Volume 19 Issue 7 – August 2020 

COMMENT AND OUTLOOK – A New Dawn Fades South Africa has once again been confronted with the stark reality that at all levels of government and within the ruling ANC, corruption is entrenched and thriving. Since President Ramaphosa took office, there has been much talk about rooting out corruption and bringing to justice those responsible for plundering the state finances. To date there is no evidence of any significant progress being made in that undertaking. Achieving that was such a key part of the New Dawn that was promised to the nation by President Ramaphosa. Just recently there have been very disturbing revelations about tender corruption involving very senior and members of government
and their connected affiliates within the ANC. The worst part about this is that these incidents of tender corruption involve the supply of medical equipment for the country’s fight against the

Covid-19. It just demonstrates that amongst many of the well- connected in government and the ANC party, serving the country is secondary to helping themselves to state funds wherever the opportunity arises. The fact that two senior members of the ANC who were implicated in the VBS bank looting, were reinstated into their positions in Limpopo province, sends a clear message that to the ANC, graft and
corruption are acceptable to it as a party. An ANC giant, Andrew Mlangeni, died recently. He was the last survivor of those convicted at the Rivonia treason trial in 1963. He was a relatively low-profile person but in the last few years had become quite outspoken in his views on the path the ANC was taking and which he felt was the wrong one. We must hope that there are enough good people left in the ANC who share his
views and do something about it. It does not look promising right now though. The Covid-19 pandemic appears to be reaching a peak in South Africa and despite the re-opening of large parts of the economy,
the economic impact of the virus and lockdowns have had a significant impact on the country’s finances. The management of the crisis by the government has become disjointed and at times shambolic. In the second week of July the ban on alcohol sales was reintroduced as a measure to alleviate the pressure that
was being experienced by hospitals because of alcohol related trauma incidents. While the need to have as many hospital beds as possible for Covid patients is understandable, the cost of the decision is enormous. The liquor industry is a huge employer and significant contributor to the state’s revenue through taxes
and duties. It is also a significant part of restaurants income which again is a big employer. What the government should have done was to find ways to curb the sale or consumption of alcohol by the significant minority who caused the problem. Instead they chose to punish the liquor and hospitality industry and all its employees as well as ordinary citizens. The result is that AB-InBev and Heineken have both shelved plans for significant investment in new brewing facilities in South Africa.

This means that several billion Rand of much needed direct investment and potential job creation is now possibly lost because of yet another irrational decision. The legal fight about the tobacco ban continues but the illicit cigarette industry is thriving, and the state is losing revenue. Smokers still smoke so what is the point of the ban, and the same can be said for alcohol. It is going to take the country a long time to recover
from what has happened and a start will be to stop precious resources from being stolen by those people who see no wrong in doing so. The Alliance partners of the ANC are unhappy with the state of the party and many parts of society are as well. If they do not change their course, their time as a government will
run out.

South Africa received a USD 4.6 billion IMF loan specifically for Covid related relief. To get that loan, certain undertakings were made by the Reserve Bank and the National Treasury. One of these was that a debt ceiling would be imposed. This implies that state spending must be cut. This is going to be real test of
who is actually in charge of the country and whether there is an understanding that the only way for the country to recover from the disastrous Zuma era and the effects of the pandemic, will be to create an environment in which the economy can grow for the benefit of all in the country. In other parts of the world the resurgence of the pandemic continues, and the economic damage caused by the shutting down of economies is very evident. There is some improvement in some of the major economies, but it is going to take longer than anticipated for a full recovery. USA GDP fell by 33% in the second quarter which is the worst ever drop on record. Major declines were also seen in the UK, Germany, and France. A major contributor to economic activity in a number of these countries has been the government assistance programmes to workers through payroll relief and other stimulus measures. This has provided relief to consumers without which the social and economic impact of the pandemic would have been much worse. A problem with these measures is that governments have taken on more debt to fund these relief and stimulus packages. This will have to be accounted for at some stage. Inflation may be a factor in the future and maybe that is what the rising gold price is suggesting. Markets are buoyant and do not reflect the economic reality. The sell off from the February highs was brutal and the recovery has been swift. This must be watched.

Twinoaks Investment Management (Pty) Ltd (Twinoaks) is an FSB approved Discretionary Financial Service Provider – No 849. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Twinoaks has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. For any further information concerning this publication, please contact Twinoaks