Another edition of the leading SA wine-tasting podcast bursts on the scene. Michael Olivier introduces the intriguing and complex Grand Vin de Stellenbosch Sauvignon Blanc 2022 to a panel of tipsy tasters.
The tasting team are automotive industry executive Jeff Osborne, broadcasting legend Cobus Bester, EY Cova partner Duane Newman, Cape Wine Master Debi van Flymen and IT whizz-kid Malcolm MacDonald.
The panel also discuss a new trend of semi-abstinence during social and business lunches.
Click below to listen in:
Meanwhile, do seek out Michael Olivier’s latest cookbook, which is a wonderful celebration of South African cuisine. If you already have one, buy lots more for all your friends.
An excellent choice for any time of the year
Like this podcast? Subscribe to ZA Confidential to receive our newsletters. Twitter: @zaconfidential
The Financial Action Task Force has placed South Africa on a list of countries under increased monitoring, commonly known as the grey list after it failed to address all of the shortcomings on money laundering and the financing of terrorism that the task force identified in its 2019 evaluation of the country. The decision has serious implications for the country, more specifically its financial services sector as well as its ability to attract investment. The Conversation Africa’s political editor Thabo Leshilo talks to Philippe Burger, an economics professor and the dean of the Faculty of Economic and Management Sciences at the University of the Free State, about what the greylisting means for South Africa.
What does greylisting mean?
Greylisting refers to a country being placed on a list of countries under increased monitoring by the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog. The FATF evaluates each member country’s implementation and effectiveness of measures to combat money laundering and the financing of terrorism.
South Africa has been placed on FATF’s grey list because it does not have sufficient mechanisms in place to monitor and combat money laundering and terrorist financing activities.
The country undertook to work with the FATF to identify strategies and time frames to improve its monitoring mechanisms. Specifically, it undertook to work with the FATF on eight specific topics. These include increased investigation and prosecution of money laundering and terrorist financing activities. It’ll also enhance its capacity to identify, seize and confiscate the proceeds of such crimes.
South Africa also needs to improve its terrorist financing risk assessment to inform its strategy to counter the financing of terrorism activities. In addition, it needs to ensure the effective implementation of targeted financial sanctions, and create an effective mechanism to identify individuals and entities targeted by such sanctions.
What are the implications?
Though the FATF does not explicitly require increased due diligence, greylisting will nevertheless in effect require increased due diligence. Banks dealing with cross-border financial flows and companies wanting to invest in South Africa will have to vet their clients and the sources of client income better before they invest. This can be costly and, therefore, discourage investment. The increased risk associated with South Africa could also result in higher interest rates and cost of capital.
The higher costs that domestic and international companies will incur when they trade or invest across South African borders will put upward pressure on the cost of living of ordinary South Africans. However, of probably even more significance to ordinary South Africans is that the greylisting will likely deter foreign investment, which is needed to stimulate economic growth and job creation.
Which other countries are grey-listed?
In being grey-listed South Africa joins a list of countries, none of which are known as paragons of governance. Some, such as the Cayman Islands and Panama, are known tax havens that potentially attract laundered money. Others are known as war zones or countries with jihadist and Islamist terror groupings operating on their land. These include Syria, Yemen, Mali, Nigeria, and Mozambique. The list also includes countries with very weak governments, such as Haiti and the Democratic Republic of the Congo.
What needs to happen for the greylisting to be lifted?
South Africa needs to work with the FATF to identify strategies and time frames to improve its monitoring mechanisms. It must then implement these improvements at the latest by January 2025. This might require improved legislation and better monitoring mechanisms to red-flag potential money laundering and terrorist funding flows.
Although the country recently made a belated effort to improve its legislation to avert being grey-listed, it will need to do more. Doing so will require a dedicated focus from the government to
pass additional relevant legislation,
fund the investigative authorities to combat money laundering and terrorist financing activities, and
ensure the effective and speedy prosecution of individuals and institutions undertaking such crimes.
With the recent history in South Africa of state capture for private gain by individuals, some of whom are themselves probably guilty of money laundering, the onus will be on the government to show that it is serious about implementing effective legislation and mechanisms to combat money laundering and terrorist funding. Thus, to get out of the rut of greylisting the country will have to fight the rot of money laundering and terrorist funding. The jury, or in this case the Financial Action Task Force, is still out on whether it will succeed in doing so.
The announcement by the South African finance minister, Enoch Godongwana, of debt relief for the country’s troubled power utility, Eskom, is a step forward. It will fix one problem: Eskom has too much debt. But the plan won’t end power cuts which have worsened in recent years.
The international experience is that one way to end electricity shortages is to allow competitively-priced privately-funded generation at scale. This requires a reorganisation of South Africa’s electricity market along the lines announced by the Department of Public Enterprises nearly four years ago. The crux of the plan was to split Eskom into three separate units – generation, transmission and distribution, with transmission remaining state-owned.
With the announced conditions, which include the requirement that Eskom prioritises capital expenditure in transmission and distribution during the debt-relief period, the finance minister has missed an opportunity to finally achieve this.
What we can learn from other countries
Other countries that have had power cuts offer South Africa lessons. China, for example, faced rolling blackouts between 2003 and 2006 because of an unexpected growth spurt. In 2015, Greece was in the middle of a financial crisis and its people could not afford the electricity supply, some of which came through a complex deal with Russia. And in Colombia, a drought in 1992 caused the main source of electricity supply – which came from a hydroelectric plant – to literally dry up.
All these countries experienced power cuts. But South Africa is the only country to have had power shortages for 15 years. This is because the others moved quickly to rejig their electricity supply systems.
All three countries followed a similar route, as have many others. They untangled their single electricity companies, focusing on keeping parts of it under state control and opening up the rest to a mix of state and private companies.
Complex to manage
The electricity supply system has three parts. The first is generation – generating electricity at a power plant. Second is transmission – moving it from the power plant to the municipality, usually on a high-voltage line. Finally, distribution is about getting it the last few metres to a house or factory.
High-voltage transmission is what economists call a “natural monopoly”. It is more efficient if there is a single electricity grid for an area, rather than multiple grids. This part is best managed by a central body – in many countries a state-owned company. Because the transmission business can recover costs, it can use that income to increase transmission capacity, something that is urgently needed.
But China, Colombia and Greece all recognised that generation no longer needs to be a monopoly. Actually, a monopoly in generation is bad for all the same reasons that all monopolies are bad. They typically charge more and produce less. You need a complicated regulatory system to get their prices right. Smaller generation companies are easier to manage.
Distribution is best left to a company as close to the end user as possible – in almost all countries, that is the municipality. In South Africa, it is a mix. For example, City Power distributes electricity to customers in older parts of Johannesburg. But Eskom distributes electricity direct in outlying parts of the metros.
This means that Eskom has to do everything: generate electricity, transmit it on large power lines to the cities and then distribute it to individual customers. It is a “vertical monopoly”. This makes it a fiendishly complex company to manage. Very few countries have such an arrangement – most prefer to allow specialist businesses in each part of the system.
Lessons for South Africa
Here’s what happened when generation was untangled from the rest of the state-owned monopoly in China. Between 2003 and 2006, new generation companies added over 237,500 MW to the Chinese grid. That’s the equivalent of delivering nearly 10 Eskoms in three years.
But the very last step has not been taken, despite being government policy since 1998. Every time the proposed separation comes closer to happening, there has been fierce resistance from both unions and Eskom management. In 2018, it was because of loadshedding. During the years when there was no loadshedding and plants were being run too hard, it was because it was not urgent. And since the current electricity crisis, it is because there is loadshedding and Eskom is not financially viable. But it is precisely because Eskom is in financial distress that the separation needs to be accelerated.
In 2023, two things make it possible to do the separation very quickly.
The first is a new CEO. If the government is serious about the separation, as it has regularly said it is, it doesn’t make sense to appoint a single new CEO. Separate CEOs should be appointed for the National Transmission Company and for the other businesses. An independent board of directors for the transmission company should also be appointed.
The second is a technical issue related to Eskom’s debt. At the moment, Eskom as a whole is liable for the Eskom debt. The debt holders need to consent to any change in the legal structure.
The national treasury has announced that approximately R254 billion (about US$14 billion) of Eskom debt will be transferred to the national balance sheet in tranches over the next three years. Debt holders can be asked to approve the transfer of debt and the final piece of the restructuring at the same time. The legal and technical work has all been done – the National Transmission Company exists, and it just needs life and capital. It would have been far better to use the R254 billion (about US$14 billion) to help capitalise this critical new company.
Most debt holders will jump at the chance – certainty on the long-promised new structure as it will go a long way to fix energy problems in the country. Also, it will improve the chances that debt holders will get their interest payments on the debt that isn’t transferred.
Unfortunately, the conditions that the national treasury has announced do not include the final unbundling. There is still an opportunity – the government’s conditions still have to be finalised. Eskom’s unbundling is one of the priorities of Operation Vulindlela, a joint initiative of the presidency and national treasury aimed at accelerating structural reforms and measures that can support economic recovery.
Hopefully, the government will learn from the international experience and use the R254 billion (about US$14 billion) to fundamentally fix the problem of a vertically integrated, inefficient and ineffective monopoly. And with that, end power cuts.
A new investment vehicle is being launched to make solar power affordable for the first time to many South African households and businesses.
South African venture capital pioneer Impact Energy Solutions (IES) is behind the investment breakthrough, which will enable companies not only to better afford their own solar power but also to cut costs for their employees who wish to benefit from solar in their homes.
It involves the innovative use of an existing National Treasury tax incentive, known as Section 12B (S12B), that was introduced to encourage investment in renewable energy.
The incentive allows a firm or individual to recoup a significant slice of their tax liability, by funding assets for green energy production. Such assets can include solar panels, inverters, and batteries.
“In effect, S12B enables people and businesses who face a high tax liability to recoup some of this tax obligation when they invest in a solar energy installation,” said Impact Investment Group Executive Chairman Chris Hart.
“The energy regulator NERSA has recently approved an 18.65% increase in tariffs for Eskom for this year, with a further 12.74% hike next year.
“It is, therefore, more compelling than ever to make the shift to renewables. As well as cutting their energy costs, those canny individuals and businesses who shift to solar power will not continue to suffer the full debilitation of Eskom’s load-shedding.”
IES offers an innovative partnership model to enable applications for S12B tax relief when investments are made in solar projects – even when the projects are not on the applicants’ own premises.
“We can put your taxes to work for you, by investing them effectively in a renewable electricity business, and this is entirely within SARS’ rules,” said Hart.
“As well as reaping the direct benefit of the tax incentive, investors will receive the bonus of returns on their investment in solar, over time. Our innovative investment model is offering average annual returns in excess of 20% over the term of the partnership.”
He noted that further solar incentives are likely to be announced in this week’s budget, making it even more attractive for individuals and businesses to use the IES formula to go green.
Hart stressed that individual investors may claim S12B if their annual taxable income, after all deductions, exceeds R350 000.
IES is currently hosting a series of webinars to introduce its exciting solar energy offering, and to help explain the structure, requirements, and benefits of the product.
“Some people will take time to understand and appreciate the merits of our well-structured, tax incentive-supported, solar energy investment mechanism,” Hart noted.
“This is where we can help. Our website http://www.impactenergy.africa maps out the process for our investors and customers, answers all potential queries and links them to a team member who will facilitate further queries and assist them to complete the required documentation.
“For those who want to enjoy the benefits of the incentive, but are not themselves installing solar, we can help to identify eligible projects in which they can participate, so everyone is a winner.
“IES wants South Africa to move away from having solar installations only in affluent neighbourhoods. This green energy should be accessible to homes and businesses across the country – and can be, thanks to our much more affordable solution.
“We want to help families of all income groups to keep their lights on and all businesses keep their doors open.
“Our financial innovation means that the barriers to accessing a solar solution, to be shielded from load shedding, are lowered considerably. Universal access is now within reach.”
Hart further indicated that in addition to achieving universal access to protection from load shedding, the financing model provides consumers with protection from electricity price increases.
He noted that as well as there being big benefits for firms which participate in the renewable energy revolution, there are clear dangers for any companies which fail to act.
“In sunny South Africa, solar power is a no-brainer. It is expanding both globally and locally at a phenomenal rate – not only because of the savings it can provide over time, but also because of the imperative for all businesses to find ways of becoming more energy efficient,” Hart said.
“While the ongoing loadshedding will continue to penalise the alternative energy “resistors”, S12B, carbon credits and other mechanisms will reward those who decide to join us in riding the global green wave,” he concluded.
For further information or interview requests, please contact:
Warren Johnson – Head of Sales at Impact Energy Solutions on 082 605 6739, or by email at info@impactenergy.africa.
Cate Kirkland – Head of Marketing at Impact Energy Solutions on 076 221 5783
Chris Hart – Executive Chairman at Impact Investment Group on 011 480 8634 and 082 494 2258
Supra Mahumapelo, former premier of North West Province, former president Jacob Zuma and current president Cyril Ramaphosa at an ANC celebration in 2016. Thulani Mbele/Sowetan/Gallo Images/Getty Images
Cadre deployment is one of the best-known policies of the African National Congress (ANC), which has governed South Africa since the end of apartheid in 1994. And many of the party’s woes over the past decade can be traced back to it.
The concept of “deployment” has a strong military association. Conventionally, it is about the tactical deployment of troops or infrastructure during military operations. In this instance, it is used to describe how the ANC places people in strategic positions at various levels of government.
“Cadre” refers to a dedicated, highly motivated and trained member of an organisation or party. Not all members of such an organisation are, therefore, cadres. During its years as an underground organisation when many of its members were in exile, the ANC used the term to describe members who were ideologically schooled in party thinking. The term is much more loosely applied today.
Cadre deployment is part of official ANC policy. It is applied at the national, provincial and local level.
But there is growing discontent in the country about it. Many blame it for the widespread corruption and mismanagement in government. The main opposition party, the Democratic Alliance (DA), has gone to court to have the policy declared illegal and against the constitution.
It is unrealistic to argue that there should be no political involvement in important appointments in public service. It happens in almost all political systems. Take, for example, the American president’s role in nominating all new judges of the Supreme Court. The Senate must confirm these appointments, but the nomination process is a party-political one. This is not regarded as unlawful or unconstitutional.
So why the deep concern about it in South Africa? Can the practice be reconciled with the democratic tradition?
The problem with cadre deployment
One of many components of any effective democracy is regular changes in government. Changes in which party governs a country are accompanied by changes in the top political appointments in the public service. This avoids party appointees from becoming entrenched in their positions.
The problem for South Africa is that only one party has run the national government since 1994. It means that a rotation of senior officials with different political orientations has not happened. It also means that specific views and practices have become entrenched, and the procedural protection provided by checks and balances has become ineffective. Merit as a prerequisite for senior appointments was replaced by party loyalty.
More recently, the ANC is experiencing the public’s unhappiness with this state of affairs. It has already lost its majority in major cities such as Johannesburg, the country’s economic hub; Tshwane, the seat of government; and Nelson Mandela Bay, in the Eastern Cape, the party’s historical stronghold.
Behind this loss of support are state capture, poor service delivery and a decline in state institutional capacity.
The common denominator in all of them is cadre deployment.
The ANC and cadre deployment
Cadre deployment as an ANC policy is used for two purposes. The first is to appoint its members to key public positions. The second is internally in the ANC, for members who move from one position to another. In the past, it used to be an honour for a member to claim that he or she was deployed as a cadre. That’s because it suggested that the member is disciplined, obeys the ANC’s instructions and is not motivated by personal interests. That honourable association with the policy has turned into a negative perception for the public in general.
Over the last two decades, the policy has increasingly come under attack for justifying the appointment of key people who are not necessarily qualified for their positions, and who even act in their own interests. Even in the case of qualified persons, their appointments happened under the cloud of privileged treatment and not a level playing field.
Cadre deployment has also become contentious within the ANC itself because of growing factionalism. This practice influences who are appointed as cabinet ministers and senior managers of state-owned enterprises and the public service.
Discontent with the way the policy has been implemented has led to some proposed changes.
In October 2022 the cabinet adopted the “National Framework towards the Professionalisation of the Public Sector”. It agreed that
the cadre deployment practices must be reconsidered for merit-based recruitment and selection in the public sector.
Earlier, in August 2022, President Cyril Ramaphosa signed legislation that prevents city managers and senior municipal officers from holding office in any political party.
The two decisions are important steps in separating the powers of the political executive and the public service. Enforcement of this new principle will not be easy, but it sets an alternative for cadre deployment.
Big challenges
The Zondo Commission, which investigated corruption, fraud, maladministration and unethical conduct during former president Jacob Zuma’s administration, concluded that cadre deployment contributed towards state capture.
This conclusion adds a judicial aspect to criticism of the policy and also questions its moral justification.
The DA was motivated by the commission’s report to challenge cadre deployment in court. The party wants to have the policy declared unlawful and against the constitution.
The case is significant in many respects.
Firstly, it has created an opportunity for the DA to challenge the ANC on how it has structured the relationship between the party, government and state. The cadre deployment policy can show how the three became conflated at an early stage of the ANC’s tenure in power.
Abuse of cadre deployment, moreover, puts the ANC’s record of governance and service delivery in the spotlight. Given the policy, the ANC cannot claim that its bad governance record is primarily due to bad officials or individual problems. Cadre deployment means that the party has to take responsibility for the poor standard of governance – not just implicated individual officials.
Secondly, the court case gives the DA an opportunity to link cadre deployment to state capture in general, and the ANC’s abuse of government powers. This allows it to challenge the ruling party’s moral claim to be the main agent for transforming South Africa into a democratic and humane society.
Thirdly, the court case presents a serious predicament for the ANC. Many of its members joined the party because of the job opportunities that cadre deployment provides. If the ANC distances itself from the policy it will lose some of its attraction.
The end of an era?
It is very likely to lose momentum. The decline in support for the ANC suggests that coalition governments will become increasingly common in the country. It’s possible that the ANC will have to share power in the national sphere after the 2024 general election. Governing in coalitions will make it virtually impossible for cadre deployment to continue in its current form.
The implication of these changes in power relations is that cadre deployment in its ANC format will have to make way for a different relationship between the governing parties and senior public servants.
Instead of regular government rotations, the diversification of government in the form of coalitions will also serve as necessary checks and balances on the political-bureaucratic relations and transform cadre deployment into a more acceptable practice.
It was detention time again for South Africa’s star-studded team of talented tasters. The punishment brought more pleasure than pain, as we happily glugged away at another Cape red.
Michael Olivier introduced the 2020 Carmen Stevens Merlot to EY Cova’s Duane Newman, automotive legend Jeff Osborne, Cape Wine Master Debi van Flymen, broadcaster Cobus Bester and IT legend Malcolm Macdonald.
The panel also discussed the challenges of naming and glorifying South African wines without being too subservient to their European counterparts.
Click below to listen in:
Meanwhile, do seek out Michael Olivier’s latest cookbook, which is a wonderful celebration of South African cuisine. If you already have one, buy lots more for all your friends.
An excellent choice for any time of the year
Like this podcast? Subscribe to ZA Confidential to receive our newsletters. Twitter: @zaconfidential
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