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Pravin Gordhan

Gordhan cracks the whip at Eskom: ‘We have to serve SA better’

Public enterprises minister Pravin Gordhan on Thursday announced immediate plans to put an end to the load shedding that has been a daily occurrence countrywide since 29 November. Original Link

Bloated Eskom facing looming ‘death spiral’

Bloated by debt, bled by corruption and battered by structurally declining sales, Eskom is facing what’s known in the industry as a “death spiral”. Original Link

Eskom is broke, and you’re going to pay the price

Eskom is locked into a permanent loss situation and revenue is structurally limited. Expenses have ballooned due to inefficiencies, and electricity tariffs are not cost-reflective. Original Link

Gordhan directly implicates Zuma in looting spree

Former finance minister Pravin Gordhan has directly implicated Jacob Zuma in being part of an orchestrated campaign to loot billions of rand in taxpayer funds during his almost nine-year tenure as president. Original Link

Looters must be punished: Gordhan

South Africa’s recovery from corruption at its state-owned companies requires thorough reform and punishing those responsible, according to public enterprises minister Pravin Gordhan. Original Link

Kingpins who looted SA may get off the hook

Scepticism is mounting that the alleged masterminds of South Africa’s biggest-ever embezzlement of state funds will ever be held to account. Original Link

Eskom poses systemic risk to the SA economy

The author, Ian Matthews, says Eskom depends on government to service its massive debt load

Eskom published a JSE stock exchange announcement earlier this week warning its bondholders that there may be more bad news relating to irregularities when it releases its financial results for the year ended 31 March, likely to be released later this month. Eskom said disclosure on the quantum of the uncovered reportable irregularities and irregular expenditure would be published with the release of the company’s annual financial statements.

The company came dangerously close to having its bonds suspended by the JSE and to defaulting on debt and other obligations when the release of its interim financial statements for the six months to the end of September 2017 was delayed in January this year. After Eskom secured commitments of support from certain banks, its auditors issued an unqualified review but with an “emphasis of matter” on its ability to continue as a going concern for the next year to 18 months. Eskom’s liquid assets dwindled to R9-billion at the end of September from R30-billion the year before as a result of flat revenue caused by falling sales and lower-than-anticipated tariff increases.

The new chairman of Eskom, Jabu Mabuza, recognised at the time that the overriding problem at Eskom — apart from governance — was the company’s R360-billion debt burden. At the end of September 2017, its gearing ratio (debt to equity) had risen to 72%. Mabuza said that Eskom’s debt levels were simply “unsustainable”.

The latest announcement by Eskom raises serious concerns. Eskom spokesman Khulu Phasiwe explained that as part of the JSE debt listing requirements, Eskom had to inform bondholders about the looming disclosure of irregularities because its bonds were listed on the bourse. Is there more bad news coming? Eskom’s auditors qualified its results for the year ended 31 March 2017 because they could not express an opinion on the completeness of the irregular expenditure reported. Its auditors, SizweNtsalubaGobodo, also said that they had identified reportable irregularities in Eskom’s financial results for the six months ended 30 September 2017.

The Eskom announcement was made against the background of finance minister Nhlanhla Nene daring Eskom unions to table proposals on how the fiscus can foot the bill for wage increases when they meet with him. This was after the National Union of Mineworkers, Solidarity and the National Union of Metalworkers of South Africa had sought intervention from Nene and public enterprises minister Pravin Gordhan after they failed to reach an agreement on wage increase with Eskom earlier this week.

No money

Three weeks ago, Nene commented during an investor road show in the UK that there was no money to bail out Eskom to help the entity with the salary hikes. Speaking during the World Economic Forum roundtable, Nene said Eskom posed a serious challenge to attracting investment in South Africa. Former finance minister Gordhan warned earlier this year that major international investors refused to buy bonds from Eskom because of bad governance and rampant corruption. Goldman Sachs said in September 2017 that Eskom is the biggest single risk to South Africa’s economy.

Eskom depends on government support to service its R368-billion of debt. Eskom needs R72-billion of funding until the end of 2019, including the refinancing of a R20-billion loan obtained with a government guarantee, according to a March report published by Moody’s Investor Services. An Eskom default on its debt would be catastrophic for the South African economy as it would trigger cross defaults of all government debt.

Developments in the next few weeks will be keenly watched by international and South African investors alike.

  • Ian Matthews is head of business development at Bravura, an investment banking firm specialising in corporate finance and structured solutions services

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Eskom, unions in talk talks to end load shedding

Pravin Gordhan. Image c/o GCIS

Eskom and its labour unions have agreed to hold new negotiations over pay, the government said, ending protests at power plants that have caused disruptions to power supply.

Public enterprises minister Pravin Gordhan called a meeting Friday with Eskom, the National Union of Mineworkers, the National Union of Metalworkers of South Africa and the Solidarity union “to normalise relationships and normalize operations” at the utility, he said in a statement. It was agreed at the talks that Eskom’s proposed zero-percent wage increase is “off the table”, Gordhan said.

The government intervention wasn’t enough to spare South Africans from power cuts on Saturday night. Stage-two load shedding started at 5pm and may last until 9 pm, Eskom said in a statement. The utility had said earlier that the power system would be “severely constrained” amid cold winter weather. There are four levels of cuts, with the second stage indicating a shortage of as much as 2 000MW.

Eskom, which generates almost all of the nation’s electricity, has been locked in a dispute with workers after wage talks broke down last week over the state-owned utility’s insistence that it can’t afford pay increases. The company began cutting power to some areas on Thursday night for the first time since 2015, as demonstrators blockaded roads and attacked staff.

The protests by employees came at a tough time for Eskom and the South African economy more broadly. While demand for electricity increases over the winter, Eskom has also battled coal shortages, allegations of corruption and mismanagement, and struggled to raise the funding it needed earlier this year. A prolonged repeat of outages from three years ago would undermine signs of recovery in the economy.

The utility got a court order declaring the protests unlawful and prohibiting the intimidation of other workers and contractors. Employees were also barred from hijacking coal trucks and sabotaging Eskom’s electricity infrastructure.  — Reported by John Viljoen, (c) 2018 Bloomberg LP

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Eskom to tackle bloated workforce

Eskom chairman Jabu Mabuza

After a decade of unprecedented growth in staff numbers, cash-strapped power utility Eskom is finally tackling the controversial issue of its headcount.

State-owned Eskom, seen by Goldman Sachs Group as the biggest single risk to the South African economy, employed about 47 600 people as of March last year, compared to 32 600 a decade ago.

A bloated workforce means high costs for a company struggling with cash flow. But it’s stuck in a three-way tug of war between labour, which rejects job cuts, the ANC, which wants to boost the economy, and funders, who are leery of financing Eskom because of the way it’s been managed.

“We are currently rolling out a plan to manage our employee numbers to optimal levels,” Eskom said in an e-mailed response to questions, without detailing what that level might be. “We have implemented numerous levers to manage employee costs ranging from not replacing all attrition, efficiently managing variable employee costs, to re-prioritising training and development.”

Eskom’s financial woes are linked to allegations of corruption, weak demand, the rejection of many of its proposals for tariff increases and delinquent municipalities not paying their bills. Big staff costs have made an already bad situation worse.

A World Bank study in 2016 found that South African utilities pay workers more than double the norm in 35 other countries on the continent, with staff costs coming in at an average US$61 000 per employee per year. Eskom is potentially overstaffed by 66%, the report said.

“We have noted the World Bank study,” Eskom said. “The issue of Eskom staffing requirements versus the status quo has solicited views from a number of stakeholders.”

Staff costs also increased faster than consumer price inflation, which rose 84% over the 10-year period, while Eskom’s power capacity was 0.72MVA/employee, according to data in its latest annual report. That compared to 30.98MVA for every staff member at Power Grid Corp of India, that country’s largest transmission utility.

‘Very tough decisions’

“The new Eskom board and management are going to have to make some very tough decisions to slash employment costs,” Anton Eberhard, professor at the University of Cape Town’s Graduate School of Business, said in an e-mailed response to questions.

Since President Cyril Ramaphosa took over the leadership of the ANC and the country from his scandal-ridden predecessor Jacob Zuma, he’s overseen sweeping changes to the Eskom board. Jabu Mabuza, an outspoken Zuma critic, was named chairman in January. Newly appointed public enterprises minister Pravin Gordhan, whose remit includes supervising Eskom, said a permanent CEO should be appointed by April.

Eskom may default on debt if it can’t persuade investors to hand over an extra R72bn. It owes more than R12.2bn this year, according to data compiled by Bloomberg, with that figure rising to almost R44bn by 2021. To avoid insolvency, Eskom took a R5bn bridging loan and signed a R20bn short-term credit facility in February.

Management will have to scrap between 13 000 and 15 000 jobs, said Wayne Duvenage, CEO of the non-profit Organisation Undoing Tax Abuse, which has studied Eskom’s staffing, costs and asset valuations. “If Eskom gets its headcount right and removes the unnecessary higher-paid positions, it should be able to cut its annual salary bill by R10bn.”

Eskom will need all the money it can save after Moody’s Investors Service downgraded its credit rating again on 28 March, citing a lack of clarity regarding the power utility’s plans to stabilise its finances. Eskom’s acting CEO Phakamani Hadebe said the board was disappointed, but working hard to stabilise the company’s credit profile and improve its ratings.

With South Africa’s unemployment rate at 26.7%, unions are opposed to dismissals at the state utility. Corruption at the senior management level needs to be tackled first, according to Phakamile Hlubi, a spokeswoman for the National Union of Metalworkers of South Africa.

Mabuza said last month that Eskom’s debt-to-equity ratios were unacceptable at more than 70% compared to the benchmark of around 50%. Non-core assets, including a housing company, may need to be disposed of, he said.

“Some would say that Eskom has passed the point of no return,” Duvenage said. However, “it’s extremely important to our economy and the tax-payer that Eskom remains solvent. There is no doubt that Eskom needs to develop a different business model.”  — Reported by Renee Bonorchis, Paul Burkhardt and Loni Prinsloo, (c) 2018 Bloomberg LP

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Gordhan plans sweeping changes at SOEs

Pravin Gordhan. Image c/o GCIS

Extensive changes are in the offing at South Africa’s troubled state-owned companies as new public enterprises minister Pravin Gordhan moves to tackle their many management and financial failings.

Power utility Eskom and several other state entities have been caught up in graft and management scandals over recent years and repeatedly called on the state to bail them out as their debt ballooned to unsustainable levels.

Former union boss and businessman Cyril Ramaphosa, who succeeded Jacob Zuma as president last month, appointed Gordhan, a two-time finance minister, as his point man to sort out the mess at six of the biggest companies.

“Virtually every entity that we are supervising, or are responsible for, is going to have changes as far as the board is concerned,” Gordhan said in an interview. “If you take out some of the negativity and some of the negative people, immediately your operations at that entity change. Your revenue changes, therefore your financial situation begins to actually improve. And then your financial credibility changes as well, so your ability to borrow changes.”

Gordhan, less than a month into his new role, has zeroed in on some of the most pressing issues facing not just the companies, but South Africa’s economy as well. Eskom, desperate to attract funding, will have new top executives by mid-April, while a sustainable solution is being sought to the financial predicament of the debt-ridden South African National Roads Agency that doesn’t burden the state, he said.

“Every day, as we do the right things, and there’ll be more of that coming in the next three to four weeks, that will signal our intent,” Gordhan said. “I think we’re on the edge of a transition.” If successful, then when state-owned companies’ debt matures, it could be refinanced, repaid or rolled over, he said.

‘Fairly positive’

One factor that could help boost investor sentiment toward state companies is if Moody’s Investors Service refrains from downgrading the nation’s rand-denominated debt to junk on Friday, according to Gordhan. Moody’s analysts were “fairly positive” about the political changes in South Africa and had met with the president — something they’d never been able to do while Zuma was in office, he said.

While the government has begun discussing with financial institutions how they can assist the state companies, no tenders have gone out thus far. Banks have previously bid for a range of contracts, including the refinancing and restructuring of debt, stake sales, advisory services, syndicated loans and the listing of bonds.

The government wants to bring the state companies’ financial commitments “into some coherent form”, Gordhan said, without giving more detail. “Right now, they’re all fragmented, so you’ve got to move from fire fighting to more strategic understanding,” he said.

An overhaul of the management of state companies and a move toward making them financially sustainable would further bolster business confidence, which has surged to its highest level in more than three years as a result of Zuma’s exit and Ramaphosa’s rise to power.

“The bottom line is a new platform has been created,” Gordhan said. “There’s a palpable change in the atmosphere in the country and about the country as well. You build on the hope, on the optimism.”  — Reported by Sam Mkokeli and Renee Bonorchis, with assistance from Antony Sguazzin and Gordon Bell, (c) 2018 Bloomberg LP

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Commission must probe Zupta broadcasting deals

Much dust has been kicked up over MultiChoice’s channel agreements with the SABC and the Guptas’ ANN7 television news channel. The claim is that these parties colluded in a form of state capture and corruption to their mutual benefit.

The payoff for MultiChoice was that government’s digital migration policy on encryption was fixed around their position, while the SABC and ANN7 had their 24-hour news channels funded and carried on MultiChoice’s DStv platform.

However, this explanation doesn’t add up to the whole story. Let’s assume that former President Jacob Zuma, a consummate strategist, wanted to control all electronic broadcast news in South Africa.

In 2013, Hlaudi Motsoeneng, then the acting chief operating officer at the SABC, pronounced that SABC’s news broadcasts must have at least 70% good news stories. At the same time, talk show anchor Mzwanele Manyi promoted so-called “sunshine” news on ANN7.

Zuma’s allies at the SABC — Ben Ngubane and Motsoeneng — facilitated access to the SABC for The New Age breakfasts, hosted by the Gupta family, which promoted the views of cabinet ministers. These business breakfasts were bankrolled — to the tune of millions of rand — by, among others, state-owned companies Transnet, Telkom and Eskom.

Uneasy about e.tv’s 24-hour news channel, Ngubane and Motsoeneng began negotiations with national treasury to get funding for the SABC news channel. Former finance minister Pravin Gordhan turned them down, saying a 24-hour news channel was a “vanity project”.

Perhaps persuaded by the Guptas’ ANN7 collaboration with MultiChoice, Ngubane and Motsoeneng initiated their own discussions with the pay-TV operator. The first round of SABC/MultiChoice negotiations failed. Then, recognising an opportunity for a quid pro quo around encryption, MultiChoice closed the deal in July 2013 and received the kudos for hosting and financing not only ANN7 but also the SABC’s 24-hour news channel.

Yunus Carrim

While all this was on the go, then communications minister Yunus Carrim had other ideas about encryption and tabled a new draft amendment to the digital migration policy at cabinet in December 2013, proposing that broadcasters could make use of encryption in set-top boxes if they so wished, adding the proviso that should they at some stage develop a pay-TV service using these boxes, they would have to compensate the state for the cost of encryption.

Encryption matters because it will enable free-to-air broadcasters like the SABC and e.tv to access premium television content currently monopolised by MultiChoice. Without encryption, MultiChoice’s monopoly over premium content would be indefinitely protected and the viewers of the SABC and e.tv would become second-class citizens in their viewing options.

So, MultiChoice formed an alliance with the set-top box manufacturers’ association Namec and the Association of Community Television to attack the minister publicly with full-page advertisements in Sunday newspapers. The former president then removed Carrim as minister after the 2014 general election. He split the department of communications in two, appointing Faith Muthambi as political head of the SABC.

Former communications minister Faith Muthambi

Muthambi ensured that Motsoeneng was appointed permanent SABC chief operating officer and challenged the allegations by the public protector, then Thuli Madonsela, about his role in “capturing” the public broadcaster. She also defied the ANC communications subcommittee on the encryption issue.

In March 2015, Muthambi passed a policy amendment removing encryption. She defended the amendment in a court challenge by e.tv and finally, in 2017, won the case at the constitutional court. This was the quid pro quo for MultiChoice.

Along the way, pressure was allegedly exerted on Hosken Consolidated Investments CEO Johnny Copelyn to fire Marcel Golding as CEO of e.tv. Challenging his dismissal in the labour court, Golding revealed that minister of economic development Ebrahim Patel pressured him into giving favourable news coverage of Jacob Zuma on e.tv.

In his affidavit, Golding stated: “Editorial independence is part and parcel of the constitutional right of the media to freedom of expression as protected by section 16 of the constitution… In opposing the attempts to manipulate news content, I have been acting to protect the right of editorial staff to run an independent news service.”

When Jackson Mthembu became ANC chief whip in parliament, the composition of the parliamentary committee on communications changed and a successful inquiry into the SABC resulted in the appointment of a new board, which was not directly in the former president’s pocket, although he did manage to appoint the chairperson of a foundation headed up by one of his wives as chair of the board.

Before the local government elections in 2016, Motsoeneng unilaterally declared that the SABC would not show any footage of the destruction of property during public protests. Communications regulator Icasa rejected this news censorship and the interim board reinstated the initial SABC editorial policy for news, and launched a consultative process on editorial policy.

Motsoeneng was dismissed.

E.tv challenged Muthambi on her encryption amendment and a picture emerged of the president’s systematic undermining of the constitution’s prohibition on political interference in electronic news broadcasting, aided and abetted by his allies.

Corruption

The “Hilary Squires” concept of corruption as a form of “mutually beneficial symbiosis” can be applied to the control/encryption/governance/news matrix.

Section 3 of the Prevention and Combating of Corrupt Activities Act prohibits any person from offering or receiving any financial benefit for a corrupt purpose. A person would be acting with a corrupt purpose if that person were expected to act in an “illegal, dishonest, unauthorised, incomplete or biased” manner which would amount to “the abuse of a position of authority; a breach of trust; the violation of a legal duty or a set of rules; designed to achieve an unjustified result; or that amounts to any other unauthorised or improper inducement to do or not to do anything.”

In the State v Shaik, Squires found that a corrupt act could exist even if there was no formal agreement between the parties, if it could be shown that there was a mutually beneficial symbiosis between the parties to the corrupt act.

In the collusion between the SABC, MultiChoice, ANN7 and the minister of communications (acting as a proxy for the president), we can see that such a mutually beneficial symbiosis existed and that a prima facie case exists of a series of corrupt acts designed to gift the president control over broadcast news in exchange for a change of government policy on the encryption of set-top boxes that favoured MultiChoice.

What are the implications of this capture of electronic broadcast news by the Zuptas, aided and abetted by MultiChoice?

Substantial deliberations on the constitution during and after the 1994 election went into setting up an independent authority for the purpose of regulating broadcasting “in the public interest, and to ensure fairness and a diversity of views broadly representing South African society” (section 92 of the constitution).

In addition, the negotiators at the World Trade Centre established an Independent Media Commission to monitor the use of government information resources and ensure fair news coverage during the 1994 election. The notion of fairness counters the use of propaganda by placing an onus on a broadcaster to present a fair diversity of views.

The Zupta attempt to capture all electronic broadcast news undermines these constitutional principles.

Access to information that is fair, reliable and without propagandist intent is integral to South African citizens being able to exercise their rights in a constitutional democracy. When this right to know is interfered with by a powerful and unscrupulous state and commercial forces, our democracy is degraded.

This is a matter that the State Capture Commission must investigate.

If the State Capture Commission finds there was in fact a conspiracy — between the SABC, ANN7 and MultiChoice — in violation of our constitution, this will bring to light the fact that the protections for the fairness and diversity of broadcast news in the constitution can be undermined by ruthless actors, inside and outside the state.

Propaganda

One way of addressing this problem may be for Icasa to tighten its criteria for free, fair and diverse broadcast news in its licensing processes. It is too easy to set up a propaganda news channel on MultiChoice’s DStv platform.

Another may be to change the way senior leadership appointments are made at the SABC by removing the appointment of the SABC board from the legislative branch and the appointment of senior SABC executives from the executive branch of government. A precedent for this exists in the negotiations leading up to the 1994 election. Under pressure from civil society and the negotiators at the World Trade Centre, the National Party government agreed that an independent panel of jurists, under the chair of Judge Ismail Mohamed, would conduct public hearings to select a new SABC board in 1993.

Is it not time for the judiciary to play a leading role in protecting the fairness and diversity of broadcast news once again?

  • Willie Currie is a former councillor of Icasa and Melody Emmett is a freelance writer and copy editor

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These ex-ministers could be headed back to cabinet

Cyril Ramaphosa (image c/o GCIS)

Former cabinet ministers banished to the political wilderness under Jacob Zuma’s presidency are set to make a comeback as his successor prepares to revive the stagnant economy.

The ANC top-six officials, including President Cyril Ramaphosa, will meet on Friday to discuss changes to the cabinet, according to three people who asked not to be identified because they aren’t authorised to speak publicly on the matter.

Finance minister Malusi Gigaba, who Zuma appointed on 31 March 2017 when he had no experience in economics, tax or banking, is among those who will be affected in the shake-up that’s expected to be announced next week, they said. Gigaba will deliver his first full budget to lawmakers on Wednesday.

Among those touted to come back are former finance minister Pravin Gordhan and his deputy Mcebisi Jonas. They lost their positions in the March midnight cabinet shuffle that led to a credit-ratings downgrade and a sell-off of the country’s currency and bonds. The two, who were widely respected by investors, became part of a campaign against “state capture”, a term used to describe allegations that Zuma ceded control of the state to the Gupta brothers, who are his friends and business associates of his son, Duduzane. They all deny wrongdoing.

“It is the prerogative of the president to change cabinets; of course there will be those engagements by the top leadership,” ANC spokesman Pule Mabe said by phone. Tyrone Seale, the presidency’s acting spokesman, didn’t immediately answer a call to his mobile phone.

Zuma’s nine-year term ended last week when the national executive committee of the ANC instructed him to resign as head of state in order for Ramaphosa to take over.

Ramaphosa could also appoint Nhlanhla Nene, another finance minister that Zuma fired and replaced with a little-known lawmaker in 2015, to the cabinet, the people said. Nene declined to comment. After the rand plunged, Zuma backtracked, appointing Gordhan to the post, one he’d held from 2009 to 2014, four days later.

Zweli Mkhize, who until December was the ANC’s treasurer-general, is among the names Ramaphosa is said to be considering, the people said. The party’s top officials as well as its communist and labour-federation allies must discuss the list of new appointees.  — Reported by Sam Mkokeli, (c) 2018 Bloomberg LP

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HSBC pulls plug on Gupta accounts

HSBC building in Canary Wharf, London. Image c/o Barry Caruth

HSBC Holdings is shutting accounts associated with the powerful Gupta family as it assesses its exposure to the scandal gripping South Africa.

The bank is conducting a wide-ranging review of any possible involvement in suspicious transactions, with the assistance of external investigators, people with knowledge of the matter said.

HSBC first closed accounts held by companies linked to the Gupta family in 2014 after internal compliance procedures picked up transactions that couldn’t be explained as legitimate business, the people said, asking not to be identified discussing a matter that isn’t public.

Banks are required to report any transactions they suspect may be related to illicit activities.

“Any exposure that we had to the Guptas’ companies was inadvertent,” HSBC said in an e-mailed statement on Monday. “For the past couple of years, we have been in the process of identifying what there is and shutting it down.”

UK regulators last month said they are looking into whether HSBC and Standard Chartered facilitated money laundering as a result of possible ties to the Gupta family after a British politician warned illicit funds may have passed through the United Arab Emirates and Hong Kong, where the banks have had large footprints.

The scandal around the Indian-born Gupta brothers, their business connections with the family of President Jacob Zuma and their alleged ability to direct state tenders have rocked South Africa’s government. Zuma and the Guptas have consistently denied any wrongdoing. Software giant SAP, accountancy KPMG, and management consultants McKinsey & Co are among the major international brands that have been drawn into the saga because of their dealings with entities linked to the Guptas.

Last year, Pravin Gordhan, South Africa’s finance minister at the time, said in a court affidavit that since 2012 banks had reported R6.8bn in suspicious payments made by the three Gupta brothers, companies they control and other individuals with the same surname. Information on the Guptas’ connections has accumulated over the years, with a major leak of their data in June revealing the depth of their dealings with state and private companies.

‘Never interested’

The bank’s senior management is aware of the issue and is dealing with the matter, the people said.

“HSBC is in an entirely different position from some of the other companies which were intentionally seeking to do business with the Guptas and the Guptas’ companies,” the bank said. “HSBC was never interested in doing business with the Guptas’ companies.”

Peter Hain, a Labour Party member of the house of lords, asked UK authorities in a speech in parliament to probe an unnamed British bank for “possible criminal complicity” after it allegedly failed to take action on internal concerns about suspicious transactions related to the Guptas. HSBC is the bank, according to two people with knowledge of the allegations.

In December 2012, HSBC agreed to pay a US$1.9bn fine to settle US allegations it had facilitated money laundering and sanctions evasion by clients. It has also been under the supervision of an external monitor since then as part of the settlement. The bank says it has improved its in-house controls as was required under the agreement, including building a team of 6 000 financial crimes specialists.  — Reported by Franz Wild and Ambereen Choudhury, (c) 2017 Bloomberg LP

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Messy politics may drag SA down for years

Jacob Zuma

South Africa is unlikely to adopt policies needed to drive growth, investment and job creation for at least several years because of infighting in the governing ANC, according to one of the country’s leading research institutions.

The party is currently gripped by a power struggle over who should succeed Jacob Zuma as its leader in December and as president in 2019, with deputy President Cyril Ramaphosa and former African Union Commission chairwoman Nkosazana Dlamini-Zuma seen as the leading contenders.

While the two main ANC blocs have probably decided in principle to unite and avoid a divisive leadership race that could split the party, they haven’t agreed on who should fill the top posts, the South African Institute of Race Relations said in a report. Even if a deal is struck, ideological differences, political squabbling and policy uncertainty are likely to endure well after its 16-20 December elective conference, it said.

“Our medium-term view is that any short-term political leadership changes are likely to be more apparent than real and will not deliver fundamental structural reform,” the Johannesburg-based institute said in the report. “Weak economic performance will persist and continue to give impetus to a trend of rising levels of protest and declining confidence in the future. In 2019, the ruling party will go into an election facing the possibility of defeat for the first time, opening the way to an extreme spectrum of outcomes.”

Africa’s most industrialised economy has expanded an average of 1.6%/year since Zuma, 75, took office in 2009, impacted partly by a series of scandals, policy missteps and appointments that rocked investor an business confidence. The gloom deepened this year, with two ratings companies downgrading the country’s debt assessment to junk after Zuma fired Pravin Gordhan as his finance minister, and allegations surfacing that billions of rand have been looted from state companies.

Still popular

While criticism of Zuma’s administration has soared, he’s still popular among ANC supporters, especially in his home province of KwaZulu-Natal, the institute said in the report. It expressed “moderate confidence” that the political infrastructure created around the president will retain much of its influence and could probably hold sway at the December leadership conference if the contest is decided by a vote.

Zuma’s camp “controls sufficient assets, from the police and intelligence services to the public protector, treasury and public broadcaster, to justify the view that it retains the balance of power both in the government and the ruling party”, it said. “Its leaders, and in particular Mr Zuma, are astute strategists.”

While the competing bloc that’s coalesced around Ramaphosa has been widely portrayed by the media and analysts as being democratic and open to economic reforms, it includes a wide range of interest groups, including organised business, labour unions and communists, that may struggle to find common ground, the institute said.  — Reported by Mike Cohen, (c) 2017 Bloomberg LP

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