The biggest takeaways from Mboweni’s budget speech

Finance minister Tito Mboweni has delivered the 2021 budget, detailing how National Treasury intends to navigate an increasingly precarious financial position amid the Covid-19 pandemic and subsequent economic fallout.

National Treasury said that the effects of the Covid-19 pandemic are far-reaching and long-lasting, and thus the budget’s main goal was to balance revenue and spending in an uncertain environment.

“On one side is a raging pandemic that has led to the most severe global economic contraction in nearly a century. At the time of writing, Covid-19 has claimed the lives of 2.5 million people, including about 50,000 South Africans.

“On the other side is a weak economy, with massive unemployment, that is burdened by ailing state-owned companies, the highest budget deficit in our history and rapidly growing public debt.”

In this environment, the budget has offered some tax relief, while expanding spending on health – particularly the Covid vaccine rollout – but has warned that the success of its financial plans hinges on big items like reversing the degradation of state-owned companies and cutting the wage bill.

Budget overview



State of the economy

South Africa is expected to raise R1.36 trillion in revenue in the next financial year, against expenditure of R2.05 trillion. This leaves a budget deficit of just under R690 billion for the year or 14% of GDP.

Treasury projects real economic growth of 3.3% this year, from a low base of -7.2% in 2020.

Household consumption is expected to rebound in 2021/22, but investment is expected to decline for the third consecutive year as a result of persistent electricity interruptions, low confidence and low capital spending by public corporations.


Tax changes

One of the key changes South Africans will take note of is the withdrawal of tax proposals.

In 2020, to address growing concerns over revenue collection, Treasury pencilled in R40 billion in new taxes over a three year period. This has now been withdrawn.

This is as a result of higher tax revenue estimates at the end of last year, which were higher than projected in October 2020. While this is the case, Treasury notes that revenues are still R213.2 billion lower than projected in the 2020 budget.

Despite this, “to support the economy, R40 billion in previously proposed tax measures will be withdrawn,” it said.

However, there will be increases to existing taxes, such as an 8% increase in alcohol and tobacco excise duties, and another 26 cents per litre added to the fuel levy.

Taxpayers will get some relief, though, with tax brackets being adjusted upwards at a rate higher than inflation.


Other notable tax changes:

  • To support the shift to a greener economy, the government will differentiate levies on fossil-based and bio-based plastic bags. Plastic bags are currently taxed at 25 cents/bag. A reduced levy of 12.5 cents/bag will apply to bio-based plastic bags.
  • The carbon tax rate increased by 5.2%, from R127 to R134 per tonne of carbon dioxide equivalent, from 1 January 2021. The levy for 2021 will increase by 1 cent to 8 cents/litre for petrol and 9 cents/litre for diesel from 7 April 2021.
  • Following the recommendations of the Davis Tax Committee, SARS will focus on consolidating wealth data for taxpayers through third-party information. This will assist in broadening the tax base, improving tax compliance and assessing the feasibility of a wealth tax.


Questions around Covid-19 vaccines – how much they will cost, and who will be paying – have been raised in recent weeks.

According to Treasury, access to vaccinations will be provided free of charge, in line with the government’s three-phase rollout schedule. Funding for vaccine procurement and rollout will be drawn from the national budget.

“Since the state is procuring vaccines on behalf of both the public and private sectors, some revenue will return to the fiscus when private providers buy vaccines from the state,” it said.

Over the medium-term, R9 billion will be allocated for vaccine rollout. Of this amount, the Department of Health is allocated R6.5 billion to procure and distribute vaccines.

An amount of R100 million will be transferred to the South African Medical Research Council for vaccine research. Provincial health departments have been allocated R2.4 billion to administer vaccines.

Government allocated R1.3 billion in the current year for vaccine purchases. Given the uncertainty around final costs, an estimated R9 billion could be drawn on from the contingency reserve and emergency allocations, bringing total potential funding for the vaccination programme to about R19.3 billion.

Additional Covid measures are also being covered. Specifically, the special Covid-19 social relief of distress grant has been extended for an additional three months, as are unemployment benefits under the temporary employment relief scheme.

To boost short-term employment, R11 billion is being added to the spending framework in 2021/22 to fund the public employment initiative.

Wage bill

Treasury’s budget estimates show that South Africa will reach a primary surplus in 2024/25 – where revenues will be larger than expenditure. However, there is a big catch: the wage bill.

Public-service compensation absorbed 41% of government revenues in 2019/20 and 47% of revenue in 2020/21, Treasury noted, adding that allowing the wage bill to continue rising in line with recent trends is not sustainable.

Compared with the 2020 budget, main budget non-interest expenditure will be reduced by R264.9 billion, or 4.6% of GDP, over the three-year MTEF period. Most of these adjustments are due to the government’s plans to cut the wage bill.

In 2020, government chose not to implement a wage increase for the year – a decision that was reaffirmed by the Labour Appeal Court.

Despite potential challenges this move still faces, government is holding the line and said it will approach negotiations with workers from a position that “aligns with the fiscal position and prevailing economic conditions”.

The 2021 budget proposes a significant moderation in spending on the consolidated wage bill, which grows by an average of 1.2% over the medium term.

State-owned companies

Another stumbling block comes from state-owned companies, which remain a drain on the fiscus.

“In 2020/21, the financial performance of state-owned companies deteriorated. The Land Bank defaulted on its debt and several other companies are at risk of default.

Denel, Eskom and South African Airways remain reliant on state support, including guarantees that enable them to access funding,” Treasury said.

Listed as one of the key risks to the budget proposals, Treasury said that medium-term debt redemptions of state-owned companies total R182.8 billion.

As long as state companies keep running inefficiently, and things like the e-toll saga drag on, the stress they add to the economy will worsen.

“Without rapid improvements in financial management and the resolution of longstanding policy disputes – including the user-pays principle – state companies will continue to put pressure on public finances,” it said.

The total amount for approved guarantees to state-owned companies is expected to increase by R96.2 billion to R581 billion by the end of March 2021, with associated exposure estimated to decrease by R3.4 billion to R410.3 billion.

  • Eskom: Remains dependent on government support and continues to use debt to pay operational costs. Government provided R56 billion to Eskom for 2020/21 and allocated R31.7 billion for 2021/22.
  • Transnet: Reported a net profit of R3.9 billion, down from R6 billion in the prior year as the value of its property investment portfolio declined.
  • SAA: In the 2020 budget Review, R16.4 billion was set aside for SAA over the MTEF period to settle legacy state-guaranteed debt and associated interest costs. Of this amount, R10.3 billion was allocated in 2020/21, with R4.3 billion and R1.8 billion to be allocated in 2021/22 and 2022/23 respectively. The 2020 MTBPS included an allocation of R10.5 billion for SAA in 2020/21. In September 2020, the business rescue plan was amended, and the identified funding requirement was increased to R19.3 billion.
  • Denel: Recorded a loss of R2 billion in 2019/20. Despite state funding, the military and aerospace equipment company has made little progress in its turnaround and continues to deteriorate financially.
  • ACSA: In 2019/20, ACSA reported a net profit of R1.2 billion and reduced its debt exposure. However, it has been severely affected by Covid-19.
  • SABC: Recorded a loss of R511.4 million in 2019/20. After receiving an equity injection of R3.2 billion in the 2019/20 Adjustments Budget, the corporation has made some progress.
  • SANRAL: Until the user-pay policy for roads is fully implemented, SANRAL will continue to have limited access to capital markets to fund its toll roads. Shifts in transfers to SANRAL in previous years ensured that it met its financial obligations, but compromised the quality of the non-toll network.



South African government moves to stabilise debt as budget deficit doubles

Government’s fiscal strategy over the next three years will be to narrow the deficit and stabilise the debt-to-GDP ratio, the National Treasury said on Wednesday (24 February).

“Since the 2020 Budget Review, the budget deficit has doubled, and the in-year revenue shortfall is estimated at R213.2 billion.

“These changes reflect the impact of the Covid-19 pandemic, as well as government’s response, which prioritised relief for households and businesses, alongside a major effort to protect public health.

“The consolidated deficit in the current year – estimated at 14% of GDP – is the largest on record.”

The National Treasury said gross national debt is projected to rise from 80.3% of GDP in 2020/21 to 87.3% of GDP by 2023/24, with debt-service costs reaching R338.6 billion in that year.

“In recent months, as the economy has started to reopen, the outlook has improved somewhat. Revenue estimates are higher than projected in the 2020 Medium Term Budget Policy Statement (MTBPS), enabling government to provide immediate support for urgent public health and social needs, while improving the debt-to-GDP outlook.

“Returning the public finances to a sustainable position will require ongoing restraint in expenditure growth and implementation of structural reforms to support economic growth.

“In this context, the fiscal strategy aims to narrow the deficit and stabilise the debt-to-GDP ratio, primarily by controlling non-interest expenditure growth.”

The National Treasury also said that it will provide continued support to the economy and public health services in the short term, without adding to long-term spending pressures; and, improve the composition of spending, by reducing growth in compensation while protecting capital investment.

“Given the continuing pandemic, the fiscal framework provides short-term support to low-income households and funding for the health policy response.

“Changes since the 2020 MTBPS include three-month extension of the special COVID-19 social relief of distress grant and the Unemployment Insurance Fund’s Temporary Employer/Employee Relief Scheme, and funding for the public employment initiative and for provincial hospitals in 2021/22.

“Up to R10.3 billion is provided for vaccine rollout for the current year and over the next two years.

“Given uncertainty around vaccination campaign costs, the contingency reserve has been increased from R5 billion to R12 billion in 2021/22. These interventions do not add to longer-term expenditure.”

The National Treasury said the consolidated deficit is projected to narrow from 14% of GDP in 2020/21 to 6.3% of GDP by 2023/24.

“Gross debt-to-GDP is now projected to stabilise at 88.9% of GDP in 2025/26.”

Wage bill

A bulk of National Treasury’s fiscal consolidation measures will come from the public service wage bill, the department said on Wednesday.

This comes as government provided one of the largest fiscal responses to the Covid-19 pandemic among developing countries, resulting in consolidated government spending reaching a record 41.7% of GDP, compared with 29.6% during the economic meltdown in 2008/09.

“Narrowing the budget deficit and stabilising the debt-to-GDP ratio requires continued restraint in expenditure growth. These efforts remain on course,” the National Treasury said in documents ahead of the tabling of the Budget in Parliament.

“Compared with the 2020 Budget, main budget non-interest expenditure will be reduced by R264.9 billion, or 4.6% of GDP, over the MTEF period. Most of these adjustments are to the wage bill. Excluding compensation reductions, consolidated non-interest expenditure grows by an annual average of 0.4% in real terms.”

The National Treasury said public service compensation absorbed 41% of government revenues in 2019/20 and 47% of revenue in 2020/21.

“Allowing the wage bill to continue rising in line with recent trends is not sustainable. It would require a substantial reduction in funding for capital investment, and critical public goods and services.”

In December 2020, following government’s decision to not implement a wage increase in 2020/21, the Labour Appeal Court reaffirmed Treasury’s constitutional role in safeguarding the public finances.

“In this regard, the approach to future wage negotiations will align with the fiscal position and prevailing economic conditions. The 2021 Budget proposes a significant moderation in spending on the consolidated wage bill, which grows by an average of 1.2% over the medium term,” said the department.

Treasury said tax revenue estimates for 2020/21 are R213.2 billion below the 2020 Budget estimate, but R99.6 billion above the 2020 MTBPS estimate.

Revenue growth is expected to slow over the medium term.

“The fiscal framework reduces growth in the wage bill and the share of spending on wages, while sustaining real spending increases on capital payments, specifically for buildings and other fixed structures.

“The consolidated budget deficit, which reaches 14% of GDP in 2020/21, narrows to 6.3% by 2023/24.

“Government is projected to achieve a primary surplus in 2024/25 – meaning that total revenue will exceed non-interest expenditure – and stabilise the debt ratio at 88.9% of GDP in the following year.”



Tax hikes you are likely to see next week – and those you won’t

Analysts and economists are detailing their predictions for finance minister Tito Mboweni’s budget speech on 24 February, with a particular focus on taxes.

The February budget typically centres around the government’s revenue collection efforts, with the medium-term budget policy later in the year – around October – homing in on expenditure.

With the onset of the Covid-19 pandemic last year, the 2020 budget was largely out of whack with the realities presented by the outbreak and the nationwide lockdown, resulting in the tabling of the ’emergency’ budget in June.

The new budget has left the fiscus in a vulnerable position, with National Treasury expected to record a budget deficit of at least 14%, and tax revenue being around R312.8 billion lower than projections at the start of the 2020/21 financial year.

Added to this, the finance minister needs to find ways of funding numerous urgent projects – such as Covid-19 vaccines and extended financial relief – while also finding solutions to plug the country’s rising debt.

These ‘new’ problems exacerbate the fundamental weaknesses and growing expenses already present in the budget before the Covid crisis hit – such as state companies in financial distress needing bailouts, and the government wage bill making up over a third of all expenditure.

While government has made some commitments to cut spending – most notably a R160 billion cut to the wage bill over several years – it also needs to find a way to boost revenue. Here, Treasury has said it will raise R40 billion through taxes over the next three financial years – the first R5 billion of which will be raised in 2021/22.

This has its own problems tied to it, however.

According to Mike Teuchert, National Head of Taxation at Mazars, the country’s tax base has shrunk significantly over the last year. This is partly due to skyrocketing unemployment rates, but also due to the government’s own interventions in the economy around lockdown, including alcohol and tobacco product bans.

With the tax base already under extreme pressure, Teuchert doesn’t see Mboweni announcing major tax increases or new taxes.

“While we expect that some tax changes will be announced, the economy cannot really tolerate them. I believe that Treasury understands this as well,” he said.

“While it means that the country will probably need to borrow more, there should at least be an opportunity for businesses operating in South Africa to rebuild and start growing the economy again off the back of a turbulent year.”

The possibility of several new taxes and tax hikes have been mentioned in the lead up to the budget, including the ever-present ‘threat’ of new wealth taxes in the higher-earning population.

However, not all of these taxes may be viable, or even necessary, given the context of the budget. Insight from Intellidex analyst, Peter Attard Montalto, lays out what we can expect from the tax side of the budget.

Adjusted tax brackets – likely

According to Attard Montalto, National Treasury is unlikely to step beyond its goals of raising R5 billion in additional tax revenue this year. This can be accomplished through standard tax margin adjustments – around one percentage point below inflation.

The key reasoning behind this, he said, is that tax hikes generally won’t work as the country remains over the peak of the Laffer curve – meaning significant tax increases will likely lead to lower collection.

Higher sin tax – likely

Along with bracket creep, adjustments to sin taxes could also help government meet its R5 billion target, Attard Montalto said.

Wealth taxes – possibly

Talk of a direct tax on the wealthy in South Africa has been over-played, according to Attard Montalto, with little expected outside of adjusted tax brackets.

Tax experts at legal firm Webber Wentzel said that, although it is possible that National Treasury could introduce a lower tax bracket to widen the tax base, it is more likely that the higher income earners will continue to shoulder the burden of increased personal income tax rates.

This could mean those earning over R750,000 a year see their tax rates increase by between 2% and 3%.

Webber Wentzel said that capital gains tax (CGT) could be a target. The CGT inclusion rates are currently 40% for individuals and special trusts, 80% for companies and 80% for other trusts.

“These CGT rates were introduced on 1 March 2016 and National Treasury may now consider it is time to tax the full capital gain realised on the disposal of assets, in certain instances,” it said.

Attard Montalto noted that any movements or hikes in traditional taxes on the wealthy – such as a restructuring of inheritance tax – will be designed more as a redistributive measure than a pure revenue raising measure.

Vaccine tax – unlikely

It was previously suggested that the government may look to a special ‘vaccine tax’ to help pay for the procurement and distribution of Covid-19 vaccines. However, with higher-than- expected revenues collected in December, this is likely not necessary.

Attard Montalto said that talk of a vaccine tax is “wide off the mark”.

“We think it was likely designed more to drive home the perception of a difficult fiscal environment,” he said.

Mining tax – unlikely

There has also been talk of a one-off mining super-tax – again this is seen as unlikely.

“While the industry is facing a massive Terms of Trade boon, in volume terms things are weak, as is investment and jobs growth which National Treasury will be more keen on encouraging,” Attard Montalto said.

Digital tax – unlikely

Plans are already afoot to introduce taxes on digital products and services sold in South Africa – however, this is unlikely to manifest in the near-term.

This is largely because the government is waiting for consensus from the OECD, Attard Montalto said, which will only be reached in the middle of the year.

Digital tax could very well be mentioned in the October MTBPS, but as far as implementation goes, a public comment process and legal framework will only see it ready around 2023, he said.

VAT – unlikely

South Africa hiked its VAT rate to 15% in 2018. While this helped draw in some tax revenue, it was not a popular move among citizens and businesses, and not one the government will be running to again so soon.

However, South Africa’s VAT rate is still lower than many other countries, and a possible future hike is not off the cards.

While unlikely to be a thing in the 2021 budget, Attard Montalto said it could be pulled out of government’s bag of tricks for something like the NHI in the future.



How to create an intelligent enterprise that future-proofs business

The drive towards digital transformation and the adoption of new IT methods, tools and technologies is a business-critical move to build an intelligent enterprise that will stand above the competition and succeed as the enterprise of tomorrow.

Intelligent enterprises use the latest technologies to turn insight into action across the business – in real-time. As a result, they accelerate data-driven innovation and process automation, launch new business models and more.

However, such an edge can be difficult to achieve. According to IDC market spotlight: “Digital Transformation in Times of Change: What Intelligent Enterprises Need from Their ERP Systems”, only 48.3% of surveyed executives believe they can drive new levels of efficiency and effectiveness and enable transformational business models.

That is why a top question that CFOs and CEOs are asking is how they can drive a successful digital transformation journey and become an intelligent enterprise, but when it comes to starting the process of moving to digital e-commerce, the thought of an ERP system upgrade is liable to bring people out in a cold sweat.

“The good news is that companies do not have to change ERP systems,” says Lionel de Oliveira, Sales Manager South Africa, Seidor Africa. “All that is needed is a solution that is integrated. The long-term view would be to integrate both technology and business processes, thereby moving towards becoming an intelligent enterprise.

“Start by getting the basic digital platform for integrated e-commerce in place and add additional capabilities as the business expands. It’s an approach that will allow a business model to flourish, not force it to change,” he says. De Oliveira offers five steps to getting it right:

1. Set up for success

A good way to start a digital journey is by integrating a secure digital platform in real-time with the business-critical ERP system. Pricing, stock availability and product information will be live from the ERP software and placed orders will go straight back into the system, thereby eliminating manual processing. This means the business can be on every platform, social channel and marketplace out there, ready for orders to come in.

2. Be where the customers are

The key to improving sales and retention is based on how customers experience products and services. Business has to make sure that products are in front of the right people when they look for it, the offer to buy is persuasive and compelling, and the shopping process is simple. Being where customers are is key, which is why a robust SEO capability is critical. When the ideal customer is looking for a product or service, businesses need to know where they are likely to start their journey and be there when they decide to buy. Having a thoughtful and helpful presence where customers are, puts the brand in a good place to create customer relationships.

3. Easy to buy and keep on buying

When customers have 24/7 access to full product offerings via a digital catalogue, ordering is easy and with integration, stock availability is fed straight from the ERP system, making it always live and accurate. Customers need to effortlessly search for the product they want by keyword, product name and brand or SKU code, and re-ordering from order history needs to be made quick and easy with favourites and recent products too. Add-ons can make it simple to integrate with major payment gateways, marketing and analytical tools, making it easy for customers to make payments and remain loyal when they leave the site.

4. Stand out from the competition

Real-time ERP integration gives customers extra functionality and a superior level of confidence. Live stock availability, customer-specific pricing and discounts, access to account information like invoices and order history, and nice touches like being able to place larger orders by uploading a spreadsheet, all help keep new customers coming back for more. For larger customers, the ability to view products and place orders without leaving their own procurement system offers ease of use and a level of functionality that offers a competitive advantage.

5. Be future ready

If 2020 taught us anything, it is that businesses need to be ready to adapt to whatever comes next. When change happens, it is vital to have the right digital tools in place so as to always be ready for opportunity. Whether change is needed on processing orders, moving into new global markets or new sales channels, the opportunities to win new customers can be far-reaching when the right digital solution is in place.

“A digital platform with ERP integrated e-commerce, mobile app and e-procurement offers any ambitious company multiple ways to win new customers, along with the ability to future-proof their business,” concludes De Oliveira.


Author: Elaine Havenga



Is South Africa entering the age of business rescue?

Even before the coronavirus pandemic broke out, arguably the most prominent business rescue in the country had already made headlines: that of South African Airways (SAA), which after more than a year is still not finalised. More recently, Ster-Kinekor became the latest high-profile company to announce it has gone into voluntary business rescue.

South Africa has seen a large number of prominent – and less prominent – business rescues in recent months, particularly as the impact of the Covid-19 hits home. And as the effects of lockdowns since April 2020, and the threat of third and fourth waves looms large this year, many companies and businesses in distress may find themselves opting for business rescue in a bid to survive.



Business rescue is done in terms of the Companies Act. A business rescue practitioner is appointed and steps into the shoes of the directors or management of a company or business in managing the day-to-day operations.

The business rescue practitioner has to investigate the company’s financial situation, and consider whether there is any reasonable prospect of “rescuing” the company.

Between April and October last year, 233 filings for business rescue were recorded, according to recent figures released by the Companies and Intellectual Property Commission (CIPC). The majority of filings in the last year have been in Gauteng at 54%.

Tobie Jordaan, a director and sector head of business rescue, restructuring and insolvency at Cliffe Dekker Hofmeyr, is surprised by the numbers as he expected that there would have been more companies seeking protection in the form of business rescue.

“The boards of companies and management of small businesses are facing many uncertainties in the current economic climate. Furthermore, their hopes for an uptick when lockdown regulations were relaxed after a few months of hard lockdown, were tempered once stricter regulations were imposed once the second wave hit,” says Jordaan.

“No actual temporary insolvency relief measures have been put in place to address the economic devastation brought on by the extensive national lockdown that has left the South African private sector in need of desperate rescue.”

He also cautions that a company can be seen to be trading recklessly where the business has carried on trading despite its directors knowing that it is financial distress or insolvent. Directors have a duty to pass a resolution for a company’s business rescue or liquidation as soon as they become aware that the company is either financially distressed or trading in insolvent circumstances.

Directors could even end up being held personally responsible if they do not act according to this duty. If they decide not to opt for business rescue, they have to make it clear to creditors why not.



“Many companies might now even be at a point where it is too late to still try to opt for business rescue. The business rescue process is only an effective tool to turn around an entity provided it is done timeously,” says Jordaan.

“If you wait too long, then it will probably become too late and then you should consider liquidation. If opted for timeously, however, business rescue can return a company to a solvent position and get it back into the market for a fresh start.”

Jordaan says each business rescue comes with its own set of problems and each case should be judged on its own merits. At the same time, he says there are many cases where business rescue was done successfully.

Business rescues are often complex and due to the spotlight that has been placed on the process, as a result of high-profile cases such as SAA, appropriate experience is required. The rescue process of SAA, for example, also involves challenges because it is a state-owned company.



As a result of the immense financial pressure that the lockdown has put on companies, Jordaan suspects that, in the next couple of years, South African courts may be more considerate of the effect that the Covid-19 pandemic has had on businesses in general.

“In the past eight months, we have seen our courts bending over backwards to assist the affected parties involved in a business rescue as a result of the national lockdown and devastating effects of the Covid-19 pandemic,” says Jordaan.

For him, the most noteworthy judgment in this regard was that of the Labour Court and Labour Appeals Court in the Numsa vs SAA matter, which was heard in 2020. The dispute arose out of the SAA business rescue and the order had the effect of creating a moratorium on retrenchments of employees before the adoption of a business rescue plan.

“This judgment has caused for an evolution of the business rescue process going forward as the court in this instance sought to balance the rights of all stakeholders, especially that of the employees involved in a business in rescue,” says Jordaan.

“As a result of this judgment, we may now see that business rescue practitioners may be forced to formulate and adopt ‘vanilla plans’ in an attempt to fast forward the adoption of a business rescue plan process.”

Another interesting development for Jordaan, as a result of the greater business rescue uptake, is an increase in local and foreign investors taking over assets or businesses for much less than what they were once worth.

“This outcome has grown the distressed asset-based market in South Africa for local and foreign investors, as there is an opportunity to do a ‘pre-packaged’ buy-out. This is where a deal is concluded with a buyer in respect of the company’s assets or shares at the outset, and then expeditiously approved in the business rescue process,” explains Jordaan.

“Creditors are very amenable to approving a business rescue plan providing for such a buy-out as it results in them receiving more than they otherwise would have had the company simply been liquidated.”



There are a few options available to distressed companies apart from that of a business rescue. These include a voluntary or informal restructure, which entails negotiations between the debtor and its major stakeholders, such as its major creditors.

“In certain circumstances where there is a good relationship between creditors and other stakeholders and the business in distress, it may be the best way to proceed and should never be overlooked as a potential debt restructuring option,” says Jordaan. “The advantage is that it is the most informal way to restructure a company’s affairs, and therefore theoretically the cheapest and fastest. Further, as informal restructurings are usually confidential, the company’s reputation remains intact, and its market value and relationships with employees, customers and supplier are preserved.”

Another option could be a “compromise” in terms of section 155 of the Companies Act. This is a more formal legal alternative to business rescue. It involves an arrangement entered into with creditors which makes provision for the restructuring of the company’s affairs without the appointment of a business rescue practitioner.

Last, but not least, liquidation remains where restructuring opportunities have been exhausted, or business rescue is not recommended as there is no prospect of rescue or it is sought but is unsuccessful.



The rand is riding a massive wave that could break over next week’s budget

The rand’s world-beating rally may be blinding traders to risks ahead.

The South African currency has gained 5% against the dollar this month, the most out of more than 140 currencies tracked by Bloomberg.

It’s riding the wave of a global risk-on trade spurred on by a weaker dollar, prospects of US stimulus and the global hunt for yield.

Vaccine rollouts across the world have also helped to improve the outlook for the global economy, boosting the prices of metals and other commodities.

Against this backdrop, traders have looked past South Africa’s fiscal challenges. They’ll be reminded of them when Finance Minister Tito Mboweni presents his annual budget to lawmakers on 24 February.

“While South Africa is one of the worst-performing economies in the emerging-market space from a macro standpoint, the market seems to like the rand,” said Cristian Maggio, head of emerging-market strategy at TD Securities in London.

“Either the hunt for yield is a blinding factor, or the rand is set for some sharp repricing.”

Mboweni will have to convince investors he has a credible plan to support an economy that contracted the most in nine decades last year, while also curbing growth in government debt, which Moody’s Investors Service says will rise to more than 100% of gross domestic product over the next two years by Moody’s Investors Service.

The market also wants clarity on plans for debt-ridden state-owned companies such as Eskom Holdings SOC Ltd.

The median estimate of analysts in a Bloomberg survey predicts the rand averaging 15.25 per dollar in the first quarter.

Instead, it’s strengthened below a long-term trend line at 14.65, and technical indicators suggest that the rally still has legs, according to Warrick Butler, the Johannesburg-based head of foreign-exchange trading at Standard Bank Group Ltd.

“Flows continue to support the rand via a strong export-led economy and international short-term investments into the bond market,” Butler said in a note to clients. “It is very hard to see a different picture emerging.”

Bearish bets on the currency are declining, with the premium on options to sell the currency over those to buy it in the next month falling to its lowest level since mid-December.

Implied volatility over the same window has also dropped to a two-month low, suggesting options traders see price swings moderating.

The rand’s status as an emerging-market proxy also saw it gain 14% in the fourth quarter, outperforming peers.

But while the currency tends to outperform during risk-on bouts, it also tends to fall further when the mood changes, said Piotr Matys, a London-based emerging-market strategist at Rabobank. And that should be a warning for traders getting in on the rally.

“Apart from capital outflows, weak economic fundamentals become a major burden for the rand, which causes substantial losses often to excessive levels,” Matys said.

“As long as the rand remains one of the most liquid emerging-market currencies and the Reserve Bank refrains from intervening and allows it to trade freely, the vicious cycle of spectacular rallies followed by substantial corrections is likely to continue.”



A lacklustre budget will have significant consequences for South Africa

On the back of projected GDP growth of 5% thanks to the global economic recovery, a lacklustre budget for 2021/22 will have significant consequences for South Africa.

Economic tailwinds that could help South Africa’s recovery this year should not deflect the finance minister’s attention away from his cost-cutting crusade. This is the view of Old Mutual Investment Group chief economist Johann Els.

With the annual budget to be delivered on 24 February, he said that staying the course will be vital to reigning in debt and spurring investor confidence.

“What I want to see from the minister is a continued focus on expenditure by cutting the wage-bill, although I suspect that non-wage expenditure can be cut a little more. We need to see an absolute commitment to this fiscal consolidation path continuing and the stabilising of the debt ratio,” Els said.

The current fiscal year’s deficit could be smaller by around R155 billion compared to the October Medium-term Budget Policy Statement (MTBPS) projections, the result of tax overrun and reduced spending. That is a 12.5% deficit on the consolidated budget basis versus the 15.7% deficit envisaged in October.

This means the debt-to-GDP ratio could peak around 92% versus Treasury’s projected 95%.

“The fact that the local economy will recover quite substantially in 2021 on the back of a robust global growth takes away a lot of the growth pressures. So, my concern for the year is our approach to managing Covid-19 and the rollout of vaccines as this could derail the sharp rebound. Treasury, and government, should not squander this opportunity.”

Els said that a stalling vaccine rollout is a threat that could be eradicated if an effective and co-ordinated partnership was struck between the public and private sectors.

“Other developed economies have struggled with their rollout, but in a country like South Africa we could involve the private sector more. This is important because an effective response will impact the infection cycle allowing the economy to open up fully. It will also impact heavily on investor confidence.”

With ratings agencies Fitch and Moody’s having downgraded the country further into junk in 2020, all eyes will be on finance minister Tito Mboweni this year. Should he show signs of deviating from the stated path of cutting expenditure, markets are unlikely to respond kindly.

Els is equally confident that Eskom will be able to bolster capacity sufficiently to put an end to load shedding by early 2022.

However, this won’t count for much if the budget points to a weakening of the commitment to cost-cutting reforms.

“I think the current political leadership is strong enough to continue for now on the fiscal consolidation path,” Els said. “But if that leadership turns out to not to be strong enough, further policy implementation will be lagging.”

Should this happen, it would represent a missed chance considering the opportunity offered by the global economy’s growth spurt this year.

And with a projected conservative tax revenue overrun of some R46 billion in 2020 (the actual outcome could potentially be much higher, around R106 billion), reducing the debt burden may not need extreme measures, said Els.

These efforts will be helped further by higher economic growth this year, which also improves tax revenues.

“There’s a lot of positive news coming through regarding global economic growth, and that’s very positive for South Africa and our fiscal situation,” Els said.

“So, I expect we will see 5% GDP growth this year on the back of this very strong and supportive global environment. And that will have a positive impact on the economy, our balance of payments and exports.

“I think there’s upside potential for National Treasury’s forecast for this year as they tend to be fairly conservative in their tax revenue forecasts,” said Els.

“In addition, Treasury’s deficit path over the next few years could be improved on; instead of reaching 7.3% by 23/24, we could lower that to around 5% by 23/24. This places us in an environment where it’s slightly easier to get onto a fiscal consolidation path.”




#BizTrends2021: 3 skills finance professionals cannot go without in 2021 and beyond

The accountancy and audit industries are on the cusp of an automation transformation, guided by the incredible growth of emerging technologies like robotic process automation (RPA) and artificial intelligence (AI).

What’s more, the world is experiencing the most significant global recession since the 1930s Great Depression. The evolution of the finance function is perfectly timed because businesses need financial advice more urgently than ever before – but of a different sort.

To fill this role, finance professionals must evolve their skillsets.

1. Be technologically fearless, yet empathetic

Automation is transforming the accounting industry, driven by fourth industrial revolution technologies. Advanced cloud-based accounting solutions already incorporates some of these, which automate invoice processing and facilitate continuous consolidations.

But working in finance in 2021 won’t only be about becoming familiar with, and comfortable using, new technologies. AI is already good at automating repetitive accountancy tasks, which increases accuracy and efficiency, and helps firms to discover hidden insights and trends that affect their clients’ businesses. It can automatically upload documents, understand entries, and classify them using the right accounting codes.

This has allowed accountants to do more with fewer resources and has freed up time and energy for creativity when it comes to analysing and interpreting data to extract real value for clients.

Our ability to relate to, engage with, and work well with others will be crucial to our success because these are the skills that help to create connections and build relationships.

Soft skills like creativity, empathy, communication, negotiation, and leadership are critical to master.

2. Become customer centric

Customers expect more from their accountants – and businesses expect more from the finance department. This was already evident before the pandemic.

Cloud-based accounting solutions are a lot more intuitive and user-friendly, making it possible for businesses to manage their own books – which means accountants need to provide value in other ways. Businesses don’t need number-crunchers anymore; they need a business partner and advisor. Someone who can spot problems before they arise and identify opportunities that otherwise would have been missed.

To provide this level of service, finance leaders need an in-depth understanding of every department, their challenges and opportunities to improve.

Becoming customer centric might require a cultural shift and a change in operational processes. But this will prepare you for the future, where change will happen fast and often – and it’s only the agile and adaptable that will survive.

3. Cultivate a life-long learning habit, starting with business advisory skills

No one can confidently say they have nothing to learn. In fact, your best defence against uncertainty is to ensure that you’re always learning something new because deliberate skills development is an investment in yourself and your future.

Building your business advisory skills is a good place to start. For example, your customers might need help understanding their finance reports and knowing what decisions to take on the information presented. You can help them to become hyper-focused on metrics that matter and help them to drive change in their businesses.

Many small business owners want the kind of expert advice and insight only an accounting professional can provide. And they’re willing to pay for it. Knowing how their business is performing compared to industry benchmarks, and how they can make operational improvements, is priceless.

And remember, the best business consultants have also mastered the softer skills. They’re excellent communicators, they build trust by providing direction, and they’re master problem-solvers.

Steve Jobs encouraged business owners to hire people who are smarter than them, and who can drive the business forward through diverse thinking and approaches. That’s what your customers are looking for. Someone smarter than them, who can analyse their problems, structure a plan with clear goals, and guide them in achieving them.

Author: PJ Bishop




No matter the business environment and the amount of available cash coming off this weaker base, businesses should always be thinking about their cash strategy and how they can use this to get better returns. After all, there is no market risk with cash. Capital is guaranteed and that is exactly what businesses need right now – guarantees.

Businesses are finding themselves in a rapidly evolving market – one that is currently difficult to plan for in the long term. After all, many found themselves facing an unprecedented reduction in revenue with small, medium and even large businesses finding themselves with insufficient cash reserves to replace the cash flow lost. Of course, we know that, typically, cash falls into one of three categories: operational, savings and emergency cash, and while many businesses plan for unforeseen emergencies, no one could have planned for a pandemic. As a result, many businesses have not only eaten away at their operational and emergency cash but, critically, their savings have been used during lockdown.

Running a business is a challenging task, and even more so when the economy is in a recession and reeling from lockdown. And while having a plan, understanding what the key drivers for the business are and how to make them work have always been important for businesses, in a recession it is non-negotiable. If we consider the credit downgrade to non-investment grade and the current cost of borrowing, there is an unavoidable impact on businesses – and their customers – and as such, the following needs to be considered:

Opportunity for growth is there, but the territory is difficult.

Customers are further tightening their belts – so differentiation and service become more critical.

More prudent business decisions need to be made – there is no room for error.

Very importantly, it becomes crucial to start looking at your business differently, at how you view debt, and critically, at how best to maximise available cash. If your cash or investments are not working for the business, it is a wasted opportunity and in this market, opportunity is everything!

We know that ‘cash is king’, but understanding where to put it can be a difficult exercise.

Specifically, as a business owner, you need to understand where the cash in your business is going, what you need to save for, and how long you can put some cash aside for. The better you know your business, its ebbs and flows, the better you will be able to make these decisions. Ideally, businesses should channel any extra cash into investments offering new growth opportunities. However, in difficult economic times where you are having to work extra hard just to maintain market share and margins, or where growth opportunities are hard to come by, this is not always a viable option.

So how do you build business savings for future growth when cash is not flowing? How do you ensure accessibility without sacrificing earnings and a decent return and how do you mitigate risk with any cash investment now – given security and guarantees are hard to come by in such a volatile market?

First, take the time to understand the business’s cash realities and what this cash strategy could look like. This will go a long way in making the cash work harder for the business. Second, look for a cash investment product that can help you get the best possible return on your cash − but more importantly, understand how to structure this investment to ensure you are able to not only get the best possible return but also the flexibility. Of course, the rate you choose for a cash investment product will depend heavily on your business’s unique cash flow requirements.

It is also important to note that there are different products out there that perform differently in different rate cycles, so you should shop around. In a decreasing-rate environment, it may also be prudent to look into a money market-linked account such as MoneyFund Tracker for your business – which does all the hard work for you. It tracks the daily rates of an entire basket of qualifying money market funds and gives a great money market-related interest rate that approximates the average of the top qualifying money market funds without the volatility of being exposed to one single money fund.

Very importantly, look for a cash solution that is as unique as your business. A big lesson learnt through this crisis is that many companies realised that they had insufficient business savings to carry them through a cash flow crunch like we have just experienced and that in order to survive, fundamentals need to be put into place − not only to thrive but when times are tough, to survive.

And as the dust settles, the focus needs to turn to building resilience: not only to get through and rebuild after the crisis, but also to buffer against the next one. Businesses face widespread disruption and to ensure business continuity, cash is a critical component that needs to be examined.

Even in difficult economies, companies are growing and diversifying. Many companies grow significantly during difficult financial times because they have set aside the resources to not only survive but to expand when others waver.

The views expressed are those of the contributor at the time of publication and do not represent the views of Investec. These views do not constitute a recommendation or advice and should not be treated as such.

AUTHOR | Sean Jackson, Head of Business Cash Solutions at Investec




Working from home has resulted in an increase in the use of digital platforms and is now an integral part of our day-to-day lives which we refer to as the ‘new normal’. Commonly used platforms are Zoom, Microsoft and Google. Users are focused on getting the job done and seldom focus on cybersecurity while engaging on these platforms.

Hackers are lurking in the increasing popularity of these platforms and are taking advantage of the vulnerable untrained user. The good news is that these platforms contain several security features that help combat cybersecurity threats, but the bad news is that end-users are not trained in understanding these settings. Cybercriminals continue to use the COVID-19 pandemic to their advantage and working in a secure environment is of utmost importance.

The most common threats

  • The most common threats identified to date are:
  • Bombing meetings: This attack involves uninvited guests joining the meeting to just listen to the conversation or, in some instances, share inappropriate media or information.
  • Stolen meeting links: Generally using the same meeting link poses a high risk: attackers may gain access to these links and misuse them to their advantage.
  • Malicious links in ‘chat’: Malware is considered a major IT risk. Once attackers gain access to a meeting, these links are shared using the ‘chat’ function allowing hackers to obtain unauthorised information through these malicious links.

Measures to take

  • Various measures can be implemented to mitigate and manage this, thus ensuring a safer environment:
  • Use corporate-specific software: Video conferencing tools available to consumers and corporates do not have security features that could protect an organisation from cybersecurity threats.
  • Make use of the waiting room: This feature allows attendees to wait in a separate virtual room and only the host may let in the attendee based on some level of verification.
  • Ensure that passwords are used for all meetings: Make use of passwords as an added security measure. Create new, powerful passwords containing a combination of letters, numbers, characters, etc.
  • Do not share links: Links to the meeting should only be used by participants as received and not shared using other channels. As an added security measure ‘notifications’ can be turned on to inform the host when someone has joined a meeting.
  • Participants should not be allowed to share screens by default: The host of a meeting should have full control over screen-sharing and allow the relevant participant to share a screen only when required to do so.
  • Prevent recordings of the meeting: Block attendees other than the host from recording the meeting.

We may not be able to manage cybersecurity completely, but we can surely do our bit.

AUTHOR | Pranisha Rama CA(SA), Auditing Lecturer, University of Johannesburg