Are the first green shoots appearing for South Africa?


By: Maarten Ackerman, Chief Economist and Advisory Partner, Citadel

South Africa’s economic environment is awash with grim news – from disastrous growth of -3.2% in Q1 2019 to and unemployment rate north of 27% – but could there be the initial hint of good news on the horizon?

There is certainly no shortage of tough issues for South Africans to deal with at present. Economic growth has been in its longest declining cycle since 1945 and the question now is whether South Africa is heading for another technical recession.

The consumer continues to reel under the burden of higher administered prices, the VAT increase and rising fuel costs. At the same time, State Owned Enterprises (SOEs), including SAA, the SABC and, most importantly, Eskom which has just been granted a further R59bn bailout over the next two years, are putting the country’s fiscus at severe risk.

Coupled with lingering structural issues, we believe that South Africa will struggle to achieve growth above 1% this year, and we expect this figure to be closer to the 0.7% level instead.

It’s hard to see any light at the end of the tunnel.

And while President Cyril Ramaphosa came to power on the promise of a New Dawn for South Africa, by mid-August he will have been in the position for 18 months and we have still seen little by way of implementation that would lead to a reversal of this situation.

The State of the Nation Address (SONA) may have been fairly well-received, but it reinforced the perception that the government is still “dreaming” and it needs to move from talking to doing, as Ramaphosa himself admitted. This will serve to regain trust and confidence in the economy and reignite the much-needed and sought after foreign direct investment (FDI) which will help to kickstart the economy.

It is extremely significant and interesting, therefore, that we are seeing a turnaround in FDI with 2018 seeing the highest FDI numbers achieved in the last five years. Some R300 billion rand was pledged during the October 2018 Investment Summit, of which R250 billion is already in implementation and, if this trend continues, it will create the foundation for more sustainable growth in the future.

The Zuma Years were marked by a sustained slump in FDI as elements such as Marikana, policy uncertainty and state capture took their toll on external investors. After bottoming in 2015, FDI struggled to pick up significantly, but 2018 saw the rebound kick in.

The importance lies in the magnitude of the rise in FDI. After dipping from 2.3% of GDP in 2013 to 0.5% of in 2015, FDI reached 2.2% of GDP in 2018 (showing more than twice the growth in GDP). Accelerating at a faster pace than GDP, FDI is set to give renewed impetus to the SA economy. Such investment is normally a leading indicator, with very positive economic growth following some three to five years later.

In fact, the last time that we witnessed a spike such as that from last year was in the early 1990s, an era renowned for the end of sanctions, the opening of the SA economy and the peaceful election of our first democratic government.

This paved the way for South Africa to experience a decade of very robust economic growth. If this trend can continue and the government stay on course with reforms, South Africa should benefit from much better growth in the next few years.


Undeniable benefits of working with a broker.

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Technological innovation has meant that consumers have far wider choice and far more information at their fingertips than they have ever had. Coupled with this is the stellar growth in recent years of direct insurance, which harnesses technology and connectivity to provide consumers with near-instant insurance covers and greater convenience. Both of these factors have impacted brokers heavily, with consumers no longer necessarily needing to use their services. With a drop-off in intermediated business, as well as the regulatory changes that cap the fees brokers may earn.

I disagree. In fact, we believe more than ever that brokers are a necessity. While consumers have access to more information, navigating it to arrive at the best possible cover can be a nightmare for them. And that is where brokers really come into their own: they provide expert advice, which one will never get with direct insurance; they are able to arrange proper, relevant cover for individual customers; and they are able to assist customers when it comes to submitting a claim.

As the world becomes more generic, more ersatz, even dumbed down, we need specialists more than ever; this applies especially to the insurance industry. We need people who know insurance intimately, who know their clients and their needs personally, and who can help them navigate the sometimes very complex insurance landscape.

When it comes to eyeballs and handshakes, we are saying that there is still no substitute for good old-fashioned face-to-face, human interaction. When you look someone in the eye and grasp their hand, you are ultimately seeing that person and telling them that you have their best interests at heart.

Convenience is wonderful, but it is trumped every time by great advice and service from an intermediary who knows and cares about his or her client. We need to actively look after the wonderful resource that is the intermediary.

The junk-food,lazy generation


Fin 24 – A sedentary modern lifestyle and increasing levels of obesity will more than likely lead to today’s children being less healthy than current adults over 65 when they reach the same age, startling results from a global healthcare survey have revealed.

The report, compiled by The Economist Intelligence Unit (EIU) and commissioned by science and technology group Merck, has suggested that modern lifestyle-related problems are already triggering health problems among children, including a rising incidence of obesity.

Polling the opinions of educators and parents in Germany, South Africa, India, Brazil and Saudi Arabia, while respondents consider the current generation of children as “generally healthy”, 58% of educators believe today’s children will be less healthy than today’s over-65s.

A further 81% of educators surveyed say that children run a high risk of being physically unfit later in life, while 57% believe children are at high risk of developing chronic diseases such as diabetes.

According to the World Obesity Federation, over 223m global schoolchildren are currently overweight or obese, with recent figures estimating that 15% of South African children fall within this category. Of the five countries surveyed, however, SA brings up the rear.

Saudi Arabia leads the obesity stakes, with 37% of its children classified as obese, followed by Brazil (34%), India (22%) and Germany (20%).

Paradoxically, decreased average health levels and increased rates of global obesity are expected to occur in conjunction with a jump in expected average life expectancy, with today’s generation of children, according to World Health Organization (WHO) statistics, expected to live beyond 100 years.

This means that, while the current generation of children are expected to live longer than their parents, their quality of health, particularly in their later years, is likely to be below that of the prior generation.

Formal interventions lacking

Investigating the nature of existing formal structures in place across schools to educate children on health matters, the survey found that while schools in all five countries targeted primary healthcare issues, such as a lack of exercise and nutrition, they largely ignored issues of mental health in children.

“The importance of education for child health is widely recognised, with educators ranking teachers alongside parents as the most important sources of health education.

“However, wider well-being issues, such as avoiding stress, are largely ignored, and neither parents nor educators report mental health problems as widespread among children.

“Evidence from Germany suggests that mental health problems, including anxiety and depression, rank alongside obesity as the major issues for child health, leading to physical and mental health problems in later life,” EIU research director Aviva Freudmann told the Merck Global Consumer Health Debate last month.

According to the German public health institute the Robert Koch Institute, 20% of German children suffer mental health problems – the same proportion as those that are overweight.

Freudmann added that there is little evidence that school education programmes are managing to stem rising rates of obesity and mental disorders. This is the result of a larger lifestyle issue.

“Outside of school, children in both rich and poor countries spend too much time on sedentary activities, such as watching television or playing computer games – more than half of South African parents report this as a problem,” she explained.

Moreover, parents and educators express widespread concerns over the poor nutrition of children and the fact that they make poor food choices.
Holistic solutions

While there are gaps in schools’ approach to educating children about health, the study believes the larger problem may lie elsewhere: in the failure to integrate efforts of families, schools, communities and policymakers in promoting healthier lifestyles among children.

Underresourced education systems in countries such as SA, for example, result in schools struggling to meet their primary educational tasks, let alone their responsibility to contribute to child health.

“Lifestyle problems begin and develop at home, with children combining sedentary lifestyles with poor diets – and in some instances acquiring smoking or drinking habits. Parents and communities could do more to counter such development.

“Considering the longer life years that today’s children can expect, it makes sense to focus on health practices that will increase the chances of making those longer life years healthy ones,” concluded Freudmann.

The writer attended the Merck Global Consumer Health Debate in Germany as a guest of Merck.


How will the VAT hike affect property sales?

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Fin 24 – A question raised about the 1% value-added tax (VAT) increase to 15% as from April 1 2018, as announced in Budget 2018, is how it will affect fixed property sales currently in progress or under negotiation.

Leonard Willemse, senior tax consultant at Mazars, explains this question stems specifically from the application of the time of supply rules regarding the sale of fixed property.

If a VAT vendor – for example a property developer – has signed a sales agreement on January 1 2018, but both the payment of the sale price and the transfer of the fixed property is done on or after April 1 2018, it raises the question of which VAT rate applies to the transaction: 14% or 15%?

The VAT Act states that fixed property is supplied under a sale at the earlier of the dates on which registration of the transfer of the fixed property at the Deeds Office takes place or when any payment in respect of the sale price for such “supply” is made by the purch


He gives as an example a situation where a VAT-registered property developer enters into a sales agreement with a purchaser on January 1 2018 for the sale of a unit with a price of R10m (inclusive of VAT). Both parties sign the agreement on January 1 2018, construction starts before April 1 2018, is completed after that date and the registration of the transfer of the property in the Deeds Office is after April 1 2018. Payment is made on the transfer date.

In terms of the fixed property time of supply rules, the time of the supply takes place after April 1 2018, effectively resulting in the transaction being subject to VAT at 15%. The seller ends up receiving less from the sale or, conversely, the purchaser ends up paying more.

Knight in shining armour

“Luckily, there is a knight in shining armour, namely section 67A(4) of the VAT Act. Almost hidden away at the end of the act, the section has not often been looked to for relief considering that the VAT rate has remained at 14% since 1993,” explains Willemse.

“In short, the section provides that, subject to certain conditions, the VAT rate that is effective on the date that a written sales agreement is entered into will apply.”

In terms of this interpretation, the 14% VAT rate would apply to the supply of fixed property where, before the date on which an increase in the VAT rate becomes effective (April 1 2018), a written agreement is concluded subject to certain conditions.

These conditions would be that it is a sale of a residential property (not a commercial property); that the price paid was determined and stated in the written agreement before the VAT increase date; that the agreement was signed by the parties before the increase date; and that the supply of the property is deemed to take place on or after the increase date.



Something to know about cryptocurrency

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I would like to share with you what I read in a news letter …..

  • Volatility: The volatility of cryptocurrencies is much higher than any traditional market and can be attributed to various factors like news, publication of algorithms, updating of technology, technical analyses and much more.
  • No regulation: Cryptocurrencies are currently unregulated in South Africa. Thus they pose a number of risks for those who choose to transact with them, such as the lack of guarantee of security, convertibility or value.
  • Irreversibility of transactions: Unlike traditional trades, if you deposit money into an incorrect address, there is no way of reversing that transaction. Your money will be lost – and there is no governing body that can assist in getting the money back.
  • Hacking: Cryptos are generally stored in a virtual wallet called a “software wallet”. These wallets are susceptible to hacks. Using a “hardware wallet” is presumed to be a safer wallet option, but even this doesn’t mitigate the risk of hacking.
  • Government rejection: If you invest in cryptos and the government decides to reject them, you risk having your wallet shut down and being unable to migrate your money.
  • Tax implications: In some countries, including South Africa, tax laws are retrospective, meaning that they can apply to money you have earned in the past – leaving you with large tax obligations.
  • Legal tender: The South African Reserve Bank governs the management of currency and has the sole right to issue coins and notes, which constitute legal tender. Bitcoin, for example, falls outside of the definition of legal tender. Consequently, payments made via Bitcoin in South Africa may not discharge a debtor of a monetary obligation and purchasers run the risk that their Bitcoin payments are not recognised by South African law.
  • Money laundering: Bitcoin users remain largely anonymous. This makes it ideal for money laundering and for use in illicit activities such as purchasing illegal substances.

In September 2014, National Treasury issued a user alert advising investors in virtual currencies to exercise extreme caution. In line with this guidance and taking into account the significant risks and uncertainties posed by these cryptocurrencies, the unregulated environment and the speculative behaviour observed in markets, Liberty financial advisers should steer clear of advising clients to invest in any cryptocurrency.

Virtual currencies currently have no legal status and are neither defined as securities in terms of the Financial Markets Act nor as financial products in terms of the Financial Advisory and Intermediary Services Act. They are therefore not subject to the regulatory standards that apply to the trading of securities or the regulatory standards that apply to the provision of intermediary services and advice.