News in South Africa 30th August:
1. Rampant inflation to stay:
The message from the world’s top finance chiefs is loud and clear: rampant inflation is here to stay and taming it will take an extraordinary effort, most likely a recession with job losses and shockwaves through emerging markets.
That price is still worth paying, however. Central banks spent decades building their credibility on inflation fighting skills and losing this battle could shake the foundations of modern monetary policy.
“Regaining and preserving trust requires us to bring inflation back to target quickly,” European Central Bank board member Isabel Schnabel said. “The longer inflation stays high, the greater the risk that the public will lose confidence in our determination and ability to preserve purchasing power.”
Banks should also keep going even if growth suffers and people start to lose their jobs.
“Even if we enter a recession, we have basically little choice but to continue our policy path,” Schnabel said. “If there were a de-anchoring of inflation expectations, the effect on the economy would be even worse.”
Inflation is near double-digit territory in many of the world’s biggest economies, a level not seen in close to a half century. With the notable exception of the United States, a peak is still months away.
The complication is that central banks for the most part appear to have only limited control.
A new inflation regime may be setting in that will keep upward pressure on prices for an extended period.
Emerging markets
The pain of high US rates will reverberate well beyond the nation’s economy and hit emerging markets hard, especially if high rates prove as lasting as Powell now signals.
“For the Fed right now – it is crunch time,” said Peter Blair Henry, a professor and dean emeritus of the New York University Stern School of Business.
“The credibility of the last 40 years is on the line, so they are going to bring inflation down no matter what, including if that means collateral damage in the emerging world.”
Many emerging market countries borrow in dollars and higher Fed rates hit them on multiple fronts.
It pushes up borrowing costs and raises debt sustainability issues. It also channels liquidity to the U.S. markets, pushing up emerging market risk premiums, making borrowing even more difficult.
Lastly, the dollar will keep firming against most currencies, pushing up imported inflation in emerging markets.
2. SARS targets wealthy:
The South African Revenue Service declared a statement of intent towards enhancing voluntary compliance by High Wealth Individuals in the country, after it established a dedicated HWI unit in 2021.
And a presentation by the head of the Revenue Service’s HWI unit has confirmed which wealthy taxpayers the service is targeting. Director Natasha Singh said that her unit is focussing on individuals with gross assets worth R75 million.
Singh was speaking at an event last week, hosted by the South African Institute of Taxation in collaboration with Tax Consulting SA and Standard Bank. She said that SARS is targeting wealthy individuals in South Africa and the legality of certain offshore structures.
The unit has a permanent headcount of 55, with plans to increase this number over the short to medium term, including a multidisciplinary team specialising in wealth structuring and the use of special purpose vehicles, trusts, shares, structures, and instruments.
According to Jashwin Baijoo, legal manager for Africa Tax & Compliance at Tax Consulting, SARS has unequivocally stated that the strategic objective of the new unit is to ‘detect HWI taxpayers who do not comply and make non-compliance hard and costly‘.
“The lack of subtlety here evidences that taxpayers face a confident, bolstered revenue authority that will not hesitate to impose life-changing sanctions on wilfully non-compliant taxpayers,” he said.
Targeted approach
At the beginning of 2022, SARS’ HWI unit selected 1,500 wealthy individuals and their related entities to be investigated; however, it says it now wants to extend its reach to include more individuals and families.
The tax collector has proposed that all provisional taxpayers with assets above R50 million be required to declare specific assets and liabilities at market values in their 2023 returns.
The tax body has previously indicated that it would also target non-compliant wealthy taxpayers with assets abroad. It has been on a massive drive to take on taxpayers with unexplained sources of wealth and has bolstered its systems and auditing capacity to draw these persons and entities out.
However, earlier in August, SARS commissioner Edward Kieswetter said that despite its boosted capacities, the revenue service is still hamstrung by regulations.
President Cyril Ramaphosa on Monday said that he was supportive of SARS’ investigative capacities, particularly in conducting lifestyle audits on those with unexplained wealth.
He noted that over the last year, SARS completed 25 lifestyle audits to the value of over R450 million to resolve discrepancies between declared income and an individual’s lifestyle.
3. Corruption culling back:
Police and prosecutors have been criticised for failing to bring any successful prosecutions related to state capture. This appears to be changing.
The Zondo Commission of Inquiry into allegations of state capture recommended further investigations by law enforcement into former senior Transnet executives and associates with a view to securing a prosecution over industrial scale corruption at the state-owned rail and port operator.
The Hawks and the National Prosecuting Authority, apparently stirred into action by the Zondo recommendations, have started to make their move. Where better to start than with the leading lights of Transnet, which Zondo says was the primary target for state capture.
On Monday, former Transnet CEO Brian Molefe and former CFO Anoj Singh appeared in the Palm Ridge Specialised Crimes Court in Johannesburg in connection with R93 million paid to Trillian Capital, a company with close ties to the Guptas.
In May this year, five people, including former Transnet group CEO Siyabonga Gama, were charged with fraud, corruption, money laundering and contravention of the Public Finance Management Act. Others arrested in the case were former acting Transnet CFO Garry Pita, former group treasurer Phetolo Ramosebudi, former Trillian Capital Partners CEO Eric Wood, and former Trillian shareholder Daniel Roy.
Michael Marchant, one of the authors of The Enablers report says: “The successful prosecution of Molefe and Singh is vital for accountability, given that the Zondo Commission found them to be the prime architects of capture at Transnet which in turn was the primary site of extraction during state capture. However, the true test of law enforcement will be when the arrests are complete and the state is ready to proceed in court.”
The arrest of Molefe and Singh will no doubt be followed by others. There’s certainly no shortage of evidence, both in the Zondo and Fundudzi reports, to name just two.
However, this story will not be complete until the Guptas are extradited to SA to have their day in court.
4. Home affairs delays:
Problems at home affairs continue to mount as people are now unable to get simple validation certificates from the offices, and systems have not been updated to reflect things like marital status.
The department is blaming Covid-19 for the continued administration backlog.
Marriage officers report problems logging marriages, while brides and grooms have had to postpone their nuptials due to the delays.
5. Walmart to buy out Massmart:
A shock announcement on Monday revealed retail behemoth Walmart’s plans to takeover Massmart in a share buyout offer of R6.4 billion.
Walmart, which acquired a controlling stake in Massmart over a decade ago, plans to buy the remaining shares owned by minority shareholders and eventually delist the company from the JSE.
Once finalised, the offer would provide Massmart with access to financial and operational support from Walmart, which would help it continue its turnaround strategy, Massmart said on Monday as it reported its interim results for the 26 weeks to the end of June 2022.
“This support includes a R4 billion loan provided by Walmart to Massmart at the height of the Covid-19 lockdown in April 2020, 50% of which was subsequently converted, in December 2021, into equity through a perpetual fixed rate unsecured note,” the retailer said.
Massmart’s R6,4 billion offer is nearly 50% more than the company’s market capitalisation, excluding Walmart’s shareholding, as at market close on Friday, 26 August 2022, before the announcement. On Friday, Massmart’s market value, without Walmart’s stake, sat at R4,3 billion.
Across the Massmart group, the retailer has more than 400 stores, with Game and Builders Warehouse stores making up most of its portfolio, contributing 36% and 29% to the entire network, respectively.
In contrast, Walmart has 230 million customers visiting over 10,500 stores and numerous eCommerce sites in 24 countries weekly. It has more than 8,000 pick-up and 6,000 delivery locations across the globe.
All information sourced from articles posted by: Fin24, BusinessTech, Moneyweb, Daily Maverick and Business Insider.
