14 NFTs: what are they and should you invest in them? Explore the ethereal world of non-fungible tokens.
18 Five lessons from 50 years of investing in real estate
Tips from a seasoned institutional investor.
22 Keeping the banking industry in check
How the banking ombud serves to protect consumers.
26 Retirement funding: Is SA as bad as we think?
Comparing our efforts and structures with other countries.
30 Giving from a distance – the problem of funding good causes in Africa
Why smaller African NGOs are not getting the money they need.
34 Can crypto assets be transferred offshore? Watch out for the Reserve Bank’s exchange control regulations.
Using your cellphone to effect money transactions will soon be the norm in South Africa, as it already is in some other African countries.
36 CGT on transferring dual-listed shares to an offshore exchange Recently-introduced legislation applies to transfers after 1 March 2021.
40 5 key investment trends to watch in 2022
Market trends accelerated by the pandemic are set to continue.
42 How to (financially) survive retrenchment Life after retrenchment may be easier if you follow some guidelines.
46 The employment tax incentive is not a success story Government’s plan to combat unemployment “has not worked”.
48 U nderstanding your financial behaviour helps you manage your money well Bank app helps you analyse your monthly expenses.
2 U pfront Upwardly mobile
8
4 Book review Books on financial topics
6 Your letters
Readers’ queries answered by experts
45 Millennial view The festive-season drain on the wallet
50 Ombud case file Insurance, advice and retirement fund disputes
52 Fund focus Coronation Smaller Companies Fund
54 On the contrary Lazy thinking or tried-and tested strategies?
55 A list of the adjudicators and the ombuds who can assist you with your complaints, followed by the unit trust quarterly results, tax rates and annuity rates
It is amazing it has taken so long, but using your phone for money transactions is quickly becoming the norm. It looks like credit and debit cards in their physical form are on their way out (like buggy whips and CDs before them), though hard cash will be with us for some time to come...
Africa is where this "movement" began and where it is having its strongest impact. Millions of people, who have until now avoided using banks for a number of practical reasons, are utilising easy-touse, low-cost mobile money apps to make everyday payments, send money to relatives, and save.
The cellphone networks are big players in this space. Read Anna Rich's in-depth report on page 8.
Non-fungible tokens (NFTs) have been in the news recently, but are they here to stay or just a passing fad? On page 14, read what I could find out about this new digital form of creation – or rather new form of ownership of one's creations – and how investors are parting with obscene amounts of money to buy some of them.
The global property market has been a relatively lucrative one for investors in the past, but Covid-19 has been a major disruptor, accelerating trends that were already present to some degree. Shopping centres and office blocks have been hit hard with the rise of online shopping and working from home. Schroders' Sophie van Oosterom looks at global real estate from an institutional investor's point of view (page 18), but her observations hold true for individual investors interested in this market.
Elsewhere in this edition you can wise up on the role of the banking ombud (page 22) and surviving retrenchment (page 42), among other things. Enjoy.
VOLUME 89
4th QUARTER 2021
An Independent Media (Pty) Ltd publication
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Now is not the time to sit by idly.
Now is the time to question.
The time to challenge.
Now is the time to act.
To believe in something bigger than ourselves.
Now is the time to help small business.
Big business.
And nurture new business.
Now is the time to put our money where it matters.
By investing R2,25bn of our own capital.
To jumpstart the economy.
To keep business doors open.
And keep food on the table.
Now is the time to plan.
We know the importance of keeping as many businesses going as possible. That’s why we’re actively supporting businesses that have been negatively impacted by COVID-19 by creating the Sanlam Investors’ Legacy Range –three impact funds with the core objective of helping to preserve current jobs and creating new ones. To find out more about the Sanlam Investors’ Legacy Range, visit www.sanlamintelligence.co.za/institutional/.
Mrs Spiggles and her Money Tales – Money Messages for Kids
Author: Jean Archary
Publisher: self-published
Available at Exclusive Books countrywide or for R200 from website www.mrsspiggles.co.za
Many money problems that people face could have been avoided if financial literacy were taught earlier in life.
Jean Archary is a financial wellness coach (she is a Certified Financial Planner, Certified Workplace Coach, holds a BA in Psychology and Communication and a postgraduate diploma in Advanced Tax), mother and author. She produced this children’s book to share important money messages with children, aiming to set them on a path to financial wellbeing as adults.
Mrs Spiggles is like a fairy godmother in the form of a flying piggy bank. She imparts four key money messages in a series of short stories. The first is about how money is earned and the importance of budgeting.
The second teaches the importance of saving up for what you want. In the third story children will learn about how to
spend money wisely.
The final story teaches about the value of money and the importance of giving to the less fortunate.
The book is appropriate for children between the ages of six and 11. At the end of each story there is a list of questions that can be used to test your child's understanding of the concepts relayed. “You will be amazed by the profound conversations that occur,” says Archary.
“Having worked in financial services, and having delivered financial education talks to adults, even I found myself struggling to explain financial concepts in a way that would make sense to my daughter,” says Archary. “So I went off to the bookstore to find a storybook that would assist with unpacking the details. To my surprise, I could not find any age-appropriate books relating to money. This triggered an idea, and this was how Mrs Spiggles was born.”
Deep Grooves – Overcoming Patterns that Keep You Stuck
Author: Lisa Linfield
Publisher: self-published
Recommended price: R250 at Exclusive Books, Takealot and Amazon
All of us want to live the best version of our life possible, right? The trouble is, our thinking patterns keep us stuck in well-worn ways of operating and behaving. Most of us have lost track of how many times we've tried to shift our behaviour, be it diets, making sales calls, handling relationships, managing our money or just the way we think about ourselves.
But there’s no quick-fix – we need to fundamentally change our ways of thinking.
This dynamic book has the framework and tools you need to do just that. You will:
• Discover the five signposts to find your unique path to joy and purpose.
• Uncover your real reasons change isn't happening and put in place frameworks that work over the long-term.
• Learn the brain science and the shortcuts to re-wiring your thinking.
• Understand how to make small daily changes to improve your life.
After a successful 20-year corporate career, Linfield stepped off the ladder to start three businesses whose goal it is to change the lives of people through financial freedom. She is a Certified Financial Planner and has set a goal to teach one million women about money through her podcast and blog, Working Women’s Wealth, as well as online courses, books and as a speaker.
Millionaire in the Making: Building Generational Wealth by Investing Wisely
Author: Laurens Boel
Publisher: Zebra Press (Penguin Random House)
Recommended Price: R230
“I want to help those of you who feel stuck in the rat race, like I did. I hope to educate all South Africans on how to build a stronger financial position with multiple streams of income, while also protecting their wealth for generational success.”
Author, educator and property expert Laurens Boel believes that, thanks to apartheid’s legacy and a dearth of financial education, many South Africans are stuck in a cycle of surviving financially from day to day because their focus is on accumulating the wrong sorts of assets: those that may outwardly exhibit the trappings of wealth but that depreciate over time. These assets easily turn into liabilities, particularly if they are acquired on credit.
“To change society, we need to convert consumers into investors, spenders into savers, and equip our nation with world-class financial principles,” he says.
Boel sets out each step of the wealth-generation process, including how the rich think differently from the poor, how the economy works, and how to earn passive income through side hustles. He offers his own set of insider insights on how to grow and protect your wealth.
Like his previous book, Financial Freedom Through Property, Boel focuses on property investing as a foundation for wealth. The reader will be armed with tips on investing in South Africa’s property market, such as finding below-market-value deals, leveraging other people’s money and using efficient tax structures.
However, to solidify your financial position you need to establish multiple income streams: these may include investing in shares or exchange traded funds, short-term trading (not to be undertaken without appreciating the risks involved – ed.) and starting a business.
The book may also benefit experienced investors looking to polish their portfolios and build wealth, not only for themselves but for their children and grandchildren
Anthro-Vision: How Anthropology Can Explain Business and Life
Author: Gillian Tett
Publisher: Penguin Random House
Recommended Price: R350
For over a century, anthropologists have immersed themselves in unfamiliar cultures, uncovering the hidden rituals that govern how people act. Now, a new generation of anthropologists are using these methods in a different context – to illuminate the behaviour of businesses and consumers around the globe.
In this book, Gillian Tett – bestselling author, Financial Times journalist, and anthropology PhD –reveals how anthropology can make sense of the corporate world. She outlines how anthropology helps explain consumer behaviour, revealing the “webs of meaning” that underpin our shopping habits, and unpicking the subtle cultural shifts driving the rise of green business. She explores how anthropology can shed light on the workplace,
identifying the “hidden tribes” within the office, and pinpointing which rituals bind people together as a team. And she shows how we can all use anthropology in our own lives, too: helping us make better decisions, navigate risk, and work out what our peers are really thinking.
Along the way, Tett draws on stories from Tajik villages and Amazon warehouses, Japanese classrooms and Wall Street trading floors. Chapters include one on how bankers misread the risks that led to the Great Financial Crisis of 2008, and one on the Cambridge Analytica electioneering scandal.
Commenting on the book, Melinda Gates writes: “Anyone working to rebuild a more equal world will benefit from Tett’s well-argued case that to solve 21st century problems, we must expand out fields of vision and fill in old blind spots with new empathy.”
I am about to inherit from my deceased mother who lived in the Netherlands. I have a twin sister who will inherit half. The inheritance tax has been paid in the Netherlands. In rands, the amount is approximately R2 million. The funds will be paid by the Netherlands bank into a foreign currency account, which I have opened in order to keep the funds in Euros. The Netherlands bank will only pay into one account, so once the funds arrive in South Africa I need to split them in half and pay my sister her half.
My question is: what are the tax implications for me and is there anything I need to know? I am assuming that because the inheritance tax has been paid in the Netherlands we will not be taxed again in this country? Name withheld
Kobus Kleyn, a Certified Financial Planner at financial services group Kainos, an affiliate of Liberty, responds:
The question is very light on detail. Was the deceased a citizen of the Netherlands, or did she still hold South African citizenship and was a permanent resident of the Netherlands. Are both sisters South African residents? It appears the one sibling is in South Africa, and I assume the sister may be in SA as well.
My answer would include that it is always advisable to consult with a tax practitioner, as there may be more detail required which would influence the ultimate responses, but in broad brushstrokes:
It is not clear that the money will be brought back to South Africa because the reader states that the inheritance will be deposited in a foreign currency account to keep the funds in Euros. If it is not repatriated, each sibling must declare that they hold the offshore investment and must account for any interest earned thereon when they complete their tax returns in South Africa. They are not compelled to repatriate the funds, but they are obliged to disclose that they have them.
If the late mother was a South African resident, then in the process of winding up the estate, the executor would have had to establish if there was a double taxation agreement in place, and if so, in which country the asset/s would be taxed. The reader should thus have a reference back to the South African executor and tax practitioner in this regard.
If the deceased was not a South African resident,
then any death duties should have been paid in the Netherlands before distribution to the heirs.
If it is necessary, once the money is in South Africa in the one heir’s account, to transfer half to the other sibling’s account, this transfer will appear, on the face of it, to be a donation. It could trigger donations tax at 20% after the first R 100 000 in a tax year. The tax practitioner would have to prove with a paper trail that it is, indeed, an inheritance through a simple transfer of capital, due to the use of a single account by one heir, and not, in fact, a donation. It would thus be better to pay the inheritance into each sister’s separate account and not into only one.
I'm a young professional who's just started my career. I really like the idea of trading shares and building an equity portfolio, but seeing how expensive shares are, what options do I have for equity exposure if I can't buy them directly?
Name withheld
Graham Lovely, wealth manager at PSG Wealth, responds:
Unit trusts are the most accessible form of investment where you can gain up to 100% equity exposure within a fund. Depending on the institution, you may invest as little as R500 per month or a lump sum of R10 000 to get started. There are several ways you can approach this and the best would be to speak to a qualified financial adviser because he or she would be able to guide you in terms of which funds to buy in accordance with your risk profile and goals.
Alternatively, you could open an account online with a fund manager and specify the fund allocations yourself. Many financial institutions also offer multi-managed funds where they employ managers whose sole job it is to select and monitor funds which they then package into solutions to suit different needs.
There are many advantages to these solutions including diversification between asset classes (like equities, property, bonds and cash), across various geographies and even themes and styles of investing. You could also apply for an offshore fund which involves externalising cash or you could buy local feeder funds that feed into offshore funds. The help of an adviser would be valuable, as the investment universe is vast and can be a bit daunting.
Have you ever used mobile money? Anna Rich provides a snapshot of what it is and its significance.
As part of the banked population, it’s quite possible to have only a vague notion of the mobile money phenomenon.
“Mobile money enables you to receive, store, send and spend money using a mobile phone,” explains Gavin Krugel, co-founder and CEO of Digital Frontiers, a non-profit that fills the gaps in skills development training, such as digital financial inclusion, related to the UN’s Sustainable Development Goals.
Krugel, an early pioneer in mobile payments, adds that mobile money came about by filling the financial services needs of low-income market segments. It allows you to access an
e-money account, which is underpinned either by a bank or a licenced payment service provider, he explains.
Mobile money relies on a network of agents (local stores or for-purpose outlets) to serve the customer. “Where bank clients go to a bank branch or an ATM, mobile money users go to an agent,” says Krugel. He likens it to a money transfer company that enables you to send money to someone else at a distance, using a network of stores. “When you cash in at an agent, your e-money account balance increases. You then use your mobile phone to transfer money to another consumer. And the recipient goes to an agent to cash out.” The agent network needs to extend to the “last mile” – where even customers in remote areas should be able to access the service.
Sergio Barbosa, chief information officer at Global Kinetic, a software engineering company, describes mobile money as an “abstracted form of money”. “By leveraging their network and the mobile user’s account, the mobile network operators led the way with the first versions of mobile money, but now there are many versions, for example, e-wallets, eBucks, and loyalty points,” he says. Barbosa also points to V-bucks, a virtual currency within Fortnite, a popular online video game, as another example: “This virtual layer allows you to transact within the platform you're on without necessarily having knowledge of the underlying banking system downstream, where the actual settlement is happening.”
There has been a distinction between “mobile money” and “mobile banking”. Mobile banking simply means that your mobile phone is the channel through which you access your banking services, Krugel explains.
What about services such as Absa’s CashSend? This allows the bank’s clients to instantly send money via a cellphone or online banking, the banking app or an Absa ATM to someone unbanked. The recipient collects the money from an Absa ATM.
And Standard Bank recently launched Unayo, a digital platform, making no bones about their aim, stating that Unayo is “set to disrupt the mobile money status quo in Africa”. It provides access to the financial world for “anyone with a cellphone number, agnostic of the mobile network operator, and handset technology”, says Wally Fisher, head of Unayo. They use merchants for cashing out. “It is primarily supported by USSD (a text messaging protocol similar to SMS), which extends its reach to users without smartphone access and where they are most comfortable and active: on their mobile devices.” Customers with smart mobile devices can access Unayo by downloading the app.
Krugel elaborates further on the line between mobile money and mobile banking: “The primary distinction is where the funds are stored: if in a bank account, then the mobile phone is a channel to that bank account and banking infrastructure; if in an e-money wallet, then the mobile phone is a transaction interface, with the banking infrastructure being agents, not branches.”
After a pilot programme, the mobile money service M-Pesa was launched in Kenya in 2007. It was extraordinarily successful, spurring efforts to replicate it in other markets.
Sub-Saharan Africa is at the forefront of the mobile money industry, says the GSMA State of the Industry Report on Mobile Money 2021. In 2020, the subcontinent continued to account for the majority of growth, representing 43% of new accounts. Although absolute growth was highest in West and East Africa, Southern Africa grew the fastest at 24% year on year.
As of September, the Vodacom Group announced that M-Pesa has 50 million customers who are active monthly, across Kenya, Tanzania, Mozambique, the DRC, Lesotho, Ghana and Egypt. And MTN’s mobile money offering reflects similar figures: in August, they said the number of active MoMo users hit 48.9 million in the first half of the year.
For the large mobile network operators, “mobile money is not a sideline business,” says Krugel. “Financial services contribute substantial revenues, enough to justify a split of the financial services business from their mobile network operations.”
At MTN, MoMo (mobile money) is part of MTN Mobile Financial Services (MFS).
The MFS division has two offerings: mobile money (MoMo) and insurance (InsurTech). Notably, the MTN Group was recently named the most valuable African brand in the Brand Finance Africa 150 rankings.
In May 2021, during an update on their “accelerated evolution from a TelCo to a TechCo”, Vodacom Group CEO Shameel Joosub noted that they had put all the financial services businesses into separate companies across their footprint, and specifically mentioned the example of South Africa: “It’s a separately managed business with its own CEO, its own board of directors, and its own regulatory requirements and governance.”
He also said that “the low cost intensity profile of financial services means that it generates a higher profit margin than our core mobile business”. Joosub added that in South Africa, “financial services continue to perform well” and that they expect this to scale as a result of launching their lifestyle super app, VodaPay.
Today, there are multiple mobile money options, via the mobile network operators and other app-based services. But we have seen some hiccups. Both Vodacom and MTN had previously launched mobile money services here in South Africa, following the Kenyan success story, but they both shut them down in 2016, as they did not prove viable from a business perspective.
In their Research Report on Mobile Money in South Africa 2017, FinMark looked into the reasons for the contrasting outcomes in Kenya and South Africa. “At the time of M-Pesa’s inception, Kenya had high levels of financial exclusion, banks were not accessible in remote areas, and bank account opening requirements were stringent with bank accounts offering little to low-income earners.” In contrast, South Africa had low financial exclusion, they said. Another issue here was our regulatory framework: “The requirement to partner with a bank limited the opportunity to launch a disruptive product and the limited access to the national payment system meant that the transactional capability was constrained beyond the traditional payment methods.” Yet another factor they found was that the retailers – Shoprite, Checkers, Spar and Pep – provided efficient cash remittance services (linked to banks).
In 2020, there were 1.21 billion registered mobile money accounts globally, the industry processed over US$2 billion daily, and there were 5.2 million unique agents.
Sub-Saharan Africa is by far the biggest market, with 548 million registered accounts, 159 million active accounts, and $490 billion in transaction value. And despite the economic fallout from lockdowns, the value of transactions increased by 23%.
Zooming in further to southern Africa, there are 11 million registered accounts (up 24%), and 3 million of these are active (up 28%). The value of transactions amounted to $3 billion (an increase of 24%). But these figures pale in comparison with other African regions; for example, transaction values in East Africa were $273 billion, and in West Africa, $178 billion.
(These figures are from the GSMA’s State of the Industry Report on Mobile Money 2021. The GSMA represents 750 mobile operators worldwide, including almost 400 companies from handset and device makers to software companies, equipment providers and internet companies.)
“Reaping the benefits of fintech requires a minimum level of investment, and those who do not have the means may find themselves financially excluded,” says an IMF paper titled The Promise of FinTech: Financial Inclusion in the Post-Covid-19 Era. “Investment here includes ‘tech capital’ (mobile phones, internet access) as well as the human capital required to use digital financial services.”
The mobile network infrastructure is in place. According to Jacqui O’Sullivan, executive for corporate affairs at MTN South Africa, their network currently covers 99% of South African population. In terms of wireless mobile internet access, “3G covers 98% while 4G is sitting at 96%,” she says. “We have deployed a 5G network not only in big metros but also in small towns such as Emalahleni, Rustenburg, Pietermaritzburg and Hartbeespoort.”
Vodacom’s network population coverage in South Africa was 99.9% and 97.3% for 3G and 4G respectively, and they have added 190 5G sites.
However, the GSMA State of Mobile Internet Connectivity Report 2020 refers to a usage gap, where people live within the footprint of a mobile broadband network but are not using mobile internet services –they are “covered but not connected”. The report says that in low- and middle-income countries handset affordability is the main barrier to mobile ownership. A low-cost, “dumb” feature phone is sufficient, though.
“Consumers who are using 2G phones and feature phones can access MTN’s mobile money offering, MoMo, via USSD,” explains O’Sullivan. “Those who are using smartphones can access the service by downloading the MTN SA MoMo app.” During the announcement of their annual results earlier this year, MTN Group CEO Ralph Mupita said that MTN South Africa had over 2.5 million mobile money users. Here in South Africa, smartphone penetration is continuing to grow year on year. O’Sullivan notes that by the end of 2020, MTN had 12.9 million 4G-enabled devices on its network.
Krugel also raises the issue of data costs: “Our consumers can’t necessarily afford
the data to drive the smartphones or the apps.” The UN Broadband Commission has set a target to make entry-level data services less than 2% of monthly income per capita by 2025, says the GSMA Mobile Internet Connectivity report. If you earn R10 000 a month, that means your basic data charges should be less than R200. At time of publication, Vodacom and MTN were both running a deal of 1GB of data for R85, valid for 30 days.
Despite our levels of financial inclusion, we still have millions unbanked, and if not unbanked, underserved, which means that
there is an argument for mobile money in this country, the FinMark Trust noted. Their report raises the convenience factor: mobile money can be accessed any time, any place.
An earlier FinMark report, from 2016, said that over 14 million South Africans “use their [bank] accounts as mailboxes”, withdrawing cash as soon as their salaries are deposited. This raises the question of whether they can be considered banked or financially included.
The informal sector is heavily reliant on cash, says Diana Bresendale, a futures studies graduate of the University of Stellenbosch Business School who for her MPhil researched the benefits for South
Africa of moving to a cashless society. “The interviews I conducted during my research revealed that those who work informally choose not to have a bank account.” Citing the Stats SA Survey of Employers and the Self-employed 2017, she says eight out of 10 of the 1.8 million informal traders had no bank account and 60% of those who did have one used it only to process payments. “Since cash is still a mainstay of payment tender in South Africa, it indicates that both consumers and informal merchants are cautious to adopt cashless forms of payment.” Bresendale says Standard Bank’s fintech platform aims to bring informal traders online.
“South Africans are sensitive to transaction costs,” she notes. “Capitec’s monthly fee of R5 (or ‘half tiger’ as they say colloquially) is the equivalent of half a loaf of bread – a negligible amount to some, but a meal to others. This price sensitivity was echoed in research published in the Accenture Global Financial Services Consumer Survey 2019.”
Ironically, the reliance on cash comes at a cost. The explicit costs are the fees for ATM cash transactions, and the taxi fares to travel to the nearest ATM, says Bresendale. Then she points out hidden costs, including the security and insurance costs associated with transporting cash, which are passed on to the consumer or business. Both explicit and hidden costs could be circumvented by mobile money.
The FinMark research also pointed to the personal danger of carrying cash: “The high crime rate in South Africa also leads to a need for safer money transfer than cash, especially in lower-income neighbourhoods most affected by crime.”
Through mobile money, consumers got the first taste of what financial services can do for them, says Krugel. “It wasn’t intended to be a savings product, but when users started accumulating balances, some in the industry realised that they could do much more. And from that, tons of innovations have arisen – everything from bill payments and micro savings to micro credit and micro insurance products.
“They're sachet financial service offerings, targeted at the poor and really meeting their needs – like buying a sachet of washing powder instead of a kilogram,” he says.
According to the IMF paper, The Promise of FinTech: Financial Inclusion in the PostCovid-19 Era, “Digital financial inclusion is evolving from ‘spend’ to ‘lend’ and tends to fill a gap: both payments and lending develop where the traditional delivery of service is less present.”
The paper holds up the example in China of Ant Financial, which leads the way in mobile and online financial services. It started as a payments service and expanded into providing digital credit. For those without records at credit bureaus, mobile money provides the data that prospective lenders need to make a call on creditworthiness. The paper explains that “digital lenders use ‘alternative data’ (from payments providers, and sources such as the internet) and ‘loan engines’ (innovative algorithms) to identify creditworthy clients and provide (mostly unsecured) lending.”
“What we see happening in China is
revolutionary,” says Krugel. “They're using a combination of mobile data, consumer behaviour data, and financial data to create digital identities around consumers and specifically tailor financial service products to their unique individual needs, at astonishing scale.”
But beyond credit, mobile money is expanding into savings and insurance. One example is the recent MTN SA mobile financial services move to offer insurance. “This is through the InsurTech solution, SanlamIndie, in partnership with Sanlam,” says O’Sullivan.
In the context of Covid-19, universal access to financial services became more critical than ever, says the GSMA report. “Despite the challenges and disruptions it caused, Covid-19 triggered a widespread shift in the adoption of digital tools.”
Says O'Sullivan: “As Covid-19 and lockdowns continue, most consumers have had to rely on their smartphones to transact and purchase goods and services online via either mobile money or through
online banking solutions. Last year during hard lockdown, MoMo was among top performing MTN online channels. Users are not only purchasing airtime and data bundles but they are able to pay their municipal utilities, pay DStv, renew their car licence disc, and buy food vouchers.”
Krugel predicts that mobile money will develop along the lines of China’s super apps. At the end of June, Vodacom announced the launch of the VodaPay Super App, in partnership with Alipay from Ant Financial (part of the Alibaba Group), touting it as “a game changer for driving financial inclusion and economic growth in South Africa”. They envisage that part of this “ecosystem” will encompass downloadable sub applications available to businesses of any size. This “digital mall” will give them access to new customers.
The Spot Money app provides free peerto-peer payments with no monthly fees. Sounds like mobile money? “We occupy a space between mobile money and mobile
banking,” says Spot Money co-founder and CEO Andre Hugo. “Spot Money is a store of value for all your normal mobile money transactions, but we're also a mobile banking platform that allows you to do other transactions that you can't do on mobile money. And then we have the marketplace.” The latter is where he sees the evolution of the space taking place. “We aim to be a super app, in response to the convergence of three trends we identified in South Africa: the desire to make payments digitally from a mobile phone; neobanking, or digital banking, driven by the lockdowns during Covid; and thirdly, in marketplaces, where people are looking for the convenience of shopping, engaging and transacting, through one simple app.”
The traditional banks don’t typically have a marketplace, says Hugo, because they are selling their own products. “You won’t get a Capitec loan from Investec or FNB. You’re only going to get their product, based on their brand.” But from
a consumer’s perspective, he says it’s better to be able to shop around safely and securely and engage with the brands you want.
The marketplace is double-sided, explains Hugo. “We’re onboarding partners such as Sanlam, Stangen, Viva Life, MiWay, Nedbank, Capitec, and FinChoice. On the other side of the marketplace, we onboard customers based on the appeal of our product. We match them with the relevant brands based on their credit score and behavioural data.”
A trend Barbosa points to is brand loyalty. “There’s an embedded finance movement afoot, and customers will interact with a brand they trust,” he notes. “Teens love YouTube celebrities like MrBeast [a 23-year-old US businessman and philanthropist whose channel is centred on quirky stunts]. My sons have never heard of the banks I bank with, but if MrBeast says you can get a MrBeast wallet to shop with, they’ll do it, because they trust him.”
The handset companies could be another game changer, Barbosa contends. “Apple Pay is a tokenised version of your bank card. You basically are paying with your phone. Even though it's connected to a bank downstream, the association the consumer has made is with their phone. They smile at their phone [biometric identification] and tap it at a pay point. They never have to bring out their card or their money, which creates a distance between them and the bank.” Over time, says Barbosa, Apple could disintermediate the banks, get a banking licence and offer financial services tailored to every part of a consumer’s lifestyle and even their wellbeing by leveraging Apple’s connected app and data ecosystem.”
And there’s another evolution of mobile money, says Barbosa: cryptocurrencies, which is “about trusting the underlying technology and the connected community. In this scenario, the banks are completely disintermediated; they are no longer required to move money.”
WHAT ARE THEY AND SHOULD YOU INVEST IN THEM?
Ihad to look up the meaning of the word “fungible” when I first encountered the term “non-fungible tokens”, now referred to simply as NFTs.
Wikipedia gives the following definition: “In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable and each of whose parts is indistinguishable from another part.”
The Cambridge Dictionary defines something as fungible if it can easily be exchanged for others of the same value and type.
So the opposite, “non-fungible”, therefore means something that can’t be copied, something that is unique. Examples are hand-crafted objets d’art, sculptures and paintings.
In a world dominated by consumptiondriven mass production, fungible goods are the norm: cars, television sets, painkiller drugs, bottles of cooldrink.
However, to mass-produce a consumer item, assuming you had a factory with the appropriate equipment to do so, you would need the permission of the party that held the copyright on the design, formula or recipe – the patent.
So while the goods themselves are fungible, the intellectual property rights behind them are not, and these rights have a monetary value.
When the internet came along, suddenly there was a whole class of goods that existed only digitally, and they were immensely replicable.
Large corporations maintain intellectual property rights on their digital property, such as computer software. To use Microsoft Office, for example, you need to pay
Microsoft a hefty sum to be able to operate the application on your computer. Hence Bill Gates’s permanent smile.
But ownership of something you create digitally has been largely out of reach for the individual. It’s not only too easy for people to make copies of your creation; more importantly it’s too easy for someone else to claim your creation as his or her own.
The blockchain concept emerged in tandem with the world’s first cryptocurrency, Bitcoin. Cryptocurrencies can only work if there is something that prevents the units of the currency from being replicated. A single Bitcoin would quickly lose its value if it was subject to the ubiquitous practice of “copy and paste”.
So the inventor of Bitcoin, the mysteryshrouded Satoshi Nakamoto, developed a technology that was more revolutionary than the digital currency itself: the blockchain.
This is essentially an encrypted ledger that is accessible to all users but that is immutable (entries cannot be altered). Each
transaction involving the digital item (in this case each Bitcoin mined) is automatically entered in the ledger. This immutable record of transactions is what gives the item its authenticity, or to use a term from the art world (particularly appropriate when discussing NFTs), its “provenance”. An item that has a unique digital record cannot be replicated and allows for only one owner at a time: hence it has value, subject to the laws of supply and demand.
It is the blockchain that has made possible the emergence of NFTs: digital creations that exist only in the realm of the internet but that have a unique provenance in the form of a blockchain ledger, and which thus can be owned, bought, sold and traded like a unit of cryptocurrency. And while copies may continue to be made, like cheap replicas of famous artworks, the “original” is held by the owner of the NFT.
Most NFTs use the blockchain of cryptocurrency Ethereum, which is more adaptable to multiple uses than the Bitcoin blockchain. The digital creation can be in the form of any one of a number of file formats: from jpegs and gifs to mp4 sound files.
Martin Hesse delves into the ethereal world of non-fungible tokens to find out what they are, how they work, and whether or not the trend to own or trade them is a passing fad.Entrepreneur Vignesh Sundaresan, also known by his pseudonym MetaKovan, shows the digital artwork NFT "Everydays: The First 5,000 Days" by artist Beeple in his home in Singapore. He paid $69.3 million (about R1 billion) for it. (Photo by Roslan Rahman/AFP)
NFTs: the new art?
NFTs may be attached to any number of things existing in the ether, including musical compositions and computer programmes (the source code for the World Wide Web, written by Sir Tim Berners-Lee in 1991, was sold as an NFT by Sotheby's for $5.4 million in June).
But it is in the world of the digital visual arts that NFTs have exploded.
The art world has been turned upside down by the sudden NFT craze, and prices for art NFTs have reached irrational levels. In March, blockchain entrepreneur Vignesh Sundaresan, also known by his pseudonym MetaKovan, bought the NFT “Everydays: The First 5,000 Days” by artist Beeple for $69.3 million, the highest price paid so far for an art NFT.
In an article for Investec’s Focus newsletter, “New gold rush: the rise of NFTs in crypto art”, art journalist Mary Corigall writes: “The brave new world of NFTs is so unpredictable that when a digital work by the American digital artist Mike ‘Beeple’ Winkelmann fetched a staggering 42 329 Ethereum (ETH), or the equivalent of $69 million (about R1 billion), the doyens of the art world, and Winkelmann himself, were taken by complete surprise.
“Even Christie’s, the global art auction house that offered the work for sale, had no idea what value to place on this NFT
when it went under the hammer in March. So there was no reserve price or estimate for the work and bidding began at $100. The auction was run entirely on the Ethereum blockchain.”
She gave further examples of NFTs on auction:
• You Tube meme sensation Nyan Cat, a pixelated flying feline, was turned into a gif by its creator Chris Torres that sold as an NFT for $531 000.
• In Hong Kong in March 2021, a digital artwork created by humanoid robot Sophia was sold on auction for $688 888 in the form of an NFT.
• In May 2021, a collection of nine of Larva Labs’ CryptoPunks NFTs was sold at Christie’s in New York for $16.9 million.
• Twitter founder Jack Dorsey sold his first tweet, "just setting up my twttr", as an NFT for $2.9 million.
But it’s not only well-known celebrities and mature artists who have hit the jackpot on NFT auctions. A recent article by Raisa Bruner for Time magazine tells of 15-yearold Jaiden Stipp of Tacoma, Washington, whose digital illustration of a waving, astronaut-like cartoon figure, sold for 20ETH (about $30 000 or R450 000) and which traded a month later for double that. Bruner reports that Stipp had been making and selling logo designs for customers on the gaming app Discord for $20 to $70. “On a whim, he made his
astronaut cartoon into an NFT, put it up for auction, and became a blue-chip artist overnight. He’s since sold four more pieces, and cashed out enough to help his parents pay off their house and cars.”
There are various platforms for uploading and trading NFTs – the biggest one currently is OpenSea. OpenSea lets you upload any original digital content that is less than 100MB in size, although it recommends the size of your creation be less than 40MB to facilitate faster uploads and downloads.
There is an array of categories, including art, music, domain names, virtual worlds, trading cards, collectibles, and sport memorabilia.
Your NFTs can be “fungible”, which sounds like a contradiction in terms, but which allows you to reproduce a fixed number of copies of your creation (just as an artist may make a fixed number of silk-screen reproductions), which can be sold individually or as a group.
There is a cost to “minting” an NFT, which is the process of creating a blockchain ledger to go with it. However, OpenSea has introduced “lazy minting”, which allows you to create an NFT free of charge, and which gets “minted” only on its first sale, whereupon the ledger is created and the cost for creating that ledger is deducted.
Once sold, a buye r may kee p it up o n the platform for it to b e resold . Th e originator may the n collect roy alties (typically 10%) on each sale.
OpenSea also serves as a collector’s site for storing and exhibiting NFTs.
On a blog on OpenSea, founder Alex Atallah gives some statistics on the boom in the NFT market (as at mid-October 2021):
• In jus t th e secon d hal f of 2020, the volum e of ar tistic NFTs and user- created co ntent sol d has grown fro m $1 million per month to over $20 millio n per month. That’s a 20-fold in creas e in just si x months.
• Th e number of art sellers has grow n over 500% , fro m 1 395 in Jun e to over 8 770.
• Ar t NFT sellers have averaged 9.7 ET H per user ove r th e pas t six mo nths . At the exchang e rate of $650/E TH , lowe r than today’s rate, that’s ove r $1 00 0 per wallet per mo nth.
• For jus t their own NFTs , creators have sold 5.4 ET H (over $3 500) on averag e over th e pas t si x months In just th e art cate go ry, 9.7 ET H ($6 300) w as sold per artis t o n average (Primar y art sellers averaged 7.4 E TH , an d secon dari es were 9.1 ETH.)
• have each excee de d 10 0 ETH in primary sales of the ir artwork . Thes e super-ar tists averaged 4 4 ET H of sales per month, or over $28 00 0 per month pe r ar tis t in primar y sales of the ir ow n work . Fo r this
elite group, it’s like havin g a salary of $340k pe r year.
• There are now 12 NFT millionaires , or wallets which have sol d ove r $1 million in NFTs On e NFT tr ad e r claims to have grosse d $650 00 0 fro m just a $60 0 deposit.
Where’s thi s al l going?
Is th e interes t in NFTs jus t a p assin g fad? Corigall quotes Chris Becker, blockchain lea d at Investec : “In th e NFT space we see and prove owner ship of digital goo ds not manage d by a central intermediary Digital co ntent creator s now have a direc t route to marke t an d th e ab ilit y to mo ne tis e their creations Co ntent creators in th e digital era have drawn th e short en d of th e stick. Blockchain and NFTs are a gam e chang er as they e liminate larg e te ch interme diari es from all th e verticals of digital co ntent creatio n an d distribution . NFTs put the power back in th e hands of co ntent creators , an d th e most popular marketplaces are bein g built as public utilities , not for pr iv ate gain.”
A Bloomberg articl e by Olga Khari f, Vil dana Hajric an d Jus tina Lee, balances th e enthusiasm aroun d th e technol og y with a more cautious view about NFTs as an investment.
“Art and collectibles – and NFTs share propositions . Combin e the m with
somethin g as volatil e as crypto asse ts , and there is reason to procee d cautiously. The tokens themselves are often rudimentary others let users unlock new services,” say th e Bloomberg writers . “An d success hasn't be en easy to com e by Fo r all th e hoopla aroun d Beepl e's $69 million wind fall in March, plenty of NFTs en d up lan guishing o r se llin g fo r a few dollar s apiece.”
Th e articl e quotes Stephan e Ouellet te, chie f executive an d co-found er of FRNT Financial, wh o says: "What is happening right now is th e e quiv alent of m e hearing that a major co ntemporar y painter has sold somethin g fo r millions of d ollars and I , someon e with n o ar t skill o r exp erie nce says , 'We ll I guess I better star t painting be caus e any paint on canv as is sellin g for millions.'"
N o doubt som e s anit y will prevail, although it has taken lon g en ou gh to do s o in th e over-hype d cryptocurren cy space But alth ou gh th e market may be
Atallah: “An entirely new in dustr y has just be en born, an d on to p of bein g fun, safe, an d pand emic-f rie ndly, it’s remarkably e quitable Yo u can now create a v iable creative business n o matter wh ere you are, which languag e yo u sp eak , o r which bankin g infrastructure you have access to. All yo u n ee d is creativity an d th e inte rne t.”
In many ways, 1971 was a momentous year. Companies like Disney World Florida, FedEx and Starbucks opened their doors. It was the year the UK replaced shillings and pence with a decimal currency. It was also a golden era for music: American Pie by Don McLean, Imagine by John Lennon, Stairway to Heaven by Led Zeppelin were all released.
In the early 70s, modern institutional real estate investment was still taking its first tentative steps. UK pension funds owned property company shares but did not generally invest in “bricks and mortar”. Schroders’ first real estate fund, such as they are known today, was launched in 1971.
As we celebrate 50 years of real estate management, we look at how the industry has grown and changed, what we’ve learned and ask what comes next.
Traditionally real estate has been viewed as a cyclical asset class, with rents and returns driven by the economic cycle. Logic therefore dictates that investing for returns is all about timing. This may, to some extent, hold true when looking high level at the market. However, it does not hold true at the individual asset, nor even sector level.
One need only look at the big divergence between industrial and retail real estate returns since 2015. Occupier demand is not simply a function of GDP growth; long-term structural forces are also critical.
Industrial is not the only example. More recently several niche property types – from convenience stores to data centres and – have experienced long-term structural changes in demographics, social norms, and technology. They have also proven relatively
defensive through the GDP declines caused by Covid-19 disruptions.
By the same token, shops and shopping centre vacancies are rising as shoppers move online. Existing retailers are either failing or closing stores, while investing more in their websites and supply chains. Similarly, the switch to hybrid working and the growing emphasis on energy efficiency and staff wellbeing is cutting the demand for older, secondary offices.
So, one lesson is to follow structural trends. No matter how good an investor is at stock picking, or market timing, it is a lot easier to swim with the tide than against it.
Until the recent past, building owners only communicated with their tenants when strictly necessary. The old saying went that “every phone call could trigger a maintenance question”. Negotiations were regarded as a zero-sum game; someone only won when the other lost.
The lease stated the amount of rent the tenant had to pay, irrespective of whether their business was a success or a failure. No allowances were made for variances in the type or amount of space needed. Services were largely limited to the rent of the square meterage, with tenants paying for a standard fit out.
Recent developments have reminded the industry that in fact all real estate is operational. The payments of rent are hugely dependent on the success of the business. Some investors still wish to keep their tenants at arm’s length. But a growing number now recognise that there is more to be gained by entering a regular dialogue and building a constructive relationship. Doing so can ensure the building can be an enabler to the success
of the tenants’ businesses. This is a full change of attitude. This change of heart reflects two main factors:
• First, even before Covid-19, an “individualising” consumer meant that the world was becoming less predictable. Businesses were having to adapt more quickly to technology and other structural changes. The growth in serviced offices and on-demand warehousing has, in part, been driven by occupiers’ desire for flexibility. Landlords engaging proactively to provide this flexibility – both in services and contract terms – can ensure their asset is an effective part of the tenants’ business operations. As a result, it is more likely to collect a higher rent and, importantly, less likely to become obsolete.
• Second, the growing focus on sustainability and health means that landlords and tenants now have a clear common interest in optimising the use of buildings. The built environment accounts for 40% of global CO2 emissions, mainly due to cooling, heating and lighting homes and commercial buildings. Cutting energy usage, generating clean electricity on site, conserving water, reducing waste, and adapting buildings to cope with extreme weather will become ever more important. The pandemic has also highlighted the need to improve staff health and wellbeing. Things like upgrading air conditioning, providing quiet areas, enabling people to control heating and lighting, and adding cycle stores have become priorities. Employees are more likely to return to the office and contribute to the business culture when the right services and support are on offer.
We believe that investors who adopt this “hospitality” mindset – treating each building as a business by itself and offering the right services and support to tenants
A lot has changed in half a century of real estate investing, but one thing that has remained constant, and it is expected to remain true, is flexibility, writes global property expert Sophie van Oosterom
– will achieve superior performance. This is true both of financial returns and ESG objectives. Minimising waste and finding the best contract model for both landlord and tenant is mutually beneficial. Investors who continue to keep tenants at arm’s length will be left with stranded assets.
Rent levels reflect the balance between the demand and supply of space. Responses to demand are often delayed given time to completion in construction. This means so-called “pork cycles” have always been a feature of real estate and other capital-intensive industries, such as semiconductors, or container ships.
Pork cycles refer to the dynamic of rising investment when prices are high, but the effects of which are not seen until a new generation of livestock arrives. It is a similar production lag as appears in real estate development.
All other things being equal, pork cycles obviously have had less of a detrimental impact on rents in supply-constrained office markets such as central Paris, New York, and the West End of London. These markets have delivered stronger rental growth and higher returns than more developer-led markets like La Defense, Atlanta, Frankfurt, and the City of London.
That said, the risk of building booms and an over-supply of space has reduced since the Global Financial Crisis (GFC). According to Property Market Analysis, total office completions in Amsterdam, Berlin, Brussels, Frankfurt, Hamburg, London, Madrid, Munich, Paris, and Stockholm were a third lower in the 10 years to 2020 than in the previous decade.
One of the few silver linings of the GFC was that banks’ capital adequacy rules were tightened and banks are now much more reluctant to lend on speculative building projects. At the same time, potential profits on developments must be offset against the opportunity cost of zero income and liquidity during the construction phase. The lower level of new building in the
2010s resulted in low vacancy rates in many densely populated urban areas. This helps explain why office rents are expected to fall less as an immediate result of the Covid-19, than in previous recessions.
Looking ahead, the need to cut the carbon emissions generated during the manufacture of cement and steel is likely to further limit new construction and encourage more conversions and refurbishments of existing buildings.
It would, however, be wrong to conclude that investors should simply avoid development altogether. Longterm structural trends (such as an ageing population and individualism) and new schemes can generate their own long-term demand, once occupiers become familiar with the concept. In addition, new buildings can play a major part in regenerating rundown areas. While initial returns may be modest, some urban renewal projects have delivered strong performance when measured over a 10- or 15-year horizon.
“If you build it, they will come” is a highrisk strategy, but developments which lean into a structural shift or trend can pay off significantly.
One of the biggest changes in real estate markets over the last 50 years has been the growth in cross-border investment, both for portfolio diversification and access to attractive risk-adjusted opportunities.
In 1971, virtually all real estate was owned by domestic investors. International investment was severely constrained by exchange controls, and in some countries laws either banned foreign owners or heavily penalised them. By contrast, today most of those investment barriers have gone. The introduction of the euro in 1999 gave a further boost to cross-border deals in
Over the last five years, international investors have bought €1.25 trillion of real estate around the world, accounting for 30% of transactions. The exact
The final piece of the puzzle is that institutional investors are far more demanding now than they were half a century ago.
sources of capital ebb and flow over time. It might be sovereign wealth funds out of the Middle East one-year, Asian investors the next. But this growth in international capital is likely to continue as investors look to diversify real estate holdings away from home markets.
In general, the greater diversity of investors with varying rates of capital has meant that real estate has become more liquid, particularly in “gateway” cities such as London and Paris. However, there is a happy balance between domestic and foreign capital to look out for. Some smaller investment markets, which rely heavily on foreign capital – such as Polish shopping centres or Italian logistics – froze during the eurozone sovereign debt crisis of 2010-2013.
Furthermore, there is the inevitable paradox that some of the diversification benefits have reduced as movements in real estate yields have gradually become more synchronised across cities. The average correlation between prime office yields in major European cities rose from 0.2 in 19822000 to 0.6 in 2001-2020 (source Property Market Analysis).
The same is not necessarily true for rents, which remain subject to local demand and supply pressures. As we have specifically seen during the pandemic, rents are also heavily influenced by local regulation. It will be interesting to see whether these local regulatory influences will have a bigger impact on capital markets going forward.
Real estate has moved a long way from an industry which 50 years ago was dominated by local partnerships of surveyors and where deals relied on the “old boy network”. The growth in cross-border real estate investment has helped to significantly increase liquidity and transparency over the last 50 years.
Several other changes, often inter-related, have also played a part, including:
• The creation of large publicly, listed agents offering multiple services internationally;
• The launch of multi-national funds;
• New professional standards;
• The growth of sale and leaseback deals which has liberated large amounts of real estate from owner-occupation; and
• The big increase in real estate data and research, which has aided transparency.
Recent innovations such as big data, or blockchain, which promises to reduce the amount of time (and travel) involved in due diligence, should further increase liquidity.
Yet, while real estate has become more liquid, it is still a physical and heterogenous asset class. It will therefore never be as liquid as equities and bonds, which can be traded electronically.
One of the lessons of the last 50 years is that attempts to offer both returns and instant liquidity work in a bull market, but typically unravel when real estate values start to fall.
The German open-ended fund industry suffered an existential crisis from 2008 to 2013 with a wave of redemptions and forced sales as a result. But the industry has since re-invented itself following a series of reforms, including minimum investment periods, structured redemption windows and improved transparency to investors. Portfolio size and composition, the quality of the assets and governance make a very important difference.
Real estate investment trusts (Reits) are often referred to as a good hybrid. On the one hand Reits can deliver returns like the underlying real estate market if they are held for two or three years and have modest leverage. Although the correlation between the MSCI UK Monthly Total Return Index and the FTSE EPRA NAREIT UK REIT Total Return Index is almost one over a three-year holding period, it falls dramatically if measured over a three-month period.
In the short-term, Reits are subject to general stock market fluctuations, thereby diluting some of the diversification benefits of investing in real estate, and they do not offer the same control and ability to add value as “bricks and mortar” assets.
The physical attributes which make real estate attractive also contribute to its illiquidity. They are two sides of the same coin. Anyone who claims to be able to provide the former without the latter is practising modern-day alchemy.
The final piece of the puzzle is that institutional investors are far more demanding now than they were half a century ago. A limited allocation to a pool of funds may have sufficed as alternative investment allocation in the past. Institutional investors now need a trusted and innovative partner, one that can think outside the box and “solve” more complex balance sheet allocation questions. Real estate managers therefore need to have a deep understanding of their clients' requirements, extensive experience as well as the resources to truly understand the market. Investors need to understand wider capital markets and combine the knowledge with top down research capabilities on longterm trends and short-term disruptions. In addition, on-the-ground presence, and the ability to find and proficiently operate their assets is crucial.
“Building back better” is a term often used by many politicians these days. We like to think about building on the old to create the new. Flexibility in approach and mindset, in ever changing markets, is key. Those who can learn from the past to find answers to tomorrow’s questions will shape the next 50 years.
The free service offered by the Ombudsman for Banking Services is important in protecting your rights as a consumer.
We are living in a world of disruption. Many businesses have had to come to terms with the enforced change introduced by the Covid-19 pandemic. With social distancing being a national battle cry during the pandemic, many consumers have migrated to online platforms to do their shopping and banking.
This disruption is not without its
challenges. Banks are working tirelessly on their systems to bring them up to date with the technological requirements placed on them by consumers.
At times, this may result in unfair treatment on the part of banks. This is where the free service offered by the Ombudsman for Banking Services is important in protecting your rights as a consumer.
The Ombudsman for Banking Services was established over 20 years ago with the purpose of receiving, investigating, and resolving disputes from consumers who are unhappy with the service, or the products, provided by their banks.
Consumers are facing a lot of financial pressure as a result of Covid-19 and often cannot afford lengthy legal battles that can
be very costly. Reana Steyn, the Banking Ombudsman, says that for consumers her office is best placed and equipped to resolve disputes.
“In the many investigations we have conducted, we have uncovered many instances where, if it weren’t for our intervention, the banks would have treated their customers unfairly and got away with it,” says Steyn.
There are a number of alarming trends that the ombudsman has taken note of and urges consumers to be aware of.
Over the years, the ombudsman has seen instances where banks have obtained judgments against a consumer’s immovable property and the said property was declared executable.
In these instances, the property secured by the bank is auctioned to the highest bidder and the proceeds are used to recover the financial loss the bank suffered.
“If the property is sold for more than what was outstanding, the consumer does get something back. For instance, if R900 000 was outstanding to the bank (including the legal costs) and the property is sold for R1 million, then R900 000 will be credited to the bond account and R100 000 will be paid back to the bank customer,” explains Steyn.
However, Steyn notes that there have been instances where the banks have exercised their commercial discretion and bought a property that would otherwise have sold for a ridiculously low amount. The banks would then on-sell the property for more than what they bought it for and not credit the debtor’s bond account with the amount that was due to them.
According to Steyn, in these instances, the banks are required to credit the debtor’s
account with the sale price. “Through the efforts of our office, this issue has been addressed with the banks. All of them agree that the debtor’s bond account must always be credited with the sale proceeds,” says Steyn.
Movable property
Steyn points out that her office also receives many complaints from people alleging that their vehicles were repossessed without them signing a voluntary termination letter or being shown a relevant court order.
To date, the ombudsman has received over 460 vehicle finance-related complaints regarding repossession. Steyn says she has heard of instances where consumers have been approached at shopping malls by people saying they work for the bank and are there to repossess their vehicle due to nonpayment. Some complainants have said they were coerced into giving the vehicle back to the bank.
Steyn says such actions by banks’ tracers are unacceptable. She cautions against letting anyone take your vehicle unless that person provides proof that they represent the Sheriff of the Court and provides an original court order authorising repossession of the asset.
In the absence of a court order, Steyn says the only other way that a moveable asset such as a car may be repossessed is if you voluntarily give the asset back to the bank by signing a voluntary termination notice.
“Consumers must make sure they understand exactly what they are signing before committing their signature to any documents, particularly when they are in default with their vehicle finance agreement,” cautions Steyn.
She says her office has received and
investigated numerous complaints in this regard. In some instances, the bank obtained a signed voluntary termination notice but failed to comply with the requirements of Section 127 of the National Credit Act.
Where the ombudsman found that the vehicle was sold without the bank following the requirements of the Credit Act (such as sending a letter to the customer advising of the value of the vehicle/asset), the ombudsman recommended that the bank write off the outstanding balance and/or pay a distress and inconvenience award to the affected customer.
“In these matters, each case is decided on its own merits and the distress and inconvenience awards given are intended to ensure that similar instances are avoided by banks. These payments are not aimed at enriching consumers,” says Steyn.
In a recent matter that was handled by the ombudsman, a consumer said his car was forcefully taken away from him by the bank without his consent. On investigation of the complaint, it was noted that the consumer’s attorneys had addressed letters to the bank challenging the lawfulness of the repossession. The bank’s lawyers had responded saying that the bank’s actions, including how the vehicle was taken, were legal.
Since no court order had been obtained by the bank to repossess the vehicle, the ombudsman asked the bank to provide a written voluntary termination notice complying with the Section 127 of the National Credit Act. The bank responded that the vehicle had been taken from the complainant’s son and that no written voluntary termination notice was obtained from the complainant.
Steyn said that her office recommended that the vehicle be immediately returned to the complainant and that the interest, storage and tracing fees, and any other charges added to the consumer’s account after the vehicle was unlawfully taken, be written off. The bank agreed with the ombudsman’s recommendation, but the consumer refused to take back the vehicle and advised the ombudsman that he would be signing the voluntary termination notice.
Steyn says the scenarios mentioned above are particularly relevant today as many consumers continue to experience financial challenges and are therefore defaulting on their repayment obligations.
The effectiveness of the ombudsman’s office lies in its well-developed and
streamlined process developed to efficiently resolve disputes between banks and their customers at no charge to the consumer. The ombudsman is able to resolve complicated and litigious matters quickly and, where the facts warrant it, to the satisfaction of complainants. That the ombudsman continues to protect consumers is demonstrated in some of the recent cases handled by Steyn’s office.
The complainant was a victim of online banking fraud. A fraudulent withdrawal amounting to R720 000 was made from her account. The funds were transferred from the complainant’s bank account to a beneficiary account held at another bank. The matter was investigated by the ombudsman, and it was ascertained that
the bank should have become aware of the fraudulent transaction at an earlier point in time. This would have enabled the bank to report the fraud to the beneficiary bank timeously, which would then have prevented the loss that was suffered.
The complainant was a beneficiary on her father’s life policy that was held with the bank. Her father died and she lodged a claim against the policy. The bank refuted the claim on the basis that the policy had lapsed due to the non-payment of premiums.
The ombudsman investigated the issue and found that the bank had failed to furnish proof that the non-payment notice and cancellation notice had been delivered to the policyholder.
“Therefore, it was our position that the policy was not properly terminated in accordance with Section 52 of the Long-term Insurance Act, which is read in conjunction with the Policyholder Protection Rules (Long-term Insurance), which was instituted in 2017 in Section 62 of the Long-term Insurance Act.
“The bank was unable to provide proof that the deceased (the policyholder) had been made aware of the missed instalments and the cancellation of the policy. As such, the policyholder was not afforded an opportunity to rectify the default, which resulted in the lapsed policy.
“We recommended that the bank approve the claim of R60 000 and deduct the missed premiums from the claim payout. The bank accepted our recommendation and paid out the sum of R60 000 to the deceased’s daughter,” says Steyn.
In January 2021, the ombudsman received and started investigating a claim against a bank that helped reset a complainant’s
PIN over the phone only to compromise the PIN to the fraudsters.
In this matter, the complainant’s belongings, including her cellphone, bank cards and medical aid card, were stolen from her car. The thieves, clearly knowing the potential shortcomings of this specific bank’s system, called the bank pretending to be the complainant and advised the bank that they had forgotten the PIN. They then requested the bank to send them the PIN, which the bank did.
The ombudsman recommended that the bank should refund the complainant’s loss. However, the bank refused to do so, arguing that the complainant’s phone had been compromised. The ombudsman argued that the bank’s reliance on the complainant losing her phone was irrelevant, as the issue was the compromising of the card and PIN. Further, because it was common cause that the complainant’s card had been stolen along with her other belongings, the real issue that needed to be addressed was how her PIN had been compromised.
The ombudsman found that the complainant had not compromised her PIN to the fraudsters and that the
compromising of the PIN was due to the bank negligently reading out the complainant’s PIN to the fraudsters. The bank eventually agreed with the ombudsman’s recommendations and refunded the complainant in full.
“Since then, we have noticed that the bank is refunding such matters in line with our recommendations, and there will most certainly be a change in the process,” Steyn says.
She stresses that the above case studies are a small sample of the 6 000 cases they have closed for the year to date (October 2021 at the time of writing).
While the service offered by the ombudsman is free, you need to be aware of what constitutes fair customer treatment, and should first approach your bank if you have any complaints. “Before complainants approach the ombudsman’s office, they must provide the bank with every opportunity to settle the dispute in an amicable manner,” says Steyn, whose office should be the last point of call if the bank refuses to settle the dispute. – Supplied by the Ombudsman for Banking Services
“It was our recommendation that the bank should reimburse the sum of R720 000 to the complainant. The bank accepted the recommendation.”
Media reports often bemoan how little South Africans save for retirement. Other countries fare worse regarding saving, though we fare badly when it comes to pension outcomes. Martin Hesse tries to put our efforts into an international context.
How does South Africa compare with other countries when it comes to retirement funding – either by governments or by the citizens themselves?
The media often quotes the statistic that only 6% of working South Africans will retire at the same or higher standard of living than when they were working. This was confirmed recently by the Alexander Forbes Member Insights Report for 2020, a
survey of almost a million members of the hundreds of retirement funds Alexander Forbes administers. The survey found that, indeed, only 6% of members were on track to retire with a replacement ratio of 75% – in other words, they would retire on an income of at least 75% of their final salary, which, according to the industry, is enough to maintain their standard of living. The average projected replacement ratio was 40.5%.
This survey is among people employed mainly in the private sector, in large and medium-sized companies. Looking more broadly than that, to include South Africans employed in the government sector, the SMME sector and the informal sector (where people would largely retire on the state old-age grant alone), you would expect the replacement ratio to be far lower, and, according to a pensions survey it is – in fact it is the second lowest
among the countries surveyed.
The British Pension Report by Investing Reviews quotes data gathered by the Organisation for Economic Cooperation and Development. Out of 51 countries surveyed, South Africa ranks second from the bottom, with a replacement ratio of 27.9%. Only Mexico was worse, at 23.6%, but, horror of horrors for a developed country, the United Kingdom was third from the bottom, at 29.7%.
India, surprisingly, tops the table with 94.3%, ensuring the continuation of retirees’ standard of living into retirement. Coming in second, Italy has the best pensions in Europe with a 92.8% replacement ratio, closely followed by Turkey with 92.0%. (See Tables 1 & 2.)
Mercer’s Asset Allocation Insights 2021 report, focusing on growing economies in Latin America, Africa, Asia and the Middle East, deals with how retirement savings in these countries (more than US$5.3 trillion in
assets under management) are funded and where the money is invested.
The report showed that most retirement fund institutional investors stayed the course with their asset allocation, even amid heightened volatility and uncertainty over the pandemic period.
Many countries were allocating large amounts to offshore assets: foreign equities represented 51% of aggregate equity allocations, the first survey in which exposure outside of investors’ home markets tipped over the midpoint.
The report also shows growing interest in sustainable investing across the regions, in some cases accelerated by the pandemic, as stakeholders sought to address both economic recovery and sustainability objectives.
South African retirement funds are restricted in what they can invest offshore. Janina Slawski, head of investments consulting at Alexander Forbes, Mercer’s strategic partner in Africa, said: “South African retirement funds continue to make
full use of their permitted 30% allocations to offshore assets, however within this allocation there was a shift to foreign equities (+3.5%) at the expense of global cash, as yields on international cash assets became increasingly unattractive. Some South African asset managers took selective positions in corporate bonds during the year to benefit from widening credit spreads following the first quarter 2020 sell-off.”
According to the Mercer report, there is $113.19 billion held by the Government Employees’ Pension Fund and $44.907 billion held in private retirement funds, making a total of $158.097 billion.
Well over half these assets (58.3%) are invested in equities (13% in offshore equities) and 33.2% are in bonds (2% in offshore bonds).
The Mercer report provides an interesting comparison between South Africa and how other countries are faring regarding pensions.
I have selected four countries which may be seen as being roughly equivalent to South Africa economically and which also have major inequality issues: Argentina, Brazil, Turkey and Indonesia. Two of these, Brazil and Indonesia, have much larger populations (see Table 3). All information except the population data is from the Mercer report.
Argentina’s retirement income system comprises a pay-as-you-go social security system (defined benefit) and voluntary occupational corporate and individual pension plans (defined contribution).
Both employees and employers contribute to the government-controlled Fondo de Garantía de Sustentabilidad (FGS). Employees contribute 11% of base salary up to a salary ceiling. Employers currently contribute 21% or 17% of payroll – these will converge to 19.5% in 2022. Benefits from social security are capped, and, at high salaries, the replacement ratios are less than 20%. The FGS represents the vast majority of Argentina’s retirement assets. It invests only in projects and financial instruments that promote growth in the local economy and support local capital markets.
Currently, 71% of Argentina’s retirement fund assets are invested in bonds and 10% in equities.
Brazil’s system mainly comprises a payas-you-go social security system (an association of private and state-owned pension funds with the acronym ABRAPP), a defined benefit system with higher replacement rates for lower income earners.
Supplementary defined contribution plans offered by employers have been growing in popularity for some time and are prevalent in midsize and large
companies. Lower real interest rates, pension reform in 2019 and Covid-19 have all contributed to an increased interest in savings.
Mercer’s survey incorporates data from the ABRAPP. Data is not available for supplementary individual accounts held at insurance companies.
Mercer’s own survey of 219 Brazilian pension schemes found that 64% of respondents invest outside Brazil, although the average offshore allocation is 4% of the total portfolio. (Pension funds are not permitted to invest more than 10% abroad currently, although raising the limit to as much as 20% is under discussion.)
Currently 72.9% of assets are in bonds and 19.6% in equities.
The pension system in Turkey consists of three pillars. The first pillar is a mandatory pay-as-you-go public pension in the form of an earnings-related scheme supported by a means-tested safety net and a flat-rate pension. The second pillar is occupational schemes, which are mostly defined benefit plans. The third pillar is a voluntary, fully funded private pension system, established in 2003.
Over the past decade, two major reforms to the third pillar have been introduced to encourage savings. In 2013, the government started matching employee contributions by 25% up to the monthly minimum gross wage. In January 2017, it introduced autoenrollment with mandatory employee contributions. Employers with more than five employees are now required to implement a plan but not to contribute financially toward pension pots.
Turkey currently has total retirement assets of nearly US$30 billion invested in 404 pension funds, with 6.1 million contributors in voluntary plans and
5.7 million contributors in auto-enrollment plans.
Asset allocation across all funds is more diverse than in the two South American examples above: 45.6% is in bonds, 12.5% is in equities, while a substantial 32.1% is in “other” assets, including public leasing certificates, corporate leasing certificates, time deposits and precious metals, according to the Mercer report.
Indonesia’s retirement income system comprises three pillars:
1. Social security. A mandatory, state-run scheme providing basic coverage in the form of defined contribution and, from 2015 onward, defined benefit pensions. The scheme is funded by fixed contributions from employers and employees linked to salaries.
2. Employers. Legislation requires that a minimum level of benefit be paid by employers to employees when they reach the normal retirement age. There is no requirement for employers to set aside assets to fund this benefit, but it can be offset by the employer’s contributions to private pension funds.
3. Private pensions. Voluntary defined contribution and defined benefit plans funded by employers and employees. These are administered in-house by the employer or outsourced to a financial institution.
Investment regulations limit the possibility for investing in growth assets, including a low maximum allocation on equity investments for social security plans, and restrictions on foreign investments, either directly or via mutual funds, for private pension plans.
Currently, 69.9% of Indonesia’s retirement fund assets are in bonds (all local) and 15% are in equities (all local).
Fundraising is an enormous challenge for NGOs throughout Africa, thanks to the concentration of wealth in developed countries and deeply rooted distrust of the quality of leadership on the continent, according to a new report.
“It is impossible to grasp the reality of living in Africa and the needs of an (African) community from the top of a high-rise building in New York or London.”
It should go without saying, of course, yet this statement expresses the disconnect at the heart of an eyeopening new report on the enormous funding gap that exists at grassroots level in Africa. Titled Disparities in Funding for African NGOs (July 2021, published by the African Philanthropy Forum and non-profit consultancy The Bridgespan Group) the report spells out in stark terms how little funding for development or humanitarian purposes from any source goes directly to African NGOs – those with headquarters on the continent of Africa, that reflect the communities they serve, work in partnership with local people and organisations, and are staffed by nationals of the countries they operate in.
Instead, most large-scale philanthropy from non-African funders goes to
By Roz Wrottesleyinternational NGOs (INGOs), such as Feed the Children, Oxfam, the Red Cross and ActionAid, all of which have programmes in many developing countries, but are headquartered in none. The funders are predominantly grantmaking foundations, including private foundations, donor collaboratives and high-net-worth individuals. A dip into the statistics reveals the following:
• US foundations funded sub-Saharan Africa to the tune of US$9 billion in 2018, but just 5.2% of that total was given to Africa-based NGOs, according to the African Visionary Fellowship, which connects big donors with local NGOs.
• The Disparities report reveals that just 1% of development aid targeted at combating malaria in 2017 went to research institutions in the affected countries.
• In the same year, 0.4% of all international humanitarian aid went directly to local and national NGOs. Put another way, The Guardian newspaper
reported in January of this year that more than 99% of worldwide aid goes to INGOs that are not based in Africa or run by Africans.
• Over the past decade, African donors directed just 9% of large gifts (by value), and non-African donors just 14%, to NGOs based on the continent.
As well as drawing from several existing reports on who benefits most from global funding, the Disparities researchers conducted interviews with more than 60 stakeholders and conducted a survey with
50 respondents. The interviewees and survey respondents included African and non-African funders, African NGO leaders, Africa-focused INGO leaders, researchers, and intermediaries.
The feedback the researchers received left them in no doubt that the obvious preference for dealing with INGOs, rather than national and local organisations, has profound implications beyond the amount and frequency of funding. It feeds into the perception that African NGOs are “somehow less capable, less
trustworthy, and less accountable than their international counterparts”.
The result is a vicious circle: lack of confidence results in persistently low levels of funding, which in turn prevents grassroots organisations from developing their skills, recruiting staff and expanding their reach. They also have to fight the funding battle on two fronts continually, prioritising their pitches to the international grantmakers with the deepest pockets, while also competing for the attention of African philanthropists
across the continent.
In her submission to the researchers, Shelagh Gastrow, who founded the South African NGO Inyathelo to promote the development of a philanthropic movement in South Africa and now provides independent advisory services to the sector, explained the dominance of the grantmaking foundations as, at best, the result of a pervasive lack of trust in the leadership of African NGOs. At worst, she
said, it reflects deep-seated historical bias.
“Most people think local leaders can’t deliver on contracts … they could be involved in corruption… they won’t report honestly,” she said. “All those things are part of the image that dominates international donor thinking about Africa.”
Nazeema Mohamed, executive director of Inyathelo, pointed out that many of the most successful African non-profits tend to have had leaders at some time or other who had the social and cultural capital to make a good impression in Euro- and US-centric environments.
“So funders continue to give to these non-profits, whose leaders comfortably fit within a particular world view and match the prototype of who is considered a successful leader. We call them the ‘RollsRoyce non-profits’. I don’t know if black [African] female leaders would have had the same success. It feels like we have to work so much harder to be recognised as successful leaders.”
The report’s authors conclude that there are three forms of bias:
1. Familiarity bias. As Mohamed said above, when sourcing organisations to fund, the decision makers tend to identify and fund known leaders, or show a preference for familiar credentials.
2. Racial bias. Kennedy Odede of Shining Hope for Communities, an NGO operating in Kenya’s urban slums, referred the researchers to racial injustice in the United States and told them that it goes well beyond that country’s borders. “Any honest reckoning must include open dialogue around race in international development,” he said. Given the legacy of colonisation and the power dynamics that exist between high- and low-income economies, the report concludes that racial bias may permeate the entire grantmaking process.
3. Cultural bias. “Several interviewees noted a preference for Western communication styles, not to mention a reliance on the English language, which automatically puts many African NGOs
at a disadvantage,” say the authors. “Researchers heard that concepts such as ‘polish’ and ‘professionalism’— deeply subjective terms, especially across cultural contexts — are often defined by uniquely American or European standards, again stacking the cards against some African organisations.”
The Covid-19 effect
With bias driving doubt about the capacity or integrity of grassroots organisations, perceptions of risk become a factor in funding decision-making. This results in restricted, short-term, or one-off funding encumbered by burdensome conditions and increased oversight.
If ever a single crisis highlighted the need to invest in communities for the long term, it was the emergence of the Covid19 pandemic in 2020. When international organisations evacuated their non-African staff, they “left NGOs reliant on already overextended budgets to augment life-ordeath interventions, support often underresourced government health services, and ramp up humanitarian efforts”, according to the report.
It provides examples of many African NGOs that stepped in to fill the void, including Gift of the Givers in Southern Africa, Lwala Community Alliance in East Africa, and Drasa Health Trust in West Africa,” say the report’s authors.
“For Janet Mawiyoo, former executive director of the Kenya Community Development Foundation, the value of having organisations on the ground, close to communities, and in tune with their needs was essential during the coronavirus response. ‘The people who are near communities understand what is going on,’ she told us. ‘They have been part of it. So they are key in helping you figure out how to deal with the situation you have. If you are serious about sustainability, this is a structure you can’t ignore.’
The report continues: “Even as many high-income countries begin to turn the tide against the pandemic with vaccine
rollouts in 2021, low-income countries continue to see low rates of vaccination, in part due to vaccine shortages. As a result, at the time of writing, those organisations already on the ground, already battling organisational challenges and funding shortages, remain the last line of defence.
“If the role played by African NGOs during the Covid-19 crisis tells us anything, it’s that building robust, strong, supported, and effective African organisations is essential – as a means not only of responding to global crises like Covid19, but of meeting the day-to-day and continuing needs of communities battered by poverty, global inequalities, the legacy of the past, and political and social challenges.”
You cannot relate to the problems of African communities – let alone respond to them – without proximity to the people and their living conditions. This is clear from the Disparities report.
The authors regard proximity as the greatest asset of NGO leaders, who “through their own lived experience are closest to the problems they seek to address.” Local NGOs have the benefit of:
• Context. Because the needs of the community are the shared reality of leaders and staff, African NGOs are better placed to recognise and understand local problems and patterns of behaviour. For example, an NGO called Friendship Bench has been successful in Zimbabwe because its founder, Dixon Chibanda, drew from his knowledge and experience of mental health challenges in his own community and then set out to tackle the problem more widely. Chibanda recognised the social
standing grandmothers enjoyed in hard-to-reach communities, as well as their commitment to helping others, and turned those social and human elements into much-needed sustainable mental health services.
• Credibility. African NGOs and leaders have the trust of the community and the credibility to carry out the work, said Professor Amos Njuguna, dean of the School of Graduate Studies at the United States International University-Africa in Kenya and founder of the Network for Impact Evaluation Researchers in Africa.
“Locals do much, much better,” he said.
“I’ve heard … people saying, ‘When I have someone who is based away from Kenya, I feel like this person is a bit far away and does not understand.’”
• Sustainability. African NGOs are committed to their communities and to sustainable development, says the report. Jennifer Lentfer, creator of the blog How-matters.org, which focuses
on international aid and philanthropy, made the important point that when organisations are motivated and led by people from the communities they serve, they are more likely to remain in those communities, working on the issues, long after international actors have left.
• Building an ecosystem. By investing in African NGOs, funders invest in talent and support a sector that will have staying power over a longer period of time.
Ndidi Nwuneli, founder of Lagos-based LEAP Africa, which focuses on equipping people to be leaders, told the researchers that funding local NGOs builds capacity for the long term. “I compare that to an INGO that comes in, implements a project, and when the funding ends, packs up. There’s no long-term impact, no sustainability beyond the life of the project. These forms of investments do not create a viable sector, nor the leaders and champions to drive transformation in the medium-to-long term.”
Kyle Fyfe says that while transferring cryptocurrency from a local to an offshore exchange may, in many instances, directly contravene South Africa’s exchange control regulations, the matter is more nuanced and your personal circumstances need to be considered.
The financial surveillance department of the South African Reserve Bank (FinSurv) has made its views known on exchange control issues relating to the movement of crypto assets between digital wallets on a South African crypto exchange (such as Ovex) and a foreign crypto exchange (such Binance) via the “frequently asked questions” section of the Intergovernmental Fintech Working Group website.
FinSurv states that it considers this to be an unlawful export of capital in contravention of regulation 10(1)(c) of the exchange control regulations and a criminal offence. This has become a topical issue, as the popularity of crypto assets has soared in the last 12 months. In my view, the authority for this position is questionable, and will depend on each person’s facts and circumstances.
Cryptocurrency is an intangible asset. Traditionally, the situs (the place where something is held to be located in law) of an intangible asset has been regarded as the place where it can be effectively dealt with. This has been particularly relevant to assets such as shares, based on where the share register is located, or a trademark, based on where the register is maintained
(see Spier Estate v Die Bergkelder Bpk of 1988).
On the face of it, perhaps one could argue that a crypto asset can be effectively dealt with wherever the exchange carries on business, since the exchange keeps a record of ownership of the assets that it holds on behalf of investors. Therefore, arguably moving the crypto asset to an exchange in different jurisdictions may change its situs, and is therefore an export of capital.
Movable or immovable? However, in my view the position is unclear. On closer examination, intangible assets may also be categorised as movable or immovable, and this also has implications for the situs of an asset. In the case of a movable intangible asset, the asset has no link to any particular place, and its situs follows the domicile of a person (for example, a debtor).
It may well be that crypto assets are movable, as they may have no particular location, in which case the asset would follow the domicile of the owner of the asset, since there is no other party involved. This would make the export of a crypto asset impossible without a change
in the owner’s domicile.
In the case of an immovable intangible asset, its situs follows the place where it has a physical connection (for example, where a register is kept). In this case, the asset cannot be exported. This was the finding of the Supreme Court of Appeal in Oilwell (Pty) Ltd v Protec International Ltd of 2011, where it held that a trademark was not capable of being exported for the purposes of regulation 10(1)(c) of the exchange control regulations. This led to a specific amendment to the regulation to include intellectual property in the definition of “capital”.
However, it appears incorrect to categorise a crypto asset as immovable, as we know that, unlike a share register or a trademark register, a crypto asset’s record of ownership exists in the blockchain, which does not have a physical location.
FinSurv has not provide any detailed reasoning for its position, and in my view, it seems unlikely that its position will prevail in circumstances where all that the person has done is move the crypto asset between South African and foreign crypto exchanges, and later returns the crypto asset (or other crypto assets for which the original crypto assets were exchanged) to
his or her wallet on a South African crypto exchange.
The position also creates uncertainty for investors who simply move the asset from a local crypto exchange wallet to a hardware wallet or a private wallet for security reasons. Again, in these circumstances, FinSurv would not be able to complain that the investor has exported capital. If FinSurv wants to stop this practice, it should ensure that specific and clear provisions regarding crypto assets are included in the forthcoming amendments to the exchange control regulations.
Of course, there are other circumstances where FinSurv is right. If the person, having moved the crypto asset to a foreign crypto exchange, sells the crypto asset for foreign
currency or assets which have a physical location outside of South Africa as part of a pre-ordained scheme for exporting funds from South Africa, then it would seem that there is an export of capital in contravention of regulation 10(1)(c) of the exchange control regulations. In any event, even if there is no export of capital from South Africa, an obligation arises for the person to repatriate the foreign currency or asset to South Africa in terms of regulations 6 and 7 of the exchange control regulations respectively.
Therefore, if you find yourself in hot water with FinSurv for having moved a crypto asset from a wallet on a local crypto exchange to a wallet on a foreign crypto exchange or another wallet, legal advice should be obtained based on your particular circumstances. There might
not be a contravention of the exchange control regulations, and any penalty imposed by FinSurv may be inappropriate (particularly if the penalty is equal to the entire value of the crypto asset – which is not uncommon).
For now, the safer route for investors would be to use their single discretionary allowance of R1 million per calendar year or their foreign investment allowance of R10 million per calendar year to fund their account with a foreign crypto exchange. In that case, the crypto assets purchased will form part of their authorised foreign assets and can remain outside of South Africa indefinitely.
The recently-introduced section 9K to the Income Tax Act triggers a potential tax liability when dual-listed shares are migrated from a South African to an offshore stock exchange, writes Duncan
When the rand depreciates, buying dual-listed shares on an offshore exchange instead of a South African exchange offers an advantage for individuals and nontrading trusts under the 8th Schedule of the Income Tax Act, which deals with capital gains tax (CGT). But this advantage does not seem to be available under the recently-introduced section 9K of the act, which applies when shares are transferred from a South African exchange to an offshore exchange on or after 1 March 2021.
Section 9K triggers a deemed disposal and reacquisition of the shares that are migrated to the offshore exchange, thus
McAllister.accelerating the imposition of income tax (including CGT) on any unrealised gain. Given that the shares remain within the South African tax net after the deemed disposal, the need for this measure is questionable. It may be intended to reduce the future risk of loss to the fiscus from non-disclosure when the shares are subsequently disposed of on the offshore exchange, or to discourage capital flight.
The Explanatory Memorandum on the Taxation Laws Amendment Bill, 2020 explains the background to the introduction of section 9K as follows:
“As indicated in Annexure E of the 2020 Budget Review, government proposes to review the current exchange control
rules to be replaced by implementing a new capital flow management framework that is aimed at promoting investment, reducing unnecessary burdensome approvals by the South African Reserve Bank (SARB) and providing a modern, transparent and risk-based approvals framework for cross-border flows. One of the changes to the current exchange control rules is the phasing out of the approval requirement by SARB when a resident individual or company that owns a listed domestic security is exporting that listed domestic security abroad.”
Before examining section 9K, it is worth taking a look at paragraph 43 of the 8th Schedule to understand the benefits of
investing on an offshore exchange, rather than buying the identical share on a South African exchange.
Before 1 March 2013, the sale of a foreign equity instrument was dealt with under para 43(4), which, in simple terms, translated the base cost to rands at the time of acquisition and the proceeds to rands at the time of disposal. But on or after that date, para 43(4) was deleted and natural persons and non-trading trusts were required to determine a capital gain or loss under para 43(1) when buying and selling a share in the same foreign currency. Under para 43(1), the capital gain or loss
is determined in the foreign currency and translated to rands using the spot rate at the time of disposal or the average exchange rate for the year of assessment in which the asset is disposed of. If natural persons or non-trading trusts dispose of a share in different currencies (including the rand), they fall into para 43(1A) together with companies and trading trusts. Para 43(1A) determines a capital gain or loss in the same way as the old para 43(4).
The effect can be illustrated with a simple example:
Jack bought 100 dual-listed shares on the JSE for R20 000 and sold them on the same exchange for R50 000 five years later. His capital gain is R30 000.
Jill bought 100 of the same listed shares on the London Stock Exchange when £1 = R10 and paid £2 000 for her shares on the same date as Jack. She too sold her shares on the LSE five years later when £1 = R20. She received proceeds of £2 500 and made a capital gain of £500. Under para 43(1), Jill has a rand gain of £500 × R20 = ZAR10 000.
Jack’s capital gain is therefore R20 000 higher than Jill’s, because his base cost has remained fixed, while Jill’s base cost is determined in British pounds and translated at the rate ruling at the time of disposal. Her base cost in rands is £2 000 × R20 = R40 000 compared with Jack’s base cost of R20 000.
So, if your view is that the rand will depreciate against the currency of the offshore exchange, it would be more tax efficient to buy the shares on the offshore exchange.
Section 9K came into operation on 1 March 2021. It applies to any security listed on an exchange outside South Africa on or after that date. It provides as follows:
(1) Where a natural person or a trust that is a resident holds a security in a company and that security is delisted on an exchange as defined in section 1 of the Financial Markets Act and licenced under section 9 of that Act, and subsequent to that delisting that security is listed on an exchange outside the Republic, that person must be treated as having:
(a) disposed of that security for an amount received or accrued equal to the market value of that security as contemplated in the definition of “market value” in section 9H (1) on the day that the security is listed on the exchange outside the Republic; and (b) reacquired that security on the same day on which that security is treated as having been disposed of under para (a) for expenditure in an amount equal to that market value.
(2) For the purposes of section 9C(2), a security that is listed on an exchange outside the Republic as contemplated in subsection (1) must be treated to be one and the same security that is delisted. The term “market value”, as defined in section 9H(1), reads as follows: “Market value, in relation to an asset, means the price which could be obtained upon a sale of that asset between a willing buyer and a willing seller dealing at arm’s length in an open market.”
The term “security” is not defined in the Act and would probably have its ordinary meaning. The Cambridge English Dictionary (online) defines a security as “an investment in a company or in government debt that can be traded on the financial markets”. It would therefore include duallisted shares, depository receipts and bonds and debentures.
Section 9K(1) refers to a situation in which:
• A security is held by a resident natural person or trust;
• That security is delisted on a South African exchange; and
• That security is then listed on an offshore exchange.
In these circumstances, the holder is treated as having disposed of “that security” for an amount equal to its market value and to have reacquired it for expenditure equal to the same market value.
The security referred to is the security trading on the South African exchange, and its market value must therefore be determined in the currency in which it trades on that exchange, which is the rand. Since the reacquisition cost is the same market value, it too will be denominated
in rands, even though section 9K does not explicitly deal with the currency of disposal and reacquisition. This interpretation is consistent with the exit charge in section 9H. Section 9H(7) provides that for the purposes of section 9H(2) and (3), “the market value of any asset must be determined in the currency of expenditure incurred to acquire that asset”.
Therefore, transferring dual-listed shares to an offshore exchange will not provide a natural person or trust shareholder with any CGT advantage under para 43 when the shares on the offshore exchange are subsequently disposed of – for example, upon cessation of residence under section 9H or as a result of a sale to a third party. The proceeds will be
in the foreign currency of the offshore exchange, while the base cost will be in rands and the natural person or trust will therefore fall under para 43(1A). The time of disposal and reacquisition is the date on which the shares become listed on the offshore exchange. There was no need for a “day before” deeming rule, since the shareholder remains a resident after the deemed disposal.
The three-year safe haven rule in section 9C(2)
Section 9K applies to securities, whether held as capital assets or trading stock. Under section 9K(2), for the purposes of determining whether the disposal of the security (in this instance an equity share
as defined in section 9C(1)) gives rise to a receipt or accrual of a capital nature under section 9C(2), a security that is listed on an exchange outside South Africa as contemplated in section 9C(1) must be treated as the same security that is delisted. Under section 9C(1) the definition of “equity share” excludes a share in a company which was not a resident, other than a company contemplated in para (a) of the definition of “listed company” in section 1(1). Para (a) of the definition of “listed company'' refers to a company with its shares or depository receipts listed on an exchange, as defined in section 1 of the Financial Markets Act and licensed under section 9 of this statute. Section 9C(2) therefore applies to shares in a
non-resident company with shares listed on a South African exchange, and would include a dual-listed share.
Jim owned 100 shares in XYZ plc which he acquired on the JSE at a cost of R100 000 on 1 March 2019. In February 2021, he instructed his broker to transfer his shares to the LSE, which was done on 1 March 2021. On that day the shares were trading at R5 000 each on the JSE and at £250 a share on the LSE. The exchange rate was £1 = R20. On 30 April 2022, Jim ceased to be a resident, and on 29 April 2022 the
shares were trading at £280 a share and the exchange rate was £1 = R21. Jim elected to use the spot rate to determine the capital gain or loss.
Under section 9K, Jim is deemed to have disposed of and reacquired the shares on 1 March 2021 for proceeds of R500 000 resulting in a capital gain of R400 000 (R500 000 − R100 000). He is deemed to have reacquired them at a cost of R500 000 on 1 March 2021.
On 29 April 2022 Jim will be deemed to have disposed of the shares under section 9H, and since their base cost is denominated in Rands, the calculation of the capital gain must be determined under para 43(1A). The proceeds in rands are 100 × £280 × 21 = R588 000. Jim therefore will
have a capital gain of R88 000 (R588 000 − R500 000) on 29 April 2022. Since he had held the shares for more than three years, the capital gain will be of a capital nature, based on section 9C(2) read with section 9K(2).
For South African residents, there are adverse tax consequences for transferring dual-listed shares to an offshore exchange. The payment of tax will potentially be accelerated and the resident may be exposed to foreign death duties and dividend withholding taxes.
There’s no doubt that investing remains one of the best ways to preserve and create wealth in the modern age, but that nevertheless comes with the proviso that what one chooses to invest in has to be wisely chosen.
It’s no surprise then that for 2022, the market will continue to be heavily influenced by how the Covid-19 pandemic plays out and how policy makers respond to the subsequent economic challenges both globally and locally. Once again, we are likely to see stronger performances in technology-related sectors.
With the advancement over the past two years, it’s actually starting to feel more like 2032 already.
Digital technologies in general have enjoyed steady growth during 2021, gathering momentum which is likely to continue throughout 2022. Added to this are signs that the semiconductor chip shortage may also begin to ease by the second half of the year, which is really good news.
Over the course of the pandemic the internet of things (IoT) has grown in popularity, mostly as a result of remote working, triggering a wave of private purchases in smart devices, wearables, home computers, and mobile phones. At an organisational level we are also seeing a shifting in spending patterns towards a more sustained investment in their digital
initiatives as they race to modernise their systems to accommodate a changing workforce.
This business transformation will also be supported by the increased availability of 5G. It delivers more reliable, higher bandwidth, and lower latency data transfer to the next generation of IoT and digital devices. In turn, this will continue to drive cloud migration: with increased infrastructure-as-a-service, platform-as-aservice and software as-a-service growth.
Expect the science of genetics to continue to make massive changes to the world around us. The mRNA technology that is
Technology has driven the financial markets in the pandemic, and this is likely to continue and intensify post-Covid-19. Jacobus Brink provides a guide on what to watch out for in the coming year.
being used in Covid-19 vaccines is only the tip of the proverbial iceberg.
Research is becoming ever more expansive, with new discoveries almost weekly. Healthcare will inevitably become customised around the human genome, with more personalised medical treatments based on individual DNA characteristics emerging. Already there are a growing number of gene therapies in the works.
One must therefore consider how both medical and life sciences are increasingly collaborative in developing new innovations. There is exponentially more data shared across pharma, biotech, biology, biomedicine, nutraceuticals, neuroscience, and a host of environmental sciences than ever before.
We’re also seeing an uptick in digital assessment & diagnosis, from remote doctors’ appointments, to virtual clinics, and to IoT health wearables of every kind. Virtual diagnostics and telepractice is becoming mainstream.
Artificial intelligence (AI) will also continue to progress in leaps and bounds, along the path to becoming the most transformative technology ever.
Machines may not quite be ready to replace human workers in 2022, but we are working with or alongside machines that use cognitive processes on a daily basis . Every day we engage with more and more artificially inspired agents at a service level, with low-code and no-code AI being used to construct more and more complex engagement.
In marketing, AI is refining qualified leads into more conversions. In engineering, AI and machine learning are being used to predict wear and tear, and for predicting maintenance interventions. In cybersecurity, Ai is learning to recognise patterns that suggest types of cybercrime.
Since the dawn of the pandemic, the only form of energy that has seen an increase, is renewable energy and the International
Energy Agency (IEA) estimates that as much as 40% more renewable energy will be generated and used during 2022 alone.
Beyond that, emerging energy sources such as biofuels, liquid hydrogen, and even nuclear fusion continue to become more viable. We have seen an unprecedented number of extreme weather events and other climate impacts take their toll on people’s lives and health in 2021. That these escalating extreme weather events, which kill thousands and disrupt millions of lives, are led by global warming, is hard to deny.
This is why the upcoming COP26 global climate summit in Glasgow this November is also likely to drive even more investment in sustainable energy and cutting back emissions.
Bitcoin first breached the $1 000 mark in early 2017, then rose rapidly to briefly touch around $20 000 before falling back, towards the end of the year. As the Covid-19 pandemic started suddenly, in October 2020, Bitcoin breached $10 000. It then soared up to around $65 000 by April 2021. Despite several drops and recoveries, it is currently hovering around $60 000; hardly the type of stability one would expect from a global form of exchange.
In 2022 we are likely to see more big names considering Bitcoin payments for product purchases, with both Amazon and Tesla having toyed with the idea in 2021. Countries, especially those in the developing world, may soon follow. El Salvador officially adopted Bitcoin as legal tender in September 2021, attracting praise from parts of Latin America and Africa.
China’s banning of mining operations and stricter regulations imposed by the US treasury have affected crypto, but to a lesser degree than expected. These currencies will have to accept future regulatory and legislative measures to prevent their use for money laundering and other illegal purposes, but this will hopefully serve to strengthen them in the end by making them more stable.
Nevertheless, considering the crypto market is still marked with uncertainty and speculation, it is best to not invest what you cannot afford to lose.
Don’t fall into the trap of assuming your investments only need to be reviewed infrequently. Markets are dynamic, more so than ever and you need to be ready to change your tactical position or instantly seize opportunities.
Over the last decade, cryptocurrency has proven to be very lucrative. It has overtaken stocks, commodities, oil, and even gold, not only as an apparent hedge against inflation, but also against systemic risk. Nonetheless, it remains a very volatile medium of exchange.
Beware of opportunistic projects and projections. Do your research and ensure you’re committing to a bona fide entity. Formulate an extensive view of a variety of investments based on value and potential and keep your portfolio diverse. Don’t be afraid to be pro-active. And don’t rely on luck. Be smart in 2022 and beyond.
Jacobus Brink is Head of Investments at Novare Investment Solutions.China’s banning of mining operations and stricter regulations imposed by the US treasury have affected crypto, but to a lesser degree than expected.
Times are tough, and thousands of South Africans have been retrenched or are facing the prospect of retrenchment. While it is a hard blow for anybody, life after retrenchment may be easier if you follow some basic guidelines, writes Glacier by Sanlam’s Sherwin Govender.
It’s arguably one of the worst moments in anybody’s life. Getting to grips with retrenchment can be daunting, but examining your options, especially regarding your retirement savings and investments, is a critical step to financial confidence.
Here are 10 tips to help you (financially) survive this stressful time.
It’s easy to take retrenchment personally. You’re a loyal employee who dedicated much of your time and energy to your job. The reality is that it’s not your fault. You didn’t do anything wrong. Your company probably came to a point where they needed to make a financial decision for its future existence. Retrenchment is the least
favourable practice and last line of defence in business, but often is unavoidable. The sooner you come to terms with this, the sooner you can move on to the new possibilities that await you.
This may seem obvious, but looking for a
new job takes time, and in many instances, you may not even make shortlists. Ask the HR specialist handling your retrenchment about the possibility of redeployment.
Often in big organisations, there may be opportunities in other divisions. Be open to the possibility that you may need to take a pay cut in a new role. Don’t be disheartened when you’re not getting any feedback for jobs you have applied for. Review your CV and tailor it to jobs on offer, highlighting the skills and experience that you have that fit the job spec. (This doesn’t mean being dishonest about your skills or experience. Also, falsification of your qualifications is a criminal offence.)
If you are thinking of starting a new business venture, be realistic about the projects and business ideas that you get tempted into. A new business – or even buying an existing one that looks profitable on paper – can drain you financially. Develop a coherent business plan and get a reputable business consultancy or your business banker to vet the details. Now is not the time to take uncalculated risks.
Bills will continue to reach you, while the salary that you have been receiving monthly won't. Now is the time to go through your monthly household budget with a fine tooth comb. You need to be strict and clinical about the expenses that are unavoidable (such as your bond repayments or kids’ school fees) and those that are luxuries and can be suspended until you have a regular income again.
This truly is the best time to get a financial adviser. There are some big, important financial decisions to be made, and a qualified financial adviser can help you make them with confidence. For example,
if you have been working for the same company for a number of years, you probably have built up a sizable pension fund. There are some investment decisions that you need to make about the future of this money. You don’t want to make any mistakes! Getting advice from a financial adviser experienced in retrenchments becomes invaluable.
Also, if you have medical aid through your company, you need to decide what to do when this benefit comes to an end.
Tip #6: Stay away from your existing retirement savings
Cashing in 100% of your pension fund can be the most financially damaging decision you can make. Your retirement savings is your money for the future. It may be tempting to cash it all in and treat your pension fund like you’ve just won the Lotto, but don’t forget why you have this money saved up in the first place. If you cash in the entire pot, you’re robbing yourself at age 60 – it’s that simple. Before you cash in even a portion of the fund, find out how much tax you’ll have to pay on that money (see “Tax on your benefits: the different scenarios”). That should be reason enough for you to keep your pension fund invested.
Tip #7: Transfer your pension savings into a preservation fund
As the name suggests, preservation funds protect your pension money. You can withdraw the money later, but the longer it stays there, the better. Together with your financial planner, you can decide how the money is invested.
Tip #8: Calculate how you will live until you start earning again
As mentioned earlier, cashing in your pension fund is not a good idea. If you are worried about covering your living expenses, find out the following, before you touch your retirement savings:
• What retrenchment or severance package is your company offering you? Your employment contract should include this information.
• How long will the retrenchment package last? Take into account your monthly living expenses, and where you can cut unnecessary spending.
• What other savings or investments do you have access to? It’s not ideal to dip into any investments, but in emergencies your savings (other than your pension fund) can tide you over until you start earning again.
Tip #9: Check if you have retrenchment cover
Check the cover on your credit card or retail store accounts. Perhaps there is built-in retrenchment cover you didn’t know about, that is included in your service fees. If you have a policy that covers retrenchment specifically, good for you. It could help ease your financial burden.
Tip #10: Speak up
Don’t be embarrassed to ask for better interest rates, reduced instalments on your accounts or even payment holidays. Whatever you do, don’t ignore your debt obligations. If you are struggling to keep up your debt payments, a conversation with the credit manager at your bank or a debt counsellor will go a long way in preventing judgements and blacklisting. Remember, your credit record is taken into account when you apply for a job, so you want to keep that as clean as possible.
In addition to your severance and retrenchment benefits, your company will pay you out for your notice period and the monetary value of any outstanding leave you may have. These latter amounts are taxed according to your marginal tax rate, as they form part of your normal remuneration and do not form part of the severance pay.
It is important to note that there is a difference between a severance benefit and a retrenchment benefit.
• A severance benefit is the amount of money that you receive from your employer as a result of the retrenchment process. In terms of the Basic Conditions of Employment, it is equivalent to at least one week’s remuneration for every full year worked at your current employer. This severance benefit cash lump sum can also be paid to someone who is being offered early retirement (they must be 55 years or older), or whose employment is terminated due to permanent incapacity (such as in the case of terminal illness).
• A retrenchment benefit refers to your retirement benefits in your company’s pension fund and/or provident fund that you will have to decide what to do
with, due to your retrenchment. It is most commonly the same benefit that you would receive from the fund if you resigned. You will generally have the following options regarding your retrenchment benefit: take the benefit as a cash lump sum, transfer the benefit to a preservation fund, or a combination of the two. For both severance benefit payments and retrenchment cash lump sums, the taxable portion of the lump sums is taxed according to the “Retirement fund lump-sum benefits or severance benefits” tax table (see page 71) , taking into account prior retirement fund lump sums received. These rates are far lower than those in the “Retirement fund lump-sum withdrawal benefits” tax table (page 71), which applies if you resign from your job and take your retirement savings as a lump sum.
If your exit is processed as a resignation, your retirement fund cash lump sum will be taxed on the much more stringent withdrawal tax table. Whether it is voluntary retrenchment (where you opt in to the initial rounds of the retrenchment process) or involuntary retrenchment (when there is no option), you should
ensure that your exit is processed as a retrenchment and not a resignation.
While you will be paid your severance benefit as a cash lump sum, it is up to you to decide whether you want to fully or partially take your retrenchment benefit as a lump sum or preserve it in a preservation fund.
As the severance benefit and retrenchment cash lump sum benefits are taxed according to the retirement tax table, the first R500 000 of your taxable retirement fund lump sums is taxed at 0%. However, the tax-free R500 000 is a once-off concession over your lifetime.
The retirement tax table is only applied to lump sums taken when you are retrenched, when you retire, or on your death. This means that at a new company in the future, if you are retrenched again or you retire, the concession will not apply if you already received a prior severance benefit lump sum of R500 000 or more during the first retrenchment (after 1 March 2011). If your severance benefit lump sum was, say R200 000, then it means that you have a tax-free concession on a lump-sum benefit of up to R300 000 on a subsequent retrenchment or at retirement.
The country is open! It is the first time in two years that our country has opened in December. President Cyril Ramaphosa eased the Covid-19 pandemic lockdown restrictions to revive the country's economy, which was majorly affected by the pandemic.
With the festive season around the corner, what does it mean for me, financially?
I am not from Johannesburg, but I work in the City of Gold. The festive season for me means travelling back home to be with my family. I mostly drive to my hometown of Gqeberha. The petrol price is set to shoot up and might cost around R20 per litre. R20 per litre! That is a lot of money.
On the road, you must also take breaks and have meals. It is about a 10-hour drive. You start spending money before you even reach your destination.
When you arrive, because the country is open, there will be Imigidi invitations – not just one; there could be five invites. (Umgidi is a celebration to welcome a man from the initiation school.).
When invited, it is a decent thing to do to show up bearing gifts. Wedding invites are also on the cards during the festive season. You must also have a gift, a beautiful outfit. The tally goes up on your expenditure.
Because it is the festive season, people are jolly. Impromptu parties will be thrown, because hey, it is the festive season. You also need to budget for the consumables and braai meat.
And let's face it, you haven't seen some of your friends and some family members for some time. It will be a great time to reconnect. The bank account
continues to deplete.
I have kids. In December, I buy school uniforms and stationery. Most parents know that schooling in South Africa can be expensive, but hey, it is what it is. Then there is Christmas. Braai after lunch with more consumables.
When New Year's eve is knocking, you wish you could get another paycheck.
We must not forget that every month without fail, there is also Black Tax. According to the Urban Dictionary, it is: “The extra money that black professionals give every month to support their less fortunate family and extended families.” This I don't mind; it is essential for me.
How do I navigate the festive season without going broke?
• Save every month. I know it sounds like a cliché and is sometimes unachievable. If you put a bit of money aside during the year, it might take the pressure off when the festive season arrives.
• Budget. I drew up my budget before the festive season. So when it comes, I am prepared.
• Have a contingency fund in my budget. As much as you can budget, you can never know what will happen, so having this fund in your budget makes it easier to move around.
• Learn to say no. It is okay to decline some invitations.
• Partake in free activities. Luckily, I am from a coastal town. I can take the kids to the beach for a full day of fun. I make sure they have eaten before we leave the house. I only buy them ice cream at the beach.
Dieketseng Maleke is live editor, IOL BusinessSouth Africa has one of the highest unemployment rates in the world. This was true even before unemployment increased as a result of the global financial crisis in 2008. And before Covid-19.
The country’s youth unemployment rate is even higher than the average. The (youth) employment tax incentive was supposed to help in addressing the problem. The incentive was adopted by Parliament in 2013 and came into effect in 2014. The original incentive offered to reduce the tax bill of firms that employed new workers between the ages of 18 and 29 who earned below R6 000 per month. The idea was that reducing the effective cost of hiring young workers, by subsidising up to 50% of their salary, would lead to firms creating more jobs for this group.
The policy was renewed in 2016 for another three years. And in 2018, shortly after Cyril Ramaphosa became president, it was extended for a further 10. The higher age limit was raised to 35. And it was made applicable to all new employees of firms operating in ‘special economic zones’ regardless of age. There are currently 11 formally designated such zones.
The adoption and implementation of the policy has been cited as a success story in two respects. Firstly, as a triumph of evidence in public policy formulation. Secondly, as an effective approach to reducing unemployment that should be expanded.
In a recently published paper I argue that the first claim is false and the second claim is not supported by existing evidence.
The analysis suggests that the decisions
to adopt, extend and expand the policy were based on misrepresentations of the evidence available at the time. This was accompanied by concealing or downplaying the possible weaknesses and risks of the policy.
On top of this, the currently available evidence does not convincingly show any substantial effect on job creation. That means the incentive is effectively a subsidy to the profits of companies, so it’s increasing societal inequality rather than reducing it.
The idea that reducing wages might increase employment seems fairly obvious. But it faces a number of serious challenges. A lot has to do with the structure of the economy. If most unemployment in the country is ‘structural’ – which it is in
The government’s plan to encourage employers to take on young workers by offering them a tax incentive has not worked, despite its claims to the contrary, writes
Seán Mfundza Muller
South Africa – then simply reducing the direct cost of labour may have little effect. Structural factors include many of the legacies of apartheid and colonialism:
• Distance from work opportunities in urban areas;
• The sectoral structure of the economy and a lack of competition in some sectors;
• Lack of skills or poor quality education; and
• Various other dimensions of poverty that prevent working-age adults from fully participating in the economy. Historically, those who have favoured wage subsidies tend to one of two positions. They either downplay such factors and instead emphasise the role of trade unions in pushing up wages. Or they argue that a subsidy can offset the negative effects of structural factors on firms’ employment decisions.
While such debates have been happening for decades, the current employment tax incentive emerged from the work of a group of American economists appointed by then-president Thabo Mbeki to advise on economic growth. Their final report in 2008 endorsed the idea of a youth wage subsidy in the form of a voucher of fixed value for all youth 18 and older that would subsidise their wage at any employer, on the condition that employers be allowed to fire such workers without having to provide reasons.
One panel member elaborated on that idea and then partnered with a group of researchers at the University of the Witwatersrand to test a version of it with an experiment funded mostly by the International Initiative for Impact Evaluation (known as ‘3ie’).
Experiments of this kind have been claimed by some influential economists to be the most credible form of evidence there is for policymaking, but that claim is vulnerable to a range of criticisms.
The basic purpose of the wage subsidy experiment was to estimate how responsive employment was to a subsidy. Whether such a policy is cost-effective depends on how many new jobs are created because of the money spent.
As far back as 2008, the then Finance Minister, Trevor Manuel, had already endorsed the idea of a youth wage subsidy based on the panel’s report. In 2011 the National Treasury produced a lengthy policy document which also endorsed the basic idea. It projected that 178 000 new jobs would be created over three years at a cost of R5 billion.
The problem with the Treasury’s work, and subsequent academic modelling, was that to make such forecasts it had to assume the answer to the fundamental question: how employment responds to a subsidy. In the face of opposition to the policy from trade unions in particular, the government endorsed the idea of an experiment to test this assumption.
In the lead-up to the decision on the policy proposal by Parliament in 2013 the lead researcher behind the experiment claimed in the press that it had shown the subsidy would be a success:
“If a wage subsidy similar in size to the one tested is introduced … about 88 000 new jobs would be created a year.”
And the Treasury referenced the positive results in the 2013 Budget Review.
What the evidence really says A close analysis of the experiment and its findings shows that the study did not provide evidence that supported the wage subsidy.
Besides many other limitations, the experimental intervention was very different from the incentive and its main findings could just as easily have been the result of factors other than job creation.
The nature of the relationship between the researchers and the Treasury, reflected
in the researchers’ “policy influence plan”, suggested a shared desire to justify the policy proposal, rather than an objective effort to ascertain whether it would work.
And the study has never been published in any peer-reviewed outlet. All of which contradicts claims that the intervention demonstrates the value of randomised policy experiments in developing countries.
The process to review the policy in 2016 was also deeply flawed. Again, studies that had been done in collaboration with the Treasury were cited as showing that the policy was a success. But, again, these were not published for scrutiny before Parliament took its decision.
Since 1994 ANC governments have stated their ambition to position South Africa as a ‘developmental state’, including in the National Development Plan.
One of the critical characteristics of such states elsewhere is their ability to learn from mistakes, which includes a willingness to scrap failed or ineffective policies.
Such an approach should apply to the wage subsidy policy. Instead of reducing unemployment the policy appears to be serving as a costly subsidy to alreadyprofitable firms for employees they would have hired anyway.
If the real priority is addressing unemployment and the government is serious about being a successful developmental state, the policy should be ended and the resources directed elsewhere.
• Seán Mfundza Muller is a senior research fellow at the Johannesburg Institute for Advanced Study, University of Johannesburg.This article was first published in The Conversation in September 2021 (https://theconversation.com).
About 65% of people don’t know what they spend their money on in a month* and more than half underestimate how much* they spend, which means most people are not thinking through their financial decisions.
Part of managing money well, is knowing exactly what you’re spending money on, where you are possibly overspending and following a set budget.
Using advanced analytics and data processing, Discovery Bank has announced the launch of Vitality Money Financial Analyser, which gives personalised details into monthly income, savings and spending.
It enables Discovery Bank clients to place their expenses into more than 166 pre-set categories or to personalise and re-order categories for anything from holidays to home improvements, with a predictive search functionality.
With weekly insights on spending trends in each category over time, clients can see what they are saving by following and keeping to their budgets, and they can set limits in categories to prevent overspending and so earn more rewards for managing their money well, including 5 000 Vitality Money points for engaging with Vitality Money Financial Analyser – that also links to Smart Vault to store important receipts or documents related to important transactions.
“The newly launched Vitality Money Financial Analyser gives clients a realtime view of their finances and trends in their spending habits. What’s more is, given the fact that 50% of people find manual budgeting complex, the Bank automatically creates budgets for clients
based on these behavioural trends, and sets intelligent reminders and personalised alerts on clients’ financial goals and progress,” says Akash Dowra, head of client insights at Discovery Bank.
As a shared-value bank, Discovery Bank is designed to share the value clients create by managing their money well back with them through unprecedented interest rates and rewards. The Bank does this through the AI-driven Vitality Money programme. The better clients do, the higher their Vitality Money status and the better their rewards.
*Sources: Intuit Mint Life Survey, 2020; Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses; Journal of Consumer Research, 2012.
It is sometimes said that the “law is an ass” when one thinks the law is too rigid, unnecessary or ridiculous. This could well have been running through the mind of the Pension Funds Adjudicator, Muvhango Lukhaimane, when she ruled in a matter involving the payment of a surplus benefit amounting to R596.76.
The complainant, Ms A, sought payment of a surplus retirement fund benefit following the death of her husband who had been a member of the Auto Workers Provident Fund. The deceased had been a member of the fund from October 2004 until his resignation on 5 February 2007. He had been paid a withdrawal benefit of R11 167.76 on 9 April 2008.
Subsequent to his exit from the fund, a surplus benefit of R596.76 had become available and payable to the deceased. However, he did not instruct the fund on how his benefit should be paid.
Ms A said that when she enquired about the surplus benefit, the fund stated that as her husband had passed away without providing the fund with an instruction on how his surplus benefit should be paid, the benefit had to be
paid in terms of section 37C of the Act, in line with the Interpretation Ruling 1 of 2020 issued by the Financial Sector Conduct Authority. This meant that, instead of the surplus being paid directly to Ms A, the fund had to go through the lengthy process of establishing whom among the deceased’s dependants were eligible for a portion of the amount and make the distribution accordingly.
In her determination, Lukhaimane said Section 37C of the Act places a duty on the board of a fund to identify the beneficiaries of a deceased member and vests the board or management with discretionary powers on the proportions and manner of distributing the proceeds of a death benefit. However, the board may not unduly fetter its discretion by following a rigid policy that takes no account of the personal circumstances of each beneficiary and of the prevailing situation.
“The evidence indicates that a surplus benefit of R596.76 became payable to the deceased following his exit from the fund. The fund indicated that the deceased had passed away prior to him providing it with an instruction on how the surplus benefit was to be paid. Thus,
the benefit must be distributed in terms of section 37C of the Act.
“The fund indicated that the deceased’s dependants would be notified about the outcome of its investigation in terms of section 37C of the Act.
“This case is an indication of what a farce the law can be at times. The FSCA’s interpretation ruling requiring amounts for exits such as these to be dealt with in terms of section 37C of the Act is such a case in point.
“Already, the complainant has spent more than R596.76 trying to access this surplus benefit. The fund in turn is going to spend more than R596.76 to determine who is entitled to the benefit in terms of section 37C. In the meantime, everyone is scratching their heads as to what unnecessarily drives costs within retirement fund administration. This interpretation ruling is an administrative action that is not even grounded properly in law,” Lukhaimane noted.
The fund was ordered to investigate and identify the deceased’s dependants in terms of section 37C of the Act and allocate and pay the surplus benefit to the deceased’s beneficiaries.
In another case before the adjudicator, Old Mutual was given a severe dressing down by Lukhaimane for failing to compensate sufficiently for its errors in dealing with the commutation of a retirement fund benefit.
She was ruling in a matter concerning complainant Mr B, who was aggrieved with Old Mutual’s failure to correctly and timeously process his retirement instruction on his retirement annuity policies. He had requested a cash lump sum of R400 000, with the balance being transferred to a Glacier preservation product. This ought to have resulted in no tax payable as the cash amount was under the R500 000 tax-free threshold.
He said his broker had received an email from Old Mutual notifying him that it had erroneously processed a one-third cash commutation on both his policies instead of the requested R400 000. Mr B asked that his original request for R400 000 be processed. Despite this, Old Mutual processed the incorrect cash commutation.
Mr B further indicated that four months after submitting his request, two thirds of his retirement benefit had still not been
transferred to Glacier. Old Mutual offered Mr B an amount of R2 500 for the delay in finalising his claim.
In her determination, Ms Lukhaimane said, based on Old Mutual’s submissions, that several tax directives had been erroneously applied for in respect of this transaction.
Mr B had requested and expected a net cash commutation of R400 000. However, due to the tax that was deducted from his benefit, he was paid only R367 624 (from both policies). Thus, the complainant had a shortfall of R32 376.
“It is clear that the tax paid is as a result of the incorrect tax directives applied for by Old Mutual. Old Mutual ought to place the complainant in the position he would have been in had it applied for tax on the correct cash commutation amounts.
“This Tribunal is cognisant of the response received from the South African Revenue Service (SARS), wherein it indicated that Old Mutual may not cancel the tax directives and that the complainant would be refunded on assessment of his tax. However, this is not a suitable solution, as the complainant may only have access to [the refund]
upon assessment by SARS at a later stage.
“Thus, this Tribunal must order Old Mutual to refund the complainant directly. Old Mutual should then recover the amount directly from SARS, as it is not acceptable that SARS and Old Mutual should have the benefit of convenience of administrative processes at the expense of the complainant being out of pocket.
“Whilst Old Mutual is obliged to pay to SARS the tax requested in terms of the tax directives issued, it appears that [the company] fails to take full responsibility for its numerous errors in relation to the complainant’s retirement claim.
“This Tribunal notes, with dismay, Old Mutual’s reluctance to rectify its error … It seeks to absolve itself from any further liability. In the meantime, the complainant is prejudiced by Old Mutual’s errors and delays in processing his retirement claim.
“This Tribunal strongly condemns the behaviour of the Old Mutual, as it defeats the inherent purpose for which retirement funds have been established … The conduct of Old Mutual, as set out in this determination, is not in accordance with what customers expect to experience from financial institutions entrusted with their retirement savings.”
Of the more than 1 400 local unit trust funds available to retail investors, there are just seven funds that focus on the small and mid-cap sector of the JSE. Leading the pack, and with a rating of five PlexCrowns to show for it, is the Coronation Smaller Companies Fund, managed by Alistair Lea.
To the end of the 3rd quarter 2021, the fund was first among its peers for performance over 12 months (65.71% against its peer average of 48.43%), three years (16.47% against 7.86%), five years (9.47% against 3.14%) and 10 years (11.10% against 8.50%), according to data provided by ProfileData.
According to its fact sheet, the fund is fully invested in companies outside the 40 largest companies on the JSE, across the primary equity sectors of resources, industrials and financials. It was launched
in April 1997 and currently holds assets of R306 million.
As of 30 September 2021, its top five holdings were: Spar Group (6.0%), RMI Holdings (5.4%), Distell Group (4.8%), Metair Investments (4.7%), and Aspen Pharmacare Holdings (4.5%).
Its benchmark is a market-cap weighted composite of the JSE Mid & Small Cap Indices.
The fact sheet says you should consider investing in the fund if you are building wealth and:
• Wish to benefit from the potential growth in medium-size and small companies;
• Want to diversify your investments to include specific exposure to companies outside of the top 40 largest listings;
• Accept the inherent volatility in investing in less liquid shares;
• Want to hold the fund as one of multiple funds in your investment portfolio. Personal Finance asked Lea how he went about managing the fund.
What is your investment philosophy when picking smaller-cap shares, and what do you look for in a company?
Our investment philosophy is centred on owning quality companies, and if possible, quality companies that can grow. We look for:
• Good management.
• Good fundamentals.
• Cash flow conversion.
• Decent returns (ROE).
• A balance sheet that does not present excessive risk.
• The ability to grow earnings in real terms.
• Visibility and predictability of the earnings stream.
After a long period of stagnation, mirroring the JSE as a whole, there has been a surge of growth in the smaller to mid-cap sector of the market. Can you explain this?
The surge in growth you talk of is mainly a base effect. Small- and mid-cap shares were hit hard in the months after Covid was discovered (March and April 2020), only to rebound very strongly after that. In general, South African companies were very well managed during the pandemic, with many emerging stronger.
To what do you attribute your fund's excellent performance over the past year, and which stocks have stood out for you?
The good performance in the past year is partly the base effect I spoke of above,
but also due to holding quality companies which have managed to come out of this crisis very well.
Stocks that have stood out include:
• Mpact. It used the extreme weakness in its share price to buy back 15% of its own shares at bargain levels, thereby enhancing shareholder value.
• Invicta. Despite lacklustre revenue growth, Invicta has managed to cut costs aggressively such that it has delivered very strong bottom line earnings.
In addition, the company has generated significant cash flows from both asset sales and working capital management such that its balance sheet stresses have gone away.
What challenges and opportunities do you see ahead for smaller local
companies, and how are you positioning the fund accordingly?
The biggest challenge for local companies is the weak South African economy and the lack of any meaningful GDP growth. Companies that cannot gain market share will struggle going forward. In addition, the South African consumer is generally not in good shape, which will make it difficult for consumerfacing companies to prosper.
We are positioning the fund predominantly in companies we think can grow, despite the weak economy. These are typically good quality, strong businesses that have proven themselves over the years.
Examples of these include Spar, Advtech, Distell, RMI, Metair and Dischem.
The world is always evolving. Often, this change takes place at a slow and steady pace, and the changes may even go unnoticed and assimilate into the background. In such an environment, what worked yesterday may continue to work tomorrow, and for a long time. At other times, change is rapid and landscapes that were once familiar soon become almost unrecognisable overnight. Mindlessly applying a strategy that worked yesterday is unlikely to yield success tomorrow. In a divided world, the recipe for success is simple –leverage past successes when needed, and adapt when necessary. And yet, we often get it wrong.
Part of the reason for this is that change is often fleeting. A quick disruption of the equilibrium, followed by a swift return to normal. It can be difficult to tell if a development is a temporary shock to the system, or if it will have a lasting impact. Getting it wrong can be costly –sometimes, those who adapt too quickly, do die (metaphorically speaking). And, let’s be honest, change is hard work. It requires a departure from our comfort zones, and investing hard work to find new strategies that pay off. It should then be no surprise that most people don’t like change. In behavioural economics, we even have a term for this: we call it the “status quo bias”.
Biases exist because there are many times when they offer a handy shortcut that saves us difficult mental work. Unfortunately, while these mental shortcuts can sometimes help, they can also hurt when applied in the wrong situation. But how do we know the difference between temporary changes and “sea changes”, and why do we so strongly believe that we have reached an inflection point in current markets?
For us, the answer lies in consciously evaluating conditions, rather than just blindly applying rules of thumb based on what has worked before. Research, questioning, and debate remain integral
to our process, and currently we see many concerning signs for investors who try and replicate what has worked in the past.
For example, many investors have been blinded by the meteoric rise of technology shares, and it is true that there are many factors that make for a compelling technological future. But the factors that have allowed technology companies to grow so large and their share prices to rise (low interest rates played a key role), may be quite hard to replicate in the future. Possibly, markets are pricing in the continuation of a “best case” scenario, while the low hanging fruit have already been picked. From here on out, it may require much harder work for technology companies to maintain spectacular growth levels, especially when much of the spectacular growth has already drawn the benefit of a digital adoption boom, and when the future is almost certain to bring much closer regulatory scrutiny.
The plight of local fixed-income investors provides another pertinent case in point. Locally, fixed-income investors have often relied on real estate as a low-risk sweetener in their portfolios that allows them to outpace inflation. But a growing debt burden and a souring local environment mean that this sector is arguably more risky than it was in the past. While there still are (and always will be) opportunities for those who are willing to do the work and be selective about real estate, those who blindly follow past recipes for success and simply include a blanket “opt in” on the asset class are unlikely to be rewarded quite as easily as in the past.
When the world changes, the key question for investors is whether relying on the rules of the past will serve them well, saving them time and effort, or whether this “lazy thinking” will hamper their efforts. We believe the current market is signalling clear breaks with the past – and as such new thinking, and a new strategy, may be required.
ANET AHERN
Anet Ahern is the CEO of PSG Asset Management.
With BANKING problems:
The Ombudsman for Banking Services is Reana Steyn.
ShareCall: 0860 800 900 or Telephone: 011 712 1800
Fax: 011 483 3212
Post: PO Box 87056, Houghton, 2041
Email: info@obssa.co.za
Website: www.obssa.co.za
With COMMUNITY-SCHEME-RELATED problems: The Community Schemes Ombud Service is a statutory dispute-resolution service for owners and residents of community schemes, including sectional-title schemes share-block companies, homeowners’ associations and schemes for retired persons. The Acting Chief Ombud is Advocate Ndivhuo Rabuli.
Telephone: 010 593 0533
Fax: 010 590 6154
Post: 63 Wierda Road East, Wierda Valley, Sandton, 2196
Email: info@csos.org.za
Website: www.csos.org.za
With CONSUMER-RELATED problems: The National Consumer Commissioner is Ebrahim Mohamed.
Toll-free: 0860 003 600
Telephone: (complaints) 012 428 7000 or (switchboard) 012 428 7726
Fax: 086 758 4990
Post: PO Box 36628, Menlo Park, 0102
Email: complaints@thencc.org.za
Website: www.thencc.gov.za
The Consumer Goods and Services Ombud is Magauta Mphahlele. This is a voluntary dispute-resolution scheme that only has jurisdiction over retailers, wholesalers and manufacturers that subscribe to the Consumer Goods and Services Industry Code of Conduct.
ShareCall: 0860 000 272
Fax: 086 206 1999
Post: PO Box 3815, Randburg, 2125
Email: info@cgso.org.za
Website: www.cgso.org.za
With CREDIT TRANSACTION problems: The Credit Ombud is Howard Gabriels.
MaxiCall: 0861 662 837
Telephone: 011 781 6431
Fax: 086 674 7414
Post: PO Box 805, Pinegowrie, 2123
Email: ombud@creditombud.org.za
Website: www.creditombud.org.za
With DEBT COUNSELLING problems: The National Credit Regulator also deals with disputes that are not resolved by the Credit Ombud. The Chief Executive Officer is Nomsa Motshegare.
ShareCall: 0860 627 627
Telephone: 011 554 2600
Fax: 011 554 2871
Post: PO Box 209, Halfway House, 1685
Email: complaints@ncr.org.za or (debt counselling complaints) dccomplaints@ncr.org.za
Website: www.ncr.org.za
With FIDUCIARY problems:
The Fiduciary Institute of Southern Africa (FISA) is a selfregulating body in fiduciary matters such as wills, trusts and estate planning.
Telephone: 082 449 2569
Post: PO Box 67027, Bryanston, 2021
Email: secretariat@fisa.net.za
Website: www.fisa.net.za
With FINANCIAL ADVICE problems:
The Ombud for Financial Services Providers is Nonku Tshombe.
Telephone: 012 470 9080 or 012 762 5000
Fax: 086 764 1422, 012 348 3447 or 012 470 9097
Post: PO Box 74571, Lynnwood Ridge, 0040
Email: info@faisombud.co.za
Website: www.faisombud.co.za
With INVESTMENT problems:
The Financial Sector Conduct Authority, which is headed by Dube Tshidi, regulates the financial services industry.
ShareCall: 0800 110 443 or 0800 202 087
Telephone: 012 428 8000
Fax: 012 346 6941
Post: PO Box 35655, Menlo Park, 0102
Email: info@fsb.co.za
Website: www.fsb.co.za
With LIFE ASSURANCE problems:
The Ombudsman for Long-term Insurance is Judge Ron McLaren.
ShareCall: 0860 103 236 or Telephone: 021 657 5000
Fax: 021 674 0951
Post: Private Bag X45, Claremont, 7735
Email: info@ombud.co.za
Website: www.ombud.co.za
With MEDICAL SCHEME problems:
The Council for Medical Schemes is a statutory body that supervises medical schemes. The Registrar of Medical Schemes is Dr Sipho Kabane.
MaxiCall: 0861 123 267
Fax: (enquiries) 012 430 7644 or (complaints) 086 673 2466
Post: Private Bag X34, Hatfield, 0028
Email: complaints@medicalschemes.com or information@medicalschemes.com
Website: www.medicalschemes.com
With MOTOR VEHICLE problems:
The Motor Industry Ombudsman of South Africa is an independent institution that resolves disputes between the motor and related industries and their customers. The Ombudsman is Johan van Vreden.
MaxiCall: 0861 164 672
Fax: 086 630 6141
Post: Suite 156, Private Bag X025, Lynnwood Ridge, 0040
Email: info@miosa.co.za
Website: www.miosa.co.za
With RETIREMENT FUND problems:
The Pension Funds Adjudicator is Muvhango Lukhaimane.
ShareCall: 0860 662 837
Telephone: 012 748 4000 or 012 346 1738
Fax: 086 693 7472
Post: PO Box 580. Menlyn, 0063
Email: enquiries@pfa.org.za
Website: www.pfa.org.za
With SHORT-TERM INSURANCE problems: The Ombudsman for Short-term Insurance is Judge Ron McLaren.
ShareCall: 0860 726 890 or Telephone: 011 726 8900
Fax: 011 726 5501
Post: PO Box 32334, Braamfontein, 2017
Email: info@osti.co.za
Website: www.osti.co.za
With TAX problems:
The Tax Ombud is Judge Bernard Ngoepe.
ShareCall: 0800 662 837 or Telephone: 012 431 9105
Fax: 012 452 5013
Post: PO Box 12314, Hatfield, 0028
Email: complaints@taxombud.gov.za
Website: www.taxombud.gov.za
The last column in the collective investment scheme performance tables on pages 58 to 69 shows the PlexCrown rating of a fund if it qualifies for a rating. The PlexCrown Fund Ratings system encompasses the different quantitative measures used in calculating investment performances in one number and makes it easy for investors to evaluate fund managers on the basis of their long-term risk-adjusted returns.
The PlexCrown Fund Ratings enable investors to know at a glance how a unit trust fund has fared over time on a risk-adjusted return basis, compared with the other funds in its Association for Savings & Investment SA subcategory. Therefore, the ratings assist investors in determining whether or not a fund manager is adding value to their unit trust investments, given the manager’s mandate and the amount of risk he or she is taking.
The PlexCrown Fund Ratings are unbiased and objective because they are based on quantitative measures; no
subjectivity is brought into the research methodology.
In calculating risk-adjusted returns, the methodology accepts that various quantitative formulae each have their unique drawbacks. In order to overcome this, up to five different risk measures are used:
•
• Total risk (Sharpe Ratio);
•
• Downside risk (Sortino Ratio and Omega Risk/Reward Measure); and
•
• Manager’s skill (Jensen’s Alpha and Treynor).
The research method ensures that the unit trust funds under evaluation are exposed to similar risks; therefore, the subcategories for unclassified funds and money market funds are excluded.
The PlexCrown rating system is a measure of consistency because ratings are done over three and five years and are time weighted, with the emphasis on the longer period of measurement. Funds within a unit trust subcategory are ranked only if there are at least five funds in that subcategory with a
track record of at least five years. To qualify for a rating, a fund must have an official track record of at least five years.
Each qualifying unit trust fund is awarded a certain number of PlexCrowns ranging from one to five, with the top-performing funds allocated the highest rating of five.
The PlexCrown ratings distinguish between poor performers and excellent performers, but are based on historical data and should be used only as a first step in the construction of a unit trust portfolio. It remains the responsibility of investors together with their financial advisers, to make sure that the funds they choose suit their risk profiles and that their investment plans include an appropriate level of diversification.
Visit www.plexcrown.com for a full description of the PlexCrown Fund Ratings system.
• Results are based on the performance of a lump-sum investment over four periods that ended on 30 September 2021. In each of the periods, there is a percentage (to two decimal places) by which an investment would have grown or shrunk, and the fund’s position or rank relative to other funds.
• Returns for the three- and five-year periods are annualised (that is, the percentage represents the average performance in a year). As unit trust funds are medium- to long-term investments, the most important performance periods are those of three years or longer.
• INITIAL COSTS have not been taken into account and can have an effect on returns.
• ANNUAL MANAGEMENT FEES are included in the returns.
• DIVIDENDS have been reinvested on the ex-dividend date (the day after they are declared) at the price at which the units are sold to you.
• INDICES normally supplied as benchmarks reflect percentage changes and take into account dividends and interest. In the case of new indices, a history is not yet available.
• The PLEXCROWN RATING indicates how a fund has fared over time compared with the other funds in its subcategory on a risk-adjusted return basis. Turn to page 57 for more information about the ratings.
The asterisk (*) before a fund’s name indicates that the fund complies with the investment requirements of Regulation 28 of the Pension Funds Act. Funds suitable for retirement savings must comply with Regulation 28, which lays down guidelines about Inv. in different categories of assets. To reduce the risk and volatility of a fund, the Act restricts exposure to equities to a maximum of 75 percent of the fund and its exposure to property to 25 percent.
The Association for Savings & Investment SA’s classification system categorises unit trust funds according to their investment universe: where they invest, what they invest in and their main investment focus.
The first tier of the classification system categorises funds as South African, global, worldwide or regional.
South African funds must invest at least 70 percent of their assets in South African investment markets at all times. They may invest a maximum of 25 percent in foreign markets and a maximum of five percent in African (excluding South African) markets.
Global funds must invest a minimum of 80 percent of their assets outside SA. Worldwide funds do not have any restrictions on where they may invest but they typically allocate between South African and foreign markets in line with the manager’s outlook for local versus foreign assets.
Regional funds must invest at least 80 percent of their assets in a specific geographic region, such as Asia or Africa, excluding South Africa, or a country such as the United States. Regional funds may invest a maximum of 20 percent of their assets in South Africa.
The second tier of the classification system categorises funds according to the asset class in which they predominantly invest. At this level, funds are categorised as equity funds, interest-bearing funds, real estate funds or multi-asset funds.
Equity funds must invest at least 80 percent of the net asset value of a fund.
Interest-bearing funds invest in bonds, fixed interest and money-market instruments.
Real estate funds must invest at least 80 percent of their assets in shares in the real estate sector of the JSE or a similar sector of an international stock exchange. A fund may invest a maximum of 10 percent in property shares that are not classified in the real estate sector.
Multi-asset funds save you the trouble of deciding how to allocate your assets between shares, bonds, property or cash. The managers of multi-asset funds decide, for you, which asset classes they believe will produce the best returns and then, within those classes, which securities will perform the best. Some funds have a fixed allocation to the different asset classes whereas others change the mix of asset classes in line with their views of how the different classes or securities will perform.
The third tier of the classification system categorises funds according to their main investment focus.
These indicate the annual management fees a unit trust company can charge and depend partly on the class of units you buy.
Before June 1998, the fees charged on funds were regulated with a maximum annual management fee of one percent a year plus VAT. Funds launched before this date have the letter “R” behind the fund name and can only change their fees after a ballot of all unit trust holders. Many unit trust companies have closed their “R” class funds to new investments and launched new fund classes.
Funds and fund classes launched after June 1998 can charge any fees. Typically, fees range from 0.25 percent to 2 percent, excluding VAT. Funds with unregulated fees can be “A”, “B”, “C” or “D” class funds.
Typically, “A” class funds are offered to retail investors while cheaper “B” class funds are for institutional investors who invest in bulk. Only the institutional funds available to you through a linked-investment services provider (Lisp) are published here.
The different classes of a single fund are managed collectively and the difference in performance between them is purely a result of the difference in management fees.
Most recently what are known as all-in-fee classes (“C” or “D” classes) have been introduced. These funds charge a single fee covering the management fee, the broker fee and the administration (or Lisp) fee.
Performance figures supplied by ProfileData
Telephone: 011 728 5510
Email: unittrust@profile.co.za
Website: www.fundsdata.co.za
Disclaimer: Although all reasonable efforts have been made to publish the correct data, neither ProfileData nor Personal Finance can guarantee the accuracy of the information on the unit trust fund performance pages.
benefit of disabled people and testamentary trusts established for the benefit of minor children. All other trusts pay income tax at a flat rate of 45%.
Amounts contributed to pension, provident and retirement annuity (RA) funds are deductible by fund members. Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employee. The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits). The deduction is further limited to the lower of R350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions that exceed the limits are carried forward to the next tax year and deemed to be contributed in that year. The amounts carried forward are reduced by contributions set off when determining taxable retirement fund lump sums or RAs.
All taxpayers: If you contribute to a medical scheme, you are entitled to a tax rebate (referred to as a medical scheme contributions tax credit) of up to R331 each for the individual who paid the contributions and the first dependant on the medical scheme and up to R224 a month for each additional dependant.
Additional tax credit for taxpayers under 65 years: You are entitled to a tax credit of 25% of an amount equal to your qualifying medical expenses plus an amount by which your medical scheme contributions exceed four times the medical scheme contribution tax credit for the tax year, limited to the amount that exceeds 7.5% of taxable income (excluding severance or retirement fund lump sums).
Additional tax credit for taxpayers with a disability and/or with a disabled family member or taxpayers over 65 years: You are entitled to a tax credit of 33.3% of your qualifying medical expenses plus 33.3% of the amount by which your medical scheme contributions exceed three times the medical scheme contribution tax credit for the tax year.
Dividends received by individuals from South African companies are generally exempt from income tax, but dividends tax at a rate of 20% is withheld by the entities paying the dividends to individuals. Dividends received by resident individuals from real estate investment trusts (Reits) are subject to income tax. Non-residents in receipt of those dividends are subject only to dividends tax. Most foreign dividends received by individuals from foreign companies (a shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20%.
CPI INFLATION RATE: 4.9% IN JUNE 2021
A provisional taxpayer is any person who earns income by way of remuneration from an unregistered employer income that is not remuneration or an allowance or an advance payable by his or her employer. You are exempt from the payment of provisional tax if you do not carry on any business and your taxable income:
• Will not exceed the tax threshold for the tax year; or
• From interest, dividends, foreign dividends and the rental of fixed property and remuneration from an unregistered employer will be R30 000 or less for the tax year.
Deceased estates are not provisional taxpayers.
INCLUSION RATES
• Individuals special trusts and individual policyholder funds: 40% • Other taxpayers: 80%
MAXIMUM EFFECTIVE RATES
• Individuals and special trusts: 18%
• Other trusts: 36% • Companies: 22.4%
SOME OF THE EXCLUSIONS
• R2 million gain/loss on disposal of primary residence
• Annual exclusion of R40 000 to individuals and special trusts
• R300 000 in the year of death (instead of the annual exclusion)
• Retirement benefits
• Most personal use assets
• Payments in respect of original long-term insurance policies
• R1.8 million for individuals (at least 55 years of age) when a small business with a market value that does not exceed R10 million is disposed of.
Rate: 20% on the first R30m; 25% on estates above R30m. Amounts in an estate up to R3.5m are not taxed. For the second-dying spouse, amounts up to R7m less the exemption used by the first-dying spouse are not taxed.
TAX-FREE SAVINGS ACCOUNTS
No income tax on interest, dividends withholding tax or capital gains tax. Contributions are limited to R36 000 a year, up to R500 000 over your lifetime. Contributions that exceed the limits will be taxed at 40%.
• Donations tax payable by the donor is levied at a rate of 20% on property donated with a value up to R30 million. The rate on property with a value of more than R30 million is 25%.
• The first R100 000 of property donated in each year to a natural person is exempt from donations tax.
The real rate of return on money you invest is affected not only by inflation, but also by the rate at which you are taxed. The lower the inflation rate, the better your real rate of interest is likely to be. To calculate your real return, first work out what your after-tax return will be and then subtract the inflation rate. The table provides the marginal tax brackets and the interest rates at which you will start to receive a real (after-tax) rate of return on your money if it is taxed at that rate. The calculations ignore the fact that in the 2020/21 tax year, the first R23 800 (R34 500 if you are over 65 years of age) you earn in interest is tax-free. Any interest you receive above the exempt amount is taxed at your marginal tax rate.
• Donations between spouses are exempt from donations tax.
• Tax deductions on donations to approved public benefit organisations are limited to 10% of taxable income before deducting medical expenses (excluding retirement fund lump sums and severance benefits).
LUMP SUM RATE OF TAX
R0 to R25 000 0% of taxable income
R25 001 to R660 000 18% of taxable income above R25 000
R660 001 to R990 000 R114 300 plus 27% of taxable income above R660 000 R990 001 and above R203 400 plus 36% of taxable income above R990 000
Retirement fund lump-sum withdrawal benefits consist of lump sums from a pension, pension preservation provident, provident preservation or retirement annuity fund on withdrawal (including assignment in terms of a divorce order).
The tax on a retirement fund lump-sum withdrawal benefit (X) is equal to:
• The tax determined by applying the tax table to the aggregate of lump sum X plus all other retirement fund lump-sum withdrawal benefits accruing from March 2009, all retirement fund lump-sum benefits accruing from October 2007 and all severance benefits accruing from March 2011; less
• The tax determined by applying the tax table to the aggregate of all retirement fund lump-sum withdrawal benefits accruing before lump-sum X from March 2009, all retirement fund lump-sum benefits accruing from October 2007 and all severance benefits accruing from March 2011.
LUMP
R0
R500 001 to R700 000 18% of taxable income above R500 000
R700 001 to R1 050 000 R36 000 plus 27% of taxable income above R700 000 R1 050 001 plus R130 500 plus 36% of taxable income above R1 050 000
Retirement fund lump-sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death retirement or termination of employment due to attaining the age of 55 sickness accident injury incapacity redundancy or termination of the employer’s trade.
Severance benefits consist of lump sums from or by arrangement with an employer due to relinquishment, termination, loss, repudiation, cancellation or variation of a person’s office or employment.
Tax on a retirement fund lump-sum benefit or a severance benefit (Y) is equal to:
• The tax determined by applying the tax table to the aggregate of lump-sum or severance benefit Y plus all other retirement fund lump-sum benefits accruing from October 2007 and all retirement fund lump-sum withdrawal benefits accruing from March 2009 and all other severance benefits accruing from March 2011; less
• The tax determined by applying the tax table to the aggregate of all retirement fund lumpsum benefits accruing before lump-sum Y from October 2007 and all retirement fund lump-sum withdrawal benefits accruing from March 2009 and all severance benefits accruing before severance benefit Y from March 2011.
RATES OF INTEREST FROM 1 AUGUST 2020:
Fringe benefits - interest-free or low-interest loan (official rate): 4.5% a year
RATES OF INTEREST FROM 1 NOVEMBER 2020:
Late or underpayment of tax: 7% a year
Refund of overpayment of provisional tax: 3% a year
Refund of tax on successful appeal or where the appeal was conceded by the South African Revenue Service: 7% a year
Refund of VAT or late payment of VAT: 7%
You do not have to submit a return if: your total pre-tax earnings from one employer were less than R500 000 for the tax year, you have no other sources of income (for example rental or interest) and there are no deductions that you want to claim.
Rates per kilometre, which may be used in determining the allowable deduction for business travel against an allowance or advance where actual costs are not claimed, are determined by using the following table:
Note:
• 80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.
• No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (for example the vehicle is covered by a maintenance plan).
• The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.
• The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a logbook are used to determine the costs that may be claimed against a travelling allowance.
Alternative simplified method:
Where an allowance or advance is based on the actual distance travelled by the employee for business purposes no tax is payable on an allowance by an employer to an employee up to the rate of 398 cents per kilometre regardless of the value of the vehicle. However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.
• The taxable value is 3.5% of the determined value (the cash value including VAT) a month of each vehicle. Where the vehicle is:
– The subject of a maintenance plan when the employer acquired the vehicle, the taxable value is 3.25% of the determined value; or
– Acquired by the employer under an operating lease, the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.
• 80% of the fringe benefit must be included in the employee’s remuneration for the purpose of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the vehicle for the tax year is for business purposes.
• On assessment the fringe benefit for the tax year is reduced by the ratio of the distance travelled for business purposes (substantiated by a logbook) divided by the actual distance travelled during the tax year.
• On assessment further relief is available for the cost of the licence, insurance, maintenance and fuel for private travel if the employee has borne the full cost thereof and if the distance travelled for private purposes is substantiated by a logbook.
If you are obliged to spend at least one night away from your usual place of residence on business and you receive an allowance or advance for accommodation in South Africa, which is to pay for:
• Meals and incidental costs: R452 a day is deemed to have been spent; or
• Incidental costs only: R139for each day is deemed to have been spent. Where the allowance or advance is for accommodation outside South Africa, a specific amount per country is deemed to have been spent. Refer to www.sars.gov.za > Legal counsel > Secondary legislation > Income tax notices > 2018.
Financial years that end on any date between March 1 2021 and February 28 2022.
Rates valid for July 2021. Information supplied by the relevant life assurance companies.
These tables show initial monthly pensions guaranteed for 10 years and then for life if, at the ages listed, you buy a life annuity (see definition below) with R1 million. In these tables. the amount escalates at a rate of 6 percent a year.
An annuity is a payment you receive annually. The life assurance industry has adapted the word to mean any amount you receive regularly (normally monthly) from an investment, usually in the form of a pension, when you retire.
VOLUNTARY JOINT LIFE AND SURVIVORSHIP ANNUITIES
This must be bought with at least two-thirds of the benefits you receive from your pension fund or retirement annuity when you retire (provident funds are excluded from this requirement). If you are a member of a defined-benefit pension fund, the annuity is normally provided to you without any choice.
This is an investment you choose to make with a lump sum from any source. With voluntary annuities, you can invest for a fixed period. For example, for 10 years – or for life. Note that compulsory and voluntary annuities are taxed differently, both on the investment itself and on your income from it. This is because you buy a compulsory annuity with pre-tax savings whereas you buy a voluntary annuity with after-tax savings.
You buy this type of annuity from a life assurance company. You are guaranteed a fixed income for life, which may or may not escalate annually at a certain rate, depending on whether you have a level or escalating annuity. In the initial years, you will receive less from an escalating annuity than from a level annuity but the level annuity will be eroded over the years by inflation. Because the life assurance company takes on your longevity risk, your investment normally dies with you. You can, however, buy an annuity “guaranteed for X years and then for life”, which means your nominated heir will receive the income if you die before the X years are up. After X years, the annuity dies with you. Joint life annuities are based on a pension being paid to the surviving spouse after the death of his or her partner.
You buy this type of annuity from an asset manager and can choose the underlying Inv. You must decide each year how much of your investment you want to draw down as a pension with a minimum of 2.5 % and a maximum of 17.5 %. When you die, what is left of your investment is passed on to your heirs. However, you take the risk of outliving your capital.
HOW
Offshore investment allowance: R10 million each year
Discretionary allowance for adults: R1 million each year
Travel allowance for children under 18: R200 000 each year
The tax on international air travel is R190 per passenger or R100 for flights to Southern African Customs Union countries.
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The Trufe SCI General Equity fund is ranked 1st out of 61 funds over 10 years in the ASISA SA Equity General Category.
The Trufe SCI General Equity fund is ranked 1st out of 61 funds over 10 years in the ASISA SA Equity General Category.
The Trufe SCI General Equity fund is ranked 1st out of 61 funds over 10 years in the ASISA SA Equity General Category.
Source:MorningstarDirectasatendJune2021
Source:MorningstarDirectasatendJune2021
Source:MorningstarDirectasatendJune2021
Trufe Asset Management (Pty) Ltd is an authorised Financial Services Provider (FSP no: 36584).Sanlam Collective Investments (RF) (Pty) Ltd is a registered Manager in terms of the Collective Investment Schemes in Securities. A schedule of fees can be obtained from the Manager. Maximum fund charges include (incl. VAT): Manager initial fee (max.): 0.00%; Manager annual fee (max.): 1.03%; Total Expense Ratio (TER): 1.10%. The Manager retains full legal responsibility of the third party portfolio. The registered name of the fund is Trufe Sanlam Collective Investments General Equity Fund. For more information visit www.trufe.co.za.
Trufe Asset Management (Pty) Ltd is an authorised Financial Services Provider (FSP no: 36584).Sanlam Collective Investments (RF) (Pty) Ltd is a registered Manager in terms of the Collective Investment Schemes in Securities. A schedule of fees can be obtained from the Manager. Maximum fund charges include (incl. VAT): Manager initial fee (max.): 0.00%; Manager annual fee (max.): 1.03%; Total Expense Ratio (TER): 1.10%. The Manager retains full legal responsibility of the third party portfolio. The registered name of the fund is Trufe Sanlam Collective Investments General Equity Fund. For more information visit www.trufe.co.za.
Trufe Asset Management (Pty) Ltd is an authorised Financial Services Provider (FSP no: 36584).Sanlam Collective Investments (RF) (Pty) registered Manager in terms of the Collective Investment Schemes in Securities. A schedule of fees can be obtained from the Manager. Maximum charges include (incl. VAT): Manager initial fee (max.): 0.00%; Manager annual fee (max.): 1.03%; Total Expense Ratio (TER): 1.10%. The Manager full legal responsibility of the third party portfolio. The registered name of the fund is Trufe Sanlam Collective Investments General Equity Fund. For information visit www.trufe.co.za.
