South Africa’s central bank says rising fuel and electricity prices posed a domestic risk to the inflation outlook and impact on its 2019 growth.
The apex bank governor, Lesetja Kganyago, gave the remarks on Wednesday after the latest fourth-quarter data showed an annualised growth of 0.8 per cent.
Besides, Kganyago said the impact of the volatile Rand currency and tightening global financial conditions were also being monitored for possible inflationary impacts.
The governor, however, maintained that he expected the economy to grow by 1.7 per cent this year and two per cent in 2020.
The South African government is forecast to be hit by a tax revenue shortfall of almost R43 billion for the tax year ending next month, Finance Minister Tito Mboweni indicated in his budget speech on Wednesday.
There were pronounced risks to the local economic outlook with the main risk of concern being power utility Eskom and its financial woes, the 2019 budget review report indicated.
The report indicated that government tax revenue for the 2019 fiscal year would come in at R43 billion under the target set at the 2018 budget speech.
“There are pronounced risks to the economic outlook. The main risk of concern is Eskom. Failure to fully implement the reconfiguration of Eskom could lead to a negative market reaction that would prompt capital outlflows, with greater pressure on the rand. It would also perpetuate weak investor confidence and reduce economic growth,” the report said.
In the worst case scenario, National Treasury is forecasting negative 1% growth this year while its best-case scenario is just over 2% growth.
Mboweni cut the National Treasury’s forecast for economic growth for this year from 1.7% to 1.5% due to “fragile recovery in employment and investment, and a less supportive global trade environment”.
By 2021, the National Treasury’s best-case scenario is growth of 3% and its worst-case scenario is 1%.
“The economic and revenue outlook has deteriorated since the October 2018 medium-term budgetary policy statement and funding pressures from state-owned companies have increased,” the medium-term budgetary policy statement said.
“Several other state-owned companies are also in financial distress and have requested government support. As a result, the contingency reserve has been revised up by R6 billion in 2019/20 and any funding provided will be offset by the sale of non-core assets. Additional reforms to strengthen the governance, finances and operations of state-owned companies will be announced in the months ahead,” the 2019 budget review report said.
State companies that are looking for bailouts include the South African Broadcasting Corporation (SABC) and Denel.
“Several state-owned companies face negative cash flows and are financing operations from debt, which has become increasingly difficult to raise. This moves them perilously close to default unless they receive some form of recapitalisation.”
In another worrying sign, debt owed to municipalities is increasing. At the end of March, debt owed to municipalities is forecast to climb to almost R159 billion from almost R99 billion at the end of March 2015.
Of debts owed by municipalities that are more than 90 days in arrears, Eskom is the major creditor – it is owed R12.8 billion – followed by water boards with R6.4 billion.
“From July 2018 to June 2019 municipal financial year, 113 municipal councils adopted unfunded budgets, up from 83 the prior year.”
The government is expecting to issue $2 billion (about R28 billion) in debt by the end of the 2019 fiscal year.
Over the next three years, the government will raise an additional $8 billion (about R114 billion) in global capital markets.
“This year’s budget underlines the National Treasury’s continued commitment to these requirements in a difficult environment in which economic growth remains weak, public debt and debt-service costs have accelerated and governance and operational concerns are manifest across the public sector,” the review report said.
“Weak economic performance and residual problems in tax administration have resulted in large revenue shortfalls,” the report said.
“The deteriorating financial position of state-owned companies has put additional pressure on the public finances,” the report added.
“The government’s efforts to reform state-owned companies and the launch of the infrastructure fund are expected to increase growth and investment in the year ahead,” the 2019 budget review report said.
For the 2020 fiscal year, consolidated government expenditure is forecast to R1.83 trillion.
A former senior executive of the scandal-ridden VBS Mutual Bank has revealed that a branch manager was ordered to make a R3 million payment to fund the national congress held by the SA Communist Party (SACP) last year, allegedly in exchange for the party’s silence on the bank’s relationship with the controversial Gupta family.
City Press can reveal that Vele Investments, which is the majority shareholder of the soon to be defunct bank, used one of its subsidiary companies to pay the SACP’s R3 million bill for the use of facilities at the Birchwood Hotel & OR Tambo Conference Centre in Boksburg, Ekurhuleni.
The senior executive, who was at the centre of the bank’s activities and has requested anonymity, has told City Press how Vele Investments – VBS’s parent company – conspired to use a subsidiary company account to conceal the link to the SACP payment.
The senior executive’s revelations are the first to draw the SACP national office into the VBS saga after it fiercely denied any links to the bank.
The ANC has already admitted that it received R2 million from VBS, and has undertaken to pay the money back.
The senior executive alleged this week that a senior SACP official demanded a R3 million payment from former VBS chairperson Tshifhiwa Matodzi to stop making “noise” about VBS’s relationship with the Gupta family.
In January last year, almost a year after the country’s four major banks closed the accounts associated with the Guptas, VBS announced that it was following suit after discussions among the bank’s bosses.
Months later, the SACP learnt that VBS had allowed Gupta entities to open new business accounts.
The senior executive detailed how Matodzi ordered the branch manager to make a R3 million payment a day before the start of the SACP’s national congress.
“On July 6 2017, he [the branch manager] got a WhatsApp message from Matodzi saying that he must make a payment of R3 million for the SACP national congress.
"Matodzi told him that he was getting pressure from SACP leaders to have that payment done because the SACP congress was starting the following day.
“He was instructed to move R4 million from Vele Investments’ bank account to MML Food Services’ bank account.
"From there, R3 million was directly transferred into the Birchwood Hotel & OR Tambo Conference Centre’s bank account with the reference of the SACP. This was done to ensure that it cannot be traced.”
MML Food Services is a subsidiary of Vele Investments, which was a majority shareholder in VBS. Matodzi, who was the chairperson of both VBS and Vele, is the central character in the VBS scandal.
Matodzi and his associates have been positively identified as the main beneficiaries of the massive fraud at VBS.
In the explosive forensic report released by the SA Reserve Bank last month, which was authored by Advocate Terry Motau, MML Food Services is mentioned as one the companies that received a R19 million deposit and a R17.5 million facility from sister company VBS.
Matodzi declined to comment yesterday, saying: “I have no comment on anything that has to do with VBS.”
The chief executive officer of MML Food Services, Ronald Letsoalo, and Birchwood Hotel & OR Tambo Conference Centre director Jazzman Mahlakgane ignored repeated requests for comment.
The senior executive also revealed that the system had to be programmed to allow the R3 million to go off and be available in the next bank immediately.
“We had to make the payment with RTC [real time clearance]. The intention was to silence SACP leaders from exposing Gupta accounts with VBS,” the senior executive told City Press.
According to the senior executive, a branch manager has the authority to make a payment of up to R1 million.
Any amount above that has to be authorised by the senior executives at the corporate office level.
Another insider within VBS said it appeared that the SACP leaders and VBS executives reached an agreement that R3 million would be paid to cover the costs of the SACP’s national congress.
“It means that there was a prior arrangement. Delegates at the SACP congress enjoyed water and food paid for by VBS,” the insider said.
The senior executive said all the transactions done by the branch manager were ordered by Matodzi.
“He would say to the branch manager via WhatsApp or telegram [a secure communications mechanism]: ‘Pay this much to this account.’ All the things the branch manager had paid for were because he got an instruction from Matodzi.”
The senior executive said the branch manager told investigators about the payment that was made on behalf of the SACP.
“They interviewed him. He told them about the payment he was ordered to make on behalf of the SACP. They omitted to mention that SACP benefited from VBS in the report.”
However, SACP national spokesperson Alex Mashilo denied that the party received money from VBS or Vele Investments.
When asked yesterday about the sponsors of the SACP’s national congress last year, Mashilo said: “It comes across as a generally fishing question to ask who has ever made a donation to the SACP.
“At its special national congress held in July 2015, the SACP published a financial report for the period dating back to its 13th national congress held in July 2012.
"The report published a number of details, including an assessment of SACP membership fees and levies. It also identified a number of donors, of whom the core are trade unions.
"The next financial report, which was made available at the 14th national congress of the party in July 2017, categorised the sources of income received with due regard to the rights of all parties.”
Mashilo said that the party’s record spoke for itself.
“It is utterly unfair to make a sweeping allegation against SACP leaders. The SACP has many leaders. The allegation is obviously senseless
and dismissed with contempt.
"The SACP is on record [as saying] that, should any incontrovertible evidence of corruption involving the complicity of its members emerge in any scenario, the party will take decisive against that member,” he said.
This week, the SACP in Limpopo suspended its provincial secretary and former Capricorn District Municipality mayor Gilbert Kganyago, whose council illegally deposited R60 million into VBS when he was in charge.
Mashilo said the party had been consistently vocal against the Guptas.
“It is common knowledge that the SACP has been consistently vocal and mobilising against the Guptas’ capture of state authorities in particular and capture of the state in general. The party will not stop, but deepen this just struggle,” Mashilo said.
Matodzi, along with his co-directors and his friend Robert Madzonga, stands accused of facilitating the looting of nearly R2 billion at VBS.
ANC leaders, notably ANC Limpopo deputy chairperson and Vhembe District Municipality mayor Florence Radzilani and treasurer Danny Msiza were also implicated in the Motau report into the VBS scandal.
Radzilani is mentioned in the Motau report as having complained that she “only” received R300 000 for ensuring that millions deposited by the Vhembe District Municipality into VBS were not withdrawn.
Radzilani wrote to ANC secretary-general Ace Magashule last week to deny any involvement in the VBS investment.
Msiza is challenging the report in court.