News in South Africa 13th May:
1. Economy cannot survive another lockdown:
Businesses have warned that South Africa’s economy cannot afford stricter lockdown measures, after reports of health minister Dr Zweli Mkhize confirming that the country is “For all intents and purposes…in a third-wave”.
The minister this week remarked that several areas in the country were seeing rising numbers of infection, while medical experts have called for a tighter lockdown to slow down the spread.
However, economists say that while a third wave is concerning, businesses and the economy are not in any position to take on more restrictions, and that government doesn’t have the money to help them through it.
“We’re deeply concerned that the advent of a third wave as it is occurring at the onset of winter is going to present a very real risk to people’s health… and our healthcare systems, but we can’t in the economy afford now to see any lockdown measures increased over adjusted Level 1.” said Martin Kingston, leader of the Economic Interventions Workgroup at Business for South Africa (B4SA).
“The economy is not in a position where we can afford such restrictions and government no longer has any fiscal flexibility to provide the type of support that it has provided over the past year… UIF and Ters have effectively run out…” stated Kingston.
2. Naspers could decline over share swap:
The complicated planned share swap between Naspers and its European spinoff Prosus will see a huge decline in the JSE value of Naspers, while it maintains control of Prosus from South Africa.
Prosus is redoubling its effort to narrow the valuation gap between itself and a giant $229 billion (R3 trillion) stake in Tencent Holdings, unveiling a complex share swap and a further share buyback.
The Dutch-listed unit’s parent Naspers dominates the Johannesburg stock market, limiting the amount of its shares investors can own due to local fund ownership rules, meaning its market value has long been less than its holding in Tencent.
Prosus will issue more stock, giving it a 49.5% stake in Naspers and increasing its free float to over $100 billion, the parent company said in a statement on Wednesday. By asking investors to swap Naspers stock with new Prosus shares, the deal will aim to attract a wider range of investors to its European listing and narrow the discount.
Prosus will also launch a further $5 billion share buyback once the share-swap deal is complete, Chief Financial Officer Basil Sgourdos said in an interview with Bloomberg.
Judging from the share price reaction, Naspers and Prosus shareholders don’t know quite what to think about the elaborate scheme that invites Naspers shareholders to swap their Naspers shares for Prosus shares.
The price of the companies’ shares rose just 3.1% and 2.7%, respectively, as news of the offer broke on Wednesday morning.
The proposed transaction has already been approved by the South African Reserve Bank but requires the approval of Prosus shareholders. It is expected to be concluded by the third quarter of this year.
3. SA economy recovering:
The South African economy is seeing a massive bounceback according to data from BankservAfrica.
According to the BankservAfrica Economic Transaction Index (Beti), the country recorded its “highest and fastest growth level ever” in April when it grew 25.9% in real terms on a year-on-year basis.
Though impressive, this rise does not tell the whole story, as the Beti had fallen 15.3% in the corresponding period in 2020. Back then, SA was going through the hard lockdown, which resulted in large parts of the economy shutting down for weeks.
Beti measures monthly transactions paid into the South African National Payments System, and in April there were 109 million transactions valued at R1.03 trillion.
By comparison, in April 2020 there were 90 million transactions valued at R679 billion. The steepness of the drop-off can be seen in the number of transactions in March 2020 being 103 million valued at R819 billion.
BankservAfrica notes that the record rise is off a low base.
4. Insurance market scandal:
South Africa’s insurance market has been rocked by a scandal perpetrated by Insure Group Managers, where the company’s directors – intermediaries between insurance companies and customers – effectively took R1.7 billion in premiums meant to go to the insurers, and instead invested it elsewhere on the sly in a bid to make ‘secret profit’.
It’s a scandal that has largely remained out of the headlines until now, even though insurance giants Santam, Hollard, Old Mutual and Guardrisk have, between them, lost R944-million as a result. But behind closed doors, it has rocked the industry, rattled the regulators, and led to the dramatis personae – Charl Cilliers and Diane Burns, directors of Insure Group Managers – being debarred as financial service providers, based on their lack of honesty and integrity.
Both Cilliers and Burns deny all culpability for what happened. But the facts paint a different picture. The story here is that Insure Group Managers, an intermediary which collected insurance premiums from customers, which it was meant to pay over to the insurance companies, instead secretly invested that cash in its own very illiquid, high-risk and ultimately loss-making assets.
These “investments” included a mining rehabilitation plant in Gauteng, a deepwater port in Mozambique, a property portfolio in KwaZulu-Natal, and a stake in an asset management company. It also used the cash to build its own business, by financing brokers and intermediaries.
But not only didn’t Insure tell the insurers, to whom it was meant to pay the premiums, that it was using their money for a different purpose – its conduct was also unlawful. The regulator, the Financial Sector Conduct Authority (FSCA), describes it as “tantamount to a misappropriation of the premiums collected”. Industry body Financial Intermediaries Association of Southern Africa (FIA) labels this conduct “illegal”.
Cilliers, as CEO of Insure, is a chartered accountant – an industry that can hardly afford any more bad publicity – while Burns was the “director for strategy and compliance”.
Their goal, according to the FSCA, was to make a “secret profit” without the consent or knowledge of about 45 other insurance companies, who stood to lose out.
5. Whatsapp policy questions answered:
Facebook representatives will appear before Parliament’s Portfolio Committee on Communications and Digital Technologies on 25 May, the DA said in a statement on Wednesday.
Facebook, which also owns Instagram and WhatsApp, will be expected to explain what steps it is taking in tackling harmful misinformation, particularly ahead of the 2021 local government elections, Phumzile van Damme, DA member of the committee, said in a statement.
“Facebook often tailors plans for countries ahead of elections to guard against harmful misinformation. We would like to see the same done for South Africa.”
She said the meeting will also be “the beginning of discussions regarding Facebook paying South African media houses for carrying their content as was recently successfully implemented in Australia”.
The Australian government recently introduced new legislation forcing the tech giants to pay local media companies for using content on their platforms.
A bitter battle erupted, which saw Facebook “switching off” Australian news on its platform for a week. In the end, however, both Facebook and Google announced agreements with Australian media group to pay for their content.