News in South Africa 21st October:

1. Covid-19 cases reach 17-month lows:

South Africa’s new daily confirmed Covid-19 cases – measured as a rolling 7-day average – has dropped to levels last seen in May 2020, before the country experienced its first wave of infection.

Covid-19 cases reach 17-month lows
Image taken by: Anton Uniqueton

South Africa has recorded a daily average of 637 new Covid-19 cases over the past week, down almost 97% from the third wave’s peak in early July. This represents roughly 10.3 new cases for every million people in South Africa, an infection rate last seen in mid-May 2020, less than three months after the country’s first case was detected.

During that second week of May, South Africa was conducting roughly 14,000 tests a today compared to the 27,000 recorded as a rolling 7-day average by 19 October. By Tuesday, the test to positivity rate hovered around 2%, far lower than rates recorded when South Africa exited the first wave in October 2020 and the second wave between March and April.

Fewer than 5,000 people were in hospital with Covid-19 by Tuesday, according to the National Institute for Communicable Diseases (NICD), down around 65% in two months. This drop is also evident in new daily admissions recorded over the past week to the week prior, which has decreased by 18%.

Similarly, new daily confirmed Covid-19 deaths in South Africa, measured as a rolling 7-day average, declined to 35 or 0.58 per million people by Tuesday. This low mortality rate was last seen in early April and, before that, in early June 2020.

And the proportion testing positive (PTP) among tests is now at its lowest point ever, a new report published on Wednesday showed.

South Africa’s average daily infection rate, relative to the population size, is lower than that recorded in North America, South America, Asia, Europe, and Oceania.

On the African continent, South Africa’s confirmed new daily case rate is lower than that recorded in Botswana, Namibia, and Morocco but higher than Ethiopia, Zimbabwe, and Nigeria.

But concerns about South Africa’s fourth Covid-19 wave persist, especially within the context of a slow vaccination rate and upcoming municipal elections which could trigger super spreader events. The next resurgence is expected in December.

2. SARB could hike interest rates:

There is a growing risk that the South African Reserve Bank (SARB) could hike interest rates in November – but economists are still of the view that a hike cycle is only likely to be seen in Q1 2022.

In a research note on Wednesday (20 Wednesday), Nedbank noted that headline inflation edged up slightly in September due to several global factors.

“Concerning factors include global supply chain disruptions and port congestion which have resulted in higher shipping costs. The global oil prices have been shooting through the roof as supplies remain constrained while demand has improved.

“These costs have presented themselves in the surge in producer inflation. Global food inflation has shown no definite signs of abating and will probably also contribute to higher inflation in the near team.

“Over the past week, the rand has gained some ground as risk-on sentiment was buoyed by evidence that the global recovery remains intact. Still, we expect the rand to take some strain once the US Fed begins tapering bond purchases.”

Given these cost-push pressures, Nedbank said that inflation is forecast near 5% for the remainder of the year and the early part of 2022.

However, it warned that the country’s subdued economic recovery would contain upside risks. Once 2020’s low base is entirely out of the picture, inflation will likely ease again, hovering around the 4.5% midpoint of the SARB’s target range, it said.

“Within this context, we still expect interest rates to remain unchanged for the rest of this year, with the hiking cycle expected to start early next year. However, the risk of an interest rate hike in November has increased in recent weeks.”

This was echoed by Sanisha Packirisamy, an economist at Momentum, who noted that contained headline and core inflation, and longer-dated inflation expectations, could allow the Reserve Bank to stave off interest rate hikes until Q1 2022.

“While we cannot rule out the risk of a November hike, the South African Reserve Bank may also be discouraged to raise interest rates too early given the negative effect on sentiment and cyclical growth outcomes,” she said.

3. Petrol price to rise again:

As South Africans grapple with rising fuel prices – and another massive increase on the cards for November – economists say that costs will eventually come down, and there could be a sharp decrease in 2022. This is because international oil prices will eventually stop climbing, as supply will ultimately catch up to demand.

However, in the meantime, prices remain frustratingly high. CPI data published on Thursday showed that fuel prices have increased 20% in the last year.

Rising fuel prices and food prices have driven headline inflation, the latter of which has increased 7% over the last year.

“We started the year with headline inflation at about 3%. It went up as high as 5.2% in May, now we’re at 5%.” said Ettienne le Roux, Chief Economist at Rand Merchant Bank (RMB). He went on to state, “It’s definitely rising, but I don’t think that trajectory will be sustained… We do think that inflation in the second half of next year can actually come down a bit. One important reason for that is because we don’t think oil can continue to go up in a straight line.”

4. POPIA struggles for companies:

SA companies seem to be struggling with the new Protection of Personal Information Act and the management of customer data.

Seldom have a few simple questions elicited such frantic responses. After receiving more than 20 text messages from 10 different companies – all in the space of three weeks – the senders were contacted and asked the same question: Where did you get my telephone number?

It’s a reasonable question but few could respond to it quickly, while some of the answers stretched the new Protection of Personal Information Act (Popia) to the point of breaking the law.

The new legislation gives everyone the right to enquire about how companies use their personal information – and companies are obliged to answer queries, including:

  • Where did you get my contact details?
  • What information do you have about me?
  • Do you share my personal information with third parties?
  • What do you use my personal information for?

Popia became effective from July 2020 and was fully implemented in July 2021 after a grace period of 12 months to give companies time to ensure compliance.

Wendy Tembedza, senior associate at law firm Webber Wentzel, says the spirit and purpose of Popia is, among other things, to protect a person’s right to have a say in how their personal information is used.

“Under Popia, a data subject [person] must be informed of all the ways in which a responsible party [the companies] will use their personal information at the time when the information is collected, or as soon as reasonably possible after collection. If the data subject has not been advised of the potential sale or sharing of their information, any such sale or sharing will in most instances be unlawful.

“Popia has introduced a major shift in how personal information, including contact details on large databases, can be dealt with.

“Essentially, the wholesale commercialisation of contact details has been prohibited due to, in part, the broad definition of personal information which is protected under Popia.”

Tembedza adds that while direct marketing is allowed, companies should ensure that they fully understand their obligations under Popia.

5. Investec implicated in tax fraud:

A massive leak of German prosecutors’ documents has revealed how the investment bank took part in the epic European “cum-ex” scam out of its small Irish office. Approval for the bank’s participation in the schemes, witnesses and documentary evidence suggest, came from head-office in Johannesburg.

A new trove of confidential documents lays bare the shocking extent to which Investec was involved in suspect deals worth hundreds of millions of Euros that resulted in European governments being defrauded through the infamous “cum-ex” withholding tax scam. 

In doing so the elite bank joins the ranks of lawyers, bankers and financial services outfits from across the world already implicated in what is widely reported to be the largest fraud in history, allegedly costing European revenue services over EUR55-billion, mostly between 2007 and 2012.  

Evidence contained in the leak also raises the possibility that senior staff, some of whom still occupy top positions at Investec, may have approved the bank’s involvement in these schemes – laying themselves and the bank open to potential criminal and civil liability. 

This allegedly includes the current chief executive of Investec Europe, Michael Cullen, and a former executive director, Alan Tapnack (since deceased), the latter of whom signed a key contract that facilitated Investec’s participation in cum-ex schemes.

Other employees openly planned deals in emails and, according to witnesses, were well aware of what they were doing.

Cum-ex is, in the jargon of investment banking, a complex type of trading “strategy”. It involves multiple role-players who rapidly buy and sell shares among each other immediately before and after the declaration of dividends by a company listed on a stock exchange. The point is to claim back a withholding tax on the dividend that got paid out – but to claim the reimbursement twice.

The trades exploited an interpretation of the tax code that appeared, at the time, to let multiple people claim ownership of the same shares. This technically enabled more than one investor to claim a refund on a tax that was paid only once.

There has been some uncertainty around the legality of these transactions, with some implicated parties claiming that they were simply exploiting a tax loophole.

But in a landmark judgement earlier this year, the German Federal appeal court convicted two bankers over trades carried out between 2007 and 2011 involving the M.M. Warburg bank. One was ordered to repay EUR14-million personally and the bank was fined EUR176-million (R3-billion).

Investec does not appear to be one of the main targets in the German investigations but details of its involvement are scattered throughout the leak.

The documents comprise of memos, letters, emails, affidavits and interrogation transcripts from multiple sources related to multiple ongoing investigations. In Germany it is an offence to republish or extensively quote such documents, so we have refrained from doing so on request from CORRECTIV, while the names of some witnesses have also been changed for their protection.

The leaked documents suggest that Investec actively played at least two roles indispensable to every cum-ex scheme over the course of several years: someone to provide a massive amount of short term loan funding to enable others to trade as many shares as possible – and someone to produce the documentation needed for duplicate tax refund applications, allegedly while being aware that the overall transaction was designed to be misleading. 

In other instances, Investec also allegedly acted as a broker and carried out the necessary trades itself.

Under interrogation by German authorities one of the major tax law experts who designed cum-ex schemes cited Investec as one of the “leading protagonists” in cum-ex lending alongside major players like Macquarie, Deutsche Bank, Merrill Lynch and UBS. 

The documents show Investec providing funding and other services to different groups of collaborators between at least 2008 and 2012 and also show that German prosecutors have been digging for evidence on Investec since as far back as 2014. 

Investec Plc declined to provide answers to a detailed list of questions sent to it by reporters and instead responded with a general statement. It indicated that “no current or former employees, nor the Bank itself, have been criminally charged, indicted or subpoenaed.” 

The bank did however say it had first been informed by the Cologne Public Prosecutions Office about the initiation of an investigation into current and former employees of the Investec Bank Plc’s Irish Branch in August 2018, and that it was cooperating with authorities. 

All information sourced from articles posted by: Business Insider, Sacoronavirus, BusinessTech, 702, Moneyweb, and Amabhungane.

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