President Cyril Ramaphosa - Afrikan Heroes

A Budget to Turn South Africa into an Investment Dust Bowl

April 15, 2021

By Chris Hart

When President Cyril Ramaphosa’s launched his drive to secure new investment in South Africa of R1.2-trillion it appeared that investment was rightly regarded as the best way to tackle the country’s most pressing economic and social challenge — the world’s worst unemployment problem.

So far the investment conferences have seen pledges of about half this amount, but will it make enough difference? Big companies starting big projects do bring big benefits, but the government itself needs to come to the party, creating the optimal conditions for companies big, small and embryonic to start new ventures.

Despite the president’s investment red carpet, the wider economy remains an investment dust bowl. And last month’s budget presented by finance minister Tito Mboweni lacked a basic understanding of how to dig the economy out of this dusty hole.

To invest, you have to have capital. To bring new economic activity into existence, you have to have investment. However, capital flows naturally to where it’s easiest to invest. Just as water flows downhill, investment capital flows to the best prospects.

And investment capital is created via savings. When we tax the key pillars of investment — capital formation and savings — it is the equivalent of eating the seeds you need to plant for growth. Hence my fear of an economic dust bowls.

Wealth taxes, capital gains tax, transfer duties on property and death duties are all diverting capital from where it is needed into a fiscus where it does not lead to greater production — eating those seeds at an alarming rate.

Meanwhile, some taxes raise the investment hurdle rate. Dividend taxes and company taxes. To his credit, Mboweni has promised a lowering of corporate tax, just not for a while. At the same time as he giveth, he will of course taketh away. Targeted investment incentives have their critics, and I have been one of them. However, when thoughtfully implemented they have been shown to boost investment, create jobs and support skills training, the greening of the economy and BEE.

Do they need a thorough review? Oh, yes. But what Mboweni has announced is not a pruning exercise; he is wielding a chainsaw. When a batch of incentives schemes is due to expire, the undertakers will be summoned and they will be laid to rest. No further review, no appeals process.

There has been an outcry about one investment incentive in particular that supports venture capital, which is called Section 12J. It is due to close down on June 30 when a so-called sunset clause is triggered. The reason given for the termination is that some of the projects that have enjoyed S12J support do not resonate with what the National Treasury had expected. Some, but not all. There are hundreds of others now on death row that tick every box in terms of transformation, job creation, rural development and skills development.

The mega projects that are rewarded by a handshake from the president (or were in pre-Covid days, before handshaking became a mortal sin) cannot and must not be dismissed. However, it is the start-up firms, the small businesses, that are our future in terms of significant potential job creation, growth, rural development and so on.

Investment incentives

Being slapped with a big corporate tax bill is just a dream for a start-up company. Before it starts to pay tax it needs to start producing, to start selling, to start growing, taking on new employees. These are the businesses that need investment incentive support today, so that tomorrow they can produce the next generation of Elon Musks and Mark Shuttleworths — hopefully a generation that will remain in SA and use its talents to help drive our economy forward.

Not only is it damaging to remove a raft of business-friendly support measures, but it creates uncertainty. Here today; gone tomorrow. What happens the next day? Dust! Such policy uncertainty is the biggest reason some people — local and foreign — don’t want to invest in SA.

The government sets up a whole new scheme. The private sector invests in the channel that is created — but then the bureaucrats shut it down on a whim, without proper consultation. They crush it like a bug. Arbitrary decisions on whether a business can operate are bound to damage investor confidence, and the reasons given for the Treasury’s S12J U-turn don’t ring true.

In a normal world, the Treasury would be right. Some S12J projects involving the establishment of hotels, game lodges and similar property investments might not have looked entirely appropriate as community development schemes. But we are not in a normal world. This is a world where the wrong policy mix drives people to invest offshore.

S12J has been shown to stop this money going offshore; the cash has been invested onshore because of this incentive. A few S12J investments may have a tinge of elitism, but even they do create jobs and uplift a micro-economy.

It is worth recalling that when S12J was launched the architects never explicitly said what was wanted. No guidance on preferred investments was offered, other than a specific list of what was prohibited, such as alcohol or tobacco schemes.

A list of unapproved and approved investments may have lurked in the dark subconscious of government thinking, but the investment community didn’t have many clues on what was favoured or not favoured.

Important as it is, the president’s investment drive looks at the big picture but ignores the smaller picture, where the real prospects for job creation lie. The PR campaign that SA is open for business rings less and less true when you see the latest budget.

Is it really wise for the Treasury to insist there is a choice between lowering corporate tax and continuing incentives, such as S12J for venture capital investment? When we look at the scale of unemployment in SA, it’s hard not to conclude that we need both.

Unless our vision reaches no further than a dust bowl.

• Hart is executive chair of Impact Investment Management

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

Only Companies Issued With Permits Are Allowed To Operate During South Africa’s Level 4 Lockdown

May 11, 2020

Businesses in South Africa can now carry on with their regular affairs as a result of the easing of the lockdown earlier imposed by the country’s President Cyril Ramaphosa. However, not all of them are allowed to open in the meantime. According to the country’s Companies and Intellectual Property Commission (CIPC), South African companies will still need to obtain a certificate to show that they are permitted to operate during the country’s new level 4 lockdown regulations. Under South Africa’s level 5 restrictions, companies were required by government to sign-up through the CIPC’s BizPortal to show that they were an essential service and are allowed to operate.

“Companies/sectors which are permitted to operate as per Level 4 Regulations would be required to register on BizPortal and obtain a certificate which would permit them to operate,” a CIPC spokesperson said.

“With that said, the responsibility lies with the business owner to make certain that the services they offer complies with the regulations.”

Here Is What You Need To Know

With the country moving to level 4 restrictions, a number of businesses and more than 1.5 million employees returned to work — but no clarity was provided as to whether a certificate was required for these new businesses which are permitted to operate.
The CIPC confirmed that the BizPortal has been updated to accommodate the “new” activities and sectors permitted to operate as per the risk-adjusted regulations for Level 4.
The process on the BizPortal to register is the same. The difference would be the categories between Level 4 and Level 5. And the difference would be the certificate issued.

“It is worth noting that Level 5 is higher restriction and with only essential services being permitted, and for such, provisions are in place,” the spokesman said.

Only for registered companies

The certificate is a reference to the legal registration of the company in terms of the Companies Act and a record of registration to the CIPC.
This means that the registration portal is only for companies registered in terms of the Companies Act, the DTI said.

“Other essential service providers, like healthcare professionals registered with the Health Professions Council of South Africa, sole proprietors who provide essential goods and services (like small business owners and spaza shops), and small-scale farmers will not register through the Bizportal.

“These businesses will not have a CIPC certificate, but must still comply with the provisions of the lockdown regulations,” it said.

Where the CIPC finds that certificates have been issued to companies which do not meet the definitions of an essential service, such certificate will be revoked, and the company will be referred to the South African Police Services, the DTI said.

“False declaration by the company is a criminal offence and will result in prosecution, in terms of lockdown regulations.”

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer

South Africa Announces New Tax Measures To Assist Businesses and Workers During Lockdown

April 24, 2020

South African president Cyril Ramaphosa has announced further tax measures to assist businesses and their employees through the difficult Covid-19 period. The additional tax relief measures include the fast-tracking of VAT refunds to help with cash flows, a four-month holiday for company skills development levy contributions and a three-month delay for the filing and first payment of carbon tax.

“The catch, however, is that taxpayers who take advantage of this relief are required to pay the deferred amounts to SARS over a period of six months starting from 1 August. This means that the first payment would need to be made by 7 September with the employees’ tax filing for August.

“As such, this relief measure is seen as more of an “interest free loan” to help alleviate the cash flow issues many businesses are facing during this time. It is unfortunately not cash in your pocket since, as is the case with any loan, it needs to be repaid,” noted Jana Botha, tax consultant at Baker McKenzie Johannesburg.

Here Is All You Need To Know

Taxpayers who donate to the Solidarity Fund, set up to aid vulnerable South Africans, support initiatives that are set in place to contain the spread of Covid-19 in South Africa and drive the solidarity campaign, will also now be able to claim up to an additional 10% as a deduction from their taxable income, Botha said.
The president noted that in order to assist a greater number of businesses during the Covid-19 statutory lockdown, the previous turnover threshold for tax deferrals would be increased.
The aim of the deferral of employees’ tax and provisional tax payments is to alleviate the cash flow burden in the short term so that businesses can pay their staff and suppliers, said Botha.
Tax compliant Small, Medium and Micro Enterprises (SMMEs) with a turnover of up to R100 million, (where it was previously R50 million) can now defer 35% (previously 20%) of their employees’ tax payment for the months of April to July without incurring penalties and interest.
Further, tax compliant businesses with a turnover of more than R100 million will be able to apply to SARS to defer their employees’ tax and provisional tax obligations and this will be assessed on a case-by-case basis, Botha said.
The real relief is that businesses will not incur penalty and interest charges should they take advantage of the deferral, Botha said.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.

The billionaires donating $115 to help South African small businesses

March 25, 2020

President Cyril Ramaphosa announced earlier this week that two of South Africa’s richest families, the Rupert’s and the Oppenheimer’s, will be donating R1 billion to help people that are people affected by consequences of the coronavirus

“We must applaud the commitment made in this time of crisis by the Rupert and Oppenheimer families of R1 billion each to assist small businesses and their employees affected by the coronavirus pandemic,” said Ramaphosa.

Here’s a closer look the two billionaires.

South African billionaire Nicky Oppenheimer is the heir to his family’s fortune and was the third generation of his family to run the diamond company De Beers.

He would later sell his 40 percent stake in the diamond company to Anglo American.

According to the 2020 Forbes Africa’s Billionaires Index he is the third wealthiest people on the continent with a $7.4 billion. The African billionaire ranks 200 on the Forbes Billionaires Index.

Oppenheimer is also the owner of the Tswalu Kalaharu Reserve, the largest private game reserve in South Africa.

Origin of wealth: diamonds.

The other South African billionaire that will be donating R1 billion is Johann Rupert. In 2019, the billionaire had a net worth of $5.3 billion

Rupert is the chairman of Swiss luxury goods company Compagnie Financiere Richemont. The firm is best known for brands like Cartier and Montblanc.

The South African billionaire owns 7 percent stake in diversified investment firm Remgro which he chairs. He also owns 25 percent of Reinet, an investment holding co. based in Luxembourg according to Forbes.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

Hit by Power Shortages, South Africa’s Economy Goes Into Recession

March 4, 2020

Widespread power cuts are blamed for pushing South Africa’s economy, the continent’s most industrialized, into recession, according to official statistics released Tuesday.

The South African economy shrank by 1.4% in the fourth quarter of 2019 from the previous three-month period, after contracting by 0.8% in the third quarter, according to Stats SA. A recession is commonly defined as two consecutive quarters of economic decline.

South Africa’s nationwide power blackouts are blamed for the larger than expected decline in the fourth quarter. The state-owned power utility, Eskom, has been unable to meet demand and has had to implement rotating cuts in electricity to residences, factories, mines and businesses.

Eskom’s “inability to meet demand on a sustained basis is a key reason for South Africa’s very slow growth record of just 0.9% a year in 2015 19,” said Pat Thaker, the Economist Intelligence Unit’s regional director for the Middle East and Africa. “Eskom is, in effect, capping South Africa’s growth potential and preventing a significant rebound.”

South Africa’s economy grew by just 0.2% in 2019 and 0.8% in 2018, according to the official statistics.

Seven out of 10 of the country’s sectors contracted in the fourth quarter, including agriculture, which dropped by 7.6%, manufacturing, which dropped 1.8%, and transport, which declined 7.2%.

South Africa’s economic growth forecast for 2020 has been cut to 0.9%.

President Cyril Ramaphosa, who came to power two years ago, has not succeeded in achieving robust economic growth as the country has been hobbled by the power shortages, erratic rains and widespread allegations of corruption.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com