R7bn debt owed to City of Cape Town impacts on services

Cape Town – The City of Cape Town is owed more than R7billion as at the end of December last year by individual and business ratepayers.

The bulk of the outstanding debt is divided between residential properties (R5.561bn) followed by business properties ( R1.518bn), with other outstanding debt amounting to R833m.

The City also said that the total amount of arrears, as of December 31, stood at R5.554bn.

Mayco member for finance and deputy mayor Ian Neilson said: “Debt management actions are being intensified especially against those who can pay but choose not to pay as well as against the frequent defaulters.

“When the debtors don’t respond to the City’s actions taken, the accounts are handed over to the City’s panel of attorneys to proceed with legal actions and then to a sale in execution. Most debtors respond with payments or make an arrangement to pay off the debts when the water supplies have been restricted and/or the electricity supplies have been disconnected or arrears were collected via the electricity prepaid purchases or when they receive summons from the attorneys.”

Neilson said that the debt has an impact on the City’s financial standing. “Due to this debt, the City has to make a provision for bad debt in its budget, which means that fewer services are delivered. If those who have the means to pay, refuse to pay for services that they use, it has a large impact on the sustainability of the City and it impacts on our desire to make this great City even greater,” he said.

In December, 10797 letters of demand were sent out and 516 debtors were listed for adverse credit listing. A total of 8307 electricity prepaid and daily charge collection letters were delivered and 139 accounts were sent for prepaid electricity purchase collections. The total debt outstanding for staff including permanent and temporary employees is at R7373044.

A number of provincial and national departments also owe the City millions. The national Public Works Department has the most debt with R78223 992 and the provincial department R148913880. The City’s public housing rentals and rental properties are also in debt. As of December R619m was owed to the City from housing rentals, for which the City has sent 492 letters of demands and 170 summonses.

There have been 46 evictions for debt of R3.6m. Stop Coct founder Sandra Dickson said: “Due to the City writing off large amounts of this debt, the amount owed to the City is now substantially less and the debt collection ratio about 98%. It is alarming that a government organisation such as the municipality of Cape Town is prepared to go as far as a sale of execution of a residents’ property to recover outstanding debt. The City is governed by the Municipal Act which has no protection for residents to fight such extreme recovery actions. Debt rescue and the National Credit Act is not applicable to such extreme debt recovery actions by a municipality.”

CoCT makes renewables power play, partners with US for R12m feasibility study

Cape Town – Emboldened by President Cyril Ramaphosa’s announcement that  municipalities will be able to procure their own power from independent power producers (IPPs), the City has started the ball rolling by signing a grant agreement worth more than R12 million with the US Trade and Development Agencies to conduct a feasibility study on a natural gas distribution network for Cape Town.

The DA-controlled administration has been fighting since 2015 for municipalities to secure their own electricity.DA spokesperson on public enterprises Ghaleb Cachalia said the party was calling on Ramaphosa to immediately drop his government’s opposition to the City’s court case seeking Section 34 permission and grant approval within seven days.

The City will then prove to be the case study of an excellently governed municipality procuring directly and keeping the lights on and the economy going. “If Ramaphosa is serious, the national government will stop fighting the City in court and start issuing these notices immediately,” he said.

According to the City, the future of energy lies in greater decentralisation and diversification of generation with complementary technologies such as gas and renewables providing lower cost and cleaner solutions.

Mayor Dan Plato said: “The City has been putting pressure on the government for many years to reshape the energy regime in South Africa to the benefit of our people and businesses. The City is a staunch proponent of more affordable, secure, cleaner and diversified energy sources.”

The City will first need to complete a City-developed Integrated Resource Plan (IRP) to best optimise the supply and demand options.

“We are undertaking a study to determine how best to overcome energy poverty, through various projects such as installing solar kits, solar-home systems, increasing free basic electricity, improving access to gas, among others. Improving access to affordable electricity is a key deliverable that we are investigating at the moment.”

On Thursday, President Ramaphosa, in his State of the Nation address, said: “We will negotiate supplementary power purchase agreements to acquire additional capacity from existing wind and solar plants. We will also put in place measures to enable municipalities in good financial standing to procure their own power from independent power producers.”

Plato said broad statements were not enough. “It is not going to suffice in this critical situation that we all find ourselves in and which is as a result of Eskom and national government’s failure to effectively manage energy supply in South Africa. Cape Town is eager to help residents survive the ongoing load shedding, but we need details as soon as possible on when we can start procuring from IPPs.”

Energy analyst Ted Blom said: “Government has been grappling with Eskom and electricity issues since 2001 and attempted to solve the problem through an unsuccessful effort to entice the private sector into building power stations under a capped rate of return. There are more questions around the legislative amendments.”

@MarvinCharles17marvin.charles@inl.co.za

South Africa’s expat tax is here – these are your options to legally deal with it

South Africans working and living abroad are preparing for new amendments to the Income Tax Act, set to come into effect from 1 March 2020.

The amendments will effectively introduce an ‘expat tax’, meaning that South African tax residents working internationally will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings.

This has led to concerns that some workers will be ‘double-taxed’ by both the South African Revenue Service and the tax authorities where they currently work.

In an interview with 702 Jonty Leon, legal manager at Tax Consulting SA, said that a double-tax will depend on the situation of each individual and the current tax regime of the country where they work.

“In certain countries, we do have double-taxation agreements between South Africa and that foreign jurisdiction. In those instances – and you meet the requirements – you can ensure that you are not double-taxed,” he said.

“In other countries, there is no such agreement and often there is a situation where there is a double-taxation issue.”

What are your options?

Leon said that there are a number of ways around this change in legislation, but acknowledged that many workers are in a difficult situation where they will either have to move back home, or cut financial ties with South Africa.

“South Africans are saying that they can’t afford this new amendment and have no other option to turn to South Africa.

“Unfortunately, one of the reasons they may have left South Africa is that they couldn’t find a job so they are in a bit of a catch-22 situation.”

Leon said that another group of South Africans are choosing to ‘financially emigrate’. To qualify for financial emigration you have to have the intention to permanently live and work outside of South Africa, he said.

“Financial emigration formalises your status as a non-resident for tax and exchange control purposes and as a non-resident, you are not taxable on that foreign income. We have seen a huge increase in South African following this route.

“Right now we are looking at between 6-9 months for this application to be processed and concluded by SARS.”

Leon said that South African can also make use of tax-efficient structures to their advantage.

“Another big (option) is making use of a double taxation agreement where there is one in place with the foreign jurisdiction.

“There are also certain requirements that need to be met for that. For instance, you have got to have one spouse living abroad and earning that income and the other spouse living in South Africa.”

Leon said that using a double-taxation agreement is a good option for South Africans who cannot financially emigrate.

A transcript of Ramaphosa’s SONA

Speaker of the National Assembly, Ms Thandi Modise,
Chairperson of the National Council of Provinces, Mr Amos Masondo,
Deputy President David Mabuza,
Chief Justice Mogoeng Mogoeng and esteemed members of the judiciary,
Former President Thabo Mbeki and Mrs Mbeki,
Former President Kgalema Motlanthe and Mrs Motlanthe,
Former Deputy President FW de Klerk and Mrs De Klerk,
Former Speaker Ms Baleka Mbete and Mr Khomo,
President of the Pan African Parliament, HE Mr Roger Nkodo Dang,
UN Women SA Representative, Ms Anne Githuku-Shongwe,
Isithwalandwe, Mr Andrew Mlangeni,
Ministers and Deputy Ministers,
Premiers and Speakers of Provincial Legislatures,
President of SALGA and Executive Mayors,
Governor of the South African Reserve Bank, Mr Lesetja Kganyago,
Heads of Chapter 9 Institutions,
Leaders of faith based organisations,
Leaders of academic and research institutions,
Members of the Diplomatic Corps,
Invited Guests,
Honourable Members of the National Assembly,
Honourable Members of the National Council of Provinces,
Fellow South Africans,

It is 30 years since Nelson Rolihlahla Mandela walked out of the gates of Victor Verster Prison, a moment in our history that signalled perhaps more vividly than any other that freedom was at hand.

As he stood on the balcony of Cape Town City Hall to address the masses who had come in their tens of thousands to welcome him, he said:

‘Our march to freedom is irreversible. We must not allow fear to stand in our way.’

Now, 30 years later, as we continue our onward march to improve the lives of our people, as we confront great challenges, as we endure troubled times, we too cannot allow fear to stand in our way.

We must forge ahead, permitting neither adversity nor doubt to divert us.

As we gather to reflect on the state of our nation, we are joined by the family of Basil February, a courageous young freedom fighter who lost his life in Zimbabwe in the Wankie campaign of 1967.

For half a century his resting place, like those of several of his comrades, has, until now, remained unknown.

His contribution, his sacrifice, has never been forgotten.

This evening, we gather here humbled by the memories of those men and women who gave their lives for our freedom, deeply aware of the great responsibility we carry to realise their dreams.

There are times when we have fallen short, there are times when we have made mistakes, but we remain unwavering in our determination to build a society that is free and equal and at peace.

Our history tells us that when we are united in peace and faith, we can conquer all obstacles and turn our country into a place in which we all feel safe and comfortable.

It is in that spirit that we now approach the present moment.

Our country is facing a stark reality.

Our economy has not grown at any meaningful rate for over a decade.

Even as jobs are being created, the rate of unemployment is deepening.

The recovery of our economy has stalled as persistent energy shortages have disrupted businesses and people’s lives.

Several state owned enterprises are in distress, and our public finances are under severe pressure.

It is you, the people of South Africa, who carry this burden, confronted by rising living costs, unable to escape poverty, unable to realise your potential.

Yet, at the same time, there is another part to our reality.

It is the reality of a youthful population that has more access to education than ever before and which is achieving steadily improving outcomes.

It is the reality of 2.4 million children in early childhood development and pre-school.

It is about the 81% of learners who passed matric last year, with an increasing proportion coming from rural and township schools.

For this great achievement, we applaud the Class of 2019.

Our reality is also that of the 720,000 students who received state funding for TVET colleges and universities last year.

It is about the 6.8 million South Africans who know their HIV status, about the 5 million people who have been initiated on antiretroviral treatment and the 4.2 million people whose HIV viral load is, as a consequence, undetectable.

These are not just statistics.

These are lives being improved.

They are signs of progress.

Our reality is also one of unbounded potential.

Of a soil that is rich in minerals and in a diversity of plant and animal life that has few equals in the world.

Of a deep capital base, extensive infrastructure, sound laws and robust institutions.

Of a rich, diverse, young and talented people.

Tonight, we are joined by Zozibini Tunzi, whose ascendance to the Miss Universe title is a reminder of our potential to achieve greatness against the odds.

We also welcome Springbok captain Siya Kolisi, who led a group of determined and united South Africans to become the 2019 World Rugby Champions.

We are joined this evening by another remarkable young person, Miss Sinoyolo Qumba, a Grade 11 learner from Lenasia South, who spent much of yesterday helping me to write this State of the Nation Address.

Her intellect, her social awareness, her passion and her diligence give me great confidence in the future of this country.

In my first two addresses to the nation I spoke at length about the necessity of social compacting, and the great responsibility we shoulder as government to drive collaboration and consensus.

In 1994 we chose the path of negotiation, compromise and peaceful settlement, instead of hatred and revenge.

Our history and contemporary experience has taught us that if we are to achieve what we set out to do, we must focus on what unites instead of divides.

The greatest strength of our constitutional democracy, and the reason it has endured, is because we have been able to forge broad-based coalitions and social compacts, be they with business, labour, special interest groups or wider civil society.

Achieving consensus and building social compacts is a not demonstration of weakness. It is the very essence of who we are.

That is why over the past two years we have been hard at work seeking to forge and build consensus around our economic recovery plan.

In his inaugural address on the 10thof May 1994, President Nelson Mandela said:

“Today we enter into a covenant that we shall build a society in which all South Africans, both black and white, will be able to walk tall, without fear in their hearts, assured of their inalienable right to human dignity.”

This government remains irrevocably committed to upholding that covenant.

It is a covenant that is rooted in the strategic objective of our National Development Plan, whichisto eliminate poverty and reduce inequality by 2030.

Let us frankly admit that that the government cannot solve our economic challenges alone.

Even if we were to marshal every single resource at our disposal, and engage on a huge expenditure of public funds, we would not alone be able to guarantee employment to the millions of people who are out of work.

What we have achieved, we have achieved together.

Over the course of the last two years – since I first stood here to deliver a State of the Nation Address – we have worked to forge compacts among South Africans to answer the many challenges before us.

Through the Jobs Summit, we brought labour, business, government and communities together to find solutions to the unemployment crisis, and we continue to meet at the beginning of every month to remove blockages and drive interventions that will save and create jobs.

We have come together, as government and civil society, as communities and faith-based groupings, to confront the violence that is perpetrated by men against women.

We have brought business, labour and government together to craft master plans for those industries that have the greatest potential for growth.

We have come together as different spheres of government, as different state entities, as business associations and community groups under a new district development model that is fundamentally changing our approach to local development.

We have been building social compacts because it is through partnership and cooperation that we progress.

Together, over these last two years, we have worked to stabilise our economy and build a foundation for growth.

We have been deliberate in rebuilding institutions and removing impediments to investment.

We have acted decisively against state capture and fought back against corruption.

We have steadily improved the reach of education, improved the quality of health care and tended to the basic needs of the poor.

Yet, that has not been enough.

It has not been enough to free our economy from the grim inheritance of our past, nor from the mistakes that we ourselves have made.

It has not been enough to spare us from the debilitating effects of load-shedding, nor from an unstable and subdued global economy.

And so we find ourselves today at a decisive moment.

We have a choice.

We can succumb to the many and difficult and protracted problems that confront us, or we can confront them, with resolve and determination and with action.

Because we choose to confront our challenges, our immediate, vital and overarching task is to place our economy on a path of inclusive growth.

Without growth there will be no jobs, and without jobs there will be no meaningful improvement in the lives of our people.

This State of the Nation Address is therefore about inclusive growth.

It is about the critical actions we take this year to build a capable state and place our economy on the path to recovery.

This year, we fix the fundamentals.

We pursue critical areas of growth.

And we ensure excellence in planning and execution in government.

Fellow South Africans,

For over a decade, South Africans have had to contend with the effects of a constrained energy supply.

I have spoken extensively about the critical role that Eskom plays in the economy of our country and in the livelihood of every South African.

The load shedding of the last few months has had a debilitating effect on our country.

It has severely set back our efforts to rebuild the economy and to create jobs.

Every time it occurs, it disrupts people’s lives, causing frustration, inconvenience, hardship.

At its core, load-shedding is the inevitable consequence of Eskom’s inability over many years – due to debt, lack of capacity and state capture – to service its power plants.

The reality that we will need to accept is that in order for Eskom to undertake the fundamental maintenance necessary to improve the reliability of supply, load-shedding will remain a possibility for the immediate future.

Where load-shedding is unavoidable, it must be undertaken in a manner that is predictable and minimises disruption and the cost to firms and households.

Over the next few months, as Eskom works to restore its operational capabilities, we will be implementing measures that will fundamentally change the trajectory of energy generation in our country.

We are taking the following measures to rapidly and significantly increase generation capacity outside of Eskom:

A Section 34 Ministerial Determination will be issued shortly to give effect to the Integrated Resource Plan 2019, enabling the development of additional grid capacity from renewable energy, natural gas, hydro power, battery storage and coal.

We will initiate the procurement of emergency power from projects that can deliver electricity into the grid within 3 to 12 months from approval.

The National Energy Regulator will continue to register small scale distributed generation for own use of under 1 MW, for which no licence is required.

The National Energy Regulator will ensure that all applications by commercial and industrial users to produce electricity for own use above 1MW are processed within the prescribed 120 days.

It should be noted that there is now no limit to installed capacity above 1MW.

We will open bid window 5 of the renewable energy IPP and work with producers to accelerate the completion of window 4 projects.

We will negotiate supplementary power purchase agreements to acquire additional capacity from existing wind and solar plants.

We will also put in place measures to enable municipalities in good financial standing to procure their own power from independent power producers.

In line with the Roadmap announced last year, Eskom has started with the process of divisionalising its three operating activities – generation, transmission and distribution – each of which will have its own board and management structures.

The social partners organised under Nedlac have been meeting over the last two weeks to agree on the principles of a social compact on electricity.

This is a historic and unprecedented development since it demonstrates the commitment of all social partners to take the necessary actions and make the necessary sacrifices to secure our energy needs.

Through this compact the social partners seek an efficient, productive and fit-for-purpose Eskom that generates electricity at affordable prices for communities and industries.

This requires both a drastic reduction in costs – including a review of irregular contracts – and measures to mobilise resources that will reduce Eskom’s debt and inject fresh capital where needed.

The social partners – trade unions, business, community and government – are committed to mobilising funding to address Eskom’s financial crisis in a financially sustainable manner.

They would like to do this in a manner that does not put workers pensions at risk and that does not compromise the integrity of the financial system.

While they work to finalise this agreement, the reality is that our energy system will remain constrained until new energy generation comes on stream.

Through these immediate measures and the work underway to fundamentally restructure our electricity industry, we will achieve a secure supply of reliable, affordable and, ultimately, sustainable energy.

We undertake this decisive shift in our energy trajectory at a time when humankind faces its greatest existential threat in the form of climate change.

Yesterday I met Ayakha Melithafa, a young climate activist from Eerste Rivier who attended the World Economic Forum in Davos this year to call on world leaders to stand firmly for climate justice.

Ayakha asked me to make sure no African child is left behind in the transition to a low-carbon, climate resilient and sustainable society; and it is a promise I intend to keep.

The Presidential Commission on Climate Change will ensure that as we move towards a low carbon growth trajectory that we leave no one behind.

We will finalise the Climate Change Bill, which provides a regulatory framework for the effective management of inevitable climate change impacts by enhancing adaptive capacity, strengthening resilience and reducing vulnerability to climate change – and identifying new industrial opportunities in the green economy.

Honourable Members,

We need to fix our public finances.

Low levels of growth mean that we are not generating enough revenue to meet our expenses, our debt is heading towards unsustainable levels, and spending is misdirected towards consumption and debt-servicing rather than infrastructure and productive activity.

We cannot continue along this path. Nor can we afford to stand still.

When he delivers his Budget Speech two weeks from now, the Minister of Finance will outline a series of measures to reduce spending and improve its composition.

We are engaged with labour and other stakeholders on measures to contain the public wage bill and reduce wastage.

Efforts to reduce government spending, prioritise resources more effectively, and improve the efficiency of our tax system are important – but insufficient – contributions towards stabilising our public finances.

Achieving sustainability will ultimately require us to address structural challenges in the economy that raise the cost of living and doing business.

By working with the Auditor-General to reduce irregular expenditure, by shifting government spending from consumption expenditure to investment in infrastructure, we aim to improve the state of public finances.

The National Treasury and the SA Reserve Bank are working together to ease pressure on business and consumers.

We have decided to establish a sovereign wealth fund as a means to preserve and grow the national endowment of our nation, giving practical meaning to the injunction that the people shall share in the country’s wealth.

We are also proceeding with the establishment of a state bank as part of our effort to extend access to financial services to all South Africans.

The Minister of Finance will provide details on these in his Budget Speech.

We will be undertaking far-reaching economic reform measures that we will include those contained in the paper produced by National Treasury, entitled ‘Economic Transformation, Inclusive Growth and Competitiveness’.

This year, we are moving from the stabilisation ofstate-owned enterprisesto repurposing these strategic companies to support growth and development.

After years of state capture, corruption and mismanagement, we are working to ensure that all SOEs are able to fulfil their developmental mandate and be financially sustainable.

In consultation with the Presidential SOE Council, we will undertake a process of rationalisation of our state owned enterprises and ensure that they serve strategic economic or developmental purposes.

The extent of capture, corruption and mismanagement in SOEs is best demonstrated at South Africans Airways, which was placed in business rescue late last year.

The business rescue practioners are expected to unveil their plans for restructuring the airline in the next few weeks.

In the interests of South Africa’s aviation industry and our economy, it is essential that a future restructured airline is commercially and operationally sustainable and is not dependent on further government funding.

A key priority this year is to fix commuter rail, which is vital to the economy and to the quality of life of our people.

Our rail network daily transports over a million commuters to and from work.

We are modernisingPRASA’s rail network.

The Central Line in the Western Cape and the Mabopane Line in Pretoria have been closed for essential refurbishment and upgrades.

We are investing R1.4 billion in each of these lines to provide, a safe, reliable and affordable service.

Work underway on other lines includes station upgrades, parkway replacements, new signalling systems and overhead electrical traction upgrades.

As we work to fix the capabilities of the state, we know that growth and job creation will in large measure be driven by private enterprise.

We are therefore building an operating environment that is favourable to doing business.

Working together with social partners, we have continued to address several issues that have been barriers to job creation.

Water use licences, which are so essential to operations on farms, factories and mines, have previously taken an inordinately long time to process, sometimes up to 5 years.

We are able to announce that water use licences are now issued within 90 days.

It used to take months to have a company registered.

Through the Bizportal platform one can now register a company in one day, register for UIF and SARS and even open a bank account,

Our ports are congested and inefficient.

During the course of this year, we will undertake a fundamental overhaul of the Durban port – the third largest container terminal in the Southern Hemisphere – toreduce delays and costs.

The most significant contribution we can make to inclusive economic growth is in the development of appropriate skills and capabilities.

The investments we make now in early childhood development and early school learning will yield great economic benefits in the next two decades – and beyond.

But there are immediate interventions that we are making to improve the quality and the relevance of our educational outcomes.

We are making progress with the introduction of the three-stream curriculum model, heralding a fundamental shift in focus towards more vocational and technical education.

Various technical vocational specialisations have already been introduced in 550 schools and 67 schools are now piloting the occupational stream.

We are building nine new TVET college campuses this year, in Sterkspruit, Aliwal North, Graaff Reinet and Ngungqushe in the Eastern Cape, and in Umzimkhulu, Greytown, Msinga, Nongoma and Kwagqikazi in KwaZulu-Natal.

Through bilateral student scholarship agreements we have signed with other countries, we are steadily building a substantial cohort of young people who go overseas each year for training in critical skills.

We have seen the impact this can have with the Nelson Mandela Fidel Castro Medical Training Programme in Cuba, which has produced over 1,200 medical doctors and a further 640 students are expected to graduate in December 2020.

This programme is a living monument to these two great revolutionaries.

Last year I spoke about our plan to issue tablet computers to school students.

The process of distributing these tablets is underway.

We said that every 10-year-old needs to be able to read for meaning.

Our early reading programmes are gathering momentum.

This year, we will be introducing coding and robotics in grades R to 3 in 200 schools, with a plan to implement it fully by 2022.

We have decided to establish a new University of Science and Innovation in Ekurhuleni.

Ekurhuleni is the only metro in our country that does not have a university.

This will enable young people in that metro to be trained in high-impact and cutting-edge technological innovation for current and future industries.

Investment and growth require a safe, stable and crime-free environment.

More importantly, it is fundamental to the aspirations of all our people to live in security, peace and comfort.

Police visibility, effective training and better resourcing of police stations are our priorities.

I have prioritised our response to the growing problem of criminal groups that extort money from construction and other businesses.

Specialised units– bringing together SAPS and the National Prosecuting Authority – are mandated to combat these crimes of economic disruption.

To support the growth of the tourism industry, the SAPS will increase visibility at identified tourist attraction sites.

Itis training Tourism Safety Monitors and will establish a reserve police capacity to focus on the policing of tourist attraction areas.

Anti-Gang Units will be further strengthened, with priority given to the Western Cape, Eastern Cape, Gauteng and Free State.

Following the graduation of 5,000 police trainees last year, 7,000 new police trainees have been enlisted this year to strengthen local policing.

To improve the quality of general and specialised SAPS investigations, we are establishing a Crime Detection University in Hammanskraal.

Fellow South Africans,

Over the last six months, the nation has been galvanised – across communities, government, civil society, religious groupings, the judiciary and parliament – to end the crisis of violence perpetrated by men against women.

It has been a truly united and determined response from all South Africans.

Through building social compacts across society to fight this scourge we will be able to achieve much more.

But it is only the beginning of the struggle.

We implemented an emergency action plan and reprioritised R1.6 billion to support this plan until the end of the current financial year.

There has been progress in several areas.

Wewill amend the Domestic Violence Actto better protect victims in violent domestic relationships and the Sexual Offences Act to broaden the categories of sex offenders whose names must be included in the National Register for Sex Offenders,and we will pass a law to tighten bail and sentencing condition in cases that involve gender-based violence.

We will not let up in the fight against corruption and state capture.

We need to work together to root out corruption and strengthen the rule of law.

We should not solicit or pay bribes or engage in corrupt acts.

We should upgrade our culture of reporting crime when we see it being committed.

This battle can only succeed if it is taken on by the whole of society, if we build a formidable social compact of all formations.

We therefore welcome the work of the joint government and civil society working group charged with developing a national anti-corruption strategy and implementation plan, which is close to completion of this phase of its work.

We plan to launch the strategy by mid-year.

The Zondo Commission of Inquiry into State Capture continues with its critical work with the full support of government and other institutions.

I have received a detailed and voluminous report on the Commission of Inquiry into the Public Investment Corporation.

I will make it available to the public together with a plan on taking the findings and recommendations forward in a few days.

Fellow South Africans,

As we fix the fundamentals, as we deepen the reforms we have made, we pursue critical areas of inclusive growth.

In the previous SONA, I said that is a critical area of investment that supports structural transformation, growth and job creation.

The Infrastructure Fund implementation team has finalised the list of shovel-ready projects and has begun work to expand private investment into public infrastructure sectors with revenue streams.

These include areas like student accommodation, social housing, independent water production, rail freight branch lines, embedded electricity generation, municipal bulk infrastructure, and broadband roll-out.

The team has a project pipeline with potential investments of over R700 billion over the next 10 years, including both government and non-government contributions.

The cranes and yellow equipment that we have longed to see across the landscape of our country will once again soon be an everyday sight.

The social housing programmeto build rental housing for low-income families is at implementation stage, which could leverage as much as R9 billion of private investment in the construction of 37 000 rental apartments.

The young people who are at university and TVET Colleges face serious accommodation challenges.

Some don’t even have places to sleep after lectures and resort to sleeping in libraries.

We are going to spendR64 billion over the next years in student accommodation and will will leverage at least another R64 billion in private investment.

These building projects are ready to start.

We have been speaking about the Umzimvubu Dam in the Eastern Cape for almost a decade, with little to show on the ground.

We are determined to overcome the financial and other challenges that have held back progress and denied the people of this areas such a vital resource.

Road construction on the site has commenced, and I will soon be visiting the site to ensure that we take this work forward.

We are launching a Tourism Equity Fund this year to stimulate transformation in tourism.

Last year, I asked the nation to join me in imagining a new smart-city, a truly post-apartheid city that would rise to change the social and economic apartheid spatial architecture.

A new smart-city is taking shape in Lanseria, which 350,000 to 500,000 people will call home within the next decade.

The process is being led by the Investment and Infrastructure Office in the Presidency alongside the provincial governments of Gauteng and North West, working together with the cities of Johannesburg, Tshwane and Madibeng.

Working with development finance institutions we have put together an innovative process that will fund the bulk sewerage, electricity, water, digital infrastructure and roads that will be the foundation of the new city.

It will not only be smart and 5G ready, but will be a leading benchmark for green infrastructure continental and internationally.

We will be piloting an alternative rural roads programme during which four experimental road stretches of 50km each will be constructed.

This initiative will ensure cost effective solutions for the State, meaningful skills transfer and higher potential for labour intensive job creation than conventional roads construction methods.

Fellow South Africans,

We are confronted by the crisis of youth unemployment.

Of the 1.2 million young people who enter the labour market each year, approximately two thirds remain outside of employment, education or training.

More than half of all young people are unemployed.
We need to make this country work for young people, so that they can work for our country.

The solution to this crisis must be two-pronged – we must all create opportunities for youth employment and self-employment.

On youth employment, as from today, we begin the implementation of the Presidential Youth Employment Intervention – six priority actions over the next five years to reduce youth unemployment.

First, we are creating pathways for young people into the economy.

We are building cutting-edge solutions to reach young people where they are – online, on the phone and in person.

This will allow them to receive active support, information and work readiness training to increase their employability and match themselves to opportunities.

Starting this month, we are launching five prototype sites in five provinces that will grow to a national network reaching three million young people through multiple channels.

This will allow them to receive active support, information and work readiness training to increase their employability and match themselves to opportunities.

Second, we are fundamentally changing how we prepare young people for the future of work, providing shorter, more flexible courses in specific skills that employers in fast-growing sectors need.

Third, we are developing new and innovative ways to support youth entrepreneurship and self-employment.

Fourth, we are scaling up the Youth Employment Service and working with TVET colleges and the private sector to ensure that more learners receive practical experience in the workplace to complete their training.

Fifthly, we are establishing the first cohort of a Presidential Youth Service programme that will unlock the agency of young people and provide opportunities for them to earn an income while contributing to nation building.

Finally,we will lead a youth employment initiative which will be funded by setting aside 1% of the budget to deal with the high levels of youth unemployment.

This will be through top slicing from the budget, which will require that we all tighten our belts and redirect resources to address the national crisis of youth unemployment.

The Minister of Finance will prioritise this initiative and give specific details when he delivers the Medium Term Budget Policy Statement later this year.

These six actions will together ensure that every young person in this country has a place to go, that their energy and capabilities are harnessed, and that they can contribute to the growth of their communities and their country.

As part of this intervention, the National Youth Development Agency and the Department of Small Business Development will provide grant funding and business support to 1,000 young entrepreneurs in the next 100 days – starting today.

We have invited three of these young entrepreneurs to join us here this evening: Siyabonga Tiwana, Sibusiso Mahone and Tholakele Nkosi.

They and others like them prove that, given the necessary support, young people can create their own opportunities.

These three young entrepreneurs form part of a larger and more ambitious programme to assist 100,000 young entrepreneurs over the next 3 years to access business skills training, funding and market facilitation.

The empowerment of women is critical to inclusive economic growth.

We are introducing the SheTradesZA platform to assist women-owned businesses to participate in global value chains and markets.

Over the next five years, the Industrial Development Corporation is targeting R10 billion of own and partner funding for women empowered businesses.

To create a larger market for small businesses, we plan to designate 1,000 locally produced products that must be procured from SMMEs.

The Procurement Bill will soon be presented to Parliament as part of our efforts to empower black and emerging businesses and advance radical economic transformation.

This year, we intensify our investment drive with the establishment of an integrated investment promotion and facilitation capability coordinated from the Presidency.

We will hold our third South Africa Investment Conference in November to review the implementation of previous commitments and to generate new investment into our economy.

At the second South Africa Investment Conference last year, over 70 companies made investment commitments of R364 billion in industries as diverse asadvanced manufacturing, agro-processing, infrastructure, mining, services, tourism and hospitality.

In the first two years of our ambitious investment drive, we have raised a total of R664 billion in investment commitments, which is more than half of our five-year target of R1.2 trillion.

More importantly, these investments are having a real impact.

Already, projects with an investment value of R9 billion have been completed and 27 projects worth just over R250 billion are in implementation phase, with more coming on-stream this year.

I have visited newly-built factories that make smartphones, and plants expanded to produce more cars, and walked through the dust on construction sites at supplier parks.

We have been to the opening of facilities producing goods ranging frompower cables to sanitary products, from tyres to food.

We have made important progress in finalising and implementing master plans in vital parts of our economy.

These master plans bring government, labour and business together to develop practical measures to spur growth at sector level and each partner contributes to making it work.

Thanks in large measure to the Auto Master Plan, we sold more cars to the rest of the world last year than ever before, providing jobs for young people in Eastern Cape and KwaZulu-Natal.

We launched a new auto SEZ hub in Tshwane,which will expand production and local manufacture of components.

The Clothing and Textiles Master Plan, which was signed last year, aims to create 121,000 new jobs in the retail-clothing textile and footwear sector over the decade.

It involvescommitmentsby retailers to buy goods locally, by manufacturers to invest and support transformation, and by labour to develop bargaining structures that promote agile manufacturing.

For its part, Government has already begun to act vigorously against illegal imports, seizing almost400containers with under-invoiced products in the last quarter of 2019.

This suit that I am wearing today, like last year, was proudly made by South African workers.

We completed the Poultry Master Plan to support chicken farmers and processors and save 54,000 jobs while creating new jobs.

The industry is now focused on growth, greater production and more investment.

We will within two weeksset a new poultry import tariff adjustment to support the local industry.

We have developed a plan with farmers and industrial users to save jobs in the sugar industry and willfinalise a Sugar Master Plan within the next six weeks; and expect a new steel Master Plan to be finalised in the coming six months.

Effective today, new regulations published in the Government Gazette will enable investigation and action against abuse of buyer power and price discrimination.

This will help even the playing field for small businesses and emerging entrepreneurs.

Market inquiries into data services, the grocery retail market and health care have provided the basis for measures to reduce costs to consumers and make these sectors more competitive.

The competition authorities are now working towards a resolution with the large mobile operators to secure deep cuts to data prices across pre-paid monthly bundles, additional discounts targeted at low income households, a free daily allocation of data and free access to educational and other public interest websites.

This is an important step to improve lives, bring people into the digital economy and stimulate online businesses.

The digital economy will increasingly become a driver of growth and a creator of employment.

The Presidential Commission on the Fourth Industrial Revolution has made far-reaching recommendations that impact on nearly every aspect of the economy and in many areas of our lives.

The Commission’s report provides us with the tools to ensure that we extract the greatest benefit of these revolutionary technological changes.

An important condition for the success of our digital economy is the availability of high demand spectrum to expand broadband access and reliability.

The regulator, ICASA, has undertaken to conclude the licensing of high demand spectrum for industry via auction before the end of 2020.

Because of additional requirements, the licensing of the wireless open access network – or WOAN – is likely to completed during the course of next year.

Agriculture is one of the industries with the greatest potential for growth.

This year, we implement key recommendations of the Presidential Advisory Panel on Land Reform and Agriculture to accelerate land redistribution, expand agricultural production and transform the industry.

Government stands ready – following the completion of the Parliamentary process to amend section 25 of the Constitution – to table an Expropriation Bill that outlines the circumstances under which expropriation of land without compensation would be permissible.

To date, we have released 44,000 hectares of state land for the settlement of land restitution claims, and will this year releaseround700,000 hectares of state land for agricultural production.

We are prioritising youth, women, people with disabilities and those who have been farming on communal land and are ready to expand their operations for training and allocation of land.

A new beneficiary selection policy includes compulsory training for potential beneficiaries before land can be allocated to them.

Because of the drought in many parts of the country, farmers lost crops and livestock and many workers have lost their livelihoods.

Working with the Agricultural Research Council and other scientific and agricultural bodies, we have developed drought mitigation strategies that focus on developing drought resistant seeds, planting and storing fodder, removing of invasive plants
and management strategies to prevent soil degradation.

This year we will open up and regulate the commercial use of hemp products, providing opportunities for small-scale farmers; and formulate policy on the use of cannabis products for medicinal purposes, to build this industry in line with global trends.

The regulatory steps will soon be announced by the relevant ministers.

A fundamental condition for growth and development is a healthy and productive population, with access to quality, affordable health care.

We have noted the enthusiastic support from South Africans during public hearings on the National Health Insurance, and are putting in place mechanisms for its implementation following conclusion of the Parliamentary process.

In preparation for NHI, we have already registered more than 44 million people at over 3,000 clinics in the electronic Health Patient Registration System, and are now implementing this system in hospitals.

I have established the Presidential Working Group on Disability to advise my office on measures to advance the empowerment of persons with disabilities as government plans, budgets and implements programmes.

Following the recognition by the Department of Basic Education in 2018 of South African Sign Language as a home language and the recommendation by the Parliamentary Constitutional Review Committee that it be the 12th official language, we are now poised to finalise the matter.

Fellow South Africans,

Earlier this week, I returned from Addis Ababa in Ethiopia, where South Africa assumed the chairship of the African Union for 2020.

We take up this responsibility at an important time for our continent.

This year, the African Continental Free Trade Area will come into effect.

This is our moment, as the people of the continent, to give effect to the dreams of the founding fathers of African unity.

South Africa will host an Extraordinary AU Summit in May this year to finalise the modalities of the Free Trade Agreement before its implementation on 1 July 2020.

Here we will finalise the rules that define what is a ‘Made in Africa’ product, the tariff lines that will be reduced to zero over the next five years, and the services sectors that will be opened up across the continent.

Allow me to take this opportunity to congratulate our compatriot, Mr Wamkele Mene, who was this past weekend elected as the first Secretary-General of the African Continental Free Trade Area, and assure him of our full support as he assumes this historic and challenging responsibility.

South Africa has therefore prioritised the economic empowerment of Africa’s women during its term as AU chair, working with all member states on measures to promote financial inclusion, preferential procurement and preferential trade arrangements for women.

The AU Heads of State have pledged their support for measures to end gender-based violence on the continent, and will work towards the adoption of an AU Convention on Violence against Women during the course of this year.

Through the African Peer Review Mechanism, South Africa will work with other countries to advance good governance and democracy.

We will use all the means at our disposal – including our membership of the UN Security Council – to promote peace and security on the continent.

Honourable Members,
Fellow South Africans,

Everything we do must be underpinned by effective implementation.

That is why we have developed the District Development Model,a unique form of social compacting that involves the key role players in every district so that we can unlock development and economic opportunities.

It builds the capability of the state where it has been most broken.

During the SONA of February 2019 I addressed the five most urgent tasks of the moment, key among which was the need to strengthen the capacity of the state to address the needs of the people.

A broad range of critical work is being done across government to strengthen the capacity of local government, as the sphere of government closest to the people, to achieve its developmental mandate of finding sustainable ways to meet the social, economic and material needs of communities and improve the quality of their lives.

Provincial and national government will re-double theirsupport and strengthen the capacity of municipalities as required by Section 154 of the Constitution and provide for the monitoring and support of municipalities.

It is only when the structured support has failed that the provincial executive or national government will invoke a Section 139 intervention.

Currently there are 40 municipalities in the country subjected to such intervention.

The measures that will be taken will complement the objectives of the new district-based model of development, that seeks to take an integrated approach to` service delivery

Residents of the Mamusa Municipality in North West have already seen this approach in action, where the District Development Modelwas effectively utilised to clear illegal dumping sites, refurbish pump stations to stop sewage spilling in the streets, build roads and lay water pipes, and provide water and toilets to local schools.

This year, we plan to expand the district development model to 23 new districts, drawing on lessons from the three pilot districts – OR Tambo District Municipality, Ethekwini and Waterberg District Municipality.

To strengthen the capacity of the state and increase accountability, I will be signing performance agreements with all Ministers before the end of this month.

These agreements – which are based on the targets contained in the Medium-Term Strategic Framework – will be made public so that the people of South Africa can hold those who they elected into office to account.

We see these performance agreements as the cornerstone of a new culture of transparency and accountability, where those who are given the responsibility to serve – whether as elected office bearers or public servants – do what is expected of them.

It is a culture where corruption, nepotism and patronage are not tolerated, and action is taken against those who abuse their power or steal public money.

Since I took office, we have built capacity in the Presidency and elsewhere in the state to fast-track progress on a clear list of urgent reforms.

We have established the Project Management Office, the Infrastructure and Investment Unit and the Policy and Research Services to address obstacles to reform and improve government delivery.

These units are working closely with the Presidential Infrastructure Coordinating Commission, InvestSA and the Ease of Doing Business Task Team to remove impediments to investment and growth and ensure that government demonstrates visible progress quickly.

With an efficient and capable machinery now in place at the centre of government, we will focus on the most urgent reforms and intervene where necessary to ensure implementation.

Fellow South Africans,

We find ourselves at a decisive moment in our history.

It is a time of great difficulty and doubt, but also a time laden with great opportunities.

Over the last two years, we have worked together to build a foundation for progress.

Now is the time for us to build on that foundation, to unite, to work, to perservere.

We will not surrender our future to doubt, or despair, or division.

We will continue our onward march to freedom.

We will embrace change.

We will cherish life.

We will fear nothing.

As we do so, we will recall the inspired lyrics of one of South Africa’s most treasured musicians, uBab Joseph Shabalala, the founder of Ladysmith Black Mambazo, whose passing we mourn this week.

Written in a different era, his words still ring true:

“We may face high mountains,
Must cross rough seas,
We must take our place in history,
And live with dignity,
As we climb to reach our destiny
A new age has begun.”

I thank you.

Banks caught amid EWC disaster

The proposed change to the Constitution to allow expropriation without compensation (EWC) that is set to serve before Parliament in the current sitting, is bound to have a huge impact on banks, the financial system in general and the economy overall.

It will hit the very foundation on which any successful economy is built: that of private property rights.

While most people believe that economic debate is the domain for economists to talk about figures, percentages and ratios and produce incomprehensible graphs, the current debate will quickly prove the reality of how economic principles affect people.

We can sum up the impact of the proposed Draft Constitutional Eighteenth Amendment Bill of 2019 that will legalise EWC in three questions:

  • Will anybody keep paying their mortgage bonds if government takes their property without any payment?
  • How can banks enforce payment of a bond if the underlying property is taken?
  • How will it affect people?

Banks are caught in the middle of this disaster and they have no way out.

On the one hand, bankers realise that it is unreasonable and unfair to expect borrowers to keep paying bonds if government takes away what usually is a lender’s biggest capital asset. On the other, banks have a responsibility towards their depositors.

In the case of a successful farm – where the seed of EWC was originally planted – the suddenly-unemployed farmer will not have the ability to repay the bond or any other debt associated with his farming business, or to pay his credit card. The farmer will be rendered bankrupt when he still owes the debt intact, but no longer owns the asset.

The same goes for any other business owner or household, because the current draft legislation to change the Constitution to enable EWC has changed significantly in a few key aspects. Early talks of EWC referred to the redistribution of land, with the focus on agricultural land.

The draft bill now refers to property, which includes any improvements and buildings on a farm.

The draft bill also paves the way to effectively wipe off the table the possibility that farmers, or anybody else, will be compensated for millions of rands worth of improvements and infrastructure on land.

The Institute of Race Relation says in an analysis of the draft legislation that the reference to “property” would also include improvements such as houses, office blocks, shopping centres, factories, hotels, schools and hospitals. “EWC will allow government to take away your property and leave SA poorer and hungrier,” says the IRR.

Government is pushing for more power to decide the extent of EWC. Previously, a clause in the draft bill would have let let courts decide in which instances EWC would be enacted. The court had to decide in what instances property and any improve thereon could be expropriated without payment.

The IRR says the bill now makes provision for six instances in which no compensation is necessary, as well as a new proposal that new instances can be added by way of new statutes to the bill. Any new statute would only require a simple majority in Parliament to be enacted.

“The ANC has now further undermined the public participation process by declaring that the draft bill must be amended to give the power to decide on compensation to the executive, rather than the courts,” according to the IRR analysis.

The banks are fully aware of the situation, and scared.

Silence from banks

None of the commercial banks were willing to answer Moneyweb’s straight question of what they will do if government takes away properties and owners refuse to pay the outstanding bonds. They were not even willing to discuss the simpler question of the current procedure when dealing with mortgage bond arrears.

Absa ignored Moneyweb’s specific questions and responded by way of its media relations department with a short statement: “The parliamentary process to amend Section 25 of the Constitution is an on-going process. We cannot comment at this stage on the matter. We will focus our attention on making our contribution to parliament when the opportunity arises”.

Other banks did not answer the questions, referring Moneyweb to the Banking Association of South Africa (Basa). Bongane Sibanyoni, head of regulatory advocacy and policy at Nedbank, says that it’s currently participating in a process to comment through Basa and other business forums on the draft amendments to the Constitution.

“Until there’s further clarity on this process, it is business as usual at Nedbank. We continue to assess and grant new mortgage loans as per our usual rules and processes. Bond repayments, which are the subject of a contractual agreement, remain due and payable,” says Sibanyoni.

Basa promised answers as soon as its executives all had an input. Ironically, Basa’s executive committee comprises individual bank executives. A few days passed and no response was received.

Government business

Nobody can really blame the banks for their reluctance to take a hard stand. Banks get a lot of business from the different levels of government and parastatals. Government uses bank accounts, makes loans and deposits cash. Government, to a large extend, issues bank licences and makes the rules for banking in SA.

Government is also the single largest employer in SA and all its employees have bank accounts, hire purchase agreements and even bonds – without suggesting that a delay of one or two days in salary payments to a specific bank might entice employees to move to a friendlier bank or that such a delay is even possible if a bank gets too critical.

FNB says that it continues to monitor the developments on land reform. “The bank is actively participating in the ongoing constitutional review process through Basa as part of the broader industry.

“The SA government has assured the country that the implementation of land reform will consider the impact on the economy, property rights and job and food security. Therefore, we remain optimistic that the process will be managed in a responsible [way],” says FNB.

Unfortunately, there is no guarantee that the majority of politicians understand basic economic principles and the effect of land grabs on banks and the economy.

Far-reaching effects

Reserve Bank figures – based on compulsory monthly reports from all registered banks doing business in SA – show that total mortgage bonds amounted to R1 397 billion at the end of January. It includes farms and commercial, industrial and residential properties. Commercial banks has extended another R1 billion to the Land Bank, shown separately in the Reserve Bank’s figures.

If only 5% of the underlying properties are affected by EWC, capital to the value of nearly R70 billion simply disappears. After setting a precedent, it can be argued that the total value of all the outstanding bonds reverts to zero.

The effect on individual banks is equally devastating. As an example, FirstRand’s latest interim results shows that FNB had outstanding mortgage bonds of R217 billion at the end of June 2019. This compares with FirstRand group’s total shareholders capital of R145 billion at the end of June.

Note than there are more mortgages in its Rand Merchant Bank division.

FirstRand has huge assets, but also huge liabilities. The same goes for all the other banks. The biggest of all banks’ liabilities is money owned to depositors, as banks are in the business of taking in deposits and lending out the exact same money to borrowers.

The walking trail is fairly straight from people refusing or unable to pay mortgages to depositors losing their money.

The current system of long-term loans secured by mortgage bonds on property works well, if brutally painful to someone who falls behind with their bond repayments. In short, the bank starts legal action to attach the property and sells it to somebody else to recover its depositors’ money.

The pending EWC legislation might render this procedure obsolete. Courts are mandated to be just and fair and the contractual obligation in terms of the bond agreement of the original property owner must be considered against the unfairness of expropriation in a court ruling.

EWC is bound to leave banks in the middle of the mess.

Politicians don’t realise that the economy is actually about people, where expectations and confidence shape the future.

Some people will hold back a few months before buying a new house or car; a few developers might hold back on planning a new development; and a few farmers might decide to forgo the cost of planting a bigger crop or raising more chickens. A foreign firm might delay investment in SA.

A little makes a big difference when planning any economic activity, as the difference between a GDP growth of 0.5% per annum and 1.5% illustrates when people reduced their spending and production plans by a mere 1%.

SA’s reform window about to slam shut – IMF, World Bank

Any politician worth his salt won’t pick a fight when the odds are stacked against him. Which is the dilemma facing President Cyril Ramaphosa as the deep roots of the parasitic Zuptoid decade and crippling party policies see him choosing party unity above our (failing) State. This is a sobering story reflecting how global institutions which influence our future are now beating the drums deafeningly, signalling the urgency with which Ramaphosa has to take hard decisions – with seismic implications for his fractured party. When your own finance minister says it’s ‘game over,’ unless there’s deep infrastructural reform, in addition to what you’re about to read below, then Ramaphosa’s impending State of the Nation speech becomes pivotal. The biggest danger in 10 days’ time will be if our not-entirely-fearless leader echoes existing pledges to ignite growth, citing SOE and NPA management changes, plus investment – without taking on his internal party faction and revising growth-toxic ANC policies. His supporters will say anything unexpected would be political suicide, but you could argue over whether he’d be risking a fatal leap or potentially fatal slow poison. At least with slow poison there’s a chance of a death-defying antidote. Optimists are waiting to exhale… – Chris Bateman

World to Ramaphosa: Do something fast to save South Africa

By Prinesha Naidoo and Mike Cohen

(Bloomberg) – Pressure is mounting on South African President Cyril Ramaphosa to stabilise the government’s shaky finances and rescue an economy teetering on the brink of recession.

Since taking office in February last year, Ramaphosa has repeatedly pledged to ignite growth and reverse nine years of misrule by his predecessor Jacob Zuma. His ability to undertake reforms has been constrained by a ruling party faction that wants the government to play a greater role in the economy and by powerful labor unions opposed to state-spending and job cuts.

Warnings that South Africa is on a precipice have come from the International Monetary Fund, the World Bank, business executives and economists from Absa Bank Ltd. and other lenders. Even Tito Mboweni, Ramaphosa’s finance minister, has taken to Twitter to vent his frustration at the slow pace of reform.

Here are samples of the growing drumbeat:

The IMF

When Ramaphosa took office, “market expectations for growth-enhancing reforms were high,” the fund said in a Jan. 30 statement. “However, sluggish implementation and persistent policy uncertainty did not validate those expectations, and business confidence is now close to all-time lows.”

The World Bank

“Weak growth momentum has reflected an array of overlapping constraints,” the lender said Jan. 8. “These include persistent policy uncertainty, constrained fiscal space, subdued business confidence, infrastructure bottlenecks – especially in electricity supply – and weakening external demand, particularly from the euro area and China.”

Absa Economists Peter Worthington, Miyelani Maluleke

“In addition to clean governance, South Africa needs better economic policies in the form of structural reforms across a broad set of activities and sectors,” the economists said Jan. 20. “Frustrations continue to mount about a perceived slow pace of change.”

Sibanye Gold Chief Executive Officer Neal Froneman

“I know that our president inherited a very difficult situation, but to be clear and blunt he also hasn’t made some of the difficult decisions that need to be made,” Froneman said in an interview Jan. 28. “It’s time government acted in the national interest and not in the interest of the one party.”

Finance Minister Tito Mboweni

“If you cannot effect deep structural economic reforms, then game over!” Mboweni said on his Twitter account Jan. 10. “Structural economic reforms inertia is frustrating. Let’s get on with it. Movement!! Many steps at a time!!”

Ramaphosa says he’s committed to getting the economy on track, clamping down on graft and making the government more efficient. He can point to some progress since taking office, including appointing a new chief prosecutor and head of the national tax agency, and replacing the boards and management of several state companies. He’s also embarked on a drive to attract $100 billion in new investment over five years, with a substantial portion of that already committed.

Political analyst Ralph Mathekga cautions that Ramaphosa hasn’t gone far enough, largely because he is pandering to competing interests within the African National Congress, which has ruled South Africa for 25 years.

“Unfortunately, the president is going to fail everyone equitably if he doesn’t take a position. He is seen as not to be willing to pick a fight,” Mathekga said. “I think we are having a presidency here that is resigning itself to being a crisis manager instead of a reformer.”

Ramaphosa’s office didn’t respond to a request for comment. The government is committed to fostering economic growthcreating jobs, turning state companies around and ensuring it appoints suitably qualified people, he told leaders of the ruling party in Pretoria on Jan. 20.

“We have been frank about the extent of the difficulties in our country,” Ramaphosa said. “We acknowledged where we have fallen short in the implementation of our policies and have devised realistic measures to address these.”

Article by BizzNews

Government has published a major new land policy for South Africa – here’s what you need to know

The Department of Rural Development and Land Reform has published a new ‘land donations policy’, allowing groups to donate property to speed up the land reform process.

Released for public comment on Friday (7 February), the document states that donations should be expedited from large institutional landowners. This includes agri-business, mining companies, financial institutions, churches and other groups.

“Specific procedures should be established to respond to offers of donations so that the department becomes responsible and expedites acquisition and transfer of the donated land,” the policy states.

“The state will also undertake an assessment of all state and public land that is suitable and available for distribution (donation) to the prioritised beneficiaries for agricultural and secondary agricultural production, residential and human settlement, commonage and industrial development.”

The policy accounts for donors who have preselected beneficiaries and land which will simply be given to the government to redistribute.

In cases where there are no identified beneficiaries, the farm dwellers, labour tenants, small families and cooperative farmers, the landless in informal settlements, women, youth, and persons with disabilities will be prioritised, the policy states.

The donation process

The state will register properties and a due diligence process will follow, the policy states.

This process will include assessments in terms of land suitability and the extent of the state’s financial, administrative and technical responsibilities for such land.

This will also involve land rights enquiries, farm/property assessments and special technical attention given to the donations concerned.

The policy outlines the different steps of the donation process as follows:

  • Donated land coming with pre-selected beneficiaries – Where land is made available for donation and comes with preselected beneficiaries, it will be prioritised for disposal. Such land will follow the due process but will not be advertised for allocation and will be tabled directly at the appropriate selection and allocation panel.
  • Where the land has no identified beneficiaries – Where the donated land has no identified beneficiaries, it will be prepared for the beneficiaries who have been prioritised by the Beneficiary Selection and Land Allocation Panel. Due diligence will also be required to check whether there is a claim to the land in terms of the Restitution of Land Rights Act. Where required, an added assessment will be undertaken in terms of a rating methodology and software developed, to rank strategically located land-based on natural resources, availability of infrastructure and proximity to markets.
  • Land donated primarily for agriculture or for human settlement purposes – All donated land that is agricultural and cleared, will be registered and logged into the Agricultural Land Holdings Account. Such land will be advertised for selected beneficiaries to apply. Where the donated land is for human settlements, it will be processed via the Department of Human Settlements, Water and Sanitation.
  • Valuation of donated land – The valuation of the donated land will be done after the above-mentioned assessments have been conducted.
  • Transfer of donated land –  All land acquired for donation will be subjected to the normal transfer process, which will include the appointment of conveyances, the transfer of the properties, property management and land disposals to the identified beneficiaries. This will be in the form the signing of lease agreements and/or hand over of the properties in freehold form, mainly to farm workers, labour tenants, restitution claimants and other designated groups. In certain instances, a reversionary right to the state will apply to such land.Articel by BusinessTech

Throwing the little guy under the EWC bus – Frans Cronjé

This sober, rational – and frightening – analysis by the Institute of Race Relations is a classic illustration of the ‘boiled frog’ syndrome where South African land owners get lulled into a sense of false security by banks eager to please ruling politicians. It’s among many examples of socialist command-and-control policy-creep that threatens to push this country beyond economic viability. Banks and many big businesses seem to have grown from vigorous tadpoles thriving in lukewarm water to inert, full-grown frogs in fast-warming water, and the IRR is screaming at them to wake up and get out. Before they collapse under the weight of unpaid loans as the latest EWC draft bill gives ANC cadres power to expropriate without any compensation, leaving land owners (urban and rural) without ready cash to pay back outstanding loans. No prizes for guessing what will happen to the property market. An example of the seemingly hypnotised state of lenders is the public statement by SA Home Loans which shows a naive trust in the EFF-led EWC. It says the rights of all parties will be considered in any expropriation processes and that it has no reason to believe that residential properties will be affected. Not at all so, says the IRR. Read on… Story courtesy of The Daily Friend. – Chris Bateman

Don’t throw the little guy under the EWC bus

By Frans Cronjé*

Last week, mortgage lending firm SA Home Loans took to social media to state that in the event of a client’s property being expropriated, the client would remain liable to settle the outstanding mortgage balance. Our enquiries suggest that firms across the financial services sector are taking a similar line. This underscores the deeply troubling moral, legal, and financial ramifications of the government’s expropriation without compensation (EWC) proposals.

This is, verbatim, what SA Home Loans had to say on Twitter:

In the event of expropriation, the bond payments would still remain owing to the mortgage lender. However, we understand that the rights of all parties will be considered in any expropriation processes and have no reason to believe that residential properties will be affected.

Break that statement down into its component parts and consider them one at a time.

Whether bondholders could or should refund lenders in the event of an expropriation is becoming an area of contestation. The current draft of the Expropriation Bill of 2019 – which is likely to be enacted once the government has its EWC constitutional amendment in the bag – says that the mortgage bond will automatically be terminated on the date of expropriation, when ownership passes to the state. This means that the lender (a bank, for instance) can no longer foreclose on the property now that it is owned by the government.

However, the loan secured by the mortgage does not come to an end. Instead, the usual rule is that the expropriated owner must still pay the loan off to the bank. This, however, may be difficult for the owner to do where compensation is minimal and, in particular, where EWC applies.

If some compensation is payable, the Expropriation Bill directs that this should be apportioned between the borrower and his or her bank, according to the agreement reached between them. (If no agreement has been reached, the compensation will be paid to the Master of the High Court until such time as the dispute has been resolved.)

A similar situation applies under the current Expropriation Act of 1975, which also provides that the mortgage bond comes to an end on the date of expropriation. The critical difference, however, is that the compensation payable under the Act is market value, plus a further solatium. This amount will generally exceed the outstanding loan, making it relatively easy for the expropriated owner to pay what he or she still owes.

However, if EWC applies – or if the compensation paid is far below the amount of the outstanding loan – then many difficult issues arise.

The first complex question is whether, in the EWC situation, it is morally justified to compel the expropriated owner to pay the outstanding debt on the property that has been confiscated from him or her.

Expropriation is being held up by politicians, the government, policymakers and activists as a ‘social good’ and as a key means of bringing about redress, prosperity, and social cohesion, among other things. President Cyril Ramaphosa once suggested that EWC would bring about a Garden of Eden. Some business leaders have also gone on the record to say that they support the principle of expropriation.

If expropriation is a social good, and the country as a whole is thus set to benefit from it, then whatever costs are attached to any expropriation should be carried by the broader society and not by expropriated individuals. Hence, the costs of loans that remain outstanding following EWC expropriations should be carried by taxpayers.

At the same time, some politicians and activists argue that it is wrong to expect compensation to be paid for expropriated property as all land was improperly acquired – and has therefore improperly benefited those who have dealt in it. But that argument would apply just as much to banks and their shareholders as it does to individual home owners.

Political considerations are relevant, too. Some banks and other financial services institutions, including their directors, were instrumental in helping the Ramaphosa administration into power through their financial support, lobbying, and related activism. They strongly endorsed Mr Ramaphosa when he became president in February 2018, and repeatedly depicted him as a committed reformer who could be trusted to put the country on the right track.

The ‘Save South Africa’, ‘Vote Cyril’, ‘Make Cyril Strong’, and ‘CR17’ campaigns, supported and financed by many influential figures in business and their representatives, were probably sufficiently persuasive among middle-class voters to push the combined African National Congress (ANC)/Economic Freedom Fighters (EFF) share of the vote above the two-thirds level needed to force the EWC constitutional amendment through the National Assembly (the ANC/EFF collective vote came to stand at 68.3%). If the combined ANC/EFF vote had remained below two thirds, Mr Ramaphosa would still have been elected president – but the threat to property rights would have been much reduced. Disturbingly, as late as 2019, many businesses, their directors, and the broader organised business community pressed ahead with campaigns for a bigger ANC share of the vote, what became popular as the ‘mandate threshold’ argument, even though the EWC risk was already writ large and the IRR and other organisations were loudly flagging the dangers of a two-thirds majority for the ANC and EFF. For those same institutions and people to stand back now and say that their clients alone must carry the EWC costs seems particularly unfair.

This brings us to the second part of the SA Home Loans’ statement: ‘that the interests of all parties will be considered’. Legally, this is very much what is envisaged under the 2019 Expropriation Bill. It also echoes what Section 25 of the Constitution presently requires.

Section 25 now stipulates that the expropriation of property must be accompanied by the payment of ‘just and equitable’ compensation. The compensation payable must also strike ‘an equitable balance’ between the public interest in land reform and the interests of the expropriated owner. The section also gives the courts the task of deciding on the amount of compensation in the light of these criteria. However, the ANC now wants to exclude the courts from such decision-making. It will presumably seek to change the Draft Constitution Eighteenth Amendment Bill of 2019 – which is now open for public comment until 29 February – to achieve this.

The ANC is adept at using policy ‘incrementalism’ or policy ‘creep’ to achieve its long-term goals. It is particularly skilled at stepping back at times from demands it has made in order to lull society into a false sense of security. Before long, however, the organisation will renew that same demand, or shift to another that is equally or more damaging.

We in the IRR have tracked this process with regards to EWC for over a decade and the pattern is unmistakable. What the ANC’s latest demand clearly shows is that the ruling party is pushing for a new property rights dispensation in which officials (its deployed cadres) will decide who has access to property and on what terms. The present ‘just and equitable’ regime is thus on the way out. So, too, is the current emphasis on the need to balance societal interests against those of affected individuals.

A third stance taken by SA Home Loans is that they have no reason to believe that residential properties will be seized. This suggests that they are out of touch on EWC developments.

For some time now, various political leaders have said that land reform efforts will be focused on both rural and urban areas. Many of these leaders are in the EFF, but the EFF is ideologically allied to the ANC and often gives voice to goals the ANC in fact shares. A formal ANC/EFF alliance could also be concluded over the next decade – and discussions about this are ongoing. Consider the EFF as the sharp tip of the EWC spear, with the ‘more moderate’ ANC as the shaft. But even that supposed difference is becoming less evident.

That urban homes are in the EWC firing line is also now clear from the wording of the Draft Constitution Amendment Bill. This states that both land ‘and the improvements thereon’ may be expropriated for ‘nil’ compensation. ‘Improvements’ clearly include houses (and other structures) in both rural and urban areas.

Some observers continue to maintain that land reform is restricted to rural property, but this is simply not the case, as many politicians and policy makers have made clear with reference to urban housing inequalities and shortages. The government has also been very critical of what it terms a ‘lack of transformation’ in the property sector generally and catching urban property in the broader EWC net will provide the government and the ANC with significant leverage over all players in the urban property industry, from developers to owners, banks, other lenders, estate agents, and insurers. Consider further how many state-capture suspects remain in that government and the dots to where this may lead connect themselves.

Let us return to SA Home Loans’ position that their clients must go on servicing bonds for many years to come for assets they no longer own. Two points are central here. The first is that if banks do not recoup the money they have loaned, they will betray their fiduciary obligations to depositors and their businesses are likely to collapse. Let banks and other mortgage lenders start going under and you precipitate a chain of events that may culminate in a collapse of the entire banking sector. Second, the agreements that banks have signed with their clients must retain their binding legal force if the rule of law is not also to collapse.

At the same time, financial institutions are operating in an economy in which regulators have significant discretionary powers. Many thus understandably fear the consequences of getting on the wrong side of the political equation. But if any of them think they can circumvent all these pressures by throwing their clients under the EWC bus, they are quite wrong.

Banks and other lending institutions will, of course, battle to survive if substantial debts by many expropriated owners remain unpaid. However, they also cannot realistically put debt collectors on to those hapless individuals who fall victim to EWC. Expropriated property owners will be deeply traumatised and in severe financial distress. Many will have been financially ruined. They’re not just going to go back to work the next morning, move into new homes, and carry on with their lives as if nothing had happened.

If some expropriated owners still possess other assets, will SA Home Loans try to seize these – in a wave of secondary asset seizures? Imagine the headline, ‘SA lender forces family onto the streets’, with accompanying pictures of hapless children, suitcases in hand, with nowhere to go. Yet this is exactly the situation that SA Home Loans and other lenders will face.

Secondary seizures of this kind will also tip the economy into even deeper distress and send asset values plummeting across the economy. Who would ever again buy property in South Africa? Who would take out a mortgage loan? The property market would soon be in freefall, with owners seeking to cash out and salvage what money they could. Lenders perhaps have yet to understand the enormity of the catastrophe that is likely to unfold.

Given these many troubling legal, moral, and practical realities, SA Home Loans would have done better to warn against the enormous risks that EWC poses to the entire society; stress its own commitment to publicly opposing all pending EWC laws; emphasize its willingness, in the event of its clients facing the uncompensated expropriation of the properties they own, to do all in its power to recoup the amount of their outstanding loans from the government of South Africa – the institution that has brought about the crisis; and, lastly, to admit what is now apparent, that should the constitutional amendment and Expropriation Bill be passed by Parliament as the ANC envisages then South Africa will come to stand at the edge of an abyss from which its economy may not recover for a very long time.

  • Frans Cronjé was educated at St John’s College in Houghton and holds a PHD in scenario planning. He has been at the IRR for 15 years and established its Centre for Risk Analysis as a scenario focused research unit servicing the strategic intelligence needs of corporate and government clients. It uses deep-dive data analysis and first hand political and policy information to advise groups with interests in South Africa on the likely long term economic, social, and political evolution of the country. He has advised several hundred South African corporations, foreign investors, and policy shapers. He is the author of two books on South Africa’s future and scenarios from those books have been presented to an estimated 30 000 people. He writes a weekly column for Rapport and teaches scenario based strategy at the business school of the University of the Free State.
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    article by BizNews

The second (and third) waves of state capture are coming

The first wave of state capture had its origins in the cadre deployment and transformation policies of the African National Congress (ANC) which degenerated into the looting of state institutions. These policies allowed the party, through the government, extraordinary regulatory and administrative powers and deployed cadres just could not withstand dipping into the public purse.

A senior ANC leader once told me that what the party desired was a model of ‘sustainable wealth extraction’ in which the party, through the state, could draw wealth out of the country without driving investment out of the country – but bemoaned that greed and infighting among cadres was so great that they could not help but destroy the institutions they were deployed to lead.

The consequences can be seen in Eskom, in creaking infrastructure, failing municipalities, toxic rivers, dangerous hospitals, and corrupt policing. They can be  read in the testimony to the Zondo commission, the Gupta leaks, and the reports of the Auditor General. As Minister of Public Enterprises Pravin Gordhan is reported to have said, ‘If you thought it was bad, it was worse.’

But I am afraid that if the first wave of state capture related to the destruction of public institutions and infrastructure, the second (and later) waves may relate to the attempts at their rebuilding.

The formulae for those subsequent waves will have three components. The first will be large amounts of corporate, pension, and development financing being made available for rebuilding. The second will be the nominal ‘privatization’ or private contracting of firms to rebuild that which has been broken. The third will be to apply the above via the same regulatory and administrative mechanisms that led to the first wave of state capture.

Here are some practical examples:

The energy parastatal/municipal water works/public hospital/mining industry is failing. South Africa suffers an electricity/water/healthcare/mining crisis. Something must be done. New generating capacity/refurbished infrastructure/better healthcare administration/new mining investment must be brought on line to save the country. Large amounts of development financing must be raised, with business, government, labour, and the international community (especially under wave three) working closely together. Collectively they will agree that the ‘private sector’, or at least private-public partnerships, must do the delivery as the capacity of the state is so eroded. Calls will go out for applications from suitably qualified firms to do the work or lead these partnerships. But these firms and the contracts they win will be surveyed by the same political leadership and through the same prisms of cadre deployment and transformation that led to the first wave of state capture.

We at the Institute of Race Relations (IRR) think transformation is very important in the sense of introducing effective empowerment and affirmative action policies that identify people on the grounds of socio-economic disadvantage and help them into the middle classes. But what passes as transformation in the government and the ANC is not that but rather a racial nationalist policy that acts as a fig leaf to conceal corruption, malfeasance, and the looting of public funds by painting any critic of the policy as racist.

Put it quite bluntly; you can grow rich off looting Eskom into the ground, and then win the financing and tenders to supply the renewable energy that South Africa needs to keep the lights on. When anyone questions what is going on you can again throw the racism accusation at them (and in the case of renewable energy) the climate-change denialist accusation.

What ends up happening is that, having exhausted the resources available from public institutions, the ANC’s political elite pivot under the guise of privatization and reconstruction to keep the cash taps flowing. State capture is ongoing – it is only the business and financial model that has changed. If you have any doubt think about what has happened at South African Airways (SAA) where banks and a development financing institution have stumped up several billion rand to keep the cash flowing without which that fragile cadre-deployment house of cards would already have come tumbling down. When asked why they did it, the development bank said that if they had not then SAA would have folded – not the basis of sound banking or investment policy.

An implication of our ‘waves of state capture’ thesis is that it is too early now to speak of public-private partnerships, raising development finance, and rebuilding, and will remain so as long as the current political elite that looted the country is still in charge.

The first cycle of state capture lasted almost twenty years before running out of cash in the aftermath of the 2009 financial crisis and the frenzied looting that followed. If the looting had been done in moderation it might have lasted longer. The second may not last as long but given the quantum of private funds held within the country, including pension funds, it could last for many years. The third wave will come after those private funds are exhausted and international funding agencies are forced to step in.

The IRR first warned about the implications of cadre deployment and what is today called state capture almost twenty years ago. For much of the time that followed, the warnings were ignored or loudly countered. It is important to say that because this is not our first rodeo and the methods and tools we used to make that call 20 years ago are the same as those that allow us to flag the lining up of state capture ducks all over again.

If you ask how these next waves can be avoided, the most compelling answer now is the complete defeat of the ANC so that it is out of government. Short of such an outcome, and short of a sincere effort to jail the corrupt in its ranks, our assessment is ever more that the ANC in government will repeat the cycle of state capture time and again, simply changing the source of finance ahead of each new wave.

Twenty years ago very few influential people were willing to admit, let alone speak out or act against, the dangers inherent in the nexus between cadre deployment, what passes as transformation policy, and the enormous administrative power of the state. Today, equally few seem able to admit that the ANC must be driven out of government to stop the cycle.

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Article by daily Friend and Frans Cronje

The 2020 Budget, an embarrassing display of a policy with no answers. (Opinion)

The 2020 Budget is approaching and by all accounts, we are likely to witness an embarrassing display of a policy with no answers. We have chosen to be popular. We have chosen to “trash capital”.

Let me give you an idea of the knock-on effects when you decide to “trash capital”. What we are doing in South Africa at the macroeconomic level is the equivalent of students burning down libraries because they are unhappy with education policy. For those of you, close to national accounts and budgets, bear with me, I have rounded and dumbed down the numbers to make it easier to understand.

First some concepts:

A Nations’s capital includes the land, the buildings, the stock, the financial assets. In the case of South Africa about R 25 Trillion. GDP is the total amount of our turnover – our output in South Africa is about R4,5 Trn. The Capital/Output ratio is the amount of capital required to generate a certain output, in South Africa about 5 to 1. The employed labor force is directly associated with the GDP and capital, in the case of South Africa about 15 million people. The tax collected in South Africa is directly related to GDP, around 26%.

So working it backward in South Africa if we want to keep our new youth entering the market at the rate of 500,000 per year and we wish to keep a growing portfolio of social services, we need to increase GDP by around 5% per year or increase capital by about R 1 Trn a year. The simplest way to do that is to have a rising property market that creates a tide that lifts all ships. The richest countries own the most valuable properties. The most fluid working capital flows are underscored by property.

Government can fiddle a bit but you cannot really escape these numbers. More jobs require more capital. Less capital available means fewer jobs. Lower GDP, means less tax less money for social services, more burning of libraries. These are not iron clad ratios like gravity or the melting point of water, but they are certainly strong forces that cannot be ignored.

Now take the situation where our President Cyril Rhamaphosa, his Finance Minister Tito Mboweni and the economic cluster – including his advisory panel of esteemed economists, take a “Trump- First” style approach to Expropriation Without Compensation. Understand that all these politicians and all these esteemed economists really, really like their jobs and the trappings and status that come with it. In South Africa, it is very unpopular to speak out against EWC. I can understand this from people that do not understand economics, but for people who do, the silence goes beyond cowardice and lands squarely in the lap of narrow short-sighted self -interest.

Go through the numbers:

The ANC calls for Expropriation without Compensation and the President, Finance Minister, and the esteemed economists, toyi-toyi along with the masses. The crowds love the beat and elect them for another term. No one bothers to notice that the property market drops by 20% and wipes over R1,5 Trn off our Capital base. No one wants to connect the dots that this causes a drop of GDP of over R 300 Bn and Job losses north of one 1 Million Jobs! No one can figure out why tax targets come in R 100 Million lower. No one figures out why SOEs are failing. Duh?

A man cannot understand a logical argument when his wages depend on not understanding it. The dancing continues and lunch is served to the guests – its avo and prawns. Cocktails follow and more dancing. Outside it is getting darker.

The fastest way (instantaneous – can happen before the end of February) to inject R 1,5 Trn into the South African Economy is to revoke EWC!

Wait – you actually have to do more – you have to give assurances to the landowners that this was a mistake and that it is good and safe to invest in South Africa. Bring your capital onshore, build your warehouses and factories and fill them with stock. Plant blueberries, avo and olive seeds that will only yield crops in five years’ time. Drill new mine shafts. Build dams on your farms, you can keep the water. Assure the landowners that if they are successful we will not overtax them. Commit to dropping the Tax to GDP ratio. The profits will always be theirs and they will have a Government that will guarantee this. Then take the R 100 Bn increased taxes that will certainly follow and use that to buy land for the poor using tried and tested market mechanisms.

The land Issue is very important. Trashing capital does not solve it. It does exactly the opposite, it destroys land value and burns the libraries.

President Rhamaphosa, Tito Mboweni and every one of those esteemed economists that take their paychecks this month, should be ashamed for putting their short term self-interest before what is good for South Africa – popular or not.

Article by Philip Copeman

#copeman academy Tito Mboweni Mzwanele Nyhontso