BUSINESS
A publication for progressive business
CULTIVATING A SUSTAINABLE DEVELOPMENTAL STATE IN SA A WORLD IN FLUX The international and domestic economies are on a rollercoaster recovery
THE STATE OF SOEs South Africa’s developmental backbone needs to be straightened out
THE TURKEY CONNECTION A growing bilateral trade partnership that holds great promise
SOCIO-ECONOMIC CATALYSTS Coega SEZ fast-tracks five major developments to boost the economy
Issue 22 | December 2021
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Infraburo (Pty) Ltd was founded in March 1997 as a civil and structural engineering firm with offices in Centurion, Polokwane, Thohoyandou and Vryburg. SERVICES OFFERED: • Project management • Feasibility studies and Master Planning • Design of bulk water supply pipelines, pump stations and reservoirs • Design of outfall sewers and pump stations • Refurbishment of rural water supply networks • Rehabilitation of existing road infrastructure as well as condition assessment thereof • Design, construction management and supervision over the construction of rural, urban and provincial roads including all associated structures • Municipal infrastructure • Design and implementation of projects involving labour intensive construction methods such as roads, water reticulation and sewer drainage systems • Rural Water Supply and Sanitation Infraburo is committed to professional integrity and strives to deliver work of outstanding quality based on sound business principals to the benefit and improvement of the lives of the communities involved.
Centurion: 1032 Clifton Avenue, Lyttelton Manor Ext 3 Rudolph Dippenaar (082 874 3318) Polokwane: 10 Hans van Rensburg Street Willie Smit (082 856 5032)
Thohoyandou: Old Library Building, Unit A, Sibasa Rudzani Netshampofu (082 878 5552)
Vryburg: 58 Vry Street Rudzani Magadagela (076 266 8192)
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CONVENOR’S MESSAGE
SOUTH AFRICA WILL RISE AGAIN
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he articles in this edition cover a broad area of interest and range: stateowned enterprises; an economic outlook for 2022, and those dealing with agriculture, trade and business matters. We trust you will enjoy them. By the time readers have sight of this edition, we would have, among many others: • The coalitions government will be in place, in most of the municipalities; • the Minister of Finance, Enoch Godongwana will have presented the Medium Term Budget Policy Statement, that set the tone for planning and funding of government programmes; • the Kwazulu-Natal government has hosted a successful Intra-Africa Trade
Fair, 15-21 November 2021, which focused on continental free trade, singlemarket for goods and services across 55 countries, aimed at boosting trade and investment across Africa and beyond, with international trade organisations and agencies providing routes into markets outside Africa, tourism, creative industry and infrastructure investment; • celebrated the festive season; • heralded the start of the New Year; • been preparing for the celebrations of the 110th anniversary of the founding of the ANC; • and the Parliamentary legislative year would be on the brink of commencing with the State of the Nation Address (SONA) to be delivered by President Ramaphosa. Each of us can recall highlights of the past year, but perhaps most significantly we will recall these while conscious of the urgency of renewed efforts to reinvigorate the economy in the light of the Covid-19 pandemic. Those combined efforts were so well encapsulated in the President’s remarks of resilience in the SONA last year, when he said: “At least once every 20 years, fynbos must burn at extremely high temperatures to allow the ecosystem to be rejuvenated and grow afresh. Throughout the summer, the burned foliage lies desolate. But when the autumn rains return, the seeds germinate, and its life cycle begins all over again. The mountains bloom with new life as plants which once seemed lost grow back even stronger than before.
“We, the people of South Africa, have over the past year experienced a terrible hardship. Like a wildfire that sweeps across the mountainous ranges where the fynbos grows, a deadly pandemic has swept across the world, leaving devastation in its path. “And yet, like the hardy fynbos of our native land, we too have proven to be resilient in many ways. “For three centuries, we were victims of oppression, dispossession and injustice. And for three centuries, we resisted. The flames of injustice may have scarred us, but they did not consume us. The rains of democracy brought rejuvenation and the birth of a new nation. “We have risen time and time again from the depths of darkness to herald a new day. As we look on the grave damage that this disease has caused, we know that like the fynbos, like all those who have walked this land before us, we will rise again.” Those words serve to inspire us to work together, to unite us in our efforts and to demonstrate the resilience for which South Africans are known. The focus then of this Convenor’s message is therefore to encourage our collective efforts of rebuilding, regrowth and of support for each other as we strive for the future we can achieve and which is within our grasp. The PBF lends its voice to calls for more South Africans to get vaccinated and, in so doing, to borrow from the President’s address to the nation in September 2021: “Kick our economic recovery into high gear.”
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CONVENOR’S MESSAGE
Looking ahead Our programme of activities and engagements will commence, of course, early in January of the New Year. Subscribers will know that engagements with various foreign Missions based in South Africa, to explore and promote enhanced business opportunities between subscribers and the businesses of those represented countries, is ongoing. We will keep subscribers informed as these events take shape and come to fruition from January. In closing, we are reminded of and are motivated by the inspiring words of
former President Thabo Mbeki, from his address “I am an African”: “Whatever the setbacks of the moment, nothing can stop us now! Whatever the difficulties, Africa shall be at peace! However improbable it may sound to the sceptics, Africa will prosper! Whoever we may be, whatever our immediate interest, however much we carry baggage from our past, however much we have been caught by the fashion of cynicism and loss of faith in the capacity of the people, let us err today and say – nothing can stop us now!”
We look forward to your ongoing active participation in programmes of the PBF in 2022, confident that together we can ensure that our engagements will be fruitful and positive. Happy New Year!
Sipho Mbele CONVENOR
Convenor Sipho Mbele
Managing Editors Alwyn Marx and Olivia Main
Chief Albert Luthuli House 54 Pixley Ka Isaka Seme Street Johannesburg
Art Director Clare Schenk
PBF Editorial Team Stephen McQueen, Seth O’Dea, Miranda Abrahams-Hermans
Contributors Andile Ntingi, Ayşegül Kandaş, Clement Marumoagae, Lulama Lobola, Nqaba Ngoyi, Simthandile Kholelwa Myemane, Ulrich Joubert, Vernon Subban, William Gumede
Images shutterstock.com Business Update is published by Yes Media. Opinions expressed in Business Update are not necessarily those of Yes Media, the ANC or Progressive Business Forum. No responsibility can be accepted for errors, as all information is believed to be correct at the time of going to print. Copyright subsists in all work in this magazine. Any reproduction or adaptation, in whole or in part, without written permission of the publishers is strictly prohibited and is an act of copyright infringement which may, in certain circumstances, constitute a criminal offence.
Publisher Yes!Media Suite 20-301B Waverley Business Park, Kotzee Road, Mowbray, Cape Town PO Box 44383, Claremont 7735 Tel: +27 21 447 6467 www.yesmedia.co.za Printed by CTP Printers
National Sales Manager Jan Weiss
Project Sales Crosby Moruthane Christa Nel
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A LEADING TURNKEY Professional Services firm in health care infrastructure development. Our services include healthcare facility planning, health technology (medical equipment) planning, facility design, project management and facility commissioning.
WE BELIEVE IN THE POWERFUL IMPACT OF WORLD-CLASS HEALTHCARE. Current projects SOUTH AFRICA • Limpopo Central Hospital • Siloam Hospital • Sipetu District Hospital • Sebokeng Hospital (Infant Care Complex) • New Head Office (RTMC) • New Training College (RTMC) • Nelson Mandela Academic Hospital (Oncology, ICU) ANGOLA Luanda Private Hospital ZIMBABWE The Avenues Woman & Child Hospital
Previous projects SOUTH AFRICA • Cecilia Makiwane Hospital • Frere Hospital (Oncology, ICU) • Thabazimbi District Hospital • Letaba Regional Hospital • Ngwelezane Hospital (Paediatric Burns Unit) • Lilitha College of Nursing • Eastern Cape Health Facilities Maintenance MOZAMBIQUE • Nampula General Hospital GAMBIA • Horizons Private Clinic (TA for AfDB) NAMIBIA • Otjiwarongo Referral Hospital • Ondangwa District Hospital • Khomas District Hospital • Katutura Hospital • Windhoek Central Hospital
SAKHIWO – Leaders in Health Infrastructure Development SAKHIWO Health Solutions is committed to delivering functional health facilities. Following the commission of a health facility Sakhiwo offers Health Technology Management as well as Health Facility Maintenance Management. Health Technology Management includes asset management, preventative and reactive maintenance, repairs as well as equipment procurement and replacement. In Health Facility Maintenance Management we seek to keep the plant, machinery and fabric of the buildings in an optimal and functional condition. These services are supported on an IT platform that includes a building management system and a helpdesk amongst others.
Sipetu District Hospital: Showcasing Our Industry-Leading Expertise Sipetu District hospital is in the Alfred Nzo District Municipality, located on the north-eastern side of the province of the Eastern Cape, and stretches from the Drakensberg Mountains, bordering Lesotho in the north, Sisonke District Municipality in the east, and O.R. Tambo District Municipality in the south. Sipetu District Hospital is a level 1 facility currently accommodated in a dilapidated building structure in Ntabankulu. It is situated about 47 km from Mount Frere, 127 km from Mthatha hospital and is about 30 km from the N2 road, connected with a gravel road which is in a poor condition. The need for a review of the current facility dates back to the years 2007 / 2008 during which a feasibility study was undertaken to ascertain action required in respect of the existing hospital and provision of quality healthcare to the communities in and around the Ntabankulu area. The project construction was split into two phases. The first phase was earthworks and bulk services which was tendered, and a successful bidder appointed in September 2013 to completion in September of 2014 at an approximate value of R25 million.
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The second phase constitutes the construction of the main hospital complex and staff housing which was subsequently tendered, and a successful bidder appointed in August of 2016. The project value is approximately R560 million. This phase is currently in progress, and is due for completion in the last quarter of 2021, amidst the delays due to lockdown restrictions imposed as a result of the Covid-19 pandemic. The post physical construction phase includes the commissioning and de commissioning of existing facilities, organisational development, change management, information communication technology and the physical move from the old building into the new one. The objective here is to ensure a seamless move from the current facilities into the new building so as to minimise disruption to service delivery. This project showcases yet again Sakhiwo’ s industry-leading expertise and experience as a turnkey professional services provider in the development of health facilities.
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CONTENTS 10 COVER STORY
26 AGRICULTURE
40 AUDITING LAW
16 ECONOMY
30 INSURANCE
44 LABOUR LAW
African economies would do well to follow the example of the People’s Action Party (PAP) in Singapore. By William Gumede
The rand remains volatile in 2022 as the world economy continues to recover from the Covid-19 pandemic. By Ulrich Joubert
21 PROFILE
A village in the rural Eastern Cape is showing why black farmers need more than land to thrive. By Andile Ntingi
Knowing the ins and outs of product recall insurance is vital to your business’s survival. By Vernon Subban
32 DEVELOPMENT
Meet Enoch Godongwana, SA’s new Minister of Finance.
Five major projects from Coega SEZ will rapidly advance socio-economic development and boost employment.
22 SOEs
34 TRIBUTE
24 INTERNATIONAL RELATIONS
36 TAX LAW
Healthy SOEs hold the keys to strong economic growth and the reduction of poverty. By Isaac Matshego
The Turkish Ambassador shares why her country continues to build ties with Africa. By Ayşegül Kandaş
Freedom fighter Lilian Ngoyi’s great grandson pays tribute to an unsung hero. By Nqaba Ngoyi
When and why is the sale of immovable property eligible for income tax? By Lulama Lobola
Why appointing a credible auditor for your legal practice is crucial and what to look out for. By Simthandile Kholelwa Myemane
The Companies Act makes provision for employees’ rights when a company is placed under business rescue. By Clement Marumoagae
46 BOOK REVIEW
The New Success Paradigm: A Personal Leadership Discovery Platform by Stephen Lyall Engels gives leaders the tools to change themselves and their organisations.
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A MEDIUM-TERM BUDGET
FOR ALL SEASONS
What should come as a major relief to businesses impacted by the Covid-19 crisis is the new business support measures that will enable affected businesses to bounce back, says ANC Treasurer General, PAUL MASHATILE
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inance Minister Enoch Godongwana’s maiden Medium-Term Budget Policy Statement was well received. It ticked all the boxes, and it struck all the right chords. This is despite the Statement being presented under unprecedented conditions, occasioned by the sacring impact of Covid-19 on economies worldwide and the July unrest never seen before in post-apartheid South Africa. Most analysts applauded Godongwana for maintaining the delicate balance between strengthening our country’s response to Covid-19, by providing additional shortterm support to protect the poor and vulnerable while at the same time ensuring
fiscal sustainability, enabling long-term growth by narrowing the budget deficit and stabilising debt. “The budget was a balancing act,” one analyst was quoted as saying. Counting in Godongwana’s favour was a commodities boom that saw government collecting R120-billion more in tax revenue than previously projected. This allowed for the provision of additional support for poverty and employment programmes, without retreating on the equally important agenda of fiscal sustainability. But the commodities boom was temporary, as precious metal prices had started to soften especially in the second half of this year. In this regard, Godongwana could not commit this short-term revenue windfall to longterm expenditure programmes. This was the right thing to do. The medium-term budget was presented in an environment of uncertainty in the global economy as well as sluggish growth of the local economy – growth of the South African economy, although expected to bounce back by 5.1% in 2021 from a 6.4% contraction in 2020, is expected to average 1.7% over the next two years. This level of growth is simply not enough to enable a comprehensive response to our country’s multi-layered developmental challenges. Faster and higher levels of economic growing are required. Faced with this reality, Godongwana spent time outlining the reforms necessary to ignite faster economic growth. These reforms include ensuring a stable energy supply, reducing the risk of loadshedding and accelerating the transition
55 new projects from various sectors valued at around R595-billion with a funding gap of around R441-billion were recently unveiled to renewable energy sources. Ultimately, the goal must be to create a competitive energy market which will help contain the costs of generating electricity and support economic growth in the long run. Another set of reforms are about improving the efficiency of South Africa’s logistics infrastructure to support export growth and competitiveness. Progress is being made in this regard following the announcement of the corporatisation of Transnet’s National Ports Authority and the allowing of third-party access to the freight rail network by Transnet Freight Rail. The corporatisation of Transnet’s National Ports Authority will create incentives for efficiency and competitiveness between port service providers – reducing delays, improving services and introducing cost discipline. Allowing private rail operators to use the freight rail network will bolster system volume and capacity. The reform agenda must also include the speedy resolution of issues blocking the release of high demand spectrum and making affordable data available to firms and households.
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TG’S MESSAGE
Godongwana announced that as part of boosting tourism and attracting rare skills, the now completed e-Visa system will be rolled out to 15 countries by March 2022. Progress is also being made in reforming the water sector. This includes the establishment of a National Water Resource Infrastructure Agency, which will be responsible for the management of bulk water resources – a critical intervention aimed at improving the ease and reducing the cost of doing business. Godongwana also called for changes to the regulatory environment, replacing red tape with smart tape, and shortening the turn-around times on regulatory approvals. Fundamentally transforming the structure of the South Africa economy – to shift from low growth and low labour absorbing sectors, to those that offer high growth, high productivity and greater labour absorption – will also be crucial to igniting growth. So too will be a programme of aggressive investment in infrastructure focusing not only on network industries
but also on providing infrastructure that meets the basic needs of the people of South Africa. Policy coherence and certainty across government, improving the capacity of the state to execute as well as strengthening intra-Africa trade and investment will also help boost growth. Godongwana announced that for this year, the infrastructure project pipeline totals R1-trillion. In addition, 55 new projects from various sectors valued at around R595-billion with a funding gap of around R441-billion were recently unveiled. Partnerships with the private sector will be required to fill this funding gap. He also announced that different forms of support to township, inner city and rural enterprises will be investigated. What should come as a major relief to businesses impacted by the Covid-19 crisis is the replacement of the mildly successful government backed loan guarantee scheme with new business support measures to enable affected businesses to bounce back.
These measures include the provision of expanded funding options, and broadening the types of financial institutions which can provide this relief funding to include development finance institutions and non-banks. Further details of this intervention will be announced in the February budget. Furthermore, an additional allocation of R11-billion was made available to the state insurer SASRIA to enable it to continue settling legitimate claims from businesses damaged during the July unrest. All in all, the 2021 Medium Term Budget Policy Statement responded very well to the unprecedented challenges of our time. In the words of one analyst, “… the statement was a breath of fresh air.” In response, the bond and currency markets rallied. As a result, our government could, for a while, borrow cheaply allowing it to have more money available for social spending as well as spending on productive areas of the economy. We look forward to this trend continuing.
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COVER STORY
CULTIVATING A SUSTAINABLE DEVELOPMENTAL STATE IN SA Singapore’s People’s Action Party (PAP) offers valuable lessons for the ANC and other African liberation and independence movements, in how to turn themselves into effective developmental parties, which can come up with and manage complex development strategies that are needed to turn ethnically diverse former colonies into highly industrialised, racially inclusive and peaceful countries. WILLIAM GUMEDE reports
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ingapore’s People’s Action Party (PAP) used its postcolonial hegemony better than Africa’s dominant independence and liberation movements, to transform Singapore within one generation from dirt-poor at independence from Great Britain in 1965, to a highly developed economy. In contrast, most African countries within one generation became significantly poorer than they were at independence from former colonialism. By delivering industrialisation, widespread prosperity and racial peace, the PAP ensured its continued legitimacy. Almost all African independence and liberation movements, who have been successful in opposing colonial or apartheid regimes, have failed to use their hegemony over their societies to make the transition as governing parties who can successfully manage such intricate state-building, industrialisation and development, so successfully implemented by the PAP. The PAP was established in 1954 as a party to fight for the independence of Singapore from Great Britain. Lee Kuan Yew, the founding father of post-independence Singapore, was one of the founders of the PAP.
PRAGMATIC ECONOMIC POLICIES The PAP was similar to many African liberation and independence movements, a party of the Left. However, unlike many African liberation and independence movements who adopted either Marxist-
Leninism, African variants of socialism and communalism, democratic centralism, and state-led development, the PAP adopted pragmatic market-based policies, partnered with business, including multinationals. The Singaporean thinker, Chan Heng Chee says that the PAP ideology was that of pragmatism, meaning adopting policies based on whether they produce results – and if they do not, rejecting it – and not based on dogma or the belief in an absolute truth. Michael Hill and Lian Kwen Fee said that the PAP adopted ‘‘purposive rational policies’’, which “requires planning and considerable quantitative analysis to complement a very strong strain of empiricism. If the leaders find that a policy is not working or that it is producing unintended results, the PAP will jettison it without any sentimentality”. Many African liberation and independent movements of both the left and the centre, often pursued left populist social, political and economic policies. The PAP consistently rejected populism. The PAP has been exceptionally “responsive” to citizens’ concerns, contrary to most African liberation and independence movements, who often take for granted that their supporters will vote for them because they supposedly brought “freedom”. The PAP also focused on the long term, rather than the short term, whereas many African liberation and independence movements focused largely on the short term, undermining long-term sustainability.
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The PAP focused on making “things work”, delivering quality basic public services on time, making “basic utilities function efficiently”, and ensuring new “infrastructure is intelligently planned with a long-range vision in mind”. At independence, local and international business were alarmed by the rise to power of the PAP because of its left-wing history. Many local and international companies moved their company head offices to other countries. However, the PAP proved the market doubters wrong.
PRIVATE SECTOR-LED GROWTH, RATHER THAN STATE-LED GROWTH
The PAP cobbled together an industrialisation strategy, focusing on export manufacturing, unlike many African liberation and independence movements, who rarely focused on industrialisation, focusing on redistribution of colonial or apartheid-inherited assets, land and businesses as the main strategy. The PAP encouraged private sector-led growth, rather than state-led growth, unlike many African liberation and independence movements, who discouraged private sector-led growth, prioritising state-led growth. It focused on exportled manufacturing. It eschewed import substitution, the policy of replacing foreign imports with domestic production, to focus on manufacturing locally for export abroad. The PAP’s post-independence economic strategist Goh Keng Swee, strongly pushed industrialisation as a way to foster growth and create jobs, rather than redistribution of existing or colonially inherited wealth. The state partnered with business – predominantly foreign multinationals. In contract, African independence and liberation movements nationalised many local and foreign companies, or introduced indigenisation or empowerment programmes where the state or local political capitalists close to governing parties get slices of local or foreign companies. The PAP sought out outside experts to help. They did not take on Marxist-Leninist or neo-liberal economic advisors. Singapore took lessons from Japan’s industrialisation, the Dutch and German industrialisation
following the end of the Second World War. The PAP also took to heart advice from the United Nations Development Programme, which is more sustainable development orientated, than say the World Bank or International Monetary Fund. The government established a social pact coordinated body, like the Dutch equivalent to forge a consensus between organised labour, business and the government on growth, industrialisation and multiracialism strategies. Importantly, business had equal power to that of labour, although the PAP started off as a party aligned to trade unions. Trade unions were compelled to compromise short-term interests in favour of the country’s long-term industrialisation. For example, they had to agree to productivity targets, accepting lower wages and increases and not to strike to foster an investor-friendly labour market. African liberation and independence movements aligned to trade unions often give preference to their labour allies above that of business, which results in these governments alienating business, and therefore losing out on having business, with its resources, ideas and capacity for the industrialisation programme. The PAP uniquely used multinationals in Singapore to lead industrialisation – because at independence there were no large indigenous companies. International multinationals led the export manufacturing expansion. The PAP government did not nationalise colonial-era local and foreign businesses – as has been the case in many African independence and liberation movement-led countries. The PAP government encouraged local and foreign investment, introducing tax holidays, low taxes and established industrial estates. The PAP government also involved foreign multinationals in partnering with the government in industrialisation. The PAP partnered with local and foreign businesses to stimulate growth, industrialisation and development.
HOUSING INFRASTRUCTURE-LED DEVELOPMENT
The PAP government built its industrialisation programme around building low-cost
The PAP focused on making “things work”, delivering quality basic public services on time, making “basic utilities function efficiently”, and ensuring new “infrastructure is intelligently planned with a long-range vision in mind” housing – building a manufacturing industry link to the inputs of the housing programme, fostering technical education and building inclusive ethnic communities around the housing programme. The banker, Lim Kim San, was put in charge of the rollout of the housing programme – which he did extraordinarily successfully. The government also used the housing expansion to integrate different ethnic communities to foster multiracialism and common nationhood. The PAP in 1966 enacted the Land Acquisition Act, which made possible for the government to acquire private land for public purposes. The Act provided for compensation to private owners of land acquired by government. The land acquired was land that was in “surplus”, vacant or land that private owners wanted to willingly sell. Land in productive use remained largely untouched. Between 1959 and 1984, the government acquired around one-third of the total land area of Singapore. An Appeals Board was established, with independent members, to mediate in any disputes over the amount of compensation between private landowners and government. The Act fixed compensation at market value as of 30 November 1973. The PAP did not pursue affirmative action and empowerment programmes for previously disadvantaged communities, such as the Malay communities. Instead, they prioritised lifting everyone out of poverty, giving the poorest of all communities a leg up. The PAP government focused all-out on revamping the colonial education system,
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making the educational system fit for purpose for industrialisation, and putting pressure on the trade union movement, aligned with the PAP to strike compromises to encourage economic growth, employment and business creation. They focused especially on education as a development, growth and empowerment strategy. In 1981, the Prime Minister established Yayasan Mendaki (Council for the Education of Muslim Children) to boost the educational performance of poor Malays and to promote a cultural change to make education a priority among the community. To finance the Mendaki scheme, the government deducted 50cents from every Malay-Muslim employee’s pension fund contribution – which the government matched.
REALIGNMENT OF THE INDEPENDENCE BROAD CHURCH
The PAP, like African liberation and independence movements, was also at its inception a broad church, or popular front, bringing together different ideological groups, from the left, centre to the right, trade unions, businesses and conservative religious leaders, under one umbrella to oppose colonialism. Communists and trade
unions were aligned with the PAP, a left-wing nationalist party, which had “a reasonably broad working-class base”, the “Englisheducated” middle class, the “Malay blue- and white-collar workers”, and “the Chinese clan associations, trade guilds, and blue-collar workers as well”. At the party’s inaugural meeting more than 90% of those present were from the trade union movement. At independence, the PAP was dominated by strands, one the central democratic wing, led by Lee, and the other, the communist grouping, led by Lim Chin Siong. In August 1961, Lee forced out the communists from the PAP broad church because of irreconcilable ideological, policy and leadership differences. The PAP communists in 1961 formed the Barisan Socialist Party and took 35 out of 51 branches of the PAP with them. Many African liberation and independence movements, when in power, still keep together the different and opposing ideological groups which were part of the broad church of the anti-colonial or antiapartheid struggle. However, keeping such disparate ideological groups within one governing party in power caused continual paralysis in decision, policymaking and direction, which undermines development,
industrialisation and societal peace which needs clarity in decisions, policies and direction.
ENTRENCHING THE RULE OF LAW AND TACKLING CORRUPTION
The PAP was from the start very firm against corruption, prosecuting its own powerful leaders for corruption, to show that liberation leaders are not above the law as in many postcolonial societies. Corruption included elected and public representatives living beyond their means or being unable to explain wealth, property or assets. Very early on in power, the PAP came down hard on corruption within its leadership ranks. In 1959, Education Minister Chew Swee Kee was forced to resign after evidence emerged of his involvement in corruption. The PAP prosecuted a key leader, Phey Yew Kok, who was also the powerful leader of the National Trade Union Council (NTUC), to jail for accepting bribes. The PAP was also more determined to establish the rule of law at independence – and making everyone equal before the law. When Singapore was granted self-government by Great Britain in 1959, not independence, which came only in 1965, the PAP won the 1959 general elections, and Lee became Prime Minister.
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The PAP ... strongly pushed industrialisation as a way to foster growth and create jobs, rather than redistribution of existing or colonially inherited wealth In the first 30 days of gaining power in 1959, the PAP government broke up criminal gangs, mafia networks and illegal activities. The government continued with enforcing the rule of law – bringing to book both party members and leaders who were corrupt and ordinary citizens who were – which entrenches the rule of law. When they get into power, many African liberation and independence movement governments, often exempt party members and leaders from the rule of law, while they police ordinary citizens not connected to the liberation or independence movement leaders. This unequal treatment of citizens depending on their connection to the leaders of the governing party undermines establishing a culture of rule of law – crucial for industrialisation, growth and development.
ETHNIC INCLUSIVITY The PAP was scrupulous in electing and appointing leaders who came from diverse ethnic backgrounds in the multiracial country, making multiracialism a guiding ideology. In elections to the central executive committee, Cabinet and for candidates for parliament, the party takes care to have ethnic diversity and gender equality. Singapore is a multi-ethnic and a multilingual state. It consists of 77% Chinese, 14% Malay, 7.7% Indian and 1.3% Eurasians. Within these individual groups, there is extensive diversity. The PAP went out of its way to represent all ethnic groups at ‘‘all levels of the state and in state institutions”. The PAP adopted multiracialism, a respect for and equality of all ethnic groups, and tolerance of
differences, as one of the post-independence country’s ‘founding myths’. Many African independence and liberation movements were often dominated by and prioritised one ethnic group, colour or region, excluding others, marginalising the talents, ideas and resources of other groups who could have been marshalled for industrialisation, development and nation-building.
MERIT-BASED APPOINTMENTS IN PARTY AND STATE
The PAP vigorously pursued the strategy of merit within its own party and within the state. The PAP headhunted new talent based on their performance record, educational background and values for leadership in the party. During the first years in power, when it faced fierce competition from opposition parties, Lee Kuan Yew, made a case for the PAP to recruit the country’s top talent: “It is a battle of ideals and ideas. And the side that recruits more ability and talent will be the side that wins.” In 1976, the PAP modified Shell, the oil company’s system of testing new executives to evaluate new recruits for party leadership. The Shell system involves testing candidates’ ability to analyse, imagination and sense of reality. Critics have slammed the rigorous selection process saying it promoted elitism. The PAP also established a meritocratic public service, setting entry examinations for new entrants, to recruit the nation’s best talent, no matter their ethnic, political or language affiliation. No African liberation or independence movement has created meritocratic public services. Most African liberation and independence movements appoint only cadres of their parties or in other cases members of the ethnic, language or regional group dominating the party to public services. In its policy of meritocracy in the party and the state, the PAP rewarded performance, excellence and efficiency on merit, rather than based on ethnicity. The PAP ahead of every election vigorously reviews existing representatives in terms of their performance, and to make place for new talent.
During the fight for independence, the PAP had a cadre system which it introduced in 1958. Members to the party had to apply to become cadres. Minimum educational standards were set to become a cadre and certain kinds of people were excluded – to raise the quality of membership of the PAP. Election to party leadership was largely on merit, but also included all ethnic groups, which lifted the best talent among its support base to the leadership of the PAP. The PAP was “obsessive about co-opting talent”. They “constantly” replaced “older MPs” with the ‘‘best and brightest young talent that can be recruited”. Bringing the best talent continuously into leadership, getting rid of corrupt and incompetent ones and ensuring ethnic diversity in leadership appointments, made the PAP a much more dynamic political party than most African liberation and independence movements, who often elected leaders based on struggle credentials, loyalty to the leader and ethnic, colour or religious affinity to the dominant leadership group. African liberation movements and independence movements would do well to learn from how the PAP, one of postwar’s most effective former independence movements, transformed Singapore, from a poor backwater, into a prosperous, ethnically inclusive and peaceful society.
WILLIAM GUMEDE ASSOCIATE PROFESSOR SCHOOL OF GOVERNANCE UNIVERSITY OF THE WITWATERSRAND
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• Gijima is a 55,25 % black economic empowered South African based supply chain management company, with its primary focus on the rail-reliant bulk commodity market. • Since its inception, Gijima has established strong business relationships and alliances with important role players in the Logistics Industry, and in particular with Transnet. • Gijima offers a client friendly, cost-effective, all-inclusive logistic solution, from origin to final destination – seamlessly integrated for efficiency and effectiveness. • The Executives of Gijima have over 70 years of logistic experience.
Gijima Supply Chain Management Services
WE PROVIDE ALL-INCLUSIVE SUPPLY CHAIN SOLUTIONS Gijima manages the total flow of materials and information to the customer. It provides end-to-end logistics and fulfilment processes with supply chain management across all activities and elements in the supply chain. • RAIL SERVICE • RAIL SIDING OPERATIONS • MATERIAL HANDLING AND LOADING EQUIPMENT • ALL-INCLUSIVE LOGISTIC SOLUTION – FROM MINE STOCKPILE TO PORT
RAIL
ARBOR SIDING COAL TERMINAL Arbor siding, as part of the Transnet network infrastructure, is being leased to Gijima Supply Chain Management Services, on a long-term contract: • DELMAS/OGIES AREA – operate 24/7 with security on site • RAIL FACILITY FOR ESKOM AND EXPORT COAL – SUCCESSFULLY DELIVERED OVER 10 MILLION TONS OF COAL • SAFELY LOADING TRAINS IN 4 HOURS • 200 000 TONS PER MONTH CAPACITY – NORTH SITE • + 200 000 TONS PER MONTH NEW CAPACITY AVAILABLE – SOUTH SITE. VELILE RAMPHELE | (EXECUTIVE CHAIRMAN) +27 82 550 6536 | veliler@gijimasupplychains.co.za PEET CRONJE (MANAGING DIRECTOR) +27 82 561 7700 | peetc@gijimasupplychains.co.za
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ECONOMIC OUTLOOK FOR 2022 ULRICH JOUBERT, an independent economist, unpacks the international and domestic trends in the economy over the next year. And the rand remains volatile…
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ECONOMY
INTERNATIONAL
F
ollowing the negative growth of 2020 due to the impact of the Covid-19 pandemic, it is estimated that the world economy will show real growth of just less than 6% in 2021. This growth is forecast to slow to just more than 4% in 2022. The strong 2021 recovery reflects the low base of 2020, but also the pentup demand that was released once the restrictions imposed by authorities in their effort to control the spread of the pandemic, were lifted. The strong demand was facilitated by central banks cutting interest rates to record low levels, as well as adding liquidity to financial markets while
governments pumped massive liquidity into consumers’ hands by way of special grants in 2020. As growth improved from the second half of 2020 and during 2021, the financial support by governments and central banks waned. The focus was redirected to the rising inflation rate in countries around the globe. However, authorities were very careful in cutting their support, as some important impediments to growth came to the fore in 2021. Supply bottlenecks appeared everywhere due to the strong demand while production and transportation were delayed in many sectors of the world economy as variants of the Covid virus once
more affected communities in countries around the globe. Drought in parts of South and North America affected agricultural production, while a severe drought in Taiwan affected production of micro chips. The strong demand for micro chips in the vehicle industry due to the ongoing switch to electric vehicles as well as the strong demand for computers when people started working from home, could in many cases not be met in the course of 2021. Inflation rose to above central banks’ target levels in many countries and resulted in cutting liquidity support to financial markets while interest rates were raised in many countries in an effort to limit inflation
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ECONOMY
from gaining momentum. The rising inflation rate reflects the strong rise in food and energy prices during 2021. Food prices rose as demand escalated while drought or cold weather affected the supply of these products. Energy prices also rose due to the recovery of the world economy and demand for energy, while oil production was limited by OPEC countries plus Russia as well as the lack of investments in 2020 due to the very low energy prices. It is assumed that central banks will continue cutting and reversing the liquidity support they provided to the financial system in 2022. This will result in rising interest rates in the rest of the year as well as in 2023. At the same time governments are forecast to cut their welfare support payments to communities as employment improves. The Chinese economy is forecast to show real growth of just less than 8% in 2021 which is likely to slow to less than 5% in 2022. Although inflation remains well under control, Chinese authorities try to control cost increases in the economy either by direct intervention or by way of limiting credit creation which supports overall demand. China remains the largest importer of commodities. Slower Chinese growth indicates weaker demand for general mining commodities as well as lower prices. This will have an adverse impact on the overall performance of the South African economy in 2022.
DOMESTIC The South African economy is forecast to show real growth of more than 5% in 2021, after the negative growth of 6.4% in 2020. Forecasts indicate a growth rate of just more than 2% in 2022. The strong growth of 2021 reflected first of all the low 2020 base, the buoyant recovery of consumer demand as well as the very strong export performance.
Exports benefitted from the strong recovery in demand and prices of mining commodities as well as the excellent performance of agricultural exports. Export growth far exceeded import growth and resulted in very healthy trade account and current account surpluses in 2021. It is assumed that imports will show stronger growth in 2022, while export growth could adversely be affected by the forecast weaker performance of mining exports due to the weaker performance of the Chinese economy as authorities try to limit inter alia commodity price increases and overall inflation. The strong recovery of the mining sector provided government with a welcome improvement of tax revenues and the overall health of government finances in fiscal year 2021/22. It limited the risk of further credit downgrades for the immediate future. However, government finances remain vulnerable given the high cost of the salary and wage bill as well as the still high debt levels. All government levels — central, provincial and local authorities — and state-owned enterprises, must remain vigilant in controlling current, future and especially corruption and wasteful expenditures. Unfortunately, most state-owned enterprises remain in deep financial trouble and solving these problems remains a serious future challenge. Notwithstanding a strong recovery in 2021, the economy still lost jobs and pushed unemployment to new record high levels. Unemployment and especially youth unemployment is at unacceptable levels and unlikely to be cut in any meaningful way in the foreseeable future. It calls for an urgent rethink of the labour dispensation as well as the total education and training system of the country. The fact that many, many children lost at least 18 months to two years of education, remains a serious headache and could have an adverse
impact on the availability of an educated and trained future workforce. Inflation rose in the second half of 2021 as food and energy prices rose sharply. It reflected the international trend of these prices as well as the generally poor performing rand against major currencies. Fortunately, the average inflation rate for 2021 was in line with the 4.5% inflation target of the authorities. It is assumed that international and local energy and food prices are unlikely to show the same sharp increase in 2022 as in 2021. Therefore, the forecast average inflation rate for 2022 could soften to a level of less than the target rate. Given the outlook for the economy in 2022, it is assumed that the Reserve Bank will be very careful in adjusting short-term interest rates. At the same time, they have to take into account international trends which indicate rising rates in many countries. It is therefore assumed that the Reserve Bank will raise local short-term interest rates cautiously in 2022 with the main focus on stabilising the financial markets while limiting any shock to the domestic economy which could derail the recovery. Local long-term interest rates are more likely to be influenced by international trends as well as local inflation trends. Towards the end of 2021 the international rates rose and pushed local long-term rates higher. It is assumed that the international long-term interest rates are likely to move mostly sideways in 2022 which indicates that local long-term interest rates are likely to move sideways as well. Local rates could also be influenced by inflation rate trends, any outflow of local or international capital, any fear of credit downgrades as well as a sharp weakening of the rand. The rand remains volatile. Given local political uncertainties, the risk of future credit downgrades, a higher inflation rate than in our trade partners’ economies, the rand weakens against all major currencies in the longer term.
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CONTACT US: 0145923338 I 0717734408 EMAIL: info@akaf.co.za | training@akaf.co.za ADDRESS: 89A Leyds street Rustenburg akafartisancentre.co.za OUR VISION AND COMMITMENT
WE OFFER THE FOLLOWING COURSES
AKAF ARTISAN CENTRE is dedicated to the South
• Electrician
African economic development and educational
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with government and training institutions to
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OUR GOALS
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WE ARE RE GISTERED WITH TH E DEPART MENT OF HIGH ER EDUCA TION AND TRA INING:
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Contracting
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WE WILL ALWAYS SERVE YOU – TRY US FOR A DRIVE MISSION Do Light Transport (PTY) Ltd offers top-class transport services to its passengers within the parameters of required standards of the industry and in strict observance of the safety requirements of the sector.
ABOUT DO LIGHT TRANSPORT (PTY) LTD Do Light Transport (PTY) Ltd was established 16 years ago by two entrepreneurs as a takeover from the defunct Swangi’s Bus Services. In the evolutionary development of the company to where it is today, the company is currently both male- and female-owned, together offering much experience, from business to financial management expertise, chartering a new vision for a new company that has become a household name in the transport industry within the SADC countries.
Some of the Luxury Buses in the Parking Area
Most significantly in the strategic positioning of the company is the acquisition of new fleet, introduction of new management strategies, sound investment in human resources, comprehensive plans on preventative and corrective fleet maintenance for optimal performance utilization. Central to this is our respect for and special treatment of our customers.
Office staff from left to right: Teddy Ngonyama, Lavhelesani Muguru, Patrick Mahlaula, Khuliso Mukhuba, Klaas Mapadimeng and Tsakani Chauke
The company has since grown and broadened its horizons beyond daily commuters transport to operating 24 hours and providing mine workers and scholar transportation, and special hire across SADC countries. Based on its growth, the company has established depots in various areas, i.e. Malamulele, Thohoyandou, Tshitereke, Maila, Makhado Town.
CORPORATE SOCIAL INVESTMENT
OUR SERVICES
Do Light Transport (PTY) Ltd is fully involved in social investment by value adding to society within the environment it operates. For this reason it has created the Managing Director Discretionary Fund (MDDF) which contributes by funding a variety of community needs, inter alia:-
• • • • • • •
• Education and training, like - Early childhood development; - Tertiary scholarship; - Computer donations • Disaster affected areas • Sports and recreational creation • Housing for destitute families
Corporate travel Cross-border touring Group travel / touring Daily commuting of workers and ordinary passengers Scholar transportation Mine workers transportation Community social events transportation
The fleet of the company is diversified to cater for the various needs, i.e. semi-luxury and luxury buses as well as commuter buses.
374 Block A, Malamulele Industrial, Malamulele, 0982 P.O. Box 1571, Malamulele, 0982 MANAGING DIRECTOR: MR MUKWEVHO MMBULAHENI RECKSON
mmbulaheni.mukwevho@gmail.com Contact: Mukwevho Reckson
Tel: 015 851 1555 • Fax: 015 851 1200 • Cell: 082 321 0585 • Telefax : 015 516 6858 Reg No.: 2005/001832/07
Do Light Transport.indd 1
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PROFILE
MEET YOUR NEW MINISTER OF FINANCE:
ENOCH GODONGWANA Minister Godongwana highlighted the need for stepped-up structural reforms, bettering the local government system, and paying down debt, while retaining a pro-poor budget
M
r Enoch Godongwana was appointed Minister of Finance of the Republic of South Africa on 5 August 2021. He holds an MSc degree in financial economics from the University of London and is a member of the National Executive Committee of the African National Congress (ANC) since 1997. Godongwana was born in Cala in the Eastern Cape and matriculated from St John’s College in Mthatha. He started his career in the trade union movement, first as a shop steward in the Metal and Allied Workers’ Union in 1979 and later as an organiser for the National Union of Metalworkers South Africa (Numsa). By 1994, he was general secretary of the union and served on the executive of Cosatu. After graduating in 1998, he entered politics, becoming the Eastern Cape’s MEC for provincial treasury, economic affairs, environment and tourism from 1994 to 2004. In government, Godongwana served as the Deputy Minister of Economic Development, Deputy Minister of Public Enterprises, Member of Parliament, Member of the Eastern Cape Provincial Legislature, and a Member of the Executive
Council in the Eastern Cape responsible for finance, economic affairs, environment and tourism.
MEDIUM-TERM BUDGET POLICY STATEMENT In his very first Medium-Term Budget Policy Statement in November of 2021, Minister Godongwana underscored SA’s debt-service costs problem, and the need for stepped-up structural reforms. The minister put forth that a permanent solution in responding to these challenges is to achieve high and sustained levels of economic growth. To that end, the new finance minister is continuing on the path set forth on by his predecessor that leads towards reining in expenditure and paying down South Africa’s R4.3-trillion debt. Already 21 cents of every R1 collected for tax goes to debt-service costs. The minister reminded his audience that government spending is pro-poor, as just short of 60% of consolidated non-interest government spending, or R1.06-trillion, goes to the social wage, which includes subsidised housing, education, public health and employment programmes. He made mention of pension reform to allow hard-hit workers
to withdraw at least some of their funds – this has long been a union demand – and soon-to-be-published proposals to boost flexibility by allowing partial access in a “two-pot system” once required legislative changes are approved. The minister also highlighted a series of discussions since August 2020 to ensure a better local government system. Substantive changes are required to improve municipal capabilities, he said. The review proposed a new framework to build a capable local government by improving the current system incrementally and identifying pilot sites for innovation and experimentation. At the time that the Medium-Term Budget Policy Statement was made, South Africa’s numbers were looking up. Tax collection was boosted by R120.3-billion, predominantly through a mining tax windfall. South Africa’s gross domestic product (GDP) growth is forecast at 5.1% for 2021, settling at 1.8% in 2022 and 1.6% in 2023. The 2021 Budget deficit stands at 7.8%. Gross debt is 69.9% of GDP in 2021, or R4.31-trillion, growing to 77.8% of GDP in 2022. “We welcome this. It’s a pro-poor Budget,” said ANC national spokesperson Pule Mabe in response to the speech.
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BUILDING SUSTAINABLE
STATE-OWNED ENTITIES SOEs are central to the government’s developmental plan. ISAAC MATSHEGO, a Senior Economist at Nedbank, explains how well-functioning SOEs will facilitate strong economic growth and the significant reduction of unemployment and poverty
T
he South African economy is in a state that has not facilitated the achievement of the country’s shortterm economic targets, nor its strategic development goals of raising the incomes and livelihoods of citizens. Job creation has hardly kept up with labour market growth. Per capita GDP has contracted since 2015. Even before the onset of Covid-19, economic indicators significantly lagged the targets set in the National Development Plan 2030. The annual economic growth rate was below 2% a year since 2014, averaging only 1% up to 2019. The unemployment rate breached 30% in 2020, and once discouraged workers are included, the rate climbs to around 40%. Other indicators paint a similarly worrying picture. In the InfraCompass 2020 survey, SA recorded a mixed performance in the assessment of infrastructure development quality. Measured against 81 countries that, combined, account for 93% of global economic activity, it is the top performer in Africa in infrastructure development. However, it ranks poorly among the other upper-middle-income countries. It ranked in the top 10 in terms of the quality of financial markets’ infrastructure, 12th in planning and 23rd in procurement, but performed poorly in governance (35th), regulatory
frameworks (46th), funding capacity (47th), permits (51st) and activity (61st). It did poorly in the value of closed publicprivate partnerships (PPP) infrastructure deals (5.5 points out of 100), totalling only 0.03% of GDP compared to the upper-middle-income country average of 0.3%. The score for the value of closed infrastructure deals with foreign equity ownership came in at 7.1 out of 100. This suggests a preference for traditional infrastructure models that are, unfortunately, constrained by the capacity of the government and the SOEs to raise debt financing for infrastructure projects.
THE STATE OF SOUTH AFRICAN SOEs The difficulties engulfing SOEs, resulting in their failure to drive development, are well documented. Most of the rot appears to have set in over the past decade. Before then, the large SOEs regularly paid dividends to the public treasury. Eskom was a well-managed utility that won global awards and had a better credit rating than the government in the early 2000s. Transnet secured concessions to operate rail ports in a few African countries. South African Airways won several global awards, including for being the leading airline in Africa.
Poor management, political interference in operational matters, high debt, weak balance sheets and a shortage of critical skills afflict the SOE entities, which has led to poor investment outcomes. Moreover, SOEs have been a significant burden on the fiscus. Treasury transferred R232.3-billion to the large SOEs between 2008 and 2020, while another R42.2-billion has been budgeted for 2021 to 2024. The bailouts are contrary to the management guidelines of Treasury, which dictate that SOEs should be capable of raising development loans on the strength of their balance sheets. The positive news is the excellent state of the development finance institutions (DFIs). The Industrial Development Corporation plays a leading role in industrial financing in the country and facilitates the entry and expansion of previously disadvantaged industrialists. The Development Bank of Southern Africa has proven itself a world-class infrastructure financier in the domestic market and Southern African region. Despite its financial troubles, the Land Bank remains a significant partner for emerging farmers. The generally good state of the DFIs is proof that South Africa can have SOEs managed prudently and can be facilitators of development.
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SOEs
The significance of SOEs extends beyond their socioeconomic objectives of transforming the economy to a more inclusive one. They are central to the government infrastructure build programme, with most of the government’s infrastructure megaprojects being planned based on cooperation between national departments and SOEs. The rollout of the government’s R791.2-billion infra-structure development programme over the fiscal years ending in March 2024 will be driven by SOEs, accounting for 37% of the spending.
STABILISING AND IMPROVING THE MANAGEMENT AND GOVERNANCE OF SOEs Stabilising SOEs is, therefore, critical. Some progress has been made in recent years. New boards and management have been appointed at Eskom and Transnet. Leadership at the entities such as Airports Company South Africa has been strengthened. The restructuring of Eskom into three separate entities will transform it into a more operationally efficient entity. The establishment of the Transnet National Ports Authority as an independent subsidiary of the Transnet Group has been announced. Other positive developments
include establishing the Infrastructure Fund that will coordinate PPPs between public entities and the private sector. ‘Operation Vulindlela’ aims to ensure efficacy and coordination of infrastructure spending across the public sector. To build well-run and efficient entities capable of becoming dividend payers instead of relying on bailouts, SOEs require justification for their involvement in economic activity to avoid conflict with the role of the private sector. There also needs to be a clear separation of management roles, the board and the shareholder to avoid interference in operational matters by those appointed to fulfil fiduciary and oversight functions. So too, capital management should be divorced from the whims of those in power, who are often influenced by short-term political and pecuniary goals. Prudent management is needed to shield them from the influence of the executive arm of the government. To this end, establishing an independent board to oversee policy implementation and enforce proper governance and management of SOEs is necessary. Implementing these measures will set local SOEs on a better financial path and improve their contribution to achieving
development goals. Better managed SOEs with solid balance sheets will improve these entities’ credit ratings and enable them to raise capital in local and international markets under favourable terms.
CONCLUSION SOEs are central to the government’s developmental plan. Therefore, the need to strengthen local SOEs and improve their contribution to development objectives is of paramount importance. Well-functioning SOEs will facilitate strong economic growth and the significant reduction of unemployment and poverty. Lifting confidence, facilitating greater cooperation in fixed investment by the public and private sectors, boosting economic growth will ultimately stimulate job creation, ensure reliable energy supply, and eradicate logistical bottlenecks that constrain the country’s export capacity. This article is an extract from a paper prepared for the Inclusive Society Institute and forms part of the institute’s research into the development of a blueprint for the rejuvenation of the South African economy.
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TURKEY-SA
BILATERAL TRADE RELATIONS Turkish Ambassador AYŞEGÜL KANDAŞ says Turkey has always endeavoured to enhance its cooperation with African countries as equal partners on a win-win basis. Turkey is now one of the most represented countries on the African continent from a diplomatic point of view
I
t is an honour to address the readers of Business Update magazine, published by the Progressive Business Forum (PBF), and the business community, and I appreciate this opportunity to share my views on bilateral economic relations
between Turkey and South Africa. Still being in the beginning of my tenure in South Africa as an Ambassador, I am determined to provide every assistance to the South African business community with regards to creating business with Turkey.
THE HISTORY OF TURKEY-SA RELATIONS Our relations with Africa took a positive turn with the launch of “The Strategy for the Development of Commercial and Economic Relations with African Countries” in 2003.
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INTERNATIONAL RELATIONS
Since then, we have been witnessing the growing importance of Africa in our economic relations. The number of embassies and trade offices on the continent has increased over the years. With the opening of an embassy in Togo this year, the number of Turkish embassies on the African continent has increased to 43. Turkey has become one of the most represented countries on the African continent from a diplomatic point of view. The year 2005, when Turkey became an observer member to the African Union, was a milestone in terms of TurkeyAfrica relations. After that it moved to a new dimension with the African Union’s declaration of Turkey as a Strategic Partner in 2008. We attach great importance to the commercial, educational, tourism, development and cultural dimensions of our relations with the continent and South
Africa, as well as our political relations. We have never considered the countries of the continent as sheer markets for Turkish products and have always endeavoured to enhance our cooperation as equal partners on a win-win basis. I would like to quote President Erdoğan here: “We have built bridges from heart to heart between our nation and the peoples of Africa”.
leader in the Turkish defence industry, with engineering operations and valuable know-how. ASELSAN has plans to open a new office and production centre in Dube Tradeport (SEZ) with a 100% black-owned South African company regarding communications technology for civilian-use. Undoubtedly, this project will create jobs for the people in the region.
PRESENT AND FUTURE RELATIONS
IN CONCLUSION
We want to improve our trade relations with South Africa with the help of our Commercial Office, improve our development cooperation with the help of Turkish Cooperation and Coordination Agency (TIKA), improve our educational relations with the help of our Maarif Foundation, and improve our cultural relations through the Yunus Emre Institute. They all have coordinators in Pretoria or Johannesburg. I believe the existence of these institutions is a testament to Turkey’s comprehensive approach to this country.
As seen from the above, Turkish businesses continue to invest and create employment in South Africa. Nevertheless, total investment and trade figures between the two countries are still far below their potential. The trade volume with South Africa, Turkey’s largest trading partner in sub-Saharan Africa, was only US$1.46-billion in 2020. The pandemic obviously had a negative impact on bilateral economic transactions. We could aim to increase bilateral trade volume first to US$3-billion and then to US$5-billion in the near future. Our countries have this potential. While stating once again that we are always ready to cooperate with the Progressive Business Forum (PBF), I would like to emphasise that we, as the Turkish Embassy, are ready to promote business opportunities between PBF subscribers and Turkish companies, as well as supporting common projects in the educational, tourism and development spheres.
Turkish Airlines (THY) In addition, Turkish Airlines (THY), our flag carrier, connects the Republic of South Africa and the continent with the world, flying to a total of 128 countries. THY started its first flights to Luanda last month, increasing the number of destinations in Africa to 61. DEFY DEFY is Turkey’s largest investment in the country and continues to contribute to the country’s economy and employment (with around 2 500 employees) with new investment projects. Arçelik, which is the largest white goods manufacturer in sub-Saharan Africa with the brands DEFY, Grundig and BEKO, opened two BEKO stores in Johannesburg and Durban two months ago. I would like to point out that BEKO, the United Kingdom’s number one largest white goods brand in the white goods sector, will also make a difference in the market with the environmentally friendly store concept for its customers. BEKO plans to open its third store in Cape Town soon. ASELSAN Another prominent company with a production facility in Pretoria is ASELSAN,
AYŞEGÜL KANDAŞ TURKISH AMBASSADOR PRETORIA
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NCORA: AN EXAMPLE OF WHAT FARMING CAN LOOK LIKE IN SA
ANDILE NTINGI spells out that to develop thriving black farmers, they not only need access to additional land, but also investment into infrastructure, skills and market development
D
eep in the rural Eastern Cape on the banks of Tsomo River lies the village of Ncora, home to one of many irrigation schemes in the province that has suffered from years of underinvestment after the fall of apartheid in 1994. Ncora’s land is so fertile and blessed with vast water resources that it could
easily be South Africa’s breadbasket. However, the area is unlikely to become one of our country’s main sources of food unless a serious effort is made to attract private investors to steer it towards its full potential. In the ongoing debate about land reform, places like Ncora rarely feature in the discussion despite possessing the ability
to bring poor rural communities into the mainstream of agricultural production. These places represent a wasted opportunity akin to the commercial farms that are bought by government from white farmers and transferred to black farmers only for the farms to end up being unproductive under the new owners.
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AGRICULTURE
NCORA’S DEMISE During its heyday in the 1970s and 1980s, when Ncora was part of the Transkei homeland, it was a strong contributor to food production in our country. The Ncora Irrigation Scheme boasted a dairy farm, which occupied 3 500ha of irrigated land. In the 1980s, Ncora utilised modern agricultural methods to produce 15 000 to 20 000 litres of milk per day and 3 000 pockets of cabbages. But after 1994, the scheme like many in the Eastern Cape, fell apart because of neglect and under-investment. The reason the scheme worked before is that then Transkei ruler Kaiser Daliwonga Matanzima, with the backing of the National Party government, invested money and skills into ensuring that Ncora produced food. Matanzima brought in a firm of Johannesburg-based consultants,
known as Loxton Venn and Associates, to run the project. Among its ranks, the firm had former Zimbabwean professionals, who had farming and agricultural extension background, who lived on site in Ncora to run the project. According to the Department of Agriculture, Forestry and Fisheries, Ncora is part of 50 000 hectares of land that is under irrigation in the former homelands. In the rest of the country, there are about 1.6 million hectares of land under irrigation, mainly benefitting white farmers. I was in Ncora recently and I felt nostalgic seeing abandoned houses and buildings that were once occupied by the Loxton Venn and Associates staff. These buildings gave me a window into the past of a farming community town that was once thriving. There is still a big board that greets you when you enter the irrigation
scheme, which reads the estate was managed by Interscience Transkei Pty Ltd on behalf of Transkei Department of Agriculture and Forestry and Loxton Venn and Associates. I was surprised to see that the board has survived all these years, possibly indicating that the leaders running our country have never set foot in the area. There was massive investment into the irrigation estate, which is supplied with water by the Ncora Dam, a very imposing structure that is under-utilised. It was disheartening to see the dam overflowing and the water running to the sea despite many nearby towns suffering from water shortages due to drought and lack of investment in storage infrastructure. The R220-million that the government invested in 2016 to supply water to 97 villages is not enough.
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AGRICULTURE
NCORA’S REVIVAL The potential is so huge at Ncora that the Eastern Cape government, under the leadership of Premier Oscar Mabuyane, is beginning to show interest in it. The dairy farming has been revived and is even matching levels seen in the 1980s. A big part of this revival has been driven by a black-owned agribusiness group, Amadlelo, which is run by former Old Mutual executive Simphiwe Somdyala. The company operates two state-of-theart dairies at Ncora that produce more than 15 000 litres of milk a day. By next year, Amadlelo projects to increase production to 20 000 litres a day. There is still room in the estate to accommodate up to four more dairies. This will require additional private investors like Amadlelo to come to the party to make this a reality. There is also an additional 2 000 hectares of land that could be used for agriculture. I believe a place like Ncora deserves an investment vehicle dedicated to promoting and attracting investment to the area. This investment vehicle could be used to fully exploit Ncora’s potential. This company could also be used to revive and manage irrigation schemes that the government is unable to operate. What Amadlelo has shown is that it is possible for black people to participate in agriculture at the highest level provided investment is made into infrastructure, skills and market development.
BARRIERS TO GROWTH FOR BLACK FARMERS The government also needs to pay close attention to farms that end up failing after they have been transferred to black farmers. Addressing this problem also deserves to be given prominence in the land reform debate as it could pose risk to South Africa’s food security if once productive farms end up being unproductive due to lack of investment capital, market access and experience. Due to lack of post-acquisition support,
some black farmers feeling the pressure of being thrown in at the deep end, have since rented their once-productive farms or are considering selling them back to established commercial farmers. There is a myriad of factors that lead to black farmers throwing in the towel. The most notable factors are lack of access to start-up and investment capital; markets; skills; mentoring and training; and corruption, whereby unskilled politically-connected individuals hijack state-sponsored financial assistance at the expense of emerging farmers. The combination of insufficient government assistance and corruption displaces emerging black farmers, defeating the objectives of the land reform policy, which economist Nick Vink estimates that it cost R69-billion to implement since 1994.
SUSTAINABLE SOLUTIONS To ensure participation of black farmers in commercial agriculture, they must be assisted to address their shortcomings. The make-up of this assistance should involve roping in the private sector to contribute to the sustainability of black farmers. Without the buy-in or involvement of the private sector, there is little hope of developing emerging black farmers into successful commercial farmers. A concerted effort must be made to open up the entire food production value to black farmers to ensure that they generate sufficient income to sustain their ventures. However, we won’t be able to develop thriving black farmers if they don’t get access to additional land. In traditional economics, land is more than just a piece of earth, it is a factor of production, of which in its absence no production would be possible, and therefore no serious wealth accumulation would take place. Since the ancient times, the true value of land has always stemmed mainly from its scarcity, but many land buyers purchase it to capitalise on its paucity, either to
The combination of insufficient government assistance and corruption displaces emerging black farmers, defeating the objectives of the land reform policy develop it for residential and commercial settlements; commercial farming; mining and minerals processing; and a whole host of other cash-generating activities. On top of its cash-generating potential, land is loved by the commercial banks because it is one of the oldest forms of collateral as it cannot be moved, stolen, wasted or destroyed. Throughout the world, land is not only scarce, its ownership is also concentrated in the hands of the few. In South Africa, land ownership is linked to the colonial and apartheid conquest and dispossession of land previously occupied by black Africans. This resulted in whites owning a lion’s share of the land and blacks owning considerably less. This must be addressed if we are to build an inclusive economy that benefits the majority of our people.
ANDILE NTINGI FOUNDER OF GETBIZ
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Mulabeats brings together South Africa’s finest team of music beats, video producers and engineers as well as artists’ management professionals with vast experience in the industry. Mulabeats has become an empire by being the best platforms for beats production to showcase their talents and achieve great success. We are for overseas artists and producers who are interested in a South African taste of sound and elements, and local artists looking for quality beats production at affordable prices. We offer beats for sale from various music genres and cater for all types of artists and personalities. Mulabeats offers a one-stop destination for all beats sound, voice and music production needs. Our state-of-the-art equipment enables our producers to record, mix and master music in one place. Our services can accommodate individual artists, groups, anthems and church choirs, not limited to corporate commercial recordings. Our team of professionals also provide training, coaching and mentoring to artists. With the state-of-the-art cameras, microphones and complete studio set, Mulabeats is well equipped to undertake any video and film production of any size. We aim to promote upcoming artists, story writers and producers to have the best and quality production for their videos and film which will give them a competitive advantage in the industry. Our talent management services includes the management of artists and other industry professionals. Mulabeats is inspired by Tsasawani’s vision of bringing creativity to reality.
89 Profit Street, Northgate, Johannesburg Tel: 065 812 8481 | Email: hello@mulabeats.co.za | www.mulabeats.co.za
We Strive For Excellence RISHAKWA TRADING & PROJECTS CC is a construction company established in 2008 by Mr Mandia Mgiba. Mr Mgiba has extensive knowledge of the industry, boasting more than nine years’ experience as a construction supervisor on various large-scale projects with major corporations. Services: Residential developments • Construction of private homes Renovations and alterations • Maintenance of commercial buildings Building finishes: Tiling, Painting, Ceilings, Glazing, Carpentry and joinery etc. • Kerbing and paving • Concrete works: walkways, drainage suspended slabs etc. • Bridge construction • Storm water drainage Sewer construction • Water mains and reticulation Tel: 013 773 3008 / 071 678 6217 • Email: samandla18@gmail.com Address: Stand No. 203A Thulamahashe, 1365
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PRODUCT RECALL INSURANCE YOUR BUSINESS’S INVALUABLE LIFELINE
Product recall costs and reputational damage can spiral out of control and drain the pockets of a business if not managed properly, advises VERNON SUBBAN
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021 has been a year when South African consumers were exposed to one of the largest product recalls in the food industry. When a product’s safety is in question, timing is everything, decisions need to be made. There is no room for ill-judged ones. Product recall costs can spiral out of control and drain the pockets of a business if not managed properly and reputational damage hits a business the hardest when social media
goes viral. Product recall insurance will be any business’s “handmaiden of commerce” to cover the costs incurred to recall that defective or unsafe product from the market.
PRODUCT RECALL INSURANCE EXPLAINED When a product poses a hazard to consumers, there are two parties that can initiate a product recall. The first being the product manufacturer, making the recall
a voluntary one. The second being the National Consumer Commission (NCC) under the auspices of the Consumer Protection Act 68 of 2008 (CPA), initiating a recall that is involuntary or compulsory. However, in both instances the affected business has to cover the huge costs. The product manufacturer may be ultimately accountable for initiating a voluntary product recall, however other role players in the supply chain would be opportunistic to think they would be
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INSURANCE
absolved of any responsibility, as legislated in the CPA. Product recall insurance covers costs incurred in recalling the products that are likely to cause harm to consumers or their property for which the affected business may become legally liable. It is not a liability insurance, but covers costs that will prevent future liability claims against the business – this is covered by the product liability aspect of the portfolio. Product recall insurance will not cover the costs of repairing and replacing the product, as this is covered by the product guarantee policy. All in all, product recall insurance becomes an essential part of an allencompassing liability insurance portfolio for both large and small commercial businesses. Cover includes: - cost of withdrawing and recovering defective products from the shelves - transport costs - staff overtime and cost of extra personnel - warehouse and storage costs - loss of profits - crisis communication – to inform consumers about the recall - to ensure brand integrity is kept in check as a poorly handled product recall can lead to irreparable reputational damage - may include third party recall expenses. The trigger for product recall insurance policies to respond, would be that the defective product must pose a danger to consumers or their property. If a product merely does not live up to its expectations, it will not be covered under this policy.
WHO NEEDS PRODUCT RECALL INSURANCE? Businesses in any industry, large or small can be affected by a product recall if its end users are consumers. Susceptible industries would be automotive, household goods manufacturers, food/beverage sectors and electronics. Although product recall insurance is part of large multinational and commercial businesses, most small and medium-sized businesses have yet to keep pace with the
need for this all-important cover. Every business in the supply chain must take due care to ensure that products they supply are safe for consumption. In the food industry, this would mean the farmers, processors, transporters, wholesalers, distributors and retailers can all be held accountable during a product recall as legislated by the CPA. So, it cannot be overestimated that all businesses in the supply chain from small to large need to assess their risk profile for a potential product recall and get appropriate insurance cover.
WHY IS PRODUCT RECALL INSURANCE A MUST HAVE? Concerns grow over a business’s capabilities when a product is recalled for any of the three Rs: replacement, refund or repair. In some instances, the product may be banned altogether. The costs associated with any recall irrespective of whichever ‘R’ being the reason, remain staggering. Whether it is a voluntary or compulsory recall, the chain of events that follow include: - loss of consumer confidence - surrendering hard-won retail shelf space - a drop in sales - loss of valuable supply contracts. Product recall risks for businesses have escalated in recent years, shaped by the dominance of social media, tougher and more onerous consumer regulations – both global and local. Add to that an increasing complexity of supply chains in all industries. There is really no place to hide for businesses during a product recall with social media being open and available to all and regulation allowing the product recall to be made more public. Product recall insurance becomes invaluable in preserving a business’s reputation, brand and bottom line.
trace contaminated products and hold liable businesses accountable with ease. Cyber recalls may soon become more prevalent, where hackers contaminate or change a product by taking control of automated product plants, particularly in the automotive industry. Product recalls for ethical reasons like the use of child labour or mislabelling of vegan foods are becoming more apparent. The National Consumer Commission has also initiated various product recalls with active collaboration with affected businesses, to rid South African shelves of potentially harmful products. In light of the above, businesses are likely to be faced with an increased number of product recalls and need a more effective risk management programme rather than yearning for 20/20 hindsight after facing a costly product recall. One that incorporates resilient safety systems and crisis management as part of its DNA cannot be overestimated. Businesses need to have a comprehensive product recall plan with appropriate product recall insurance cover in place.
CONCLUSION The cost of product recall insurance is dwarfed by the potential catastrophic consequences a business has to face in the event of that fated product recall that threatens human life or limb.
RISK MANAGEMENT AND PRODUCT RECALL INSURANCE The major causes for recall claims would be defective products and product contamination. Emerging causes for a recall would include advances in product testing, which will make it easier to
VERNON SUBBAN INSURANCE BROKER SUBBAN AND SUBBAN RISK MANAGERS
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COEGA ADVANCES SOCIOECONOMIC DEVELOPMENT
AMID THE COVID-19 PANDEMIC The Coega SEZ shares welcome news of the five projects earmarked as catalysts for employment, transformation, socio-economic development and industry growth in the South African environment Rebuilding the Economy: Coega SEZ announces the coming online of five projects by end of 2021 – TransMerch Africa (R37-million), APLI (R180-million), Seraphim (R362-million), DHL (R20million), and Cochrane (R10-million).
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ith the Coega Special Economic Zone (SEZ) as one of the leading SEZs on the continent both as a domestic and Foreign Direct Investment (FDI) destination. The Coega Development Corporation (CDC), which manages and operates the Coega SEZ, has seen a resurgence of investors following the outbreak of the SARS-CoV-2 (Covid-19) and relaxation of the varying lockdown levels. “We are encouraged by the work we’ve seen in the past couple of months. There are clear signs that we are turning the corner for the better,” says Dr Ayanda Vilakazi, CDC Unit Head of Marketing and Communications. The Covid-19 pandemic has caused massive disruptions to the flow of FDI including the fact that investors are looking for markets that will ease disruptions in their production chains, environments that are swift to implement measures to stimulate economic recovery and growth and provide policy certainty amid a global challenge. SEZs seek to leverage the potential of their locations and infrastructure in providing a conducive environment for these linkages to take place. In a study by the World Bank titled Special Economic Zones in Africa, it highlights the potential of SEZs to contribute to improving Africa’s competitiveness and its integration with the global economy and
how SEZs could help to create jobs and raise incomes.
COEGA’S 5 PROJECTS TO WATCH Consistent with the vision of the CDC to become the leading catalyst for championing of socio-economic development, the Coega SEZ, will by the end of 2021 operationalise five investor facilities amounting to R606million worth of private investment. The investors that will be coming online include TransMerch Africa (R37-million), APLI (R180-million), Seraphim (R362million), DHL (R20-million), and Cochrane (R10-million). TransMerch Africa Multi-user tenant, TransMerch Africa, is in Zone 3 of the Coega SEZ and is expected to become operational in December 2021. The manufacturer of chemicals and products for supply to the automotive industry is expected to create 15 jobs. African Port Logistics and Infrastructure (APLI) African Port Logistics and Infrastructure (APLI), which develops fruit, fruit cold storage facilities and a container depot, is in Zone 1 of the Coega SEZ and came online in June of this year. During construction, APLI created more than 720 jobs and is expected to create a total of 228 operational jobs when fully operational. APLI – The fruit packaging facility, fruit cold storage, and a container depot has seen the creation of over 720 jobs during construction.
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DEVELOPMENT
Seraphim Seraphim, located in Zone 3 of the Coega SEZ is expected to be ready for commissioning towards the end of December this year. The Seraphim facility will produce Solar photovoltaic cells and during construction it created more than 81 jobs. When fully operational the company is expected to create over 324 operational jobs. Seraphim – Located in Zone 3 of the Coega SEZ will manufacture Solar photovoltaic cells. DHL SEZs play a critical role in the logistics sector; another investor that will be coming online is DHL. The company recently
completed the construction of its facility in Zone 1 of the Coega SEZ. The construction of the facility has seen over 260 people being employed and is earmarked to create a large compliment of local employees when fully operational. DHL – The development of a warehouse and office facilities. The construction phase of this R20-million project has been completed. Cochrane Cochrane, located in the multi-user facility in Zone 3 of the Coega SEZ, is a storage and fencing solution and related products that became operational in April of this year.
Currently, the investor has created seven operational jobs thus far. Cochrane – is a R10-million investment which produces fencing solutions and related products.
IN CONCLUSION The SEZs, such as Coega, are a catalyst for employment, transformation, socio-economic development, and industry growth. Therefore, working together with our valuable investors and stakeholders, in general, we can advance the socio-economic development of the country and then fast-track sustainable inclusive growth in line with the country’s Economic Reconstruction and Recovery Plan.
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TRIBUTE
LILIAN NGOYI PHOTO CREDIT: https://en.wikipedia.org/
LIFTED FROM OBSCURITY In a tribute to struggle stalwart Lilian Ngoyi, her great-grandson NQABA NGOYI honours her life and her often overlooked contribution to South Africa’s fight for freedom during the Apartheid era
WHO WAS LILIAN NGOYI? Lilian Ngoyi, or Ma’Ngoyi as she was affectionately known, is an unsung hero of the Apartheid struggle. It’s high time that her story is told. Ma’Ngoyi led a quiet life before she rose up to fight the regime. Her days in Soweto were spent behind a sewing machine in the confines of her matchbox house. These houses are now commonly known as RDP houses and have come to typify the townships. The semi-detached homes line the streets of some locations in Soweto and many other South African townships and often strike a nostalgic nerve with those who grew up in them whenever they return to the township to visit. A hotbed of political tension and uprisings, Soweto was very instrumental in shaking the very foundations of the monster of Apartheid.
SUPPRESSION OF COMMUNISM ACT Like the political warriors Steve Biko, Albert Luthuli and Winnie Mandela, she fell victim to the Suppression of Communism Act passed by apartheid architect, JG Strijdom, which deemed that any act of defiance against the laws of segregation would be punishable by law. Her life was unbearably difficult after the conviction. With each lapsing banning order, another would be imposed upon her, much longer, harsher and even more dehumanising. Some of the conditions of Ma’Ngoyi’s banning orders were that she could not be with more than two people at a time (including family members) as that would’ve been
considered a political gathering, any form of political activism was also forbidden and no news of her was allowed in the press. Consequently, she was unable to make a living. This made her already difficult life even more unliveable.
THE ACQUITTAL Ma’Ngoyi and 155 other treason trialists were acquitted in 1961. After her acquittal, she seemed to have disappeared into complete oblivion. And that’s strange for the first woman elected to the executive committee of the African National Congress, and who helped launch the Federation of South African Women (FEDSAW) – an organisation for which she served as the leader. In that capacity, Ma’Ngoyi travelled to countries like England, China, Germany, Russia, Switzerland and Romania where she engaged with other women leaders involved in left-wing politics. This was at a time when it was unheard of for black women in South Africa to preside over conferences and make speeches on the international stage. Her travels cemented her resolve to continue fighting for the liberation of black people in South Africa. She observed that while South Africans languished in racial segregation, other countries thrived in the absence of racism. And all of this with only a standard six qualification behind her name.
FREEDOM TO THE END Lilian Ngoyi died on 13 March 1980, at
the age of 69. She died a poor old woman, but her spirit was never dampened. Freedom was always a tantalising prospect for her, and she chased it to the bitter end. Sometimes I close my eyes and I see her frail body in the days leading up to her passing. It was hard to imagine that she once spearheaded a massive march of 20 000 women against the Pass Laws that existed in the 1950s, resulting in what is now commemorated as National Women’s Day. Yes, her body was slowly giving in, but her mind and determination were ever so steely. I took her delicate hands in mine and reassured her that her struggle was not in vain, that freedom has come. She whispered: “What is freedom if there is no freedom for everyone?”
NQABA NGOYI DIRECTOR FORT FILMS
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FINANCIAL IMPLICATIONS FOR SELLING IMMOVABLE PROPERTY -
IS IT CLASSIFIED AS CAPITAL OR REVENUE? LULAMA LOBOLA outlines the test of when profits from the sale of immovable property will be revenue in nature and form part of the taxpayer’s gross income calculation
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TAX LAW
tax calculation. Such a finding can have different financial implications for the taxpayer and their cash flow. The purpose of this article is to provide insight into some of the considerations one should bear in mind when contemplating such a transaction by outlining the test of when such profits will be revenue in nature and form part of the taxpayer’s gross income calculation.
‘GROSS INCOME’ DEFINITION The starting point in determining a taxpayer’s taxable income is the definition of ‘gross income’. Section 1 of the Income Tax Act 58 of 1962 (the Act) defines gross income ‘in relation to any year or period of assessment, … – (i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such resident; or (ii) in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such person from a source within the Republic, during such year or period of assessment, excluding receipts or accruals of a capital nature’. The question that often arises from the sale of immovable property is whether the resultant profits received or accrued to a taxpayer are receipts or accruals of a capital or revenue nature. The taxpayer bears the onus to prove that the amounts in question are capital and not revenue in nature in terms of s102 of the Tax Administration Act 28 of 2011.
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hether a receipt or an accrual is ‘capital’ or ‘revenue’ in nature, in calculating a taxpayer’s taxable income, is probably the most common issue that arises in income tax litigation. With the current financial climate prompting many people to restructure their financial arrangements, for some this has meant contemplating the sale of their immovable property. Due consideration must be given to the tax implications of such a transaction and whether the resulting profits would be subjected to tax by the South African Revenue Service (Sars) as part of the taxpayer’s gross income or capital gains
THE CAPITAL AND REVENUE DIVIDE As noted, gross income excludes receipts and accruals of a capital nature, as such, capital receipts cannot be included under the taxpayer’s gross income calculation, but could be included under a separate capital gains tax calculation in calculating the taxpayer’s income. The phrase ‘of a capital nature’ is undefined in the Act and one must look to case law for its interpretation.
PROCEEDS FROM THE SALE OF AN ASSET
One of the leading authorities in determining whether an amount is of a capital or revenue nature is Commissioner for Inland Revenue v
Pick ’n Pay Employee Share Purchase Trust 1992 (4) SA 39 (A). In this case, the then Appellate Division noted that there are a variety of tests to determine whether a receipt is of a capital or a revenue nature. These, however, are only guidelines and there is no single infallible test to apply. Ultimately, whatever guideline is used, the classification of capital or revenue must make sound commercial and good sense. With that said, the court held that the most appropriate test is whether the proceeds were the result of the realisation of a capital asset or whether it was a result of a gain made by the operation of business in carrying out a scheme of profit-making. This is the test regardless of the number of transactions carried out by the taxpayer. As to the meaning of ‘a scheme of profit-making’, the court explained that this means that the profit was designedly sought and worked for by the taxpayer and was not fortuitous. This will be assessed by considering the objectives of the taxpayer and what its purpose was or if there was more than one purpose, what its dominant purpose was. Consequently, the taxpayer must have the intention to trade, in order for a scheme of profit-making to be evident. A scheme of profit-making will be evident when the taxpayer buys an asset intending to sell it at a profit and with the intention to trade in that asset. The case of Commissioner for the SA Revenue Service v Wyner [2003] 4 All SA 541 (SCA) illustrated the application of the test ‘a scheme of profit-making’. The court applying the Pick ‘n Pay tests evaluated the taxpayer’s stated intention, her ipse dixit that she was obliged to realise the property in order to salvage what she had invested, against the objective factors to determine whether they supported or disproved the taxpayers stated intention. On the facts, the court found that the profits were not of a capital nature and the taxpayers conduct to be a scheme of profit-making. The court found that the taxpayer had devised a scheme whereby she could make a very large profit, and this was supported by the objective facts that revealed the taxpayer’s intention.
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A CHANGE OF INTENTION The Appellate Division in Commissioner for Inland Revenue v Stott 1928 AD 252, shed clarity on the determination of intention and the possibility of a change in intention. In this case, the court had to determine whether the taxpayer had been carrying on a business as a person who trades in land and so treats the land as their trading stock. This would make the proceeds revenue in nature. In applying the test, the court noted that when it comes to individuals, a certain level of continuity is required for a scheme of profit-making to be evident. Furthermore, everyone is entitled to realise their investment asset to their best advantage, consequently, the mere sale of an asset at a profit is not enough to indicate a scheme of profit-making; one would need a special act to convert an asset from capital to revenue. When the court examined intention in more detail, it held that intention at the time of purchase is conclusive unless some other intervening factors show that the asset was sold in a scheme of profit-making. In Natal Estates Ltd v Secretary for Inland Revenue 1975 (4) SA 177 (A) the Appellate Division was once again faced with the issue of whether proceeds from the sale of immovable property were capital or revenue in nature and whether there was a change in intention. The court held that the original intention of the taxpayer is important but not conclusive and the court will look at the totality of facts in considering whether the taxpayer was involved in a scheme of profitmaking. This would take into account – • the intention of the taxpayer at the time of purchase and sale of the asset; • the objects of the taxpayer as a company; • the activities of the taxpayer in respect of the land up to the time of sale either in whole or in part; and • where land was subdivided; the planning, extent, duration, nature, degree, organisation and marketing operations of the enterprise. On the facts before it, the court found that the taxpayer had done more than merely realising an asset as the best advantage. The taxpayer had crossed the Rubicon and had gone into the business of township development, construction and sale.
The court further held that generally whether the taxpayer had crossed the Rubicon was a question of degree and a taxpayer’s property dealing with one property cannot automatically extend to every transaction of the taxpayer, as every transaction must be considered on its own merits. In African Life Investment Corporation (Pty) Ltd v Secretary for Inland Revenue 1969 (4) SA 259 (A) and Commissioner for Inland Revenue v Nussbaum 1996 (4) SA 1156 (A), the court made it clear that where a taxpayer has a main and secondary purpose, equal weight will be given to both purposes. These purposes will be evaluated considering the totality of circumstances to determine their capital or revenue nature. A secondary purpose does not mean a subordinate purpose.
A SUMMARY OF THE POSITION IN OUR LAW
From the above it is clear that when determining a taxpayer’s gross income, only income of a revenue and not of a capital nature will be included in the taxpayers’ gross income calculation. Income is of a revenue nature when it is the result of a gain made by operation of business in carrying out a scheme of profit-making, having been designedly sought and worked for by the taxpayer and is not fortuitous. This is determined by evaluating the taxpayer’s stated intention against objective factors to determine whether they support or disprove of the taxpayer’s stated intention. As everyone is entitled to realise their investment asset to best advantage, the mere sale of an asset at a profit is not enough to indicate a scheme of profit-making and a special act is required to convert an asset from a capital to a revenue asset. Furthermore, although the original intention of the taxpayer is important in this inquiry it is not conclusive, as the court will look at the totality of facts. Where there is a main and secondary purpose, both purposes will be evaluated considering the totality of circumstances to determine their capital or revenue nature.
The taxpayer must have the intention to trade, in order for a scheme of profit-making to be evident FINAL REMARKS A finding of whether a receipt or an accrual from the sale of immovable property is capital or revenue in nature in calculating a taxpayer’s gross income can have different financial implications for the taxpayer and its cash flow. This can often be the determining factor of whether the taxpayer can weather the current financial climate, especially for those taxpayers struggling to get by. Consequently, it is imperative that before any decision to sell immovable property is taken, due consideration must be had to the tax implications of such a transaction. One such consideration being whether the resulting profits would be subjected to tax by Sars as part of the taxpayer’s gross income or capital gains tax calculation in determining the taxpayer’s taxable income. This article was first published in De Rebus in 2021 (Jan/Feb) DR 11.
LULAMA LOBOLA LLM (TAX LAW) CANDIDATE AND LEGAL PRACTITIONER GUNSTON STRANDVIK ATTORNEYS
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KEEP YOUR BRAND -
APPOINT A REGISTERED AND CREDIBLE AUDITOR
The appointment of a credible auditor is critical to the survival or collapse of a legal practice, says SIMTHANDILE KHOLELWA MYEMANE, because not every auditor out there has the best interest of the legal practice, third parties relying on the report of the auditor and the public at heart
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ule 54.20 of the Rules as per ss 95(1), 95(3) and 109(2) of the Legal Practice Act 28 of 2014 (the Rules) requires each legal practice to appoint an auditor to discharge the duties assigned to the auditor in terms of the Rules. The Rules further require that the auditor produces a report to be submitted to the Council at specified intervals.
AN AUDITOR
AccountingTools defines an ‘auditor’ as an ‘individual who examines the accuracy of recorded business transactions. Auditors are needed in order to verify that processes are functioning as planned, and that the financial statements produced by an organisation fairly reflect its operational and financial results’. The auditor, while WHO IS THE ACCOUNTANT? appointed by the legal practice, is not AccountingTools defines an ‘accountant’ as accountable to the legal practitioner but a ‘person who records business transactions to the authority that relies on the report on behalf of an organisation, reports on produced by the auditor, the Legal Practice company performance to management, and Council (LPC) in the case of a legal practice. issues financial statements’. This person is From the foregoing definitions, it generally employed by the legal practice or becomes apparent that the accountant the service is outsourced to an entity that records the business transactions, and provides the service. Effectively, this person the auditor examines the recorded business is accountable to the legal practitioner. transactions, meaning they have different Both the accountant and the auditor fall roles. With this understanding, the two within the accountancy profession, but their functions should not be performed by roles may differ. There is often confusion the same person or by persons from the out there among some of the newer legal same entity, unless the entity can prove practitioners who cannot differentiate between that a Chinese Wall (‘a virtual barrier an accountant who prepares the books and intended to block the exchange of an auditor who examines the books, and the information between departments if it appointment of the auditor. This article will might result in business activities that are clarify this confusion, but mostly seeks to ethically or legally questionable’) has been communicate the importance of appointing built. It is often not easy to prove Chinese a registered and credible auditor. Walls convincingly.
REGULATORY REGIME FOR AUDITORS Auditors in South Africa (SA) are registered with and regulated by the Independent Regulatory Board for Auditors (IRBA), which is a statutory body for accountants and auditors in SA. The IRBA, among others, develops and maintains auditing and ethics standards that are internationally comparable. When appointing an auditor for purposes of fulfilling the requirements of r 54.20 it is important to seek the services of a credible auditor registered with IRBA. There are two types of auditors registered with IRBA, namely assurance providers and non-assurance providers. Auditors that provide assurance services reflect an assurance status of ‘Assurance’ and can be confirmed on IRBA’s website www.irba.co.za or directly with the IRBA. The LPC accepts reports issued by an auditor with an ‘Assurance’ status.
CODE OF PROFESSIONAL CONDUCT FOR REGISTERED AUDITORS
The IRBA, as already indicated in the foregoing paragraphs, develops, and maintains auditing and ethics standards for registered auditors. The IRBA developed a Code of Professional Conduct for Registered Auditors (the Code), which a registered auditor is expected to always observe.
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One of the major expectations of a registered auditor is that they remain independent in the performance of their duties. The Code identifies independence at two levels: • ‘Independence of mind’ – ‘the state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity, and exercise objectivity and professional scepticism’.
• ‘Independence in appearance’ – ‘the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude’, weighing all the specific facts and circumstances, that a firm’s, or a member of the audit or assurance team’s integrity, objectivity or professional scepticism has been compromised. In terms of the Code, there are fundamental principles, which all registered auditors will have to comply with:
FUNDAMENTAL PRINCIPLE
MEANING
Integrity
To be straightforward and honest in all professional and business relationships.
Objectivity
To not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
Professional competence and due care
To maintain professional knowledge and skill at the level required to ensure that a client receives competent professional services based on current developments in practice, legislation and techniques and Acts diligently and in accordance with applicable technical and professional standards.
Confidentiality
To respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, does not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the registered auditor or third parties.
Professional behaviour
To comply with relevant laws and regulations and avoid any action that discredits the profession.
All of the five fundamental principles and the independence of the auditor are crucial in determining the credibility of the auditor. If one considers the meaning given to ‘objectivity’ as a fundamental principle, one should be cognisant that lack of objectivity can be ‘actual’ or ‘perceived’ and both should be avoided.
THE IMPACT OF THE CODE ON LEGAL PRACTICES
The LPC places reliance on the reports of the auditors. As part of the criteria that the LPC uses to issue Fidelity Fund Certificates (FFC) to legal practitioners, is the presence of an approved audit report. More often than not, audit reports that are unqualified by the auditors, clean audit reports, are approved by the LPC. The impact that the Code has on the legal practitioner is that should the registered auditor be found not to have been independent or not to have complied with any of the fundamental principles, the auditor may be investigated. If on investigation the auditor is found guilty of misconduct, the report issued by that auditor to the Council may be nullified. The Council may, on nullification of the report, appoint its own inspector to conduct an inspection at the legal practice.
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AUDITING LAW
It should also be noted that the LPC may refuse to accept an audit report issued by an auditor that the LPC does not approve of. Non-approval of an auditor by the LPC may be subject to various reasons, including the history of the reports issued by that auditor. The Legal Practitioners’ Fidelity Fund (the Fund) on the other hand, has developed a Legal Practitioner’s Risk Management Framework by which the Fund monitors information coming through in respect of the legal practitioners and legal practices. This information is gathered to identify potential exposure of the Fund to increased theft claims. Information coming through in respect of audit reports of the legal practices submitted to the LPC forms part of the Fund’s analysis. Therefore, should the Fund receive information related to nullified audit reports of a legal practice, the Board of the Fund may, through its vested powers and functions in terms of s 63(1)(e) of the Legal Practice Act, authorise an inspection of the legal practice affected. Readers are encouraged to read this article together with Simthandile Kholelwa Myemane’s The increased importance of maintaining proper and accurate trust accounting records, 2020 (July) DR 6.
WHO SHOULD APPOINT A REGISTERED AUDITOR?
The legal practitioner/s of a legal practice should appoint a registered auditor after performing due diligence on the sought auditor. The legal practice, on appointment of a registered auditor, should inform the LPC of the appointed auditor. We have noted instances where legal practitioners get advice from their bookkeepers or accountants who write up the books of the legal practice on the auditor to appoint. Should the legal practice appoint an auditor recommended by a bookkeeper or accountant, the legal practice inevitably allows a situation where objectivity of the auditor may be impaired or perceived to be impaired. There is also a risk that the legal practice opens itself to the possibility of theft being concealed. If the bookkeeper or accountant and auditor have some relations with one another, the auditor may conceal the wrong doings of the bookkeeper or accountant.
When this happens, the legal practitioner/s may be unaware of any wrong doings of the bookkeeper or accountant and the wrong doings may take long to be uncovered, landing the legal practice in trouble with the regulator, the Fund, and possibly other legal authorities. While legal practitioners should appoint the auditors without the influence of bookkeepers or accountants in the employ of the legal practice, legal practitioners themselves should not have any prior existing relations with the auditor appointed. This too subjects the auditor to perceived lack of objectivity and independence. Scenario A new legal practice appoints SKM Accountants and Auditors Inc as their auditor of record. The director at the auditing firm is the customary wife to the accountant of the legal practice, not using the husband’s surname, and this information was never disclosed to the legal practice. In pursuit of bringing business to the wife’s company, the accountant recommended to the legal practitioners of the legal practice the appointment of the audit firm. The legal practitioners, having failed to do a proper due diligence on the auditing firm, went with the recommendation of the accountant and appointed the auditing firm. For five years in a row the legal practice received unqualified audit reports, resulting in the legal practitioners receiving their FFCs. The professional relationship of the accountant and the legal practitioners soured over time to a point that the accountant was dismissed and replaced with another accountant. The new accountant on assuming the duties at the legal practice, noticed some creative accounting in the trust accounting records that persisted over the past three years. The accountant brought her discovery to the attention of the legal practitioners. By this time, some clients of the legal practice had started calling the legal practitioners with complaints and others lodged formal complaints with the LPC against the legal practice. The LPC launched an investigation into the trust accounts of the legal practice, and the investigation revealed that the previous accountant and the auditor were
related, which relationship is perceived to have compromised the independence and objectivity of the auditor. In the absence of the clients’ funds in the trust bank account of the legal practice, the LPC advised the complainants to lodge claims with the Fund. The Fund admitted and paid the claims and recovered the funds from the legal practitioners of the legal practice. From the foregoing scenario, it is clear that the legal practitioners did not misappropriate the trust funds themselves but were misled into believing that everything was above board. Their failure to do a proper due diligence on the auditor, while relying on the report of the auditor, cost them their reputation with the public, the LPC and the Fund.
CONCLUSION In conclusion, legal practitioners should realise that the appointment of a credible auditor is critical to the survival or collapse of the legal practice. A proper understanding of the role and expectations on the auditor and a proper due diligence on the auditor are crucial for a legal practice. Not every auditor out there has the best interest of the legal practice, third parties relying on the report of the auditor and the public at heart. These interests should always be in balance. This article was first published in De Rebus in 2021 (April) DR 5.
SIMTHANDILE KHOLELWA MYEMANE PRACTITIONER SUPPORT MANAGER LEGAL PRACTITIONERS’ FIDELITY FUND
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EMPLOYEES’ RIGHTS
DURING BUSINESS RESCUE PROCEEDINGS The Companies Act attempts to offer protection to employees of companies placed under business rescue. CLEMENT MARUMOAGAE clarifies what these rights entail
D
ue to the impact of Covid-19, some companies had to close down while others were forced to operate under reduced capacity in South Africa. For those companies that were able to ‘survive’ the dire economic challenges brought by Covid-19, tough decisions had to be taken to ensure that operations continue. Some of these companies requested their employees to work reduced shifts to avoid retrenchments. While others did not retrench employees but asked them not to render their services for a prescribed period to assess whether the economic conditions would improve, leaving some employees without income.
Several measures were initiated by government to assist some of these companies to cope with the economic challenges brought by Covid-19. One of the measures was the promulgation of the Disaster Management Tax Relief Administration Act 14 of 2020, which among others, provided a tax relieve intended to alleviate cash flow challenges for tax compliant small and medium companies and the removal of penalties for the remittance of Pay As You Earn to the South African Revenue Services. The government also initiated the much-criticised National Empowerment Fund which was designed to provide
loans to small businesses. It also established the Solidarity Fund, which was meant to alleviate suffering and distress caused by the Covid-19 pandemic. Despite these and other measures, some companies could not withstand the dire economic conditions. They were either liquidated or placed under business rescue proceedings. Some of the businesses that were placed under business rescue also contemplated retrenching employees. This article discusses the rights of employees who were/are subjected to retrenchments when companies that employed them were/are placed under business rescue.
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LABOUR LAW
When the company is struggling financially, either the directors thereof or any of the affected persons such as creditors may initiate a process of placing it under business rescue. In terms of section 129 of the Companies Act 71 of 2008, directors of a company can resolve to place the company under business rescue if the company is financially distressed and there is reasonable prospect of rescuing it. Where no such resolution has been taken, any of the affected persons such as creditors, may also apply to a court for an order placing the company under business rescue. Once placed under business rescue, a Business Rescue Practitioner (hereafter Practitioner) must be appointed to try to save the company in line with the business rescue plan that he or she would have proposed. In terms of section 133 of the Companies Act, as a general rule once placed under business rescue, no one can initiate legal proceedings against the company to enforce any right without the written consent of the Practitioner or leave of the court. The Practitioner is provided a three-month space to try to save the company without worrying about dealing with claims against the company. In practice, one of the popular ways of trying to save companies is to reduce the wage bill of the company to increase the company’s cash flow. This is usually achieved through the retrenchment of the company’s employees. In terms of section 213 of the Labour Relations Act 66 of 1995 (hereafter LRA), retrenchments are understood as dismissals based on the operational requirements due to the economic, technological, structural, or similar needs of the employer. Covid-19 falls under the economic conditions that may persuade the Practitioners to retrench companies’ employees during business rescue proceedings. However, it is important for Practitioners to have regard to section 136(1) of the Companies Act that attempts to offer protection to employees of companies placed under business rescue. First, this provision provides that employees must be employed on the same terms and conditions immediately before the beginning of business rescue proceedings, unless there are reasons justifying deviating from such terms and conditions.
Secondly, this provision demands that when Practitioners effect retrenchments during business rescue proceedings, such retrenchments must be carried out in terms of sections 189 and 189A of the LRA. This simply means that retrenchments effected during business rescue proceedings must comply with the South African labour laws. In particular, when effecting such retrenchments, practitioners must follow a fair procedure, which includes a meaningful joint consensus-seeking consultation process. Failure to meaningfully consult employees who are affected by retrenchments during the business rescue procedure will render such retrenchments unfair. Employees have a right to be consulted and given an opportunity to suggest measures that can be adopted to prevent retrenchments. It appears that should retrenchments not be effected in accordance with sections 189 and 189A of the LRA, employees will not be prevented by the moratorium created by section 133 of the Companies Act to litigate against their companies. Section 189A(13) of the LRA clearly provides that ‘[i]f an employer does not comply with a fair procedure, a consulting party may approach the Labour Court by way of an application for an order - (a) compelling the employer to comply with a fair procedure; (b) interdicting or restraining the employer from dismissing an employee prior to complying with a fair procedure; (c) directing the employer to reinstate an employee until it has complied with a fair procedure; (d) make an award of compensation, if an order in terms of paragraphs (a) to (c) is not appropriate’. In terms of section 210 of the LRA, this Act takes precedence over all other Acts of Parliament over labour matters that are usually adjudicated by the Labour Court. This means that employees subjected to unfair retrenchments during business rescue proceedings will be able to challenge through litigation. In South African Airways (SOC) Limited (In Business Rescue) and Others v National Union of Metalworkers of South Africa obo Members and Others 2021 (2) SA 260 (LAC) para 23, the Labour Appeal Court confirmed that section 189A(13) of the LRA allows a consulting party to approach the Labour Court, which can correct any procedural
irregularity as and when it arises so that the integrity of the consultation process can be restored and the consultation process forced back on track. Practitioners cannot decide to retrench employees after their business rescue plans have been adopted. It is important that, if retrenchments are part of their strategy to save companies, such retrenchments are included in the plans to be considered by affected parties. Practitioners cannot decide precisely who to retrench until they have outlined how companies will be restructured and saved through business rescue plans. The Labour Appeal Court in South African Airways (SOC) Limited, held that section 150 of the Companies Act makes it plain that the Legislature intended that rescue plans must precede retrenchments effected during business rescue proceedings. ‘In terms of s 150(2) [of the Companies Act] the business rescue plan must contain all the necessary information reasonably required to facilitate affected persons in deciding whether or not to accept or reject the plan’ (para 32). In conclusion, notwithstanding Covid-19 and its impact on the financial health of companies, practitioners must ensure that they comply with the labour laws when performing their functions during business rescue proceedings. It is also important for employees to understand the powers of practitioners during business rescue proceedings and their limitations. Should they be subjected to unfair retrenchments, they do have a right to seek legal recourse during business rescue proceedings.
CLEMENT MARUMOAGAE ASSOCIATE PROFESSOR WITS UNIVERSITY, SCHOOL OF LAW
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BOOK REVIEW
MOVING FORWARD The changing times calls for an update of leadership styles. STEPHEN ENGELS presents the key attributes needed for the new paradigm, from the personal to the professional
N
othing great has ever been achieved by standing still. The New Success Paradigm: A Personal Leadership Discovery Platform not only brings that principle home, it gives its readers the tools they need to make a change and take themselves and their organisations forward. And it couldn’t have come at a better time. The world needs change more than ever. Amidst the chaos that today reigns across the globe, one simply cannot ignore how current events have adversely impacted the lives of people in unique ways, and how they have negatively impacted the sustainability of our planet and the generation of business profi ts. By developing the theme of shifting leadership dynamics and leadership styles, The New Success Paradigm: A Personal Leadership Discovery Platform shines a timely light on the need for leaders to move on from conventional leadership roles and inspire others with self-esteem and a culture of change that starts with themselves.
It’s a wake-up call for leaders who are not reaching their full potential and feel they’re stuck in a rut. And it’s chock-full with advice. The book invites readers to create a more successful life though personal leadership, which is a vital foundation for leadership excellence; to learn about themes that are the real drivers of success in every person’s life; to discover and start using the unique set of 27 ELS Dynamic Exercises and the ELS Goal System to expand, or transform their life and business; and to discover and adopt a novel paradigm for success on a personal, private and professional level. The book’s author, Stephen Engels, is the Managing Director of ELS Management Sàrl – a business consultancy based in Switzerland that specialises in leadership and management education towards business excellence. Having conducted more than 20 years of research into what makes an effective leader, with a specific focus on personal leadership, he has a keen insight into the key attributes that are needed to steer people in the right direction.
According to Stephen, “The starting point for a dynamic leadership transformation of people and companies is to stimulate an awareness of what life holds for each of us individually, as well as for us collectively. This raised sense of awareness is extremely important in developing our dreams for the future.”
ORDER INFORMATION New Success Paradigm: A Personal Leadership Discovery Platform can be ordered from Knowledge Resources, Ground Floor, Yellowwood House, Ballywoods Office Park, 33 Ballyclare Drive, Bryanston Contact: tel: (+27 11) 706 6009 fax: (+27 11) 706 1127 e-mail: orders@knowres.co.za Available online at: www.kr.co.za
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