STRUCTURAL REFORMS NEEDED TO ADDRESS UNEMPLOYMENT
South Africa’s endemic unemployment can be addressed through structural reforms that include improving the labour market environment and conditions of employment, International Monetary Fund (IMF) MD Christine Lagarde said in April.
The IMF held meetings in Washington where representatives of member states were deliberating ways of achieving faster economic growth and how growth can be inclusive and create jobs.
“You have countries where unemployment has been almost structural. If it is structural, then a structural reform is needed. It could apply to a country like South Africa, for instance, that has had endemic unemployment,” she said.
More than four million people who are able to work and are actively looking for jobs are unable to find jobs in South Africa. The government has embarked on multibillion-rand infrastructure projects that it hopes will lead to the creation of jobs and develop skills, although such jobs are short term.
Lagarde said central bankers in particular needed to use the IMF meetings to communicate clearly their monetary policy strategies and “continue talking among themselves”, as policy choices in one country could affect financial markets in other countries.
“I think it is really important that they know what they are each doing, on what timetables and in what volumes,” she said.
Source: Times Live, 11 April 2014
INVESTEC SELLS AUSTRALIAN BUSINESS
Investec has sold its Australian professional finance, asset finance and leasing businesses, including its high-net-worth customer deposit book in that country, to the Bank of Queensland for A$440 million (R4,3 billion).
Investec, whose CEO is Stephen Koseff, said in February it wanted to transform its Australian banking business into a boutique operation that was focused on corporate advisory services, property funds, aviation, project finance, financial markets, corporate and acquisition services, and commodity and resource finance.
“From our perspective it’s a reasonably good price. I expect they [Investec] will repatriate those funds to the UK and South African businesses to fund existing operations. So far I don’t think anyone is expecting a special dividend,” a Johannesburg-based analyst said.
However, he noted that as banks continued to restructure and sell some of their assets, they released large amounts of capital that were hard to deploy. The institutions could be left with no choice but to return it to shareholders.
Investec said in its announcement on Friday that it was selling the business at a premium of A$210 million to tangible net asset value. More than 300 employees will be transferred to the Bank of Queensland.
“The agreement with [Bank of Queensland] represents a significant opportunity for both the professional finance and asset finance and leasing businesses as they pursue their next phase of growth and recognises Investec’s investment in these businesses over the past few years,” Investec said in a statement.
It said the deal was subject to regulatory approval.
The London- and Johannesburg-listed Investec is also looking to sell its UK mortgage business Kensington and has already received expressions of interest for it. It has appointed Fenchurch Advisory as an advis0r to sell that business.
The market has taken a liking to Investec’s decision to restructure its Australian business and sell Kensington.
When it announced these plans on February 6 this year, its share price was at about R74 on the JSE. Now it has raced up to R88,68 over the past two months, an increase of 19,8 per cent. The trading price of R88,68 reached on Wednesday was a 52-week high.
Investec’s share price has so far this year outperformed all of South Africa’s big four banks.
“The broader rerating of the Investec share price is not only predicated on the realignment and the sale of this Australian business,” the analyst said. “It’s also the pending sale of the Kensington operation and the realignment of the UK business.”
Source: Times Live, April 2014
THE SAICA ANNUAL GENERAL MEETING
The Annual General Meeting of members of the South African Institute of Chartered Accountants (SAICA) will be held at the Protea Hotel Midrand, 14th Street, Noordwyk Ext 20, Halfway House, on 26 June 2014 at 09:00.
Due and proper notice of the aforementioned meeting will be provided via the following means:
Electronic mail – if you are registered on our database as a member capable of accepting communications from SAICA in this manner; and
SAICA website – visit www.saica.co.za
Proxy forms will be available on the SAICA website from 30 May 2014.
If you do not receive the notification or proxy forms timeously, please contact the SAICA Call Centre for assistance at 0861 072 422 or +27 (11) 621 6600, or email barengh@saica.co.za.
Issued by:
Azim Omar
Senior Executive: Office of the CEO
The South African Institute of Chartered Accountants
NIGERIA’S UNEMPLOYMENT CRISIS
On 16 March seven people died in a stampede in Nigeria’s capital, Abuja, after 65 000 showed up at a stadium to apply for 5 000 positions in the immigration department.
Up to nine more people died in other locations across the country that were hosting similar events, throwing a spotlight on the country’s unemployment crisis.
What is the problem?
While Nigeria is Africa’s biggest oil producer, there is a wide gulf between rich and poor. The country boasts a growing list of billionaires, but at the same time, most people live on less than US$1 a day and overall unemployment hovers around 25 per cent.
How did this happen?
A variety of factors, including a devastating civil war in the 1960s, decades of economic mismanagement and continuing sectarian conflict, have taken a toll on the country. Rampant corruption – Nigeria ranked 144th out of 177 countries in the Transparency International’s Corruption Perceptions Index of 2013 – has made things worse, with profits from Nigeria’s natural resources being siphoned off.
What’s being done about it?
Ngozi Okonjo-Iweala, the reform-minded Finance Minister, has vowed to fight corruption and diversify the economy to help create more jobs, specifically focusing on the agriculture sector.
Source: TIME magazine, 31 March 2014
IMMINENT DOMAINS
Berlin became the first city with its own web suffix, deputing .berlin on 18 March. Roughly 50 cities are planning to follow suit as local governments eye a new source of revenue. Here are four examples from around the world:
- .NYC: New York City’s domain name – expected to be publicly available by year’s end – is projected to boost local government coffers to the tune of US$3,6 million by 2019.
- .JOBURG: Apart from certain domain names reserved for public bodies, Johannesburg-specific domain names are expected to sell for US$19 to US$37 when they launch in July.
- .LONDON: According to a survey, one in four small businesses in London is likely to register for a .london web address, which is expected to go live in late 2014.
- .NAGOYA: Non-residents will be able to sign up for domains linked to Nagoya, Japan. In contrast, .nyc will be restricted to locals, while London will prioritise residens during a three-month pilot period.
Source: TIME magazine, 31 March 2014
ACCOUNTING UPDATE
SAICA IFRS offerings in 2014
SAICA is offering a variety of products and services to assist you to keep up to date with IFRSs and IFRS for SMEs including the IFRS back to basics workshop and IFRS Foundation and SAICA IFRS conference.
The full list of SAICA IFRS offerings in 2014 can be accessed at www.saica.co.za/Technical/Financial Reporting.
Materiality requirements in IAS 1 to change
The International Accounting Standards Board (IASB) is proposing changes to IAS 1 – Presentation of Financial Statements to clarify:
- The materiality requirements
- The requirements for presentation in the statement of financial position, statement of profit or loss and other comprehensive income, and
- The requirements relating to the structure of the notes to the financial statements. The proposed amendments to IAS 1 are intended to ensure that entities are able to use judgement when preparing financial statements
Comments on ED 341 – Disclosure Initiative: Proposed Amendments to IAS 1 – Presentation of Financial Statements should be submitted to SAICA by 20 June 2014. ED 341 and the IASB press release can be downloaded from the SAICA website.
Latest editorial corrections and changes to IFRSs
Editorial corrections and changes have been made to the 2013 IFRS (Red Book), A Guide through IFRS 2013 and 2014 IFRS (Blue Book) and the amendments to IFRSs issued in November and December 2013. The latest editorial corrections and changes to IFRSs can be downloaded from the IASB website.
2014 annual version of IFRS Taxonomy published
The 2014 annual version of IFRS Taxonomy has been published.
This version follows a different architecture to the IFRS Taxonomy 2013, with separated modules for full Standards, IFRS for SMEs and IFRS Practice Statement Management Commentary. The 2014 annual version of IFRS Taxonomy can be downloaded from the IASB website.
INTEGRATED REPORTING
Certainty for the integrated report
The Integrated Reporting Committee (IRC) of South Africa in March this year officially endorsed the International Integrated Reporting Framework as guidance on good practice on how to prepare an integrated report.
Mervyn King, chairman of the IRC, said: “The framework offers South African organisations a guide on what to include in the integrated report in a way that makes their reports comparable with the reports from organisations around the world. The framework is the culmination of three years of extensive development and reflects the voice of the many interested parties around the world who submitted their comments on the draft version.”
The framework and the IRC’s endorsement offer greater certainty to companies when considering what guidance to follow. On the issue of the framework’s alignment to King III … Well, King III covers the principles of integrated reporting while the framework offers a guide on how to prepare an integrated report. If a company feels it has not applied a principle of King III by meeting the requirements of the framework, all it need do is explain this. The framework does, however, afford flexibility (through section 1E) in the form, length and information included in an integrated report.
To keep up to date on integrated reporting check out www.sustainabilitysa.org.
TAX update
Appeal court ruling on deductibility of audit fees
In a recent ruling by the Supreme Court of Appeal (CSARS v MTN Holdings (Pty) Ltd), it has been confirmed that in determining the deductible portion of expenditure incurred in the production of income, this determination should be fair and reasonable in light of the specific circumstances of each case. The expenses in question were audit fees incurred by MTN Holdings, a company which earned mostly exempt dividend income. The court allowed a deduction of only 10 per cent of the audit fees. The decision made it clear that whilst audit fees are ‘necessarily attached’ to operations and therefore deductible, a formula-based deduction of audit fees is not permissible. Unfortunately, no guidelines were provided as to how to determine what is fair and reasonable. It may be advisable for auditors to clearly indicate how much time was spent on auditing different sections in order to more fairly determine the correct apportionment ratio in each case.
Carbon Tax plan
The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has called on the South African government to follow Australia’s example by abandoning the proposed introduction of carbon taxes.
It said this was “in the interest of our ailing economy”.
“The South African economy has been under siege in recent years, with fairly negligible growth at a time when higher levels of growth are needed in order to create much-needed jobs,” Seifsa CEO Kaizer Nyatsumba said.
“It makes no sense at all for the government, which professes to be committed to job creation, to seek to burden local business even further through the introduction of a carbon tax,” he said.
The industry body said news from Perth that the Australian government had introduced moves to repeal carbon tax, cut red tape and back coal-seam gas development was “worthy of emulation by Pretoria”.
It said South Africa – which already suffered from high administered prices, such as those of electricity, fuel and ports – had “merely postponed the introduction of carbon tax until 2016”.
South Africa’s largest steelmaker, ArcelorMittal SA, said in its financial results for the year ended December that the proposed implementation of a carbon tax by the Treasury in 2015 “remains a huge concern”.
“It is difficult to accurately assess the financial impact of the proposed tax due to a lack of clarity, but current estimations indicate that it could amount to more than R600 million per annum,” the South African unit of the world’s largest steel maker said in February.
The global steel industry is a major polluter but has asked for leniency regarding carbon taxes, because technology does not yet exist for cleaner steel production.
“Very limited opportunities exist to reduce carbon emissions in the steel-production process and no feasible low-carbon alternatives exist at this stage to produce steel from iron ore,” ArcelorMittal SA said.
“Therefore the intention of the carbon tax to change behaviour cannot be realised within the iron and steel industry. Further engagement with the national Treasury is foreseen in this regard.”
Meanwhile, South Africa’s second-largest steel maker, Russian-owned Evraz Highveld Steel & Vanadium, last month said there were matters “that may cast significant doubt” about its status as a going concern.
It said South Africa’s volatile labour market was a “major risk” to economic stability, and that the economy was under pressure from intermittent electricity supply and “notable energy tariff increases”.
Seifsa said that Australian Industry Minister Ian Macfarlane told a business gathering in Perth that his government planned to repeal carbon-tax legislation with effect from July 1. This was to reduce the cost of living, lower the price of electricity, boost economic growth, and reduce the cost of doing business in that country.
Nyatsumba said a developing country like South Africa could not afford to be a “pioneer” when it came to “well-meaning” international protocols on environmental matters, when developed economies like the US and Australia “understandably put their own economies first”.
South Africa is one of the largest polluters per capita in the world, because of its massive reliance on coal-fired power plants. The country’s two new coal-fired plants, Medupi and Kusile, are far behind schedule in adding another 9 600 MW to the overstretched electricity grid.
The Shale Gas World Africa conference in Sandton heard in March that the shale-gas boom experienced in the US since 2003 meant that the world’s largest user of energy had exceeded reducing the emissions allowed under the Kyoto Protocol, effective 2005, on climate change, despite it not having ratified the treaty.
“We call on the government to follow the worthy example of its Australian counterpart by abandoning its ill-advised intention to introduce carbon tax in 2016. Business in SA is already struggling under a heavy burden of administrative and compliance costs,” Nyatsumba said. “Instead of introducing new taxes, the government needs to review the current burden.”
Industry nearly shut down and billions of rand of productivity were lost in early 2008 when South Africa suffered rolling blackouts. Since then the country’s ferrochrome producers – among other heavy industries – have been asked to cut output.
Such power generation problems prompted the world’s largest mining group, BHP Billiton, earlier this year to enter talks with unions over the possible shutting down of most of its Bayside aluminium smelter in Richards Bay, KwaZulu-Natal.
Source: Times Live, April 2014
