”

Maimane’s team asked the court to prevent the staggered reopening of schools based on the readiness of each school. They want all schools to reopen simultaneously when they reach the required state of readiness, and said the state had not shown itself ready for reopening.

Learner needs

Hubert Mweli, Director-General of the Department of Basic Education, argued for the state that any delays in reopening schools impeded children’s’ developmental needs, deprived them of access to the school nutrition programmes, and in many cases meant parents had to stay home to look after them. The continued closure of schools was likely to deepen inequalities between learners at affluent schools, who were able to offer online learning during the time of closure, as opposed to those at poorer schools. Evidence was also presented that children are at very low risk of contracting or spreading the virus.

Read: Closing school may cause some kids a lifetime of harm

Daniel Eloff, attorney with Hurter Spies, which represented Solidarity, says the timing of this case worked in favour of government and Solidarity, as we now have several months of data regarding Covid-19 infection rates.

“We initially saw a batch of cases challenging the lockdown, and these were bound to fail as no one knew what impact the virus would have on the country.

“Now we have a better idea, but I suspect the window for bringing new cases is likely to close until about November this year as we are again seeing infection rates rising. This is nevertheless an important case because it is crucial to allow children to return to school in a healthy and responsible way. We cannot continue to keep schools closed.”

Prieska Copper-Zinc project proves SA mining is very much alive

Written by Ciaran Ryan. Posted in Journalism

Orion Minerals plans to pick up where Anglovaal left off. From Moneyweb.

Boon for the Northern Cape … the concentrates to be produced are sought after around the world because of their high purity. Image: Shutterstock
Boon for the Northern Cape … the concentrates to be produced are sought after around the world because of their high purity. Image: Shutterstock

There aren’t a lot of new mining projects in SA to get excited about, especially world-class ones, but the Prieska Copper-Zinc Project in the Northern Cape is certainly one of them.

Previously part of the Anglovaal stable, Prieska was closed in 1991 after a halving in copper prices over the previous two decades and technical difficulties in mining the vast, 2.4km long Prieska deposit at depth. This prompted Anglovaal management to throw in the towel nearly 30 years ago.

JSE and Australian Stock Exchange-listed Orion Minerals picked up the project, applied some smart thinking to it, and decided to have a run at it.

What makes Orion think it can make a success of a project abandoned by the previous owners?

Firstly, the copper market is primed for growth on the back of a swing towards copper-hungry electric vehicles and renewable energy plants such as solar and wind.

Secondly, the quality of the copper and zinc concentrates planned to be produced from the new mine are sought after around the world because of their high purity. Commodity traders have already beat a path to Orion’s door in search of offtake agreements.

Revival

Much of the infrastructure left behind by Anglovaal, such as the 1 024m deep, 9m diameter shaft, can be refurbished as part of the mine’s revival. An updated bankable feasibility study foresees a 2.4 million tons per annum (Mtpa) ore processing operation, using infrastructure that was doing 3Mtpa when it was last operated.

Hurbey Geldenhuys, a mining analyst at Vunani Securities, says the target of 2.4Mtpa is likely conservative, and improved mining methods and new technologies allow for far more flexibility than was previously the case. Peak funding of R4-5 billion is needed to get the project moving and if all goes to plan, construction could begin as soon as next year with copper and zinc concentrates being ready for the market within 33 months of start-up.

Geldenhuys argues that many of the project risks are already known due to the previous mining conducted on the site. “There’s not much appetite in SA for junior miners, but at the same time it’s difficult to find opportunities like this where you have a predeveloped mine with known risks and geology.”

It’s not hard to imagine the impact an investment of this size will have on the Northern Cape and broader South African economy – quite apart from the message this telegraphs to the broader mining investment community.

Of the R4-5 billion of funding that is required to construct and commission the mine, 80% would be spent within South Africa.

Two-decade mine life realistic

The updated bankable feasibility study, published in May, extends the foundation phase of the mine from 10 to 12 years, compared to the original mine study completed in June 2019, though an extended mine life of 20 years seems realistic, with further exploration and reassessment of known mineral resources already planned.

The latest mining study targets approximately 22 000tpa of copper and 70 00tpa of zinc in the initial 12-year operating phase. This translates into a total production 226 000t copper and 680 000t of zinc during this stage.

Other highlights from the updated bankable feasibility study include:

  • 43% increase in pre-tax free cash flow to Au$1.6 billion (R19.2 billion)
  • 36% increase in pre-tax net present value (at an 8% discount rate) to Au$779 million (R9.3 billion)
  • five-month reduction in the capital payback period to 2.4 years; and
  • 6% decrease in all-in-sustaining costs to US$3 531/t (US$1.60/lb) of copper equivalent metal sold.

Copper price in US dollar

Source: ShareMagic

Orion MD Errol Smart says the group has the benefit of improving on the engineering understanding that previous management gained in operating successfully for 20 years.

Moreover, even in the planning process, improvements keep on being made: compared to the June 2019 feasibility study, the latest plan has an additional 20% of copper and 17% of zinc to be sold as a result of several changes, such as refining the mining schedule and improving the design of the ore processing plant.

This updated feasibility study envisages reducing the shaft dewatering timeline by 30%, while capital payback has been accelerated by focusing on extracting higher grade ore in the early stages of mining.

“This is an awesome ore body,” says Smart, “2.4km in length and up to 32 metres wide, which makes it cheap to mine.”

He adds: “The benefit we have is that we were able to approach this project with a clean slate and devise the most efficient method of mining. The orebody remains open beyond the limits of our current drilling, presenting an opportunity to look at near-term expansion or extension of the life of mine.”

Smart hopes to have the financing wrapped up by year-end, with roughly 60% in senior debt, and the balance of the funding to come from some combination of subordinated debt and equity.

Investors like to see a quick return on their money, so the expected 2.4 year payback could start to jolt interest among otherwise gun-shy mining investors prepared to take a five- to 10-year view on copper and zinc.

Orion Minerals share price

Source: ShareMagic

At full sprint, Prieska will be a world-class producer with a life of mine plan that incorporates 25.2Mt of ore and a short developmental runway.

Smart believes the timing of the project launch in 2021 will be near perfect, as the copper market starts rebounding and the deflationary impact of the coronavirus economic crash may help wring further cost savings in terms of construction, diesel and labour.

“The Northern Cape has seen virtually no base metal exploration over the past 40 years,” says Geldenhuys.

“Orion will change the economy of the province and send a signal that SA mining is still alive. I’m optimistic.”

The evictions begin

Written by Ciaran Ryan. Posted in Journalism

A new wave of homelessness is on its way, says Liberty Fighters Network. From Moneyweb.

It is almost impossible to find new accommodation once evicted as information about legal proceedings is shared with credit bureaus and landlords all do credit checks. Image: Getty Images

It is almost impossible to find new accommodation once evicted as information about legal proceedings is shared with credit bureaus and landlords all do credit checks. Image: Getty Images

Liberty Fighters Network (LFN), which successfully challenged government’s lockdown regulations in court, says a wave of evictions is already underway due to the extended economic lockdown.

“We see this as potentially the greatest threat to emerge from the lockdown crisis. As people lose their jobs or have to take a cut in pay, they are unable to pay their rents and mortgage bonds,” says Reyno de Beer, founder of the LFN, which last month defeated government in the Joburg High Court over its lockdown regulations.

Read: Evictions, power cuts heighten SA housing crisis amid lockdown

The government is appealing the ruling, which says the regulations are irrational and unconstitutional. Government was given 14 days to amend the regulations to comply with the constitution. De Beer says even though some of the regulations have been relaxed since the ruling, LFN plans to take it all the way to the Constitutional Court if necessary to ensure the government does not again overstep its powers.

Inundated

“One of our primary concerns when we brought the case to the Joburg High Court was the potential for a humanitarian crisis of homelessness as a result of people being evicted due to the lockdown. We’ve been inundated with cases of people now being threatened with eviction and foreclosure, exactly as we predicted would happen,” says de Beer.

LFN was originally set up to provide legal support to those fighting evictions and to develop alternative methods of resolving rent and mortgage disputes. De Beer says government will be saddled with a massive crisis of homelessness unless it changes the law to put a freeze on evictions until the economy recovers, and to stop adverse consumer reports being filed with the credit bureaus.

“Once you’re in default and legal proceedings to evict you begin, this information is shared with the credit bureaus,” says De Beer. “That means once you are evicted, it is almost impossible for you to find alternative accommodation as all landlords will do a basic credit check on you.”

Flouting the three-month freeze

He adds that some landlords are flouting the three-month freeze on evictions, imposed by government at the start of the lockdown in March, by handing eviction letters to those unable to pay their full rent.

Under the lockdown regulations, no one may be evicted until Alert Level 3 is lifted – unless a court decides it is not just and equitable to delay the eviction. And this is where landlords are gaming the system.

De Beer points out that court registrars continue to enroll eviction cases in the high courts, despite the Pretoria High Court ruling in September 2018 that these matters should be heard in the magistrates’ courts, which are more accessible and less costly to ordinary citizens.

Consumer and legal activist Leonard Benjamin says he is likewise swamped with cases of threatened eviction. He recommends removing foreclosure matters entirely from the courts so they can be adjudicated in a less adversarial atmosphere, such as by an independent housing forum staffed with legal and accounting experts.

“There is too much skullduggery in the current system, and the courts are turning a blind eye to the behaviour of the banks and landlords,” says Benjamin.

“The system is massively skewed against the consumer, not least because of the high cost of fighting cases in court, especially in the more expensive high courts.

“These matters should be heard in magistrates courts, where the costs are much lower, but even here there are problems, as many judges do not understand banking and consumer law.

“No bank should ever be able to get an eviction without considering the circumstances of the person living in the household, yet this is precisely what is happening. Judges should refuse to hear eviction matters without tenants being able to place their evidence before the court.”

Read: It just got much harder to litigate consumers into bankruptcy

King Sibiya, president of the Lungelo Lethu Human Rights Foundation, which defends mainly township residents from unlawful evictions, says his organisation has likewise seen a spike in foreclosure cases in recent weeks.

“We can’t go on thinking this is business as usual. It is not. There is a catastrophe in the making, and government cannot sit by while tens of thousands of people are evicted from their homes after losing their jobs,” says Benjamin.

Two days’ notice

Says De Beer: “Just last week I had a case where a landlord instituted eviction proceedings on an urgent basis in the high court, giving the tenant just two days’ notice.”

The landlord claimed he needed access to the property to do renovations.

The tenant arrived at court to defend himself as he was unable to find a lawyer given the short notice, but was told by court security to come back another day.

The judge granted the so-called spoliation order (restoration of possession) without the tenant being present in court.

In this case, it appears the landlord knew he could sneak one past the judge on an urgent basis because the lockdown made it virtually impossible for the tenant to put up a defence.

“How can tenants defend against evictions if they can’t freely get legal assistance during lockdown?” asks De Beer. “Even once the lockdown is lifted, the law clinics and legal aid societies are going to be swamped with tenants facing eviction and landlords defaulting on their mortgage loans.”

Read: A third of residential tenants won’t pay full rent this year

The temporary freeze on evictions assumes conditions will bounce back to normal when the lockdown is lifted – which is completely false, says de Beer. The economic consequences of the lockdown will linger for years to come.

Though consumers are encouraged to take advantage of repayment holidays with their banks, this only applies to those already in good standing and up-to-date on their loans. Benjamin says the banks have been less than sympathetic to the massive financial hole caused by the lockdown to the pockets of ordinary South Africans.

Alternative needed

“I would agree that we need a change in the law to suspend evictions,” says Benjamin. “There is a danger that opportunists take advantage of this, but there are ways to overcome this. What is needed is an independent alternative dispute resolution mechanism staffed by experts, who are able to make rulings based on all the available evidence.

“The way things stand, most people faced with foreclosure proceedings give up at the very first hurdle, not understanding their consumer and constitutional rights.”

He says one way to solve the problem is to follow precedents set overseas where forgiveness periods of one to two years are allowed to those in default on their home loans.

The New Economics Foundation in the UK, a country that is facing the same threat of mass evictions as SA, has recommended a temporary suspension of rents and a genuine mortgage freeze, where no interest accrues during the repayment holiday. Such a scheme in SA would have to be backed with government financial support for landlords, to be gradually unwound as economic conditions allow.

“Who is going to stand up for those being evicted when the economy was shut down and they lost their jobs through no fault of their own?” asks Sibiya. “Where is the government and its legislative power when it is needed?”

Municipal manager gets 48% increase during lockdown

Written by Ciaran Ryan. Posted in Journalism

With 6.25% for the rest of the staff at Steve Tshwete Municipality. There’s a disturbing pattern here. From Moneyweb.

Local government rulers don’t seem concerned about the reality facing their own residents. Image: stevetshwetelm.gov.za
Local government rulers don’t seem concerned about the reality facing their own residents. Image: stevetshwetelm.gov.za

As we reported last week, the City of Joburg plans to vote a 6.4% pay increase for its councillors, much to the outrage of residents.

Read: Joburg city councillors want to give themselves ‘outrageous’ increases

Steve Tshwete Municipality in Mpumalanga has gone one better, sneaking through a 48% increase for its municipal manager and a 6.25% increase for the rest of the staff. And all this during lockdown when eight out of 10 South Africans have suffered a drop in income averaging R7 500, according to TransUnion.

Municipalities are sheltering behind three-year agreements concluded in 2018 with the SA Local Government Association that allow for staff pay increases of CPI plus 1.25% this year, and a home owners’ allowance increase of 7%. But this agreement was concluded well before the lockdown, leaving cash-stumped residents to cover the municipality’s spending wishes.

Read: Confirmation that municipalities are a huge burden on taxpayers

“This budget bears no relation to the reality facing residents,” says Rob Hutchinson, campaign head at participative democracy non-profit Dear South Africa.

“It’s unbelievable.”

The six senior managers of Steve Tshwete Municipality voted themselves an average 16.8% increase. But the real whopper is the municipal manager, whose salary was bumped up by 48%.

Residents of the municipality will be lumped with an average increase of 9.5% on property rates, and increases of 8.1% for sewerage, 6.7% for refuse collection, 6% for water and 6.3% for electricity.

Participative democracy groups like Dear SA and the Organisation Undoing Tax Abuse (Outa) are stepping up their monitoring of the country’s 257 municipalities to make residents aware of the spendthrift ways of their local government rulers.

Unconscionable

“It is unconscionable for Steve Tshwete Municipality to vote itself a 6.25% increase in staff pay when the rest of the country is going through incredible difficulties,” says Outa project manager Tim Tyrrell. “People have lost their jobs, and most people have had to take a pay cut because of the lockdown, yet here we have municipal executives agreeing on a budget, seemingly without the slightest concern for the plight of their own residents.”

Tyrrell says perhaps it’s time to impose zero-based budgeting on municipalities, as Finance Minister Tito Mboweni has suggested for National Treasury.

Zero-based budgeting assumes each new year starts with a blank slate, rather than the usual method of applying a percentage increase to each expenditure item in the previous year’s budget.

Tyrrell says the municipal manager’s salary appears to have been brought into line with salaries of similar managers in other municipalities, but says the timing of the 48% increase – in the midst of an economic crash – is a slap in the face for ordinary South Africans.

Inflation-plus budgets

Hutchinson says this is yet another case of extreme insensitivity for the economic plight of the country. “We need to pay far greater attention to the budgets of the 257 municipalities around the country, as these inflation-plus budgets seem to [be] rather routine, with councillors voting themselves increases in complete disregard for the ability of residents to pay.”

The municipality plans to spend R1.93 billion in 2020/1, up 6% from the R1.82 billion spent in the previous year. Councillors are to receive a modest pay increase of 1.7%, though staff costs are budgeted to rise 6.8% to R638 million.

Steve Tshwete is one of the better-run municipalities in the country, being one of just 18 that received unqualified audits in recent years, but even here there is slippage: in previous years it received clean audits (a higher grade of audit assurance than unqualified).

Repairs and maintenance languish

Municipal Money, a database of municipalities operated by National Treasury to increase transparency and strengthen civil oversight, shows Steve Tshwete Municipality spent just 1.18% of its Property Plant and Equipment budget on repairs and maintenance, against the recommended level of 8%.

An increasingly common feature of municipal financial management is to cannibalise the repairs and maintenance budget for staff pay or favoured projects.

The result is a steadily deteriorating infrastructure across the country.

An example is Steve Tshwete’s water infrastructure. Engineers have warned for years that a water crisis is imminent due to the need to replace about 640km of asbestos pipes installed in the 1950s and 1960s. Pipes are bursting weekly, but rather than replace them all, at an estimated cost of R9 billion, the municipality has been forced to do patch-up work on an increasingly decrepit water pipe infrastructure.

Read: The problem of failing municipalities

Steve Tshwete’s capex budget for this year is R673 million, of which R110 million is going to upgrading roads, and R53 million on upgrading water assets.

But what most disturbs residents is the increase in staff pay and the huge jump in the municipal manager’s salary.

“I think this is greed on another level especially during these trying times,” says one resident.

The fatal link between declining trust in government and clogged UIF payments

Written by Ciaran Ryan. Posted in Journalism

The public mood is swinging angrily against this lockdown and now we now why. From Accounting Weekly.

President Ramaphosa’s declining popularity over the lockdown is at a tipping point

Two pieces of news this week illustrate how radically the mood has swung in SA: trust in President Cyril Ramaphosa and the security forces has declined in recent weeks from 75% to 69% (according to an Ask Afrika survey), while Business Insider reports that 700,000 applications from companies for Unemployment Insurance Fund payouts failed in May because employees were not registered.

It should have been obvious from the start of the lockdown in March that the already strained UIF administration would battle to handle the staggering volume of claims expected to come its way. And so it has turned out. Employers and companies are turning to their accountants to navigate the sometimes labyrinthine online application process. If there’s any solace in all this, it is that accountants have demonstrated their worth to the economy as never before.

“Accountants are among the unsung heroes in this lockdown crisis,” says Nicolaas van Wyk, CEO of the SA Institute of Business Accountants (Saiba). “The feedback we are getting is that they have never worked so hard. They have been thrust into the frontlines of this crisis and have done exceptional work in making sure their clients receive UIF payments – but it is clear that the system is unable to handle the sheer volume and complexity of the task forced on it.

“As Saiba, we have an interest is ensuring that the UIF payments system functions as efficiently as possible and we, as accountants, are willing to assist the Fund to streamline their processes. We have the technical skills and we now have a deep-level understanding of the obstacles that employers are facing in making claims. But it is clear that there needs to be much better communication with the accounting community and the UIF to see how we can sort out the difficulties, which appear to be growing by the day.”

Labour minister Thulas Nxesi has appealed to companies “to do the right thing and declare workers who still need to be paid.”

The Department of Labour says an amount of R3.2 billion from the first round of UIF payments remains in abeyance as the Fund awaits further details from employers, “to be able to soften the blow for at least 725 791 workers represented by 123 977 employers.”

Clearly responding to claims that the UIF was deliberately withholding funds to save money, Nxesi this was counter-intuitive because it is clear that “the demands on the UIF going forward are going to be massive. But we move from the point that it’s important that workers are not disadvantaged and as such, we appeal for the details so that the Fund can help those who need the money or for whom this may be the only source of funds.”

While employers and the government lob blame grenades at each other, the lives of millions of South Africans are on the line. Feedback from accountants who are dealing with these applications on a daily basis, there is an element of truth on both sides.

This is no trifling matter. The National Employers Association of SA (Neasa) says 78% of employers still haven’t received their May UIF monies. Of the 22% of employers who received payment, only 47% were paid in full.

Payments for April are still held up. Neasa surveyed its 10,000-plus members and found that 21% of employers still haven’t received their April UIF monies. Of the 79% of employers who received payment, only 55% were paid in full. Neasa CEO Gerhard Papenfus says the false message to workers emerging from government is, “We’ve paid the employers, but they haven’t paid you. That’s just not true.

“This is a scandal. What started out as a campaign to stop the spread of the virus has now turned into the killing of businesses. And what I see coming out of this is the looting of the country’s pension funds, which has already been suggested by the trade unions.”

Saiba member Tasmin Laight (recently profiled here) says the blame for failed UIF payments cannot be directed at any one particular party: “One cannot solely point fingers at employers. Yes, some employers have been negligent in registering their employees, some payroll companies are not submitting UI19s (the form used to declare UIF on behalf of employees) to the Department of Labour and are only submitting to SA Revenue Services (Sars) monthly. Most payroll software programmes have an automated report that generates your UI19 for the month.  But the user needs to generate it and send it via email to the Department.”

“There is a massive clerical problem within the Department of Labour, mainly related to new applications. Some of my own clients’ applications still pending for more than a year. There are also cases where similar trading names have been amalgamated and registration and PAYE numbers are obviously being overlooked. To me the Department is severely under-staffed, or there is a management issue. The lack of automated application software is also a problem. It should be an automatic application process, such as that done by Sars.”

Applicants are required to fill in an emailed response from the Department which is then returned to be data captured by a clerk on the other side. Another administrative problems is the revamped website removed older UIF returns from March 2015 and never replaced them. Accountants have complained that no new returns could subsequently be submitted, preventing the addition of new employees. “So many of my companies (clients) have had errors, or their employees were not registered,” says one accountant. “Where companies have similar names, they have been amalgamated which means employers cannot claim UIF funds because their employees are registered under another company with a different trading name.”

It’s time to call the fire brigade. As Saiba’s Van Wyk points out, accountants have shown their worth to the economy. Now it’s time to solicit their help in sorting out the UIF mess. “We are ready to help,” he says. “This is a life and death matter for too many businesses and employees. We need to solve this problem together for the sake of the country.”

Joburg city councillors want to give themselves ‘outrageous’ increases

Written by Ciaran Ryan. Posted in Journalism

A 6.4% pay hike in the midst of crisis – the city’s idea of belt-tightening. From Moneyweb.

While residents must contend with deteriorating infrastructure, tariff increases and lockdown-induced pay cuts and retrenchments, councillors wants bigger paypackets. Image: Bloomberg
While residents must contend with deteriorating infrastructure, tariff increases and lockdown-induced pay cuts and retrenchments, councillors wants bigger paypackets. Image: Bloomberg

Residents of Joburg are being asked to comment on the city’s latest budget proposals – and they probably should.

The city councillors propose awarding themselves a 6.4% pay increase this year, while multiple surveys show that most South Africans are bleeding as a result of the Covid-19 lockdown.

The city’s electricity rates are budgeted to increase 8.1% this year, and water and sanitation by 8.6% each. Property rates are budgeted to increase 4.9% but could end up increasing 7% for some.

Read: Joburg prepaid electricity customers in for a shock

This might pass unnoticed in any other year, but not in the midst of an economic crisis. And certainly not when you have participative democracy campaigns being run by the likes of Dear South Africa and the Organisation Undoing Tax Abuse (Outa).

First, some context: a survey by TransUnion shows eight out of 10 South Africans have suffered a drop in income, averaging R7 500 during the pandemic.

Startup incubator 22 on Sloane believes more than 55 000 SMEs in SA will not survive Covid-19, with at least 43 000 employees in those businesses set to lose their jobs. The African Management Institute (AMI) found that 87% of small businesses in Africa fear they may fail. Business For SA says up to four million jobs in SA could be lost.

Not a pretty picture.

Outa project manager Tim Tyrrell says the budget is an insult to the sacrifices made by city residents who have endured salary pay cuts, retrenchment, or the closure of once-vibrant businesses in the name of flattening the curve.

Yet the councillors propose lumping city residents with an additional R843 million bill for councillor and staff pay.

DearSA campaign head Rob Hutchinson says the budget proposals show extreme insensitivity for the pain being felt by all South Africans and Joburg city residents in particular. “This is especially true at a time when the city’s infrastructure has not been properly attended to for years.”

Skewed priorities

Particularly worrying for some is the increase in the base electricity charge, which could mean some households end up paying 40% more, and the scant relief for Covid-19, for which the city has made a R140 million provision.

Astonishingly, Covid-19 gets a single mention in the entire budget.

“The City of Joburg had at least three months to plan for the impact of Covid-19 since we first became aware of its severity, yet it seems to have treated it as an afterthought,” says Tyrrell.

He points out that for every R10 invested by the city in plant, property and equipment, an additional 8% is supposed to be set aside for repairs and maintenance. However, this has not happened since 2009, resulting in a repairs and maintenance underspend of R28.6 billion over the last 11 years. This explains the general deterioration of roads and other infrastructure over the last decade.

According to National Treasury recommendations, local government is supposed to ringfence an additional 80 cents for every R10 spent on repairs and maintenance, but this has generally been seen as a way to redirect budget funds elsewhere. As a result, Joburg is planning to spend just 59 cents for every R10 earmarked for repairs and maintenance in the year ahead.

Read: The big business of traffic fines

Comments from Joburg residents received by DearSA show their exasperation:

  • “Expect non-compliance. We are sick of lining government’s pockets.”
  • “Salary increases? Why? We are in a recession and will be for a while. We have less people paying bills and yet you want to increase salaries.”
  • “City of Joburg does not deserve increases if they cannot supply proper services constantly.”
  • “Weekly, my water gets cut for hours due to maintenance repairs.”
  • “There is something seriously wrong with any increases above inflation.”

What really seems to irk commentators is the extent of salary increases over the years.

Between 2016 and 2020, average salaries have gone up 56%, well above the inflation index. From the comments received so far, it’s clear that residents are outraged by the proposed salary increases amid claims that the city infrastructure and service delivery has deteriorated.

You have until Tuesday, June 23 to make your voices heard, which can be done via Outa here or DearSA here.