The new debt relief bill could force losses on the banking sector of about R25bn, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Business Tech

Intellidex’s Peter Attard Montalto says that low confidence among investors is clearly because of government’s lack of decision making. Clarity is needed on the way forward. Featured in Daily Maverick

National Health Insurance is unworkable in the economic and fiscal context even though it is sorely needed – it can do more harm than good at a macro level, says Peter Attard Montalto, head of capital markets research at Intellidex. Featured in Business Tech

Business should crank up heat on government for its lack of solutions for SOEs such as Eskom and its misguided NHI

This column was first published in Business Day 

A kind of mass hysteria is breaking out, some of it justified. Sentiment is getting weaker because nothing is being done.

The primary question from investors and companies right now is exactly that: “Why is nothing being done?”

Many easy fixes have been written about in these pages in the past 18 months. This introspection by investors and companies is leading to some overdue conclusions about the current administration and its personalities, at least in private.

Such an environment leads to despair — not an unhelpful emotion when properly and strategically directed, as occurred successfully last week with Sipho Pityana’s letter to members of Business Unity SA (Busa), calling out the government.

A sense of the government just not “getting it” is another key issue and has especially solidified around Eskom. The state utility’s recent results were broadly as expected, but the realisation has dawned that there are no new answers.  This was reinforced by Eskom’s road trip to London and the US last week. Eskom’s treasury team has done all it can with creditors, but the issues are further up the food chain.

All issues are known, as are all potential solutions, and have been communicated to the government by everyone — the task team but also by Eskom itself. The chief restructuring officer (CRO) will be unable to conjure up new solutions, and the steering group to which the CRO will report will comprise the same egos and ideological blockages to the same potential solutions.

As ever. the answer is leadership, which is lacking. It is the only component that will shift the dynamic.

Hysteria can cause assumptions and the status quo to shatter. We may well start seeing more of this, especially if promised monthly meetings between stakeholders and the president fail to deliver anything new. As economic actors realise they are being played and become fed up, “no” will be the answer, and change will be forced.

However, much of the hysteria is misplaced. For instance, regarding the viewpoint that SA is close to being bailed out by the IMF,  many good and bad mitigation options are open to the government to avoid that for at least about the next year, if not longer.

The IMF is a useful stick with which to beat the government, but more through forcing it to consider the consequences than pretending they are imminent.

Thinking through an IMF bailout programme, and especially the negotiations that would occur, is useful. It would expose the hard, unavoidable choices very starkly, laid out to the government in scenarios with numbers.   It would likely place a key burden of delineated responsibility on government officials to deliver, or else face public rebuke by the IMF. This accountability and responsibility is lacking.

The hysteria is also manifesting in a dangerous vein of unorthodoxy from normally sensible quarters with a view of avoiding the IMF and the hard choices, and protecting and backing the president.

This has included a view of the potential need for fiscal stimulus, and for unorthodox monetary policy. But the most bonkers idea is that prescribed assets could somehow be used as a way out for the president. It is irrational because it:

  • Further misallocates capital away from the private sector-led growth recovery that is needed;
  • Is not the sort of thing that can be negotiated with the left and labour for the short term to be removed after a few years;
  • Plays right into the state-capture play book through failing to secure the economy against future state capture by precisely increasing the incentives and payoff for seizing and abusing power;
  • Would increase the risks of inefficient and wasteful expenditure and would largely be directed at hiring and paying more to public sector workers as well as keeping the energy system away from a least-cost model in its existing monopoly rut.

Avoiding painful decisions can never be an answer, while even the slight application of prescribed assets would accelerate the economy’s downward spiral.

National Health Insurance (NHI) fails on all four of these counts as well. It is simply not a credible policy in the absence of a meaningful and trustworthy government costing and impact assessment of it. The move could instead hinder the admirable aim of universal, quality healthcare that is free at the point of use.

The Davis tax committee’s work on NHI arguably underestimated the amount tax rates would have to be hiked, given that buoyancy is now so much lower, and so trying to raise the about R150bn gap per year for NHI would harm wider tax collection and hamper growth even more.

There is no point in implementing universal healthcare and, at the end of the process, driving up unemployment — just as it is senseless to try getting a new answer from the same set of proposed solutions and same group of policymakers on Eskom.

If properly directed, hysteria can break the country out of this impasse.

• Attard Montalto is head of Capital Markets Research at Intellidex.

Intellidex’s chairman, Stuart Theobald, weighs in on the recent report into the Public Protector’s personal bank account. Listen to the full interview with Bruce Whitfield here:

SA’s economic woes haven’t reached a point where an IMF bailout is required, says Peter Attard Montalto, head of capital markets research at Intellidex. Listen to the full interview with Bruce Whitfield on Radio 702

Government recognises there is a crisis but prioritises other issues while sustainable solutions that address fundamental problems are absent, says Intellidex’s Peter Attard Montalto. Featured in Business Tech

Peter Attard Montalto, head of capital markets research at Intellidex, expects SA’s currency to weaken further given that there isn’t much government can do to respond to both global and domestic economic trends. Featured in Daily Maverick

As more top executives quit SOEs, Intellidex’s Peter Attard Montalto says private sector talent is being put off by the micro-management, political balancing and interference from government. Featured in Fin24

Public protector’s account is being investigated for exchange control violations and suspicious transaction from Hong Kong

This column was first published in Business Day

Leaks of personal bank account information seem to be becoming a political strategy. Last week we heard about an alleged $5,000 payment from a Gupta-linked account at HSBC in Hong Kong to public protector Busisiwe Mkhwebane’s account at FNB.

That report came from the Organised Crime and Corruption Reporting Project, a global investigative journalist network.

Later in the week a story emerged in the Mail & Guardian, corroborated by “four independent sources”, that the public protector’s account is being investigated by FNB for exchange control violations regarding amounts received from accounts in Brussels and Paris.

I have no idea whether any of these allegations are correct. But it certainly is true that the banks have been placed under worldwide pressure to search out and expose any corruption linked to their accounts — HSBC perhaps more than others after being fingered by Peter Hain in the British parliament for its “possible criminal complicity” in “theft and money laundering” related to the Guptas.

That will have triggered an extremely thorough investigation by the British bank to ensure its books are free from Gupta-related malfeasance. It shut many Gupta accounts in 2017, but digging through detail to identify fingers of the Guptas takes time.

FNB apparently had already been investigating. SA banks are all subject to much the same rules against money laundering as HSBC, but they have the additional burden of protecting against exchange control violations.

Twitter exploded with allegations that Mkhwebane is being targeted by “Stratcom”, “white monopoly capital” and various other epithets du jour.

The reality is far more mundane. The banks are under immense pressure to monitor and report misuse of their systems. Failure can lead to direct monetary penalties, such as the R500,000 fine dished out to small bank Sasfin last week by the Reserve Bank for “noncompliance with certain provisions of the Financial Intelligence Centre Act” because it didn’t have as robust a monitoring system as the Bank would like. But the bigger risk is reputational, as HSBC has amply demonstrated through its links to the Guptas.

More interesting is that this information is emerging at all. Client bank account details are usually sacrosanct. SA’s banks have been frustrated in not being able to respond to allegations against them linked to the state capture era. There is an imbalance: while disaffected clients can rail against the banks in public, the banks cannot fully respond without violating strict confidentiality provisions. So when the banks were being beaten up by the Guptas and assorted Zuma-aligned political figures for closing accounts at the height of state capture, they largely had to grin and bear it, unable to say what they really knew.

With some exceptions. SA’s constitution sets the ground for a balance of rights. If banks are aware of some great harm to the public interest, it would be illegal for them to hold that to their chests on the grounds of a client’s right to secrecy. This point was driven home when Bank of Baroda, near the end of the SA branch’s Gupta-related implosion in early 2018, agreed to share the bank account details of the Guptas with the Helen Suzman Foundation and Freedom Under Law.

Its lawyers acceded to the request saying, “Our client [Baroda] is of the view that the requested records would reveal evidence of a substantial contravention of, or failure to comply with, the law.” While that was never tested in court, it provided an interesting lesson for the banking industry: sometimes you should tell the public what your clients are up to if it is of sufficient import to the public interest.

I don’t know who has been leaking information about the public protector but if it is indeed coming from the banks (and it needn’t be — regulators, accountants, lawyers and others could also be sources), they may be doing it on the view that the public interest demands it.

Of course, it could also be all made up, and the public protector has rejected “with contempt” the claim that “she was flagged” by HSBC and has “absolutely no links with the Guptas”.

Of course, the banks should never be in a position of having to consider giving such sensitive information to journalists. They are compelled to report all suspicious transactions to the Financial Intelligence Centre. That entity can then flag suspicious transactions to the investigating authorities. Those should then investigate and pursue criminal convictions if appropriate. But the links along that chain are broken. They are also broken on exchange control violations — the Reserve Bank said it referred 110 cases to law enforcement authorities in six months of 2017, with not a single conviction resulting.

All this also serves to highlight why the state capture faction have it in for the Reserve Bank. The formal banking system, and the rules that govern it, are an insurmountable obstacle. They need a bank of their own (as the Guptas tried to achieve by buying Habib Overseas Bank) and the reporting and investigating aspect of banking shut down. Reserve Bank nationalisation is the thin end of the wedge.

• Theobald is chairman of Intellidex.