Trade and Industry Minister Rob Davies

If you ever wondered about the immense power of the auto industry lobby, you need only look at the automotive masterplan, which was unveiled on Friday by Trade and Industry Minister Rob Davies.

This charts a path to 2035, and gives an assurance that the big auto companies will continue to be the most pampered of international investors in SA, with a range of incentives and sweeteners.

One improvement on the existing support programme is that they must use more local content, rising to a 60% share in 2035 from just under 40% at present.

This is important not just in trade terms, but because the robot-infested assembly plants have a far lower employment profile than the more labour-intensive component companies.

One in the bag for Rob Davies.

On the other hand, the auto giants have been able to bully their way out of a major BEE requirement which applies to almost every other investor in SA (Caterpillar also managed to crawl out of it).

This is a requirement to hand over a certain minimum stake in your business to BEE partners.

Instead, there will be ‘equity equivalence’, as they put it. The auto makers will do other stuff to uplift black South Africans, and they have already announced a R3.5bn fund for this very purpose.

Davies was anxious to point out the importance of his incentive regime to support the auto industry.

He gave the example of Australia, which phased out its own auto incentives, and where the last car plant has closed. Damm.

However, this begs a multi-billion rand question…..

Has the collapse of auto assembly crippled the Australian economy? I don’t think so. And presumably neither do they, or the state support would still be in place.

Is it wise for our government to put the largest chunk of its (shrinking) investment incentive support armoury into the very labour-unintensive auto sector?

The counter-argument is that by having a world-class auto industry, SA can attract other investment, can help arrest the decline in manufacturing, can build and preserve skills.

It’s a tough one.

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Big business needs to be so aware of reputational risk. As we have seen with Momentum and Discovery. You can follow the letter of the law, but can still be judged a bunch of shits. I am a client of both these companies, but have been disturbed by the lack of judgement shown them both.

Momentum

This insurer had every right to refuse to pay out to the widow of someone who was shot. Wait for it…..refusing payment because he had high blood sugar levels, and had not informed Momentum of this.

But what is legal is not always morally right. And by initially refusing to pay out, waiting for their u-turn until being shamed into doing one, the company has caused major reputational harm to itself. Its complacent bosses, living in their smug corporate bubble, did nothing wrong, legally. But, oh boy, when it comes to their image and reputation, they screwed-up big-time.

Discovery

The Discovery issue is more nuanced, and the wrongs or rights of its actions very much depend on where you sit in this racially-troubled county of ours.

I have no first-hand grasp on the announcement regarding the launch of their new bank, as I was not invited, and received no info. Possibly because my former employer has cut off access to my previous corporate e-mail address. So maybe the invitation is there, out of my reach. Let us give Discovery the benefit of the doubt.

However, looking at social media, they have been strongly attacked by some for one element of their announcement – a decision to offer shares in the new bank to their customers. If they are black.

It is both legal and desirable to extend the economic benefits of our rainbow nation to those racial groups which were victimised by apartheid.

Nothing wrong with ensuring a solid black ownership in the bank to black people. Indeed, I understand that the law requires this.

But what a clumsy way to do it. Good news for the black customers. A big incentive to bank with Discovery.

However…looked at from the perspective of any white people who may wish to bank with Discovery, it is not the same story. They may feel they are the victims of discrimination. Because of the colour of their skin. Remind you of anything, does it?

Could Discovery not have been more sensitive over this issue? Could it not have ensured a large black shareholding in the new bank by some other, non-discriminatory, mechanism? Were they not aware of the perceptions which would arise?

Conclusion

Neither Discovery nor Momentum wished to act illegally. Both were completely entitled to act as they did, and acted within the law.

But the law is just one factor in all this.

Large corporates need to be sensitive to a larger picture, to the race issues and crime which still pollute our country.

Listen to your lawyers. But listen to your hearts as well. Or your customers may tend to suspect you have no heart, nor much judgement either.

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President Macron of France marks Armistice Day

John Fraser

I see President Cyril Ramaphosa has arrived at the European Parliament in Strasbourg, a venue where I spent many good times and bad.

Coming from SA, he may well feel at home surrounded by politicians and bureaucrats who enjoy the good life, and are adept at expense fiddling.

But I would argue that his arrival in France has come just a few days too late.

Of course it is vital to keep a close dialogue with the EU, which is our largest trading partner. Particularly as it is plunging into the uncertainty of Brexit.

But could he not have arrived at the weekend, and joined those other world leaders, and the buffoon Trump, in paying Remembrance Day tribute to the fallen heroes?

Few of us today can imagine the squalor, the misery, the terror, of trench warfare. It sounds like ancient history to many, but very many of us have had parents and grandparents who served in world wars. Many of whom did not return home.

Of course, there were complexities and divided loyalties in South Africa when the great powers of Europe decided to engage in such ferocious mutual slaughter.

This, however, takes nothing away from the courage of so many millions who were sent to die.

The two world wars saw South Africans of every race and colour being sent to distant battlefields. As did fallen heroes who had come from many other countries. The last century was a warlike one, acted out in so many places

As we saw Macron, Merkel, Putin and – yes, even Trump – show that the bravery and sacrifice of so many is still remembered and honoured, could our own State President not have also been present in Paris at the weekend?

He could easily have got there somehow, despite the implosion of SAA, and could then have gone on to his other engagements.

I know he works horribly hard, appears to be several times more active and effective than his ghastly predecessor, whose priorities may have been a little different to Cyril’s statesmanship.

But as a South African with ancestors who did serve in the wars, I would have liked to have seen Ramaphosa on Sunday flying the SA flag in Paris.

There is no doubt, after all, that he would have done a better job than Trump.

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Jannie Rossouw, University of the Witwatersrand

The South African Reserve Bank placed VBS, a small mutual bank, under curatorship in March this year against a backdrop of a serious liquidity crisis. The initial findings of the curator revealed significant financial losses, which prompted a decision to institute a forensic investigation. This was completed by early October and handed over to the banking regulator, the Prudential Authority. The report revealed widespread looting and subsequent cover-ups. The report was handed over to the country’s law enforcement authorities for further investigation and possible prosecutions. In the words of Advocate Terry Motau who headed up the investigation:

I have, for the past five months, investigated the sorry affairs of the VBS Mutual Bank. My report will reveal that the perpetrators of the heist at VBS made away with almost R2 billion.

Last week the banking regulator asked a South African court to terminate the curatorship and for permission to wind up the affairs of the bank. The regulator argued that liquidation was necessary because VBS was hopelessly insolvent after being subject to massive fraud. This meant that there was no prospect of saving the bank. The South African Reserve Bank responded to questions on the issue from Jannie Rossouw, who is Head of School of Economic & Business Sciences, at the University of the Witwatersrand.

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What drove the regulator’s decisions?

In the first instance the decision to place the bank under curatorship was taken because the bank regulator realised that swift action was needed given the liquidity crisis that had come to light. This was necessary both to protect depositors as well as to make sure that no further damage could be done to the bank. The welfare of the depositors and the speed of execution was important.

The decision to go to court and ask for VBS to be liquidated six months later followed evidence that came to light as a result of the forensic investigation. The report showed that the bank had been subject to massive fraud. It was incumbent on the regulator to take action in the light of this evidence. As argued in the application, the regulator believes that the damage done to the bank is irreparable. And that it can’t be saved.

Why the decision to go from curatorship to liquidation?

When a bank is put under curatorship, the curatorship provides tools and instruments to manage the bank’s liquidity and its operations to save the bank, to put it back on a sound footing and to protect depositor funds. The idea is that the bank can be nursed back to health.

So the aim of curatorship is ultimately to turn the bank around. An example of this being executed successfully in South Africa was African Bank which was put under curatorship. It continues to operate today.

But the law states that when the registrar of banks is of the view that the bank is insolvent, they are legally obliged to go to court to apply for liquidation. This does not mean that the bank cannot be saved. But it does mean that the registrar is of the view – based on all the available evidence – that the bank is insolvent and probably can’t be saved. That is, that the probability of the bank being saved is limited.

The decision to apply for liquidation was made on the basis that the Prudential Authority believes the final winding-up of VBS is in the best interests of all parties. It paves the way for two things to happen. Firstly, it will allow a liquidator to use the insolvency law and the Companies Act to effect recoveries – in other words to protect people who had deposited money with the bank. And, secondly, it will mean that the recommendations of the investigator into the affairs of VBS can be followed.

What does liquidation actually mean? What happens now?

Liquidation provides for the winding down of a bank under the terms set out in the Companies Act. The bank will still be managed to maximise depositor value, to collect on loans and to recover as much money as possible. It does, however, reduce the discretion on the creditor hierarchy. In other words a curator has more discretion about who gets paid out what amount. Under liquidation, that discretion is removed.

Nevertheless, the National Treasury has issued a guarantee that will ensure that 97% of retail depositors will be covered. That guarantee will remain should the court agree to the bank’s liquidation.

What are the key lessons learnt from VBS?

There are a number.

The first is that audit reports need to be treated with a degree of circumspection. In some cases they will require independent verification.

Another lesson is that the bank regulator needs stronger tools to force a bank to convert from a mutual bank licence to a full bank licence when they get to the point of being too big to fall under the mutual bank regulations.

Mutual Banks are very different to commercial banks. The three main differences are that they tend to be smaller, that some types of deposits in mutual banks qualify as an ownership stake in the mutual bank and lastly that they’re not regulated to the same standard as commercial banks. Because they don’t carry as many risks, the regulatory framework governing them is substantially lighter.

But the events of VBS have shown that supervising small banks requires more resources. This is true even though the failure of a smaller bank won’t necessarily lead to systemic risk – it won’t pose a threat to the entire banking and financial services sector. But the risks still need to be managed better.

Jannie Rossouw, Head of School of Economic & Business Sciences, University of the Witwatersrand

This article is republished from The Conversation under a Creative Commons license. Read the original article.
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