More big companies going off the grid

Written by Ciaran Ryan. Posted in Journalism

Out of sheer necessity, Zimbabwe leads SA in exploring alternative energies. From Moneyweb.

The R20m microgrid at Siemens in Midrand is controlled by an Internet of Things platform that switches between solar energy, battery storage, diesel generator and the Eskom grid. Image: Supplied

The R20m microgrid at Siemens in Midrand is controlled by an Internet of Things platform that switches between solar energy, battery storage, diesel generator and the Eskom grid. Image: Supplied

Businesses in Harare, facing power outages for up to 18 hours a day, are making plans to generate their own power and wean themselves off a hopelessly unreliable national grid that relies on supply from Eskom and the hydro plant at Cahora Bassa in Mozambique.

Virtually every business in Harare and most well-off homes have a generator as a back-up, but these are expensive to power and heavy on maintenance.

Out of sheer necessity, the country appears to be streets ahead of SA in moving off grid. Renewable energy companies are selling up a storm in Zimbabwe, offering hybrid wind-solar and other power sources that promise to help the country’s business sector go off-grid.

Read: Companies planning to go off the grid

Bryan Frank runs Sable Press in Harare and recently acquired a new printing press that would allow the company to launch a new range of printed products. But the printer is gathering dust because it requires a steady supply of electricity – something Harare cannot offer. Several businesses have clubbed together to erect a hybrid solar-wind generator that will take them completely off the grid.

It’s a question of survival, and Zimbabweans are masters at it.

Virtually every business and household in Harare has a Plan B for the top three issues of concern: when the power goes out, when hard currency disappears, or when government services cease altogether.

The contract offered by a US energy supplier erecting the microgrid locks in electricity prices for several years and ensures businesses can continue running their plants without leaning on a decrepit national grid. It’s not so much the price of electricity that concerns businesses as the continuity, says Frank. Companies tapping into this microgrid will purchase electricity from the supplier, which eases the up-front cost of having to acquire wind turbines and solar panels.  

The successful installation of solar panels at the 118-room Road Lodge Centurion has resulted in large-scale solar panel installations at 25 of the group’s hotels, due to be completed by end-2019. Image: Supplied

Local businesses are accustomed to power outages, but things got a whole lot worse this year when the government reintroduced the Zimbabwe dollar, creating a shortage of hard currency among businesses. The Zimbabwe Electricity Transmission and Distribution Company (ZETDC) was unable to pay its debts to Eskom, resulting in the lights going out for between 13 and 18 hours a day.

The situation became so desperate in July that platinum producers reportedly coughed up $10 million of a $70 million debt to Eskom and Cahora Bassa to keep the lights on.

Microgrid benefits

In Midrand in Gauteng, Siemens recently unveiled its new microgrid covering part of its 22 351m2 parking lot and office building. This is part of a new wave set to sweep over Africa, says Marco Rahner, head of technical sales at Siemens. “Demand is huge in places like Rwanda, Kenya, Ghana, Tanzania and Zimbabwe.”

The cost of retrofitting the Siemens office park for solar panels was R20 million, with a payback period of just five years, as opposed to the 11 years originally envisaged when the project was first conceived. The company saves 174 000 kilowatt hours (kWh) a month, equivalent to half its normal consumption.

Some fancy intellectual property has been built into the system to optimise lower time-of-use tariffs from Eskom.

Excess power generated during sunlight hours is fed into a 140kWh battery, which gives a relatively short 15 minutes of additional power when the sunlight fades or the Eskom grid goes down.

The importance of the battery back-up is that it allows ‘peak shaving’ – a reduction in the amount of Eskom energy used during peak demand. Surplus power during peak sunlight hours can also be sold back into the Eskom grid. The entire system is monitored and controlled via an Internet of Things energy platform that switches between solar, battery storage, diesel generator and the Eskom grid.

Up-front costs coming down

One of the big drawbacks of alternative energy systems is the high up-front capital cost and long payback periods, though these have been coming down in recent years due to better solar technology and the lower cost of panels. Payback periods have dropped from 12 to eight (or even six) years in the last 15 years.

A payback period of five years starts to look attractive for many businesses concerned about Eskom’s continuity of supply going forward.

Microgrids have the potential to create business opportunities in poor or remote parts of the country by selling excess energy to surrounding businesses. You could take it one step further and create a transparent energy retail environment, where a resident in another part of the country could choose to top-up their electricity directly from a microgrid supplier based elsewhere, says Sabine Dall’Omo, CEO of Siemens Southern and Eastern Africa.

Decentralising power

“The concept that energy must come from one central source is inefficient and outdated,” she says. “By decentralising energy and allowing people to generate and use energy as needed, you’re allowing people to take charge of their own prosperity. On a continent like Africa, with the incredible opportunity for solar and wind generated energy, keeping energy centralised severely hampers the potential for economic growth.

“Microgrids are an effective way to quickly and effectively diversify a centralised energy grid. By employing microgrids you not only take the strain off the central grid and lower your carbon footprint, you also create economic opportunities where people can sell off excess energy produced.”

Moneyweb previously reported on companies going off grid, such as Anglo Platinum, Sibanye-Stillwater and Makro. Telkom, too, has erected solar panels at its Centurion campus as part of a plan to eventually go completely off-grid, using batteries and gas generators when the sun stops shining.

Companies want to ensure continuity of supply at an affordable price, and microgrids are one way to do it. South African businesses are nowhere near the kind of grid collapse facing Zimbabwe, but many fear a reprise of the power outages experienced in recent years and are making alternative plans.

House buyers staying twice as long in their homes

Written by Ciaran Ryan. Posted in Journalism

A further sign of tougher financial times. From Moneyweb.

The property bubble of a decade ago is well and truly punctured, with diminishing prospects for speculators. Image: Ian Waldie/Bloomberg

The property bubble of a decade ago is well and truly punctured, with diminishing prospects for speculators. Image: Ian Waldie/Bloomberg

A decade ago, home owners would flip their properties every seven or eight years. Now they are holding on for an average of 14 years.

Figures from Lightstone Property show the trend is the same for buyers of second, third and fourth residential properties. A decade ago, owners of second properties would hold on to them for about five years before flipping. Now it is close to 10 years.

It’s a sign of our fraught economic times. The property bubble of a decade ago is well and truly punctured, with diminishing prospects for speculators. The days of 15% to 20% annual house price increases are gone, forcing home buyers to play the long game.

These days average house prices are barely able to keep up with inflation.

FNB’s House Price Index has been skidding sideways at about 3.3% in recent months, unable to keep up with consumer inflation.

First-time buyers are staying longer in their homes because this is generally where they live. In the past, buyers would either sell their properties voluntarily, or as a result of foreclosure. But stats from Lightstone show the number of properties entering the sale in execution process (a legal process following default on mortgage loans) has dropped dramatically. 

Source: Lightstone

Paul-Roux de Kock, analytics director at Lightstone, says most mortgage loans issued in SA are for 20 years, though most of these are settled ahead of time. This much is known from an analysis of deeds data in recent years. Despite this, a growing number of homeowners are taking longer to settle their mortgage loans.

“It is important to note that in the majority of cases, the reason for early home loan settlement is associated with the sale of the property so it also provides a good proxy for how long people generally stay in their homes. As expected, the first property homeowners buy is more likely to be occupied by the owner as a primary residence and therefore less likely to be traded for investment activity.”

Buyers of second, third and fourth properties are likely to hold these properties for less time, as these are more likely to be traded for investment purposes. “What is interesting though is that even for these investment properties the settlement time has steadily been increasing over the last decade, indicating that more of these properties are now held as longer term income generating assets rather than speculative capital growth assets,” says de Kock.

Source: Lightstone (SiE = Sale in Execution)

The drop in the number of properties sold in execution is the result of courts being less sympathetic to banks seeking foreclosure as a first resort, and recent court cases in Gauteng and the Western Cape requiring that properties be sold with reserve (or floor) prices. This was to stop properties being sold for a fraction of their worth, which was a common occurrence in the past.

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

Banks themselves have stepped away from seeking sales in execution, preferring to reach accommodation with customers in financial distress. In papers filed in court cases last year, banks claimed they used sale in execution as a last resort, though this is contested by some in the legal profession.

Read: Judges give banks a grilling over home repo practices

“I’m not convinced the banks are being honest when they say they use sale in execution as a last resort,” says legal consultant Leonard Benjamin, who is defending several debtors against foreclosure.

“In many cases we have seen, the banks are initiating legal proceedings after just two or three months in default. We say there are better ways to recover loan arrears that do not involve foreclosure, since losing the house one lives in is such an extreme and inhumane way to go about debt recovery. Also, banks have gone under oath in court cases before the Gauteng and Western Cape claiming they go to great lengths to seek alternative methods of debt recovery. That would be wonderful it true, but in many cases I have seen this is not the case.”

In court papers filed last year in the two high courts, it emerged that sales in execution typically take up to 28 months from the moment the defaulting client is handed over to the bank’s legal department. This provides the defaulting client with time to reach an accommodation with the banks.

Building completions likely to slow down

Statistics SA figures show that building completions are at their highest level in nearly a decade, but this is unlikely to last. “South Africa is into the longest business cycle downturn in the post-World War 2 era, the existing home market is well-supplied and price competitive, and new residential building affordability has deteriorated relative to existing home prices as well as relative to household incomes, according to our affordability indices,” says FNB property strategist John Loos in a recent newsletter.

“A slowdown in the level of residential completions in the near term should be expected given the current environment. And indeed, a further sharp year-on-year decline in the number of residential units’ plans passed to the tune of -24.8% in the second quarter, a useful leading indicator for building activity trends, suggests that such a near-term slowing is likely.”

PayProp data shows that rental increases across the country are also struggling to keep up with inflation.

Source: Lightstone

FNB’s Property Insights points out that mortgage lending is a leading economic indicator with a tight correlation to the SA Reserve Bank’s Leading Business Cycle Indicator. Based on recent trends, the economy (and house prices) appear to be flatlining and will likely remain that way into 2019.

Financial markets are fuelling dangerous times

Written by Ciaran Ryan. Posted in Journalism

The bond bubble is cracking, and societies are breaking apart. From Moneyweb.

The trillions rammed into the ‘economy’ benefitted the few while while millions lost their jobs and homes. Image: Shutterstock

The trillions rammed into the ‘economy’ benefitted the few while while millions lost their jobs and homes. Image: Shutterstock

The financial markets have their share of gloom merchants who are always predicting financial collapse. Once every decade or so, they turn out to be correct, but listening to them you risk missing out on some spectacular market gains.

But what when sober and pragmatic fund managers such as Donald Amstad from Aberdeen Standard Investments, with £583 billion under management in 80 countries, warn of imminent collapse in the West?

In particular, he is warning of a collapse in the one asset class traditionally regarded as a safe haven – bonds. The West has reached the end of the road as far as quantitative easing (QE) is concerned. As interest rates drop to zero or lower, central banks will be tempted to fire up the printing presses yet again, but this time banks, pension funds and insurance companies will go bust.

Read: SA won’t consider quantitative easing to help Eskom – Masondo

Amstad used some alarming language in an interview he gave with Livewiremarkets.com, warning of social collapse and even civil war in countries such as the US. Fund managers typically have a commercial bias towards rising asset prices.

Read: These three factors will shape the investment climate of 2019 – JP Morgan

Those who have lived through a few market crashes will recall the admonition of these managers to remain faithful, trust the markets, and wait for the rebound. And they’ve generally been correct. Up to now.

Massive money printing in the post-2008 financial era has not been particularly inflationary for consumers.

This has given rise to the mistaken notion that money printing can be carried on forever without consequence. But there are consequences.

Those billions and trillions of currency rammed into the ‘economy’ have ended up inflating stock and bond prices, to the ultimate benefit of the 1% of the 1%, while millions of ordinary people lost their jobs, their houses and their livelihoods.

In economic terms, this is called the Cantillon effect, named after 18th Century economist Richard Cantillon, who observed that new money created does not filter through the economy evenly. The first to benefit are those sitting closest to the money, such as banks and big companies. They get to take this new money onto their balance sheets first, spend it, and only later does inflation start creeping into the rest of the economy.

It’s a form of redistribution from the poor to the rich. This is precisely what has happened since 2008.

What has alarmed Amstad, among others, is the fact that so much toilet paper money is floating around the global economy that yields have turned negative.

This means you are losing money by investing in bonds in Japan, Switzerland and elsewhere. Put another way, investors are paying governments to keep their money safe. The following chart from Deutsche Bank shows how much global debt is being invested at negative interest rates.

Source: Deutsche Bank

During the emerging market crisis of the 1990s, every country wanted to print money to arrest the crunch. The International Monetary Fund (IMF) stepped in and dissuaded them from doing that, warning that they risked becoming basket cases like Zimbabwe. Asian central banks and governments heeded the IMF’s advice: companies and banks went bust and unemployment shot up, but eventually the green shoots started to appear and Asia emerged from the crisis within a few years.

The calamities that followed

Nearly a decade later it was the tech bubble that burst. Investors were persuaded to abandon common sense and invest huge amounts of money in companies that had yet to turn a profit.

In 2007 and 2008 it was the sub-prime mortgage crisis. Western banks warned unless they were bailed out, financial Armageddon was at hand. Central banks surrendered and started a massive campaign of quantitative easing. All that did was keep equity and bond prices aloft. As US economist Michael Hudson has pointed out, it would have been far better if this money was thrown from helicopters to ordinary people in financial distress. Instead, it was used to fatten the balance sheets of the big banks and enrich their executives.

Printing money, cutting rates

When the 2008 crisis hit in the West, the IMF’s ministrations involved printing money and cutting rates as if the planet’s very survival depended on it. It was advising Western governments to do the exact opposite of what it was advising Asian governments in the 1990s.

Amstad says we are now in the extraordinary situation where 10-year Swiss government bonds are yielding nearly -1%, and even 50-year bond yields have turned negative. Thirty-year US Treasury bonds are now yielding less than 2%, and US President Donald Trump wants to see interest rates lower still.

“These are dangerous times,” says Amstad. “The difference between [the] emerging and the developed world is that the West is on a cliff edge and is running an unorthodox monetary policy.”

Emerging countries have less debt, fewer liabilities and more orthodox money policies. Though they will suffer from any global financial contraction, they will rebound quicker.

Ironically, emerging markets now appear as a safe haven. It is the developed world that is at risk.

A negative yield curve is usually a harbinger of recession, but this time Western central banks have very little firepower left to refloat their economies. Should the world enter recession at a time when no one is earning interest on their savings, corporate and banking failures are inevitable.

Banks make money when interest rates are high, yield curves are steep (in other words, interest earned on longer-term bonds are significantly higher than on shorter-term bonds), and credit spreads are wide. We now have the opposite of these three conditions in most of the developed world, but especially in Europe. Banks struggle to make money when yield curves are negative. The recent spike in market volatility is a sign of growing panic, and funds are rushing into cash – which at least holds its value in nominal terms.

Not only are bonds paying next to nothing in interest, but their yield curves have also turned negative – meaning longer-term bonds are paying out less than shorter-term bonds.

Investors expect to receive a higher rate of interest for investing for a longer period of time. When shorter-term bonds pay out more than longer-term bonds, a recession is usually not far behind.

Source: Federal Reserve Bank of St Louis, US

The problem is aggravated when pension funds are factored into the equation. US government debt currently stands at $21 trillion, yet its liabilities are probably 10 times this amount – about $124 trillion. Says Amstad: “To the man in the street this means [the] US government has promised to pay this amount but has not funded it. Where the hell is the US government going to get $124 trillion from? It just cannot be done.”

The result will be a fight over who gets whatever the US government is able to pay, which is where it gets frightening. Civil war may be the result. If you are gay, Muslim, black or a woman, you are already under attack, says Amstad. The UK government is in similar straits. Italy is threatening to leave the European Union, and the UK is in a political crisis over Brexit. Society is breaking down.

“What we have never had to cope with before is if there is a bubble in the risk-free asset class. What happens when that goes pop. What is the new risk-free?”

China is on a different path. It is solvent, has low levels of debt, low levels of liability, and an asset-packed balance sheet with state-owned enterprises that are massively profitable.

The West is going to have to own up to a failed economic experiment and take its medicine.

That means allowing any recession to play out, and with that expect to see some spectacular corporate and banking failures.

The leaders of South Africa agree: creating jobs is the top priority

Written by Ciaran Ryan. Posted in Journalism

There’s a glimmer of hope washing away the despair from the eyes of business leaders. From Accounting Weekly.

Adrian Saville, CEO of Cannon Asset Managers, is cheered by the government’s radical plan to reboot the economy and create jobs

South Africa’s problems are legion but relatively easy to fix, according to several guest speakers at the Leaderex convention in Sandton this week. All it requires is political will.

There were some truly amazing stories that never make the headlines: for example, Dr Tashmia Ismail-Saville of Yes4Youth explained how her organisation had created more than 22,000 new jobs for young South Africans in the last nine months, earning them more than R1 billion in salaries and wages, and giving them a crucial foothold in the formal economy. The plan is to create 100,000 new job opportunities over the next year, and ultimately 1 million jobs, by partnering with companies to provide minimum wage jobs at R3,500 a month and building a CV for the new job entrants that vastly improve their chances of finding permanent employment in the economy at the end of the 12 month engagement. Businesses that partner with Yes4Youth can increase their Broad-Based Black Economic Empowerment (B-BBEE) levels by up to two steps depending on their level of participation in the programme.

If one organisation can create 100,000 new jobs – with tax and B-BBEE benefits flowing to the partner companies – imagine what could be done if a dozen such organisations were to take on the challenge of creating jobs for the youth, said Ismail-Saville.

Bonang Mohale, CEO of Business Leadership SA, said business had the ear of President Cyril Ramaphosa, who was determined to leave a legacy of trust in the country’s public sector and a thriving economy capable of absorbing millions of new entrants to the job market.

Tourism is one of the sectors – the “low hanging fruit” – that could quickly ramp up job creation and economy activity, said Mohale. It didn’t help that just down the road, xenophobic attacks against foreigners had broken out in parts of Johannesburg and made its way into the international press.

A key area of concern for foreign investors is the plan to amend the Constitution to allow for expropriation of land without compensation. “There is no need to amend the Constitution,” said Mohale. “The law as it stands allows for this. One way to defuse the situation is for business to get behind land reform by releasing tracts of land for development and housing.”

Adrian Saville, CEO of Cannon Asset Managers, argued that finance minister Tito Mboweni’s master plan for rebooting the moribund SA economy was one of the most cheering documents he had read in years: “For a start, it is a relatively short document and focuses on six or seven ways the economy can be revitalized,” he said. “The government has invited comments and we will be sharing our view. But what is particularly pleasing about this is it shows government is serious in rescuing SA from its low-growth trap. What’s needed now is fast action to implement some of the recommended plans for growth, such as easing restrictions for tourist visas and selling off the broadband spectrum.

A torrent of bad news from South Africa had driven company valuations to bargain territory, especially in the banking sector, and in under-valued companies like SuperGroup, added Saville.

Freeman Nomvalo, CEO of the SA Institute of Chartered Accountants (Saica) – and the recently appointed chief restructuring officer for Eskom – said accountants had a vital role to play in restoring trust and confidence in the economy. He also acknowledged the role some rogue accountants (and not just CAs) had played in corporate corruption scandals, but that the profession had insights that were vital to placing the economy back on the growth track.

Chris Hart, economist and founder of Impact Investing Africa (IIA), believes SA is ominously close to placing itself at the mercy of the International Monetary Fund should it proceed with the proposed National Health Insurance or land expropriation. There are just 8 million taxpayers in SA, with perhaps 1 million of these shouldering most of the tax burden. “SA is over-taxed, and the return on this tax money is poor. The inequalities in the country, between rich and poor, will not go away until we get job creation going on a massive scale,” he said.

Tax incentives under Section 12J of the Income Tax Act were designed to stimulate new business opportunities. “Impact Investing” is a relatively new term used to describe businesses impacting society in a positive way. IIA was in the process of raising funds for a number of impacting investment projects, such as small-scale farming in Botswana, alternative energy and hotel developments in high growth, under-serviced parts of SA.

Craig Comrie, CEO of Profmed (a medical insurance provider servicing professionals), spoke of the National Health Insurance (NHI) and its likely impact on the medical sector and medical insurance providers: “I think what we are likely to see is that the NHI, which is due to kick in in 2026, will be phased in gradually in a way that does not disrupt the sector. Do I see a future for private health insurance? Yes I do, because that is one of the stated objectives of the NHI, to co-exist alongside private health insurers, and because of practical reasons – I don’t see the government will be ready to provide a full suite health model by 2026.”

Also in attendance at Leaderex were a number of representatives from the education sector, such as Jon Foster-Pedley, dean and director of Henley Business School Africa, renowned for its MBA programme. The Henley MBA programme is recognised worldwide. Private education of the type offered by Henley is booming as students from all over Africa and elsewhere in the world seek out real world problems and challenges.

Sharmla Chetty of Duke Corporate Education explained how education in the corporate space was undergoing radical change, away from a purely theoretical approach to incorporate “disruptive learning” that impacts the entire culture of an organisation – such as was required when Duke Global was brought into Standard Chartered Bank. Participants built a culture of mass experimentation, launching innovative experiments and social movements that have changed the cultural fabric of the organisation.

The message from Leaderex is that many of SA’s can be solved without huge capital, but with a political will, lighter regulation and a restoration of trust in the governance structures of the country.

Komape hearing: judge lashes Limpopo education department

Written by Ciaran Ryan. Posted in Journalism

The state’s case against the family of drowned schoolboy is “insensitive”, says Justice Navsa. This article first appeared in Groundup and Timeslive.

Photo of people in court

From right, James, Rosina and Lucas Komape were in court yesterday for the hearing. Photo: Ciaran Ryan

The Limpopo education department came in for sharp criticism from Supreme Court of Appeal judge Mahomed Navsa on Monday over the death of four year-old Michael Komape in a school pit toilet in 2014.

“The Department has not exactly covered itself in glory with respect to children under its care,” said Navsa, addressing himself to Advocate Simon Phaswane, counsel for the Limpopo government, at the Komape family appeal hearing in Bloemfontein. “You put it to the Komapes that this was just another accident. This was a very different kind of accident.”

“Is it seriously your instruction that the circumstances of Michael’s death are such that this was just another accident?” asked Navsa. Earlier, Navsa berated the Limpopo government’s “insensitive” handling of the case at the 2017 trial in Polokwane. Counsel for the Limpopo government had argued that Michael’s drowning in a pit latrine, while tragic, was similar to other tragedies that afflict families across the country.

The case was the subject of a two week trial in 2017, when the Komape family, represented by public interest law firm SECTION27, sued the Limpopo government for R940,000 in general damages and R2m in Constitutional damages. Judge Gerrit Muller of the Limpopo High Court dismissed the family’s damages claim, awarding just R12,000 for future medical expenses for each of two younger family members, Olivia and Maria.

Legal counsel for the family also asked the court to develop common law allowing for the payment of damages for grief, which would set a precedent in future cases of state negligence. Alternatively, the family asked the court to award “constitutional damages” for the breach of the government’s constitutional duties to provide education and ensure the safety and dignity of the children under its care.

This claim was also rejected by the Polokwane court. The only victory for SECTION27 was the order for the Limpopo education department to institute a plan for the installation of safe and secure toilets across the province’s schools, 73% of which were using pit latrines until 2011.

SECTION27 and the Komape family took this judgment on appeal to Bloemfontein.

An expert witness at the Polokwane trial argued that family members were still showing signs of Post Traumatic Stress Disorder years after Michael’s drowning in a sea of faeces at the Mahlodumela School outside Polokwane.

The line of questioning by Justices Navsa and Malcolm Wallis, two of the five judges in attendance, appeared to suggest the court had little appetite for developing common law for damages related to grief when existing remedies are already available in law. Navsa then sounded out both sides on the possibility of a higher monetary award for the family. There were no objections.

Monday’s proceedings kicked off with class action specialist Richard Spoor asking to be admitted as a friend of the court. He asked to introduce arguments that he said would guide the court in reaching its decision, adding that the existing common law was inadequate in terms of addressing claims arising from the wrongful death of a child.

The judges refused his attempt to join as a friend of the court, saying he was attempting to piggy-back his class action suit involving victims in the listeriosis case against Tiger Brands onto the Komape case. Justice Wallis asked whether Spoor had a substantial financial benefit in the outcome of the listeriosis case. Spoor replied that there was a contingency agreement in place (meaning he would earn a percentage of any winnings). This case was launched in 2018 as a result of the outbreak of listeriosis from tainted food produced by a Tiger Brands subsidiary in 2017 and 2018, resulting in more than 200 deaths.

Advocate Vincent Maleka, representing the Komape family, put the case for overturning the Polokwane High Court decision of 2018. The harm suffered by the family had been aggravated by the conduct of government functionaries, he said. Michael’s mother, Rosina, had been prevented from looking for her missing son in the school toilet area, and his body had lain in the pit latrine for nearly five hours before being extracted by emergency workers. Police had ordered photos of the scene taken by a family friend to be deleted.

“There was no apology (from the state), and no investigation into the circumstances of Michael’s death. That’s vital to our argument of emotional shock (suffered by the family),” said Maleka. “One would think that caring and sensitive public functionaries would act with more sensitivity.”

Maleka argued that the remedy the family was seeking should be sufficiently onerous to deter any future instances of neglect by the state. Justice Wallis replied that if deterrence was the objective, the Polokwane court had already granted a “structural interdict” which could be used by other members of the public concerned about poor quality school toilets in the province. This would require them to take the Department of Basic Education to court to enforce the interdict.

Advocate Kate Hofmeyer, representing Equal Education (which had previously been admitted as a friend of the court), argued that the family’s constitutional right to dignity had been impaired by the state’s conduct before and after Michael’s death, and by the circumstances surrounding his death. Because of their economic circumstances, the Komape family had no alternative but to send their child to a school where there was a chance he might suffer a fatality such as occurred. There was a difference between a child dying in a car accident and a child drowning in a pit toilet, argued Hofmeyer. “This event impacts the dignity of the family and existing law does not compensate for that,” she said.

“We’ll do our best to see the family is compensated as fairly as possible,” said Justice Navsa.

Judgment was reserved.

AdvTech shares ride the retail elevator down

Written by Ciaran Ryan. Posted in Journalism

Despite its commendable set of interim results. From Moneyweb.

The group boasts leading school brands such as Crawford, Pinnacle and Trinityhouse, and its tertiary division is now the largest private university in SA. Picture: Supplied

The group boasts leading school brands such as Crawford, Pinnacle and Trinityhouse, and its tertiary division is now the largest private university in SA. Picture: Supplied

Education provider AdvTech’s share price is down since April 2018 despite a fairly decent set of financials for the half year to June. Private schooling competitor Curro’s share price is down about 60% over the same period. Stadio, the tertiary college portfolio unbundled from Curro in 2017, has seen its share price drop by two thirds since April 2018. All three are listed under general retailers, which is down 40% over the last year.

The financial results from Curro and AdvTech don’t seem to justify a walloping of that size, so what’s going on here?

“I think it is general sentiment around the retail sector,” says AdvTech CEO Roy Douglas. “If you look at our competitors such as Curro and Stadio, their share prices are also down significantly.”

Parents under pressure

Education has traditionally been seen as a defensive investment, as removing a child from school is often the last decision parents under financial stress will make. Douglas says the company will assist parents in financial difficulty, and this helps with student retention. “There is no doubt these are difficult times for many parents and we try as far as possible to come to arrangements with those in need. This has helped our student retentions.”

AdvTech’s just-announced results for the six months to June 2019 show revenue up 15% to R2.5 billion and operating profit up 6% to R428 million. Cash generation from operations is impressive and has been growing at a 27% annual clip for the last four years.

Source: AdvTech

The portfolio includes Crawford Schools, Pinnacle, Trinityhouse and several smaller school brands, as well as a number of tertiary education institutions such as Monash, Varsity College, Rosebank College, Vega and six Capsicum chef schools.

Growth in the African school market – notably Botswana and Kenya – has been impressive and opens up exciting future possibilities. The portfolio also includes the University of Africa in Zambia, which offers distance learning programmes up to PhD level.

AdvTech is the leading provider in the premium private school sector where demand is strong. “However, the challenging South African socio-economic climate continues and our focus is to ensure that our brands offer value to our customers and we are investing in enhancing our academic offering, improving our focus on customers and driving operational efficiencies,” says its interim results announcement.

New schools

Two Pinnacle schools in the mid-fee sector have been repositioned, while the opening of Pinnacle colleges in Waterfall and Linden in Gauteng next year will boost AdvTech’s presence in this sector to 24 schools across nine campuses nationally.

Earlier this year its subsidiary Independent Institute of Education (IIE) acquired Monash South Africa, offering university-level education and boosting its tertiary student complement to more than 43 000. The tertiary division is showing good growth and is now the largest private university in SA.

This division grew both revenue and operating profit by 20% to R1 billion and R245 million respectively. IIE now offers 220 courses and plans are in place to open two new Rosebank College Campuses in Cape Town and Port Elizabeth in 2020, while expanding at several Varsity College campuses to meet growing demand.

Recruitment less robust

On the recruitment side of the business, the news is less encouraging: placement volumes and operating profits declined, with the country experiencing reduced employer confidence and the highest levels of unemployment in about 15 years.

The key numbers are:

  • Revenue up 15%% to R2.5 billion
  • Normalised earnings per share increased 7% to 42.5 cents
  • School student numbers increased 11%
  • Improved debtors book, with fees in advance and deposits up 19%
  • Capital commitments amount to R1.4 billion and will largely be funded by way of debt
  • Interim dividend of 15c has been declared for the half year to June 2019.

In an otherwise bleak economic environment, a ray of sunshine broke through the clouds this week with finance minister Tito Mboweni’s plan to reboot the economy.

“The growth plan is encouraging, and highlights a number of areas of opportunity,” says Douglas. “It challenges the status quo and shows that a considerable amount of thought has gone into how to get SA on the growth path again.

“We’ve had lots of plans and documents in the past, but they all suffered from poor execution and delivery. This is where we now need to put our attention.”

How Transaction Capital hit the jackpot with minibus taxis

Written by Ciaran Ryan. Posted in Journalism

It’s a huge business, and only getting bigger. From Moneyweb.

The group has just 12% of the SA minibus taxi market, so there is plenty headroom for expansion. Picture: Moneyweb

The group has just 12% of the SA minibus taxi market, so there is plenty headroom for expansion. Picture: Moneyweb

Transaction Capital’s gravity-defying growth since listing in 2012 tells us something about the state of South Africa’s minibus taxi industry.

There’s no question that 250 000 minibus taxis are the oxygen of the SA economy, accounting for 15 million commutes a day, far greater than the two million daily commutes by train or commuter bus.

It is a R50 billion-a-year-business spawned by SA’s lack of a coherent public transport system during the apartheid years. Government would like to see public transport play a far greater role in the life of the country, to the point of offering generous subsidies for trains and buses. But nothing can dislodge minibus taxis as the preferred means of transport in the country.

Read: Supporting business growth one non-bank loan at a time

Transaction Capital is arguably the largest taxi-focused business in the country, providing finance, insurance, auto repairs and loyalty programmes to taxi operators. It has 30 000 taxis on its books, and has turned what was previously an informal and poorly coordinated sector into a massive opportunity – not just for itself, but for taxi operators.

It filled a gap that others figured was too fraught with risk – financing and servicing the needs of taxi operators. “No one was giving taxi operators funds to purchase taxis, nor were they willing to insure them,” says Transaction Capital CEO David Hurwitz. “Go back 20 years and it was a very informal type of business, but today we are seeing a far more sophisticated operator.”

A good operator can make a net R30 000 a month from a single taxi. Using telematics provided by Transaction Capital, operators can now quickly establish which are the most profitable routes, and which have the highest incidence of accidents.

That information is pure gold in the hands of operators.

Source: Transaction Capital

The company has two main components to its business: minibus taxis and associated businesses, and non-performing debt recovery.

Both businesses are nearly 20 years old, but since listing in 2012, the share price has generated a return of roughly 30% a year.

“We’ve been able to maintain a strong rate of earnings growth in an economy showing almost no growth,” says Hurwitz.

After-tax profit over the last four years has grown at a respectable 20% a year.

The taxi finance business has a debtors’ portfolio of R11 billion at a net interest margin of 11%, with credit losses of around 3 to 4%.

Its taxi insurance business earns premiums of about R900 million a year.

Other businesses include the sale of telematic systems for tracking vehicles, and SA Taxi Auto Repairs, the largest panel beater in the country. The beauty of this business is that it deals almost exclusively with taxis. Repairing a single model type cuts the costs of parts and generates greater efficiencies than auto repair shops catering to a variety of models.

Loyalty

More recently it launched a loyalty programme that offers taxi operators discounts on fuel and other purchases. This is potentially one of the more exciting parts of the business as the loyalty network expands and new suppliers and retailers sign up for membership.

Transaction Capital has just 12% of the SA minibus taxi market, so there is plenty headroom for expansion. “We’ve moved deeper into the taxi business, and broadened our addressable market to cover a greater segment of the taxi industry,” says Hurwitz. “This has given us our growth.”

Telematics growth

Another growth avenue lies in the telematics part of the business. In addition to data about routes, it provides intelligence on the fuel refilling habits of drivers and other behaviours – factors that can influence an operator’s monthly returns. A taxi needs to achieve a certain mileage to generate a decent return for the operator, and the telematics data will show which taxis are underperforming.

The company already knows which routes are the most accident-prone, and some of this data is surely of vital importance to traffic safety authorities. For example, Hurwitz says one of the big causes of accidents is when taxi operators switch from their usual routes to long-distance haulage over December and Easter.

“We want to try and prevent accidents, and we do this by sharing our telematics data with taxi operators and associations,” he adds.

“We can also tell how operators spend their rewards, how often they change their tyres and parts, and where they refuel. This tells us a great deal about the professionalism of the operators, and can guide them in achieving a better business return for themselves and extend the life of their taxis.”

Hurwitz concedes that taxi drivers have a poor public perception and are seen as having scant respect for the rules of the road. “People like to take pot shots at taxi drivers, but they must understand taxis account for 69% of all commutes in the country and without them the country would come to a standstill. That should definitely be factored into the equation.”

The SA National Taxi Council, which represents an estimated 90% of taxi operators in the country, owns 25% of SA Taxi.

Transaction Capital shares are being steadily accumulated by institutional investors because of its outsized growth.

Governments the world over are trying to solve the problem of overused roads with better public transport systems, and SA is no different. “We have tried to engage with local government on bus rapid transport systems – we know where all taxi nodes are, and the last and first kilometre travelled are done by taxi,” says Hurwitz.

“We share the telematics data with the taxi associations. They haven’t used the data as much as we think they should have. In earlier years, government was trying to build buses and trains to remove minibus taxis and modelled our system on the Brazilian rapid bus transport system. That didn’t work so now it has adopted an integrated public transport model, which allows for the coexistence of minibus taxis.”

Collection services

The other main part of the company’s business is Transaction Capital Risk Services (TCRS), the largest collector of non-performing debt in the country. Loan books are bought at a discount to face value, which is another booming business in SA. Of 36 million adults in SA, 24 million have credit accounts and 10 million are in distress.

TCRS has built a vast database on the credit performance of South Africans and can predict with decent accuracy who is able to pay their accounts, who is likely to default, and even the best time of day to reach them by phone.

It makes 37 million outbound calls a month, resulting in seven million interactions and one million payments.

Its artificial intelligence is able to determine the likely success of a phone interaction based on tone of voice.

The weak economy has created a credit crisis for many more people as a result of job losses and rising living costs. Recovering debts in this climate is becoming more difficult, says Hurwitz.

Understanding the predicament faced by creditors, and with its use of intelligent robotics, this is still a business with a huge future.

Gugulethu entrepreneurs issue new summons against Nedbank

Written by Ciaran Ryan. Posted in Journalism

Case relating to ‘stolen’ card blocking system is now being fought in two courts. From Moneyweb.

Instablock developers Thandile Jwambi (left) and Tatolo Kutumane want the high court to determine the royalties Nedbank should pay for using their card blocking system. Picture: Supplied

Instablock developers Thandile Jwambi (left) and Tatolo Kutumane want the high court to determine the royalties Nedbank should pay for using their card blocking system. Picture: Supplied

Two Gugulethu-based entrepreneurs who accused Nedbank of stealing their patented card blocking invention have issued a new summons against the bank in the Johannesburg High Court.

Read: Gugulethu entrepreneurs claim Nedbank stole their patented card blocking system

In the latest summons, Thandile Jwambi and Tatolo Kutumane are asking the court to interdict Nedbank from using its invention. They claim Nedbank is in breach of an agreement that was part oral, part tacit and part implied.

In their court papers they say Nedbank stole their invention after they introduced it to Nedbank and others at two IT events in 2015 – the first at My Business Expo, and the second at LaunchLab. At both these events Nedbank representatives who sat as judges requested technical information from the entrepreneurs about their invention, and allegedly expressed interest in acquiring the product.

‘Stunned’

Jwambi and Kutumane provided the information requested but say they were then stunned to find that Nedbank, without authorisation, started offering its customers their card blocking system, or an adapted version of it.

Nedbank denies it has infringed any commercial rights relating to the “alleged invention” or underlying technology. “The bank at no time has entered into any commercial arrangement or created a reasonable expectation that any commercial arrangement would be established. Accordingly, Nedbank remains of the view that no compensation is due to the claimants by Nedbank,” it says in a statement.

Jwambi says bank representatives admitted on several occasions that Nedbank did not have this technology and was keen to acquire it. On one occasion, a bank representative asked the two entrepreneurs if they would work for the bank. Jwambi says they declined the offer as they wanted to negotiate a royalty agreement with the bank. They made it clear to the Nedbank representative at both events that they would only allow the use of their invention after conclusion of a licensing agreement that would include the payment of a royalty.

Privileged insight

Jwambi explains that the software behind the system is not terribly complicated and could be replicated by a reasonably experienced computer programmer once they  studied the ‘wireframe’ and documents the pair handed to the two Nedbank representatives.

“It was however non-existent before we came up with the idea. That is what we feel has been stolen from us.”

The card blocking system, called Instablock, allows customers to cancel their cards remotely across multiple platforms, such as smartphones, tablets and ATMs.

Royalty determination

The entrepreneurs also want the court to set up an inquiry to determine what constitutes a reasonable royalty for the use of the system that the bank should pay. Alternatively, they want the court to instruct Nedbank to commence good faith negotiations with them in line with the agreements previously made by its representatives at the My Business Expo and LaunchLab events.

They claim their invention was a world first in allowing bank customers to cancel their cards where they suspect fraud is taking place. Cards can also be blocked using someone else’s phone.

In June the entrepreneurs, backed by the SA Litigation Funding Company (Salfco), sued Nedbank in the Court of the Commissioner of Patents in Pretoria, asking for damages of R280 million.

They later withdrew their summons in the Pretoria patent court for technical reasons (they were not represented by a patent attorney, which is a requirement in this court).

Nedbank subsequently applied to the same patent court to have the Instablock patent, which was originally registered by Adams & Adams patent attorneys, revoked on the grounds that the claimed inventions were not new and were therefore not patentable. The bank also says the scope of the patent is overly broad.

The entrepreneurs are defending that case while simultaneously pursuing their high court ‘reasonable royalty’ application.

Bank will fight

In a reply to the summons in the latter case, the bank says: “The fresh summons follows the withdrawal of the patent infringement summons issued in the Patent Court. The factual matrix in dispute in both matters remains the same. Nedbank Group reiterates its previous stance that the bank has not at any stage infringed on the commercial rights of the claimants relating to their alleged invention or underlying technology.

“The bank at no time has entered into any commercial arrangement or created a reasonable expectation that any commercial arrangement would be established. Accordingly, Nedbank remains of the view that no compensation is due to the claimants by Nedbank.

“Nedbank is proceeding with its application for the revocation of the patent in the Patent Court as the claimants persist that they are the creators of the alleged invention. The revocation proceedings are based on the patented inventions not being novel (new) and/or the scope of the patent being overly broad.”

The bank says that at the time Jwambi and Kutumane presented their idea to the LaunchLab “many local and international technology providers and financial institutions, including Nedbank, had already considered, developed and/or implemented a card blocking mechanism for clients”.

It adds: “At that time, neither the idea of blocking and unblocking cards by customers nor the mechanism proposed by the claimants for such blocking and unblocking was new technology.

“Nedbank’s products and services both pre-date and differ technically and functionally from the inventions of the claimants.

In the interest of transparency, Nedbank previously disclosed a list of 18 prior publications detailing the functionality of [risk avoidance systems] to the claimants.

“LaunchLab is an independent initiative of Innovus Technology Transfer (Pty) Limited, the industry interaction and innovation company of Stellenbosch University. Nedbank is an arm’s length corporate sponsor, together with other organisations, of LaunchLab and some of its activities.

“Nedbank denies making any settlement offer at any time and particularly denies offering R1 million during any engagement with the claimants or their legal advisors.”

Life after Google: Prepare to witness the fall of a titan

Written by Ciaran Ryan. Posted in Journalism

Apple, Facebook and Google are dinosaurs in the world of blockchain, says author George Gilder. From Moneyweb.

Google has gone from town square, a place where people interact online, to town crier. A new breed of company is about to swallow it. Photographer: Chris Ratcliffe/Bloomberg

Google has gone from town square, a place where people interact online, to town crier. A new breed of company is about to swallow it. Photographer: Chris Ratcliffe/Bloomberg

A decade ago the world’s leading companies were Exxon, Walmart, China National Petroleum and the Industrial and Commercial Bank of China.

Today it’s Apple, Alphabet (Google’s holding company), Amazon, Microsoft and a little further down the list, Facebook.

In Life After Google, author George Gilder wonders which titans of business will dominate 10 years from now. Historical evidence suggests it won’t be Google, Amazon or any of the other familiar tech names (though Microsoft gets an honourable mention for its decades-long durability as a business leviathan).

It’s hard to imagine a world where Google isn’t the dominant search engine.

It currently accounts for 88% of all global searches, a figure only moderately lower than the 90% recorded in 2013. It is used 5.6 billion times a day. It digitised the entire earth, the sky, gave street maps away for free, and has changed the world as we know it. It built massive data centres to process the unfathomable quantity of information spewing out into the world each day and then dish out search results in a fraction of a second.

Google was, and is, brilliant. Information became free and instant.

Google’s business model is to offer all this free to users, while selling advertising linked to searches. Last year parent company Alphabet’s revenue sailed past US$100 billion, most of this from ad revenue which has been growing at about 20% a year but is now slowing down.

Google may dominate information search, but by 2017 Amazon captured 52% of product searches. Amazon’s product reviews, dodgy though some of them may be, are more trusted than Google’s paid ads. Amazon has also beaten Google in selling cloud services. Google’s next big gamble was artificial intelligence (AI), but here again Amazon appears to be winning the race with voice activated AI.

Justifiable fear

The ability to gather massive volumes of information and then discern social and other patterns has landed on our doorsteps with such suddenness that there is a justifiable fear that humans will become slave stock, lorded over by AI machines and robots. That fear is overblown. Alan Turing, whose development of the Turing machine decoded Germany’s war-time codes, learned that computers needed ‘oracles’ to give them instructions and judge their outputs. Otherwise they go in loops, forever. There is no observer to make sense of the information.

This is why Turing also believed physics stumbled on its own self-referential measurements: you cannot measure atoms and electrons using instruments made of atoms and electrons. The oracle is absent.

Gilder doesn’t see much of a future for Google, principally because it has lost sight of the internet primarily as a means of communication that also allows information to be copied and replicated. There is huge backlash against Google and Facebook for allegedly skewing search results and censoring views they deem disagreeable. They have gone from town square, a place where people interact online, to town crier, where the tweak of an algorithm can sway voters and potentially unseat governments.

A new breed of company is about to swallow it.

“Emerging is a peer-to-peer swarm of new forms of direct transactions beyond national borders and new forms of Uber and Airbnb beyond corporate gouges,” says Gilder.

Unbundling the huge centralisation of the money system?

Google’s fatal business flaw is its aggregation and centralisation of digital information. It takes your data, pays nothing for it, and dishes it out to billions of users. What if companies were to pay you for your web visits, as does the Brave browser, developed by Brendan Eich, formerly of Mozilla and author of JavaScript?

Gilder claims the next phase in societal evolution, accelerated by the decentralisation implicit in blockchain, will undo Google and unbundle the huge centralisation of the money system. 

Blockchain is the coming wave. New forms of currency, detached from any form of central bank or government control, potentially threaten the very notion of nation states. Once you weaken money control from governments, you weaken their power to rule. Blockchain allows peer-to-peer transactions without an intermediary. Currency restrictions and central bank controls are entirely hollow in this new universe. You can become your own bank, store your money on a flash drive, and send it to whoever you want at the speed of light.

Legal contracts can be liberated from lawyers and their tortured English and logged on the blockchain. It is a way of removing those in the middle, the go-betweens, and creating true peer-to-peer transactions in a secure and private manner.

That none of the overblown claims for crytpos or blockchain have yet materialised is seen by some as evidence that they are fuelled by hype and little else.

But as Gilder points out, we are just 10 years into the blockchain revolution. The naysayers whine from the womb of an established financial system that has crippled world capitalism with a 10-year global recession. They see only incremental improvements built around central banks, forex markets and giant banks feasting off the entitlements of banking and legal tender laws.

Their monopoly on money creation is coming to an end and it will be deadly for them, but invigorating for humanity.

Bitcoin’s flaw is the same as all other fiat currencies in that its price changes with demand. Currencies are mere measures of value creation, they are not wealth in themselves. No basic unit of measure – whether the second, the kilogram or the ampere – changes in value. They are standards based on physical constraints. Bitcoin mining will end abruptly in 2140, which means no new currency will thereafter come into being.

New crypto developers are learning from these shortcomings of artificial scarcity and the time value of money, and will be able to build better currencies without these flaws. Bitcoin’s founder ‘Satoshi Nakamoto’ was correct to mimic gold’s scarcity and slow-feed release by way of ‘mining’, but did not fully grasp the sources of gold’s success.

The Google era is coming to an end, says Gilder, “because Google tries to cheat the constraints of economic scarcity and security by making its goods and services free”.

Google’s success was built on brilliant algorithms and centralised data.

The next wave will be decentralisation of the kind promised by bitcoin and blockchain, where no single entity can end up in control of so much data.

In other words, individuals may no longer be prepared to hand over their data (search requests and internet trail) to companies such as Google and Facebook for free, when others are prepared to pay them for that.

The free lunch may be coming to an end.

Tobacco wars turn deadly

Written by Ciaran Ryan. Posted in Journalism

With the attempted assassination of Zimbabwean cigarette baron Simon Rudland in Johannesburg last week. From Moneyweb.

If everyone in SA gave up smoking, Treasury would have to find R17bn a year from elsewhere. Picture: Luke MacGregor, Bloomberg

If everyone in SA gave up smoking, Treasury would have to find R17bn a year from elsewhere. Picture: Luke MacGregor, Bloomberg

South Africa’s tobacco industry has long had a stench of the underworld. That much we know from former tax investigator Johann van Loggerenberg’s book Tobacco Wars, where he details the battles between established manufacturers such as British American Tobacco (BAT) and smaller but up-and-coming players such as Gold Leaf Tobacco Corporation, as well as several transport firms for which cigarette smuggling is their bread and butter.

Read: Illicit tobacco trade: Cheap manufacturer fights back

“No tobacco manufacturer, regardless of size or brand, can claim not to have some skeletons in the cupboard,” writes Van Loggerenberg, whose name has been mentioned repeatedly as a key operative in the so-called ‘rogue unit’ operating within the South African Revenue Service (Sars), and tasked with hunting down tax dodgers. Van Loggerenberg left Sars in 2015 under a cloud, and many of the 15 criminal cases he was investigating against tobacco manufacturers and importers “died quiet deaths”, according to an interview he gave to City Press in 2018. That likely cost Sars R3 billion in lost revenue. The existence of the ‘rogue unit’ of which van Loggerenberg was supposed to be a part has been called into question.

Last week Gold Leaf’s founder Simon Rudland survived an apparent assassination attempt while entering the offices of the Fair-Trade Independent Tobacco Association (Fita) in Norwood, Johannesburg.

Read: Philip Morris launches first Africa store to spark alternative cigarettes demand

CCTV footage shows Rudland and a companion entering Fita’s front gate in a Porsche when a white VW pulls up behind and a gunman fires several shots at the car. Norwood is covered with CCTV cameras operated by local firm CAP Security, so there will be plenty video footage of the shooters’ vehicle and its escape route. Rudland was struck three times, but miraculously survived. After a brief visit to hospital, he was discharged and immediately returned to his home in Zimbabwe.

Gold Leaf has offered a R10 million reward for information leading to the conviction of the attackers.

Rudland is quoted in News24 as saying he is 100% sure the hit came from one of his fellow Fita members.

Fita is a tobacco association with eight registered members, including Gold Leaf, Afroberg Tobacco, Amalgamated Tobacco, Carnilinx, Protobac and Folha.

Rudland cautioned about comments

Fita chair Sinenhlanhla Mnguni distanced himself and his organisation from Rudland’s comments. “We have discussed with Mr Rudland the issue of comments attributed to him in the media regarding the incident on August 14, 2019 [where he says a fellow Fita member must have arranged the hit]. He is rightfully upset given the circumstances, but we have cautioned him against making bold public statements at such an early stage in the investigations into the shooting incident.

“Mr Rudland has expressed to us that he simply wants whoever is responsible for the cowardly act perpetrated against him and his attorney to meet the full might of the law. In this regard we give Mr Rudland our full support and backing collectively as an organisation. At this stage we have decided to just allow the police to conduct their investigations in relation to the aforementioned incident. We want whoever is responsible for this senseless and evil act to be apprehended and prosecuted swiftly,” says Mnguni.

He adds that most of Fita’s members have business interests outside of the tobacco industry, and that this, together with other factors would make it “too simplistic to limit the incident as emanating from within the industry despite its history”.

“We continue to maintain that the police should be allowed to conduct their investigations, and any comments in relation to the shooting at this stage are merely speculative.”

An industry with ‘strong’ and ‘colourful’ characters

There are also claims that fellow Fita members were unhappy about loss of market share after Gold Leaf lowered prices on certain brands of cigarette. This, too, is disputed by Mnguni. “Our members regularly sit around the table and the discussions are generally robust in nature. These are all strong characters, but at the end of the day they all come to an agreement on the way forward. Never have I once seen threats being thrown around by our members.”

Mnguni concedes that the industry is populated with “colourful characters” who don’t always agree on things. Fita represents many of the smaller manufacturers, though Gold Leaf is reckoned to have grown to the point where it will soon rival some of the bigger players, such as BAT, who are members of the Tobacco Institute of Southern Africa (Tisa).

Gold Leaf brands include Voyager, Sharp, RG, Savannah, Chicago and Sahawi, which are priced at the lower end of the price spectrum. Smokers are paying excise of R16.66 a packet of 20 cigarettes, making a massive annual contribution to the fiscus.

Outlaws

One thing is for sure: cigarette manufacturing is big business. Fita says it has been assisting Sars in clamping down on cigarette smuggling from Zimbabwe, Botswana and Mozambique, and has thrown its weight behind efforts to rid the sector of outlaws.

Tisa estimates sales of about 30 billion cigarette sticks a year in SA, with one third coming from illicit trade. The legal industry contributes R17 billion a year to the fiscus in excise and value-added tax. Mnguni says Fita members paid R4 billion in excise to the fiscus last year, and have gone a long way in cleaning up the image of the sector (though last week’s assassination attempt will not have helped in this regard).

Sars is losing R8 billion a year due to the illicit cigarette trade, says Tisa. The tax agency recently put out a multi-billion tender for the tracking and tracing of cigarettes as part of a campaign to clamp down on the illicit trade, though Tisa says this is a high-tech system that will impose excessive and impractical regulatory burdens on small retailers, which account for 80% of cigarette sales in SA.

“The system specified in the tender will capture only the legal market and could drive illicit trade up further,” said Francois van der Merwe of Tisa in a statement. “Tisa is acutely aware of the urgency of reversing the phenomenal growth of the illicit tobacco trade since the disastrous [former commissioner] Tom Moyane era at Sars and we applaud the revenue service’s determination to do so. We have already seen some positive results from new Sars crackdowns and tax revenue seems to be stabilising for the first time in many years.”

Tisa says cigarettes are the world’s most illegally traded consumer product, and cost the SA fiscus more than R40 billion in lost revenue between 2010 and 2018.

“This is due to the illegal industry’s high-profit margins, because of the non-payment of taxes, relative ease of production and movement and low detection rates and penalties. The World Health Organisation (WHO) estimates that approximately 600 billion counterfeit and contraband cigarettes are sold annually, accounting for more than 10% of global cigarette sales,” says Tisa, adding that organised crime is behind the illegal trade in cigarettes, and that this is used to fund drug smuggling, human trafficking and other serious crimes.

Friction

Relations between Tisa and Fita are less than cordial. In a recent press release, Fita bemoaned the fact that government had invited a delegation from BAT – and no other manufacturers – to provide input on the proposed Tobacco Amendment Bill, which is expected to introduce plain packaging for cigarettes, and rope e-cigarettes under the same legislation as tobacco.

A statement from the portfolio committee on health says other interested parties may also be invited to provide input.

There is a scene from the film Thank You for Not Smoking where a cigarette executive is lambasting his team for falling sales:

“We sell cigarettes,” he says. “And they’re cool, and available, and addictive. The job is almost done for us.”

Cigarette sales in SA are doing fine. The number crunchers at National Treasury know this. Yet the white coats at the Department of Health want people to stop smoking. The schizophrenia at the heart of government policy could not be starker. If everyone were to give up smoking, Treasury would have to find another R17 billion a year from elsewhere. In other words, they are delighted that smokers exist and are addicted.