What South Africa’s matric pass rate means for universities

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South African universities aren’t doing justice even to top-performing high school graduates. Shutterstock

Suellen Shay, University of Cape Town

South Africa’s Minister of Basic Education announced a 2018 matric pass rate of 78.2% in the first week of January as well as a number of other significant achievements. These are academic results of students in their final year of high school. The results are used to gauge the state of the country’s education system. Based on this performance, the argument is that South Africa’s education system is on the right track and making steady, if slow, progress.

Whether the country accepts this or not, the question that needs to be asked is what these matric results mean for higher education, and more importantly, for the future professions that top matriculants aspire to.

One of the purposes of the National Senior Certificate – South Africa’s main school-leaving certificate – is to identify students who are sufficiently prepared for tertiary study. While tertiary education is not for everyone, the country needs a pool of talented matriculants to provide the high-level skills it needs for its economy and broader society.

So how is South Africa doing? I illustrate the progress by looking at the subject of mathematics. Mathematics develops logical reasoning and problem-solving and hence a “gateway” subject for many of the professions such as engineering, commerce and health sciences.

What do the final exam results say about the size and quality of the pool of matriculants who passed mathematics? What does their performance at tertiary level demonstrate about the pool of graduates ready to enter a workforce affected by changing work environments, particularly the rise of technology?

Small pool

The data suggest that the pool of matriculants who wrote mathematics is small and not strong. Over the past five years, significantly less than 50% of the matric final exam writers wrote mathematics as a subject. Of the 11 top subjects, mathematics is consistently the lowest performing. In 2018, out of a total of 270,516 mathematics writers, 37% passed with 40% and above. The percentage pass has been consistently between 30 and 35%.

From the point of view of selective universities who require 80% and above for programmes in commerce, engineering, science, health sciences and quantitative social sciences, the pool is extremely small. Out of the total mathematics writers, 5828 passed with distinction (80% or above) which is only 2.6% of mathematics writers.

From this very small pool, universities then compete to attract and retain these highly talented students. How well are they doing? Data collected on the past three years performance (2015-2017) of an entry-level mathematics course in one of South Africa’s selective universities shows a sobering reality: those who come in with a National Senior Certificate mathematics mark of 90% and above pass the course (with an average mean of 64%). Those who entered with a score below 90%, fail the course.

This is a course convened and taught by award-winning, highly committed teaching staff, where significant resources have been allocated to provide additional support for students, including an extended degree taught by highly experienced teaching staff.

Failure of higher education

South Africa can draw two conclusions from this data: firstly, although growing and strengthening this pool will require efforts at the primary and secondary level, the onus for growing the pool of qualified graduates lies with higher education. This underscores the argument made in 2013 by the Council on Higher Education which pointed to a systemic failure of universities because they were failing to graduate the strongest pool of students that the schooling system had to offer.

Even if the schooling system is able to enlarge the pool of matriculates passing mathematics, the data suggests that this will not inevitably result in a larger pool of students who succeed in mathematics as a gateway to their chosen field of study. There is a great deal of work to be done at the university level to grow and strengthen the pool from the existing talented school leavers.

Secondly, the problem of the “gap” between schooling completion and university preparedness is not new. Nor are solutions: South Africa has 30 years of interventions aimed at addressing this problem. However, a critical look at the high failure rates in these gateway courses (such as mathematics, physics, statistics, economics) despite a wide range of interventions would suggest that the sector is not doing as well as it should.

Perhaps some of the persistent educational problems, in part due to gross educational inequalities, require a different way of thinking. Perhaps the higher education sector needs to shift its resources from interventions for those deemed “at risk” (thereby leaving the rest unchanged) and to focus on systemic change. This means focusing on structural changes and the core business of teaching and learning itself –- curriculum that is flexible to accommodate diversity, teaching that actively engages students, an assessment that not only tests but promotes learning.

Contrary to the perception that this constitutes a “lowering of standards”, these systemic changes will profoundly raise the quality of teaching for all.

Higher education has no choice but to work with the pool of talent it receives. The challenge is how.

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Remember your sunscreen. And your sheep.

sheep

Baaaad for tourism

By John Fraser

Wow!  Who would have thought just a few weeks ago that the country would be in a tizzy over:

a) first the presence on a beach of a band of security guards, and then

b) a sheep having its throat cut on one of CT’s poshest beaches?

The racial polarisation over this issue would be hilarious, were it not so worrying.

Before my own questions on all this, here is a fairly measured statement by the CT Mayor:

CITY OF CAPE TOWN

31 DECEMBER 2018

STATEMENT BY THE EXECUTIVE MAYOR OF CAPE TOWN, DAN PLATO

City outlines actions around events at Clifton 4th Beach

The City of Cape Town will be taking a series of actions in response to the events which unfolded at Clifton 4th Beach in the last week.

In respect of events on Sunday 23 December 2018, where a private security company, Professional Protection Alternatives (PPA), were accused of requesting beachgoers to leave the beach following several alleged safety concerns, the City will be laying a complaint with the Private Security Industry Regulatory Authority (PSIRA) once its offices reopen after the festive season.

The organisation is a nationally constituted body that governs the private security industry. We are laying the complaint so that the matter can be fully investigated by the appropriate structure so that any wrongdoing can be identified and addressed accordingly by PSIRA.

In respect of events on Friday 28 December 2018, where a sheep was slaughtered during a protest on the beach, the City will serve a notice on the protest organiser as the act was performed in contravention of the City’s By-laws. It is our understanding that the Cape of Good Hope SPCA will also open a case of animal cruelty.

Many persons have asked why the City did not act. It should be noted that during public order policing situations, the South African Police Service assumes command over all policing staff on the scene. Senior SAPS officials in charge of the situation at Clifton on the day would not allow City and SPCA staff to act to prevent the slaughter.

We will be engaging with the SAPS on this matter, as well as with the Western Cape Police Ombudsman, as we cannot allow anyone to undermine City By-laws and prevent them from being implemented.

At issue was an allegation by the African National Congress (ANC) that a private security company acted inappropriately and this claim subsequently went viral on social media – at no point was an actual complaint directed via the correct channels for investigation.

The feedback I have received is that, despite the insinuation that particular races groups were targeted, all race groups were in fact asked to leave the beach; and they were asked in a peaceful, non-aggressive manner. PSIRA will have to get to the bottom of this, but to manipulate this information as has been done over the past week is disgusting and plays on the emotions of many.

Going forward, we remind the public that our facilities are open to all and that only uniformed City staff have the power to enforce by-laws.

Anyone else who claims to have such powers is likely impersonating a peace officer, which is an offence.

Furthermore, we encourage visitors to City-owned public facilities to report any problems or concerns about the conduct of staff or any person claiming to have peace officer status to our 24-hour hotline on 0800 32 31 30, which is monitored by an independent service provider.

Any safety concerns or requests for emergency assistance can be directed to the City’s Public Emergency Communication Centre by dialling 021 480 7700 from a cellphone or 107 from a landline.

End

Issued by: Media Office, City of Cape Town

OK?   Well, I have a few questions:

Given the sensitivity of the issue, why did we not immediately know exactly what happened when people were asked to leave the beach?   Why were they asked to do so?   If there was no racial discrimination, why was the situation not immediately diffused by a statement to that effect?  Sorry, Mr Mayor.  This was a fuck-up of note.

Why was there no clear plan to prevent the sheep slaughter on the beach?  Why were the correct authorities not deployed – early and in force?  If the SAPS had the authority, why no proper liaison with the City?  Which political and police authorities were incompetent?  Or has some other agenda?  They must be identified and sacked.

There is, as yet, no law preventing people who do well from purchasing expensive properties in Clifton, and other seaside spots, and enjoying the lifestyle.

Equally, there is no reason why people who follow the law and behave responsibly should be stopped from enjoying each and every one of our public beaches.

All of this is a very dangerous storm in a turbulent teacup.

Instead of making it all go away, the bungling authorities have taken a tense situation and made it far, far worse.

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Jeeves and the artisanal gin fad (with apologies to PG Wodehouse)

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 By David Bullard

I’d just popped into the old flat after lunch at the Drones in time to catch the news on the wireless that some political Johnny had threatened to kill five white people for every black person killed.

Now killing a couple of surplus-to-requirement aunts or even Sir Roderick Spode would have been fine in my book, and I may well have mailed the killer a fiver or two as a sort of inducement. But killing perfectly decent, law-abiding chaps whose only vice in life is to overstay their welcome at lunch, or put some money on the gee-gees, is a bit rich. I don’t mind saying I was a somewhat unsettled and in need of some refreshment.

As if by some sort of telepathic miracle, in shimmered Jeeves. Now, for those of you who haven’t kept up with my past adventures (shame on you) Jeeves is my valet. He prefers to call himself my gentleman’s personal gentleman, but valeting is what I call it. And he’s very good at it, particularly as he has the uncanny ability to anticipate the young master’s needs.

For example, I was late dressing for dinner at the Kelvin Grove one evening and had misplaced a cuff-link. Couldn’t find the bally thing anywhere when in floated Jeeves (he does sort of float rather than walk) with a perfectly serviceable pair of spares. I hadn’t even let out a wail of distress, and yet somehow he knew I was experiencing grief in the lost cufflink department.

Anyway, back to the story and the need for some refreshment to soothe the troubled brow, with the threat of genocide looming.

“Jeeves,” I said. “I think I’d like one of those local artisanal gins I’ve been reading so much about lately. You know the ones: they lob in some fynbos or black pepper and strawberries and charge double the price of normal gin for the bottle”.

Jeeves coughed discreetly.

“I shouldn’t advise it, sir.”

“And why jolly well not?” I demanded of him.

“Well sir, if you permit me saying so, they are what I believe is known as a ‘rip off’ among the gin cognoscenti. Gin is traditionally made with juniper berries and that formula seems to have worked well thus far.

“To add garden cuttings and bits of left-over vegetable matter to the solution adds, in my opinion, no great value. Particularly as gin is usually drunk with something sweet and sickly like tonic water”.

I felt I had to remonstrate with the man: “But Jeeves, my dear, deluded valet, they come in very fancy bottles, they’re locally-produced, and they cost twice as much as imported gin. They must be better”.

He hit back: “It’s a common misconception I fear, sir, that if something costs a lot of money it must be more valuable than something that doesn’t. Many owners of Breitling watches would no doubt agree with me. However, a closer examination of the labeling on a gin bottle reveals a uniform alcohol content of 43% by volume. Without wishing to labour the point, sir, five doubles of any of the artisanal gins in question will have much the same effect on your driving skills as five doubles of the cheaper variety. And with your morning-after headache, you’ll have the residual taste of whatever was added to the mixture to add to your misery.

“Now, if you’ll excuse me, I will mix your usual London gin and tonic with a dash of Angostura bitters and a twist of lemon”.

“But Jeeves” I pleaded, “I’ve been collecting all sorts of fancy gins these past few weeks. Even one from my old chum David Bullard, the disgraced ex-scribbler. What am I to do with them?”

Jeeves sniffed in that sniffy sort of way he has.

“I have taken the liberty of donating them to a local organization where I am sure neither price or quality will be of any consequence. The ANC Women’s League are having their Christmas party next week and Mrs. Dlamini was a most grateful recipient. She asked me to wish you Joyeux Noel”.

David Bullard is an accomplished luncher, wit, and writer

SA may need crisis plan if there is a hard Brexit

teresa-may

Embattled Theresa May

By Raymond Parsons

The latest U.K. political developments regarding Brexit now need to be closely monitored by SA to protect its economic interests in the event of a hard Brexit on 29 March 2019.

There remains a great deal at stake for SA in the eventual outcome of Brexit, as the EU and the U.K. are SA’s largest trading partners. The decision by the U.K. Government to delay the Parliamentary vote on the Brexit deal has now pushed the process back into uncharted waters.

The real danger now exists that the U.K. may well crash out of the EU without a withdrawal agreement and, if that occurs, it would have serious ripple effects through key parts of the international trading system and supply chains, including SA.

If a worse-case no deal scenario happens, Britain would immediately change from the trade rules of the EU to those of the World Trade Organisation (WTO). Its economy would then also become subject to the EU’s common external tariff and customs requirements.

Changing to WTO rules is however more than about tariffs, and involves other legal and economic changes which would seriously affect many sectors of the U.K. economy with whom other countries do business.

Trade beyond the EU, such as with SA, might also be involved, as many trade deals Britain benefits from were negotiated through the EU, and would lapse with a no-deal Brexit. It would also require the imposition of a hard border between the Republic of Ireland and the six U.K. counties of Northern Ireland.

Various institutions, including the UK Treasury and the Bank of England, have emphasised the heavy economic cost of a potential Brexit no-deal for the U.K.

The International Monetary Fund estimates that, in the event of a no-deal, the U.K. would lose about 5% of its GDP within a few years – the Dutch, Danes and Belgians would lose 1% or more as well.

The Irish would probably lose about 5% of their GDP. And although the expected fall in the pound would be helpful to exporters, the resultant inflation and potentially higher interest rates are seen by some analysts as presaging a shrinking U.K. economy with much less market potential in future.

For SA, there will eventually be both risks and opportunities in the event of a hard Brexit in March 2019. A fresh audit of the latest EU-U.K. economic developments therefore needs to be made.

It is important now that both government and the business sectors in SA most affected by Brexit remain alert to the possibility of a no-deal Brexit as one possible outcome and how it might affect key EU-UK-SA economic relations.

It may be necessary to evolve contingency plans to ensure that SA’s economic interests in the U.K. and the EU are adequately protected and any likely disruption to trade be kept to the minimum.’.

Professor Raymond Parsons is at NWU

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Ramaphosa is missing an economic policy. What needs to be in it.

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South Africa needs a new economic policy that envisages an overhaul of the power utility Eskom, which can’t keep the lights on.
EPA/Nic Bothma

Mark Swilling, Stellenbosch University

As the entrails of the era under South Africa’s former president Jacob Zuma continue to be exposed each day before a commission set up to investigate corruption, so the country witnesses the consolidation of the political project spearheaded by the new head of state Cyril Ramaphosa.

But a key piece of the puzzle is missing: Ramaphosa’s government doesn’t have an economic policy. All that’s been forthcoming is a stimulus package, plus two summits – one on jobs, the other on investment. Do these add up to an economic policy?

The answer is no. Here’s why.

I agree with South African economist Duma Gqubule that the stimulus package is a mix of short-term stimulus measures and longer-term structural transformation measures, without doing justice to either. The short-term measures don’t include the usual elements of a stimulus package such as lower interest rates and increased spending. And the longer-term structural transformation measures, such as the infrastructure investment programme, is nothing new.

More importantly, the longer-term vision ignores the changing nature of the global economy. This is being transformed by three factors: new information and communication technologies, the renewable energy revolution and the recomposition of work, as old jobs fall away and new ones created.

South Africa urgently needs a coherent economic policy that takes account of these realities. This can’t be driven by an industrialisation strategy that relies on 20th Century capital intensive sectors like mining, chemicals, pharmaceuticals and the military. Many are in decline. Take coal mining: mines are being closed as countries switch to renewable energy, which is now cheaper than fossil fuels in nearly 100 countries, including in South Africa. Investment in renewables in 2017 was R280 billion, twice what was invested in fossil fuels and nuclear combined in that year.

And the new policy mustn’t be written only by economists, as in the past. Economists need to work with South Africa’s scientists.

South Africa has dug itself into a deep hole. Ramaphosa’s efforts to root out corruption are a good – but not sufficient – first step to getting the economy onto a sound footing.

The history

The recent resignation of Home Affairs Minister Malusi Gigaba from government should not be underestimated. It was on his watch, as head of several ministries, that the influential Gupta family, which sits at the centre of the country’s web of corruption, secured a free hand to “capture” key state owned enterprises. He, together with other ministers, agreed to participate in a political project that resulted in a silent coup that effectively marginalised and hollowed out the African National Congress (ANC). The goal was to capture and repurpose state institutions.

Gigaba represents a generation that has done okay under the ANC since 1994, but want to do a whole lot better by grabbing their share of key sectors. They gambled on the alliance with the Zuma-Gupta network. And burnt their fingers.

Zuma was elected president of the ANC at its Polokwane conference in 2007 on the back of a wave of discontent. Black business was no longer willing to hang onto the coattails of white business; trade unions were fed up with limited state intervention; the ANC was unhappy with the centralisation of power in the presidency; and provincial leaders felt snubbed.

After some years of dithering, what became known from 2014 onwards as “radical economic transformation” was in fact a strategy to build a black industrial class by using the procurement spend of around R200 billion by the country’s state owned enterprises.

In theory, not a bad strategy. After all, this is a way of using state resources to build real assets owned by black people. As recent research showed, 90% of all assets are owned by 10% of the population, most of whom are white.

To operationalise the strategy speedily it was necessary to circumvent the legal framework. For that, brokers who were prepared to take the risks were needed. And so, enter the Guptas. A host of politicians were drawn into the web as well as South African and global businesses, including KPMG, McKinsey, SAP, T-Systems and Bain.

Chicken and egg: investment and growth

During the recent investment summit Ramaphosa grandly announced that the “investment strike” was over.

But many economists, such as Professor Adrian Saville, argue that investment never drives growth. Instead, investment follows growth.

In theory, heavy state investment in infrastructure (as promised in the stimulus package) is a good thing. But what matters is the type of infrastructure and how private investment is crowded in, without flipping into privatisation (which has its own set of challenges). For example, the massive investment in renewable energy (over R200 billion) since 2011 would not have happened if the state did not reduce risk by providing guarantees for the loans.

Given South Africa’s vast array of state owned enterprises, which includes the power utility Eskom as well as the national airline SAA, it’s obvious the country needs an economic policy that prioritises their investments. Yes, most need to be cleaned up and refinanced. But that is not enough. Radical thinking needs to be applied to entities such as Eskom, which has requested a R100 billion bailout.

Its role could be redesigned entirely. But a plan for a complete overhaul would be best served by merging the country’s best economic and scientific thinking. Together, they could generate an economic policy that puts energy at the centre. In line with global trends, this would need to be renewable energy, because it creates more jobs, is distributed across small towns rather than concentrated in a few industrial nodes, and can drive a new job-creating industrialisation strategy.

In short, South Africa needs a policy that drives growth and positions South Africa for the 21st Century. For such a policy to work, the country will need an effective and capable state. And the great divide between science and economics must be bridged.The Conversation

Mark Swilling, Distinguished Professor of Sustainable Development, Stellenbosch University

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

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What is Eskom trying to hide?

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By Chris Gilmour

Once again, power utility Eskom has come to spoil the festive spirit for everyone with its rotational power cuts (referred to in Eskom-speak as load-shedding). This hasn’t been a feature, thankfully, for quite some time now and most of us would be forgiven for thinking that the appointment of a new board at the beginning of this year should have put an end to power cuts.

But no – as we are in the dark literally regarding the physical lack of power, we are also in the dark figuratively about what has caused this dire situation. If this carries on much longer, not only will many peoples’ festive seasons be ruined, but economic growth will undoubtedly begin to suffer as well.

But this time around there is a different feel to that during previous rotational power cuts. It’s as if this shouldn’t really be happening – and yet a cadre of individuals at the top of Eskom and within the ANC government appear to know precisely what is going on, but are not giving us the full story.

Eskom is in deep trouble, not just at an operational level but also regarding its financials. Not only can it no longer provide a reliable source of energy; it is extremely doubtful whether it remains a going concern. With R419 billion of debt, there is no way that it can trade its way out of the mess in which it finds itself, an observation endorsed by chairman Jabu Mabuza’s remarks at the recent results presentation in which he said the current situation was “not sustainable”.

Adding spice to the story is a report from the Mpumalanga Chamber of Commerce that states unequivocally that substantial coal stocks are piling up in that province, with Eskom showing no evidence of urgency in procuring this coal.

According to Eskom, the current situation is as a direct result of a lack of maintenance of its power plants, especially in the past couple of years, with ancillary factors being a loss of power from Cahora Bassa in Mozambique due to power lines being down, a shortage of diesel to operate the two open-cycle gas turbine (OCGT) plants in the western Cape and a lack of head of water to properly operate pumped storage systems properly.

The poor maintenance has resulted in a number of plant breakdowns (unplanned maintenance in Eskom-speak). To try to get a handle on just how bad this situation is, it is necessary to take a long, hard, look at Eskom’s total electrical generating capacity.

Currently the utility operates a fleet of 13 coal powered stations whose commissioning dates range from 1966 (Komati power station) to 1996 (Majuba power station). There are two other coal-fired stations being built, Medupi and Kusile, but both are years behind schedule and only a few units from each are currently supplying power to the national grid. Once Medupi and Kusile are both fully commissioned around 2022, the gap between new builds will have been 22 years.

There is a solitary nuclear plant at Koeberg in the western Cape, which produces approximately 1 800 Megawatts (Mw) of power. The thirteen coal-fired plants have a combined nameplate output of 37 530Mw. Thus, coal and nuclear combined can produce 39 330Mw of power. These stations produce what is referred to in the industry as “base-load” power. In other words, this is the basic power that is produced on a continuous basis, day and night, except when stations are switched off for essential maintenance.

In addition to these base-load stations, Eskom also derives power from a variety of other sources, including Open-Cycle Gas Turbines (OCGTs), hydro power, a variant of hydro power called pumped storage power, as well as buying power from the Cahora Bassa hydroelectric scheme in Mozambique. OCGTs, as the name suggests, were originally intended to run on natural gas, but have been modified to run on significantly more expensive diesel.

Eskom’s two OCGTs produce approximately 2 000Mw combined, while its four small hydroelectric plants – Palmiet, Gariep, Vanderkloof and Port Rex – have a combined capacity of approximately 1 000Mw. The two large pumped storage systems – Drakensberg and Ingula – do not produce additional electricity in their own right but are able to produce power at peak times

Eskom also has a power purchase agreement with an independent OCGT operator called Avon, which operates two diesel-powered plants called Avon and Dedisa – that collectively produce 1 000Mw of power when required.

And then there is renewable energy, comprising a number of solar and wind farms dotted around the country. These are mainly owned by the private sector and have been steadily producing power, in terms of the Renewable Energy Independent Power Procurement Programme (REIPP), for a number of years.

Opinions vary as to how much capacity is available from this source, but a figure of around 6 000Mw seems to be the consensus view. However, due to the intermittent nature of wind and solar power, only a percentage of this capacity can be relied upon at any given time. Industry experts usually agree on 25%, and thus the total available from renewables is probably no more than 1 500Mw.

To dimension just how bad the situation is, consider this: Eskom is able to produce around 45 000MW of electricity, if all plants are working at nameplate capacity and there are no breakdowns, planned or otherwise. It also has access to at least another 4 000MW in the form of electricity from Cahora Bassa and the combined output from independent suppliers, either in the form of renewable or non-renewable energy.

That is a total of around 49 000MW. In the first week of December, demand was running at around 29 000MW and from the 10th of December to the end of December, it is unlikely to exceed 25 000MW. Is it conceivable, therefore, that Eskom has outages totalling 24 000MW on any given day?

If so, the utility is plumbing new and uncharted depths in its breakdown patterns. And if that is indeed correct, it is exceptionally worrying and highlights the extent of Eskom’s operational problems.

Eskom hosted a media conference at its Megawatt Park HQ last week and Minster of State-Owned Enterprises Pravin Gordhan was in attendance. It appeared to be a full and frank discussion, and questions appeared not to be deflected to any great extent. Gordhan pointed out that the new build programme was disappointing – not only in terms of the time and cost over-runs, but also in terms of the generators at Medupi not meeting nameplate output.

We can draw some solace from the weekly status reports that Eskom supplies on its website. This shows that demand is forecast to plummet from the week beginning Monday 10 December, as industries wind down for the holiday period and families go on vacation. And yet, as this column is being written (Sunday 9 December) we have been subject to another Saturday of rotational power cuts. Something is seriously amiss.

There are those of a conspiratorial turn of mind who have suggested that Eskom is engineering this crisis with a view to turning public and government opinion in the direction of looking seriously at some type of privatisation.

It is rumoured that Eskom has already presented a turnaround plan to government that envisaged some sort of private sector involvement, splitting the utility up into its component parts of generation, transmission and distribution and widespread retrenchments. Understandably, government is believed to have been spooked by such a suggestion, just months away from a general election in May 2019.

It is not clear how Eskom can extricate itself from the mess in which it finds itself. The utility was hollowed out during the Zuma years, undoubtedly, but had been limping along long before that. When the utility was established in the early 1920s, its main aim was to provide cheap, reliable energy to the mines and industry.

Residential supply came much later and gradually replaced the host of municipal power stations that had been built up until the 1950s. To be sure, Eskom only catered for the white population from inception until the late 1980s/early 1990s. But with the dawn of democracy, it really came to the party in terms of electrifying the townships. Properly managed, Eskom could have been a genuine force for good in South Africa – but instead, it was hijacked for political purposes and has been badly mismanaged for over 20 years. There is now more than a 20-year gap in supply, due to Eskom prevaricating over its new build programme. The utility went from a huge over-supply situation to being in deficit in a remarkably short space of time and it has never really managed to catch up.

Thanks to successive substantial price increases over many years, Eskom’s global price-competitiveness has now totally evaporated. It has gone from being one of the cheapest global suppliers of electricity to being in the mid to upper band. And that situation will only get worse if the electricity regulator, NERSA, grants Eskom it 15% increases over the next three years.

Electricity demand has been falling in South Africa for a number of years now, due to a variety of reasons but predominantly because consumers are unable or unwilling to pay the expensive tariffs now demanded by Eskom.

There is a solution to Eskom’s situation, but it is one that is politically unpalatable. It is not too far removed form the plan that is rumoured to have been presented to government recently. First, Eskom must be split into its three component parts of generation, transmission and distribution.

Then the private sector must be invited to participate either in part or in whole. The private sector would leap at the chance of participating in distribution and transmission but there is unlikely to be an appetite for Eskom’s old and broken power plants. The various businesses will require to be streamlined with the attendant job cuts.

The consequences of maintaining the status quo are horrific. Eskom needs large chunks of institutional money, and fast. But with a rating deep in junk territory, it cannot in all conscience even consider taking on more debt. It has asked government for a R100m bailout, but unless extremely tight conditions are imposed, it will be yet another example of throwing good money after bad in another failed state-owned enterprise.

If it doesn’t get a bailout, it will limp along, attempting to patch up its creaking infrastructure and hoping that the highly-trained individuals at its operations nerve-centre at Simmerpan in Ekurhuleni continue to manage supply and demand.

If they don’t manage this delicate demand and supply balance, Eskom’s worst nightmare could result-a total breakdown of the entire system.

That would plunge the country into a situation from which it would be difficult and time-consuming to recover. Provided there is water in the two reservoirs at the Drakensberg and Ingula pumped storage systems, Eskom could use these two stations to attempt what is known in the industry as a “black start”. A black start is the equivalent of applying a defibrillator to the system, hoping that the grid can be gradually brought back up into service. Opinions vary as to how long the situation would persist, but most experts agree that it would take at least two weeks to get the power stations up and running again and synchronised to the grid.

This is a worst-case scenario and the odds of it occurring are extremely low. But in a dysfunctional utility like Eskom, with a continuing loss of institutional memory and operational ability, it remains a possibility.

Let’s just cross our fingers (or in South African parlance hold thumbs) that this cataclysmic situation never materialises.

Chris Gilmour is an Investment Analyst|Commentator|Writer

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Auto makers win a major battle against BEE

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 must be wary of being perceived as big shits

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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Cyril’s European travels began too late

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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Explained: lessons from the collapse of a small South African bank

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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.


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.The Conversation

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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