News in South Africa 4th November:
1. FFC criticises SAA rescue:
Next year is set to be a difficult year for South Africa, with government planning expenditure cuts, the question is how might this impact service delivery, Parliament has heard.
The Financial and Fiscal Commission on Tuesday briefed a joint sitting of the Standing Committee on Appropriations and the Standing Committee on Finance on the medium-term budget policy statement or mini budget.
Finance Minister Tito Mboweni last week tabled the mini budget, and announced that South African Airways would get R10.5 billion for its business rescue process. The decision has been met with criticism by opposition parties as the monies are to be reprioritised from national departments and their public entities as well as conditional grants to local and provincial governments.
But the FFC pointed out that local government grant allocations would be reduced by R569 million – of this R440 million will go towards SAA. “Although the R10.5 billion is for settling SAA’s guaranteed debt and interest, cutting funding for LG basic services is akin to taking away resources from the poor to save the well-to-do,” said the FFC’s Dr Mkhululi Ncube, the programme manager for the local government unit.
The commission is particularly concerned with the reprioritisation of local government funds to support state-owned enterprises, as this sphere of government is already under fiscal stress; facing increasing demands for infrastructure to deliver basic services while battling declining revenues.
“It is unclear how the local government will maintain services to poor households. Something will obviously give in or service levels will decline by same margin,” the FFC warned in its presentation to Parliament.
2. US election a close race:
The US election is turning out to be a nail-biter, with president Donald Trump performing much better than expected.
The tight overall contest reflected a deeply polarized nation struggling to respond to the worst health crisis in more than a century, with millions of lost jobs, and a reckoning on racial injustice. Trump and Biden have spent the better part of this year in a heated fight over how to confront those challenges, and each has argued in apocalyptic terms that his opponent would set the country on a devastating path.
Biden won several states where Trump sought to compete, including New Hampshire and Minnesota. But Florida was the biggest, fiercely contested battleground on the map, with both campaigns battling over the 29 Electoral College votes that went to Trump.
Trump has further won Texas, Georgia and potentially North Carolina with more votes leaning his way.
3. SARS clamps down on tax avoidance:
South African Revenue Service (Sars) Commissioner Edward Kieswetter is looking to collect “tens of billions” in taxes from people and institutions who are deliberately hiding it from the collection agency.
Kieswetter, speaking on a Ninety One webinar on Tuesday, says Sars has come across numerous schemes to avoid paying tax and is now diligently working to not only unwind them but also to collect what’s due.
Finding more tax revenue has become a matter of urgency for South Africa. The country was in a difficult economic position prior to the start of the Covid-19 lockdown in March, but the situation has become even worse – the economic decline has led to projected tax revenues falling R300 billion.
The tax authority’s work to close this gap can already be seen in it collecting about R500 million in tax from people who were not paying the tax due on the renting of second or third properties.
Kieswetter also notes that there has also been unusual activity in what he calls “white collar” schemes. Sars has, for example, seen instances where there were suspiciously high interest charges on the loans parent companies grant their subsidiaries.
4. Sibanye-Stillwater empowerment false:
Minister of Mineral Resources and Energy, Gwede Mantashe, has criticised Sibanye-Stillwater over its empowerment credentials, claiming that it “stole” its BEE rating.
He said that Sibanye’s inherited its 15% BEE ownership through the acquisition of Gold Fields assets in 2013. Gold Fields received BEE credits when Tokyo Sexwale’s Mvelaphanda Resources, a black investor-owned firm, acquired a stake in its subsidiary.
5. BEE and government tenders:
The Supreme Court of Appeal this week declared the preferential conditions attached to government procurement as invalid, which could bring a major shakeup to how BEE factors into government contracts.
The government’s procurement process of goods and services, which is estimated to be worth R2-trillion annually, has extensive Black Economic Empowerment (BEE) requirements that are built into it.
Companies with favourable empowerment credentials – such as being 51% black-owned – usually become frontrunners in the government’s procurement or tender bidding processes. This also applies to state entities such as Eskom, Transnet and SAA, and others, which use BEE or preferential procurement laws to guide their processes to award tenders.
Although well-intentioned to build scale for emerging black-owned businesses in the interest of economic transformation, BEE and preferential procurement laws have often provided a loophole for corruption during the State Capture years – especially when it came to Eskom coal contracts.
The enacting of amended procurement regulations in January 2017 gave government entities the discretion to disqualify (in advance) companies that are not 51% black-owned from the tender bidding process. In doing so, government entities would disqualify companies without first considering their bid or even the price and proposition of the tender.