Damage wrought to the criminal justice system is ricocheting back into the financial system.

This column is was first published in Business Day. 

Through the crisis of state capture, it was the financial system that stood firm. While our criminal justice system was bent to the will of the corrupt, it was the closing of bank accounts on concerns that they were being used to launder criminal proceeds that put an end to the Gupta money machine.

There were desperate attempts to overcome the resistance put up by the financial system. Bank branches were invaded in efforts to intimidate the banks, dressed up as protests. The campaign to nationalise the Reserve Bank was used as a Trojan horse to weaken the apex bank’s supervision of the financial system (including rejecting the Guptas’ efforts to buy a bank and freezing their efforts to externalise loot). Ultimately, it was to no avail.

But now, the damage wrought to the criminal justice system is ricocheting back into the financial system. The Financial Action Task Force (FATF), a global money-laundering watchdog, has put SA on 18 months’ notice that it will be grey listed as a lax money-laundering and terrorist financing territory if it doesn’t get its act together. In a 240-page peer review report published to little fanfare earlier this month, it said SA does a good job capturing intelligence on what goes through the financial system but fails to use this in prosecuting money laundering and terrorist financing.

This is very serious criticism that has important consequences for the financial system. If SA is grey listed, it will complicate its interaction with the global financial system. It will be another blow after the loss of investment grade last year, making SA’s financial institutions even harder for the rest of the world to do business with. Other regulators, particularly the EU, require their financial institutions to treat grey-listed countries and their financial institutions with extra care. That means higher costs when foreign counterparts agree to do business with them at all. As SA’s financial system acts as a regional hub in Africa its status as a clean jurisdiction is critical to its competitiveness.

International actors

While the task force review criticises several aspects of SA’s approach, its main complaint is that there is little investigation and prosecution of money laundering and terrorist financing directly. It notes that while the police and SA Revenue Service routinely use financial intelligence in investigating and prosecuting crimes, they do not use this information directly to identify and prosecute money laundering and terrorist financing. Money laundering is not a primary objective in such cases — it is secondary to other cases that they are working on. In other words, SA’s criminal justice system will throw money laundering on top of the other commercial crimes it prosecutes but does too little to investigate it in its own right.

This is a worry because it means the only money laundering that is prosecuted is “self-laundering” — cleaning money from one’s own crimes — while third-party money laundering, particularly on behalf of international actors, is ignored. That leaves SA open to being used by thriving money launderers acting on behalf of international criminal clients.

Non-financial institutions that handle money such as estate agents, attorneys and trust service providers are particularly criticised, but even the Reserve Bank’s Prudential Authority is noted as having deficiencies in some areas. Regarding recommendations, the focus is on the criminal justice system, particularly giving the Hawks more staff — especially financial investigators and forensic accountants.

There are also several recommendations to aggressively investigate and prosecute crimes linked to state capture. Some of the recommendations will be politically difficult, such as to remove the time limit on the definition of politically exposed people in the Financial Intelligence Centre Act. Parliamentarians will be required to amend legislation to make their own lives more difficult.

Political commitment

SA is now on notice to implement the recommendations fast. This adds to the pressure to repair the criminal justice system post-state capture. That has been a project since President Cyril Ramaphosa took office, but the urgency is now even more apparent. The progress achieved so far does not give much faith it can meet the task force’s expectations in the next 18 months.

This matter must be urgently addressed by the cabinet. It would do well to look at Mauritius. The island nation managed to get itself removed from the task force’s grey list last week after a Herculean national effort to implement a long list of FATF regulations. As soon as it was grey listed in March 2020, it made a high-level political commitment to address the issues flagged by the FATF and tackled them with gusto, setting itself a September deadline, one it met. Of course Mauritius, given its ambitions to become a regional financial centre, would now see its competitive position substantially enhanced were SA to be grey listed.

SA must avoid grey listing completely by rapidly embracing the FATF recommendations. It must be a national project with the imprimatur of the highest political office and will require co-ordinated action across regulators and the criminal justice system. SA’s financial services industry, the one sector to have grown employment and export revenue over the past two decades, depends on it.

Theobald is chair of research-led consulting company Intellidex.


In the run-up to the Conference of the Parties (COP26) in Glasgow, Ireland, from October 31 to November 12, South Africa is trying to commit to an ambitious decarbonisation path and position itself as a leader in the fight against climate change.

However, a mixture of vested interests, ideology and politics has resulted in mixed messages about how to deal with the urgent problems that plague our energy sector, particularly as concerns decommissioning Eskom power stations.

In the context of South Africa’s immediate social and economic crises, some have argued that climate goals and leadership on these issues are less important than protecting jobs and industries, but the two are deeply linked.

What happens at COP26 will have a direct and relatively fast impact on both the immediate and long-term outlook for economic growth, jobs and the industrialisation of the country.

The outcomes of COP26 will have profound impacts on ordinary South Africans – in particular the speed and style of decarbonising – irrespective of whether the country “signs up” to them.

Complying with these new regulations, forced by shareholders, banks or global trade barriers will mean removing carbon emissions from those working with steel, transport, power generation and the chemicals industry, and those mining the coal and extracting the gas that feeds these emissions.

President Cyril Ramaphosa has already recognised the need for innovation and renewed industrialisation to replace coal with greener alternatives.

This will protect jobs in some industries, for instance by using hydrogen to make steel, but more needs to be done if South Africa is to weather the pressures.

For now, it appears as though the country is going to COP26 with a strong message about the importance of smoothing the transition to net zero to allow time for workers and industries to adapt.

There is an increasingly strategic focus in some quarters, especially in the Presidential Climate Commission, which has pulled together expertise and become a credible thought leader within government and in society at large.

Still, decisions are required right now and mixed messages are still being given, especially by Mineral Resources and Energy Minister Gwede Mantashe. While he may like to object, no company or foreign government funder is going to employ a team of Kremlinologists to decipher what he is saying.

The utterances of all ministers, most especially those of someone in charge of energy policy, have real impact on South Africa’s ability to navigate the Just Energy Transition and attract financing, which is going to be a major focus at COP26.

The truth is that South Africa has no fiscal or other balance sheet capacity (at Eskom say) to borrow the money it needs to ensure a smooth and just transition.

The power utility’s costs are at least R400 billion in the coming decade and the same again the decade after that. Total transition costs may be around R2 trillion.

Without such money, social and labour support cannot be offered and South Africa would face a cliff edge and a sharp step-up in unemployment and instability.

Importantly, this money is for new spending, not just to clean up historic Eskom balance sheet problems.

The money is on the table though at COP26 – lots of it. And it will become the new battleground in the political arena.

Recent comments from Mantashe indicated his disapproval of such funds because of the terms that come attached to them.

Indeed, our policymakers have struggled to understand what other emerging markets already consider normal – the state can borrow lots of cheap money (at low-interest rates not available elsewhere) to fund its development and accept the conditions if it wants to.

No one will force a country to take this money, and the conditions that will be imposed are things that South Africa would end up having to do anyway – such as a faster decommissioning of poorly functioning power stations.

The embarrassing collapse of World Bank loan negotiations last year was a sombre precedent.

The debate over such borrowing facilities often regresses to a focus on the motives of those providing the money. But why does this matter if you need the cash when the alternative is much worse and if the conditions are just about acceptable?

The political upside from throwing one’s toys out of the pram cannot be so great surely?

South Africa needs to transition for many reasons, of which carbon emissions is only one. For instance, sulphur dioxide emissions are killing thousands of people in Mpumalanga.

Conversely, a shift would unleash faster growing industries which can be labour intensive, such as rooftop solar PV installations.

The speed of travel is fast, however. It is faster than South Africa’s policymakers and leaders are used to working at. Herein lies the risk, but also an opportunity we cannot afford to miss.

Montalto is head of capital markets research at Intellidex, a research-led consulting company.

Catch this in-depth personal conversation on Talk Radio 702 between Bruce Whitfield and Intellidex’s Dr Stuart Theobald on the history of Intellidex, Theobald’s background and on handling other people’s money. “Starting off in financial journalism, I was often frustrated about the lack of technical skills. This is ultimately what led to the start of Intellidex,” Theobald says.  

Listen to the full interview below.


Maybe there is some SA exceptionalism that creeps into the demands to destroy orthodoxy.

This column was first published in Business Day. 

The “O” word has been supposedly weaponised in a patronising manner, as if you choose your views within the SA discourse based on blind loyalty more than a cold-headed researching of the facts and literature, weighting both sides before coming to conclusions.

The issue of “orthodoxy” is top of mind at the moment as we approach the medium-term budget policy statement (MTBPS) on November 4. What exactly is the Treasury meant to do to break free of orthodoxy in the MTBPS? Step up spending by, say, 50%? Funded by what?

There is a bizarre view out there that somehow orthodoxy blinds the National Treasury and SA Reserve Bank to the fact that higher taxes and debt funding or some kind of modern monetary theory (MMT) are sitting on the table as easy, yet-untapped options. Are the staff of both institutions really held in such low regard where their motivations are doubted? This is the stuff of conspiracy theories.

Of course what has happened is that (very transparently) both institutions have done a huge body of research into monetary and fiscal policy options and their effects, decomposing the impact of various policy and macroeconomic shocks. Conclusions are drawn and debated widely among academics, in markets, with investors and other stakeholders, and challenged.

This isn’t to say that within “orthodoxy” there aren’t a range of possible outcomes, nor that the right one is always chosen. (I, for instance, have called out the Treasury’s cash levels in the past and its decision for a real cut in grants in February.) But this is not the same as saying their entire frame of reference is incorrect.

Orthodoxy also doesn’t mean that empowerment, communities and transformation are overlooked. Do people seriously think that a succession of finance ministers or directors-general of the Treasury, or leadership of the Bank didn’t care about these things? It is just a belief that there are underlying laws of gravity that will render transformation efforts unsustainable or impossible to deliver if ignored. This is the problem with appealing to constitutional rights for spending in isolation when there exists a budget constraint.

A paper under the National Treasury partnership SA-TIED programme of research last week from Hylton Hollander on debt-financed fiscal stimulus is a case in point. It very clearly laid out every assumption being made, every equation and process to draw conclusions in excruciating detail. That might not be everyone’s cup of tea to read, but it’s all there. It draws some quite subtle conclusions on when debt-financed stimulus works and when it will be counterproductive.

The message from this for the Treasury is clear: be careful at these levels of debt, when fiscal multipliers are low, long-term growth is also low with high interest rates. And so we are likely to see in the MTBPS the Treasury spending a large chunk of extra mining tax revenues this year and saving only a small amount for future years’ state-owned enterprise risks, while also keeping the medium-run path back towards a primary balance. This path to a primary balance can be relatively slow (not hitting a brick wall) given the supportive backdrop from terms of trade, but the path still needs to be set to ensure debt is sustainable.

The stakes on debt sustainability were increased here last week when the International Monetary Fund (IMF) actually put out a lower long-term GDP forecast of 1.3% (negative in per capita terms), when it was at 2.3% a year ago. The Bank also has put longer-term growth below 2%. We wait to see what the Treasury does with long-term growth in the MTBPS.

SA exceptionalism

Maybe there is some SA exceptionalism that creeps into the demands to destroy orthodoxy. A view that SA is not a small, open emerging market with a productivity and skills problem, so doesn’t have to abide by the “rules”, though about 30% of government debt is owned by foreigners and banks have to operate in a globally regulated system.

If you don’t believe there are constraints to debt and then a large economy from GDP rebasing magically means you can carry more debt forever, then there can be no problem here. Yet such a view ignores the fact that the statistics on GDP are 11% bigger, but the ACTUAL economy is no different in size. The underlying capacity to generate jobs and taxes were what they were in that respective data. This is why I find the argument that somehow because Stats SA has revised the size of the economy up that there is magically more tax to have been collected nonsensical.

Models such as those of Applied Development Research Solutions (ADRS) can be put forward showing positive outcomes from fiscal stimulus, but the truth is we have no idea why this is the case with this model as its details are not published. Black box modelling like this is not helpful to the public discourse — as the Bank’s Chris Loewald and colleagues laid out in a paper last year. The model is also receiving strong pushback in academic circles and those doing actual advisory work into the government on the basic income grant. Maybe it all works and is correct, but we have no way of knowing because it is not laid out.

By contrast the Bank’s macro models are all transparently published and their updates are pored over in excruciating detail by analysts after ever monetary policy committee meeting.

Orthodoxy then is not quite as dusty and stale as it’s made out. It is constantly challenging itself, remodelling itself and publishing peer-reviewed articles on itself. It needs to be challenged for sure, always to keep a socially progressive lens, but this doesn’t mean ripping the whole thing up.

• Attard Montalto is head of capital markets research at Intellidex, an SA research-led consulting company.

Getting the private sector to increase investment levels could be a big win in the overall infrastructure effort.

This column first appeaered in Business Day. 

We do a lot of talking about infrastructure investment, but less and less is actually happening. We spent 14% of GDP on gross fixed capital formation in the second quarter, a number made worse by the rebasing of GDP by Stats SA in August.

When broken down, it is clear that both private and public sectors are investing less. Public sector investment was just 3.9% of GDP while the private sector invested 10.1% of GDP. These figures have steadily declined since late 2008 when as a country we hit a democratic-era record 21% of GDP, 14.1% from the private sector and 6.8% from the public sector (though the public sector’s own record was a quarter later when it hit 7%).

There are many reasons. In the public sector these are mostly to do with a big skills shortage, bureaucracy, corruption and fiscal constraints. But the decline in the private sector seldom gets the attention it deserves. If more policy focus was placed on it, we could do more to get overall investment levels up.

Public and private infrastructure investment are deeply linked — factories, mines and shopping centres don’t get built if there isn’t public infrastructure, from roads to sewerage, to service them. SA’s electricity woes are obviously critical — there is no way to build power-hungry factories with no security of supply. Getting public investment right is a precondition to much private sector investment. But that isn’t all there is to it.

Records were set in 2008 because a long bull market had resulted in high levels of capacity utilisation and confidence about the future was high. Factories were running at maximum output, so businesses invested to expand. Of course, the financial crisis soon reached our shores and investment levels plummeted. Public sector investment bumped along in an effort at countercyclical aggregate demand stimulus, but began to plummet in late 2015, in large part due to the collapse in finances of state-owned enterprises. That trajectory has not turned.

But can it be turned in the private sector? There are clear policy levers that can be pulled. One of the most important and frankly visionary steps in this regard is the change to the Electricity Regulation Act (ERA) to allow private businesses to build their own electricity generation plants up to 100MW without a licence. This does two things: it directly enables businesses to invest in generating electricity, an area in which they can reliably anticipate demand, and then it removes one of the greatest uncertainties for investment into core capacity — the lack of energy reliability. It is going to take a year or two before we see its impact in the gross fixed capital formation statistics, but it will come.

The change to the ERA is a good example of how the government can materially shift the needle for private sector investment. The other one that is massively overdue is additional spectrum for increased cellular broadband. Communications infrastructure has been the one area of clear growth in private investment over the last decade as firms have invested in both fibre and cellular networks. But the cellular side of the equation has stalled because networks could not access additional spectrum.

There is a complicated story on why spectrum auctions have not happened despite having been policy since 2007 largely driven by incompetence, vested interests and rent seeking. This remains a huge political challenge as the spectrum in question has to be vacated first by moving television broadcasting to digital, and that is complicated. President Cyril Ramaphosa is committed to making it happen, and he may have the statesmanship to pull it off.

But there is one other area ripe for a dramatic policy-led investment boom: mining. We are sleepwalking into a collapse of the mining sector. There is almost no investment happening into exploration, which means there is no pipeline to replace existing mines when they are exhausted. For an economy built on the back of mining and an industrial base still tightly linked to commodities, this would be a disaster, and one that receives far too little political comment. The reason for the collapse is obvious: huge policy uncertainty driven by over a decade of dithering and confusion about both the mining charter and amendments to the Minerals and Petroleum Resources Development Act.

While energy and mining have found themselves in the same national department, the contrast between the policy-led investment boom in electricity and the investment collapse in mining is stark. If an enabling approach to mining policy was pursued with the same enthusiasm as energy, we could start to see a real change in private sector infrastructure investment.

Getting the private sector to increase investment levels could be a big win in the overall infrastructure effort. We shouldn’t lose sight of it while we work on getting public sector investment levels to recover.

Theobald is chair of research-led consulting company Intellidex.

Intellidex is recruiting an experienced researcher/economist to join our dynamic research team in a mid-level position. The appropriate person will support Intellidex’s political economy research and help drive our policy and reform advisory business to produce reports and insights for a broad range of clients in South Africa and globally (including banks, asset managers, development finance institutions, foreign governments and corporate entities) as well as for public consumption. The research produced in this role will often be in the public domain and contribute to South Africa’s policy conversation.

The work will be extremely varied across sectors and issues, requiring the candidate to be able to track and analyse many topics at once and mange their time and ongoing research around such a shifting agenda. The candidate will be required to look at any issue that affects investors, banks and companies from a growth or doing business environment perspective including but not limited to: the Operation Vulindlela reform agenda, service delivery at municipality level, spectrum and digital reforms, DTIC policies including BEE and competition commission work, SOE-related policy issues and infrastructure. A particular focus will be on climate change issues across all sectors. 

The ideal candidate must have: 

And preferably: 

The role will involve a mixture of ongoing research to develop appropriate policy insights and recommendations for clients in both the public and private sectors, writing reports and contributing to periodical publications that Intellidex produces. It will involve meetings with clients and maintaining a network of relationships to obtain insight into current policy debates. Tracking a multitude of stakeholders and their views is a key part of the job, including understanding and working with parliament, Nedlac and similar bodies.

Intellidex offers a unique environment that draws together top academic skills, financial markets research and insight on South Africa’s policy development. We work with financial institutions and companies as well as domestic and international policymakers to improve outcomes for all South Africans. Intellidex is well-recognised for its high-quality research and you will become a core part of a highly skilled team, providing significant learning opportunities to advance your career.

Performance will be judged by the delivery of high-quality research projects and reports, as well as engagement with clients and other audiences. We expect the person in this role will over time become a thought leader nationally on the issues they are studying and an active contributor to the South African policy conversation.  and other audiences. We have offices in Sandton, where this position will be based, London and Boston. The position will report to the global head of capital markets research.

We have offices in Sandton, where this position will be based, London and Boston. The position will report to the global head of capital markets research. 

We offer a small company environment in which you will have considerable latitude to shape your role. Remuneration will be a mixture of basic (in the mid-level researcher range) and performance-based pay.

Our standards are high. You will be working with MBAs, CFA charterholders and PhDs on our team to ensure that Intellidex delivers high levels of client satisfaction and responds dynamically to new business opportunities. 

If you are interested in the position, please send a covering letter in which you address the requirements listed above, using the form below. There is no deadline for applications, but the role will be filled as soon as a suitable candidate is identified. 

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Celebrating its 12th anniversary, 6,599 clients participated in the 2021 Top Securities Brokers survey. Formerly called Top Stockbrokers, this survey has established itself as the premier independent assessment of SA’s securities brokers. Winners were announced at an awards ceremony on 28 September, with Infront as platinum sponsor, Financial Mail’s Investors Monthly as the media partner and JSE as the event sponsor. Rand Swiss took the overall prize, while Sasfin Securities won Best Advice Broker and PSG won Best Online Broker.

For all the winners, access the 2021 summary report below.

Politicians in the UK don’t seem to realise the outrage that came with the decision to keep SA on its travel red list. This isn’t useful in trying to deepen relations with a country given with a key role in Africa, the Brics and G20, writes Intellidex’s Peter Attard Montalto in Financial Times.

The visit of climate envoys to SA has been a useful shock to the system, enabling the country to step out of its comfort zone on energy matters.

This column was first published in Business Day.  

There were two interesting rhetorical nuggets last week, one from President Cyril Ramaphosa and one from our relatively new finance minister, Enoch Godongwana.

Both, if you allowed them to wash over you, could probably be easily ignored. Both didn’t say anything we didn’t know already. Yet both had strong and emotive reactions.

Why? It was the way they were said.

The first was Ramaphosa’s Luthuli House press conference comments on Digital Vibes. On the surface, accountability was called for and, not unsurprisingly, shock was expressed at what a comrade had got up to.

Yet the way this was done led to an outcry (even among my clients who are normally not quick to express outrage). The impression and choice of words implied that the ANC was more important than corruption allegations and that there were wider issues (KwaZulu-Natal winning a second term, etc) that were more important than giving simple declarative statements about wrongdoing.

Is this unfair? Not really. As SA’s political balance moves away from ANC hegemony and towards a messier contestation, hearts and minds are won in sound bites on the evening news, as happens in every other country. Language should, however, be more carefully constructed and thought through.

The most interesting factor probably was the revealed preference for the internal as opposed to public opinion when speaking off the cuff.

And yet Ramaphosa, also speaking off the cuff at the same event, gave probably one of the clearest, most transparent expositions of the just energy transition ever heard from him or any cabinet minister.

With climate envoys in the country this past week, clearly what to say and how to say it were foremost in the mind of the government and the presidency. And so out popped the “right” response (and even if you disagreed with it, it was at least coherent and clear).

The appearance of the climate envoys has clearly been a useful shock to the system. Zooming out from the details of the discussions, the government has had to get its act together and cement its views on a range of issues — from the ideological to the technical. This was not totally possible, of course, as the department of mineral resources & energy was the fly in the ointment, talking instead about non-viable energy technologies in Limpopo.

Yet the impact of having experts in the country to talk about specific issues has clearly been useful in galvanising a topic that has floated on the ether for the past decade in SA but has seen good momentum since the start of 2021.

Of course, getting things over the line is another matter: actually committing to required conditionality for borrowing large amounts of money is still going to be politically fraught. As we saw with the drama of the IMF rapid financing instrument (conditionality free) facility last year, and then with the debacle of the collapsed World Bank loan, SA has a problem accepting conditionality.

Then there is the specific conditionality of more rapid Eskom decommissioning of coal-fired power stations and everything politically and socially that this will involve.

Then came the second speech — from Godongwana at the Sunday Times National Investment Dialogue. What was said was not overly complex or long, or indeed new, but was said with refreshing bluntness.

“Government has spent 13 years trying to fix Eskom. We need a paradigm shift. What has got to be the focus is fixing the electricity supply. Let’s not talk Eskom, let’s talk security of supply.”

Now if you look at the last integrated resources plan (yes the one that’s now out of date from 2019), or speeches even by our friend Mantashe, one could argue that it’s not that different from what Godongwana said. Yet it was the tone — that it is so blindingly obvious that Eskom has to change to a completely different role and we need a system that solves problems, not ones that keep dead status quos on life support — that struck home with people.

This sense was what originally catalysed so much support for the infamous “Tito paper” from the National Treasury in August 2019 and gave rise to Operation Vulindlela. It was viewed as a rare rallying cry for outcomes-focused, evidence-based policymaking.

Godongwana appears to be saying he represents continuity in this respect. As a quite transparent ANC economic transformation committee head, he has said some odd things, such as on coal, for example. However, he now gives the impression that he is valuing and listening to his staff and is a pragmatist, especially as he is talking more regularly in public than his predecessor did.

Further evidence-based, outcomes-orientated thinking from the minister — a kind of “Enoch Paper” — would be very welcome as we drift increasingly on the economic reconstruction and recovery plan of last year (too many aims and too many amorphous goals). His recent comments on industrial policy are also interesting but need more flesh. Industrial policy need not be a dirty term but can become so if it is only associated with the department of trade, industry & competition’s command-and-control style.

Clear evidence-based policy and eyes on the goal — clearly expressed — will give difficult debates over conditionality and working with international partners on the just energy transition a very different flavour to being dragged down in ideological quicksand. Looking outside the circle of party and vested interests is therefore important. Attracting funding, investment and expertise will be so much easier. This is after all what SA needs: stepping out of its comfort zone to undertake big change quickly, sustainably and justly.

Attard Montalto is head of capital markets research at Intellidex, an SA research-led consulting company.