Transnet’s woes unsettle South Africa’s businesses – Industry roundup: 26 September
by Graham Buck
Criminal syndicate deepens woes of South Africa’s Transnet
A criminal syndicate has siphoned up to Rand (ZAR) 50 million (US$2.66 million) in kickbacks by running a “ghost train” operation at South Africa’s rail and ports operator Transnet, according to reports.
The scam has added to the group’s deepening financial woes. Last month,Transnet reported a ZAR5.7 billion loss for the year to 31 March 2023 against a ZAR5 billion profit the previous year, while its freight rail business delivery volumes decreased by 13.6% during the period.
The drop in business is attributed to various reasons, including poor management, idle locomotives and cable theft. Several mining companies have worked around the problems plaguing Transnet by transporting their minerals by road instead. The Minerals Council, which represents South Africa’s most locally operating mining companies, estimates poorly run ports and freight-rail lines may have cost the country up to R150 billion in exports last year.
Public Enterprises Minister Pravin Gordhan has committed to improving Transnet’s performance. “The deterioration in its operational and financial performance will be stopped,” he said. “Nothing will be allowed to get in the way of the effective implementation of a radical plan.”
Transnet’s problems have placed much of South Africa’s GDP at risk as companies are increasingly unable to import and export goods, said asset manager Stanlib’s chief economist Kevin Lings when speaking at Morningstar’s Investment Conference 2023.
“The South African economy is a massively open economy, effectively beholden to the world in terms of economic growth,” Lings said.
South Africa’s imports and exports combined comprise 68% of the country’s GDP, effectively meaning that ZAR3.1 trillion of ZAR4.6 trillion of GDP depends on Transnet.
The output of South Africa’s productive sectors, such as mining and manufacturing, has been flat over the past 20 years while retail spending has grown massively. making the country highly dependent on imports for many of its basic needs.
A study by consultancy GAIN Group suggested that South Africa’s economic growth of 0.5% for 2023 could have been over 10 times higher at 5.4% had Transnet operated at full capacity. The impact would have been even deeper if commodity prices remained close to their 2022 highs.
The calculated cost to the South African economy includes the failure to achieve potential exports, the impact of inefficient logistics resulting in higher costs, and other indirect impacts from lost revenue on the economy.
No digital euro for at least two years, says ECB’s Lagarde
A digital euro is at least two years away, the European Central Bank’s (ECB) president Christine Lagarde told lawmakers as she sought to address privacy fears arising from the central bank digital currency (CBDC).
The ECB is due to take major decisions over whether to press ahead with preparations for the CBDC in the coming weeks, but many members of the European Parliament – who would need to sign off on the plans – appear sceptical.
“It’s not until later in October that the [ECB] Governing Council will decide whether we can move ahead with more piloting of the project,” Lagarde told members of the EU Parliament's Economic and Monetary Affairs Committee. “The pilot will probably take us another two years, at least, before it’s the final say.”
If “we can address all the conspiracy theories that abound about this – as if Big Brother was going to suddenly determine what you buy, when you buy it and how restricted it should be – then I think it would be characterized as a success,” Lagarde said, adding that the digital euro will need to offer privacy without full anonymity, and be user-friendly, free and universal.
ECB Board Member Fabio Panetta has previously promised there will be no decision taken to issue until lawmakers and the bloc's member governments agree on legislation to set out privacy measures for the CBDC, and they still have plenty of qualms.
“How do you check all the major privacy concerns if you ask for transaction and holding limits, and identification, with the consequence of total traceability?” German centrist lawmaker Nicola Beer asked Lagarde referring to ECB plans intended to curb money laundering and stop large CBDC holdings from upending the commercial banking system. “Will this not hinder the acceptance of the digital euro?”
Last month, the parliament announced that the digital euro law will be shepherded through the parliament by Germany's Stefan Berger, an architect of the EU’s crypto licensing law Markets in Crypto Assets Regulation (MiCA).
Asian Infrastructure Investment Bank opens first overseas office in Abu Dhabi
The Asian Infrastructure Investment Bank (AIIB), the Beijing-headquartered multilateral development bank and international financial institution, has opened its first-ever international office in Abu Dhabi, according to a statement.
The office will be based at Abu Dhabi Global Market, the emirate’s international financial centre, the statement added.
“This milestone reinforces our commitment to strengthen regional partnerships, promote sustainable development and support infrastructure projects for our members,” said AIIB vice-president and chief administration officer Luky Eko Wuryanto. “The United Arab Emirates [UAE] is an excellent choice for our first overseas venture. I am confident this new hub will advance our efforts to enhance sustainable development throughout the region and elsewhere.”
AIIB’s decision to locate its first international office in the UAE follows an agreement in April between the bank and the Abu Dhabi Fund for Development.
“The move will enable AIIB to leverage our exceptional infrastructure and status as a global investment destination to drive forward its sustainable development agenda with greater momentum, in alignment with our common goals and aspirations,” said Mohamed Saif Al Suwaidi, director-general of Abu Dhabi Fund for Development and the UAE’s alternate governor at the Board of Governors of AIIB. “We reaffirm our commitment to supporting AIIB in all its efforts.”
The opening of AIIB’s international office comes as the UAE prepares to host the 28th edition of the UN Climate Change Conference (COP28) from 30 November to 12 December.
Since its establishment in January 2016, AIIB has financed 232 development projects with a total value of $44.41bn (323.45bn yuan). At present, the AIIB has 106 members worldwide, mostly in Asia, Africa and Europe. The bank has capitalisation of US$100 billion and carries a AAA score from the major international credit rating agencies.
Multinationals join socially responsible supply chain initiative
A new global social enterprise has launched, working with high-profile companies to further the positive social and environmental impact of supply chains.
Telos aims to facilitate €5 billion of procurement spend on social economy businesses across the Europe, Middle East and Africa (EMEA) region by 2030, through its Buy Social Europe programme. This will involve engaging global companies to open up their supply chains to social economy businesses.
Companies involved to date include AstraZeneca, CBRE, Johnson & Johnson, SAP, Siemens and Zurich Insurance Group. They are participating in Buy Social Europe, to create opportunities for social economy businesses through their procurement operations.
Telos aims to bring together a further 50 global corporations from a range of industries, with the goal of collectively achieving a total of €5 billion procurement spend with social economy organisations by 2030. According to Telos research, this level of investment will create 40,000 jobs, providing a significant boost to Europe’s growing social economy.
There are an estimated 2.8 million social economy businesses across Europe, employing 13.6 million people and representing 8% of the European Union’s (EU) GDP. Telos says that by buying more from them, companies can ensure their procurement spend “is invested into generating positive social and environmental outcomes”.
Social economy businesses are legally constituted to be ‘impact first’, designed to create jobs and opportunities for deprived minority racial and social groups.
Amy Brogan, ESG Global Executive Director at commercial property giant CBRE, said: “Partnering with social enterprises helps with engaging our people to drive our purpose-driven business approach. We started in the UK and we’ve seen great success and benefits, and we’re excited to replicate this across EMEA to raise awareness and show the true value to our clients and people.”
Bank of Japan chief warns of uncertain wage and price outlook
Bank of Japan (BOJ) Governor Kazuo Ueda has cited “very high uncertainty” as to whether companies would continue raising prices and wages in defending the Bank's resolve to maintain ultra-loose monetary policy.
He also offered a cautious take on the outlook for other major economies, warning of the fallout from aggressive US interest rate hikes and sluggish growth in the Chinese economy.
The key to the outlook for monetary policy is whether strong wage growth and consumption, rather than cost pressures from rising import costs, become the key driver of inflation, Ueda said. “We’re seeing some signs of change in corporate wage- and price-setting behaviour. But there is very high uncertainty on whether these changes will broaden,” he told business leaders in the western Japanese city of Osaka.
Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at -0.1% and caps the 10-year government bond yield around zero. In a news conference after the meeting, Ueda said the BOJ could tweak YCC when the stable, sustained achievement of its 2% inflation target was nearer.
But the Bank had “no clear image in mind” yet on when and how it could ditch the yield cap or raise short-term interest rates. “It will be a comprehensive judgement” assessing various factors including the wage outlook, as well as the strength of consumption and capital expenditure, Ueda added.
The BOJ maintained ultra-low interest rates on Friday and its pledge to keep supporting the economy until inflation sustainably hits its target, dispelling market speculation that rising inflation would soon prod the bank to phase out its massive monetary stimulus.
Ueda told the meeting the BOJ was "not fully convinced" that wage hikes would keep accelerating, as many companies seemed undecided on their wage strategy for next year and beyond. “The cost-push inflation we've seen so far hurts companies and households. That’s why we are supporting demand and the broader economy with easy monetary policy,” he added.
On the yen's recent falls, Ueda said the BOJ was keeping a close eye on their impact on economic and price developments. The BOJ’s ultra-loose policy has been blamed by some politicians as hurting households and retailers by weakening the yen and pushing up raw material import costs.
In the past, a weak yen has proved popular with business executives in Osaka, which is home to big exporters and manufacturers like Panasonic. But executives who spoke at the session with Ueda complained of the pain the policy was inflicting on smaller firms struggling to cope with rising raw material costs.
mBridge cross border CBDC platform “closer to launch”
mBridge, the wholesale platform for cross border central bank digital currency (CBDC)payments is preparing to launch ‘very soon’, claims Eddie Yue, the CEO of the Hong Kong Monetary Authority (HKMA), one of the four participant central banks along with China, Thailand and the United Arab Emirate (UAE).
Yue described the planned launch as a minimum viable product that will pave “the way for the gradual commercialisation of mBridge.” When the central banks and the Bank for International Settlement (BIS) shared the results of the last pilot a year ago, several additional central banks had observer status. The key findings were that it enables faster, cheaper, more transparent payments.
However, reports suggested that the group was kept small so the platform could reach production quickly. Large consortia are notoriously slow. “From a decision-making perspective, the senior group is even tighter than it looks, given the UAE representative, Shu-Pui Li, spent 17 years at the HKMA,” noted one commentator.
The observer central banks were the Philippines, Malaysia, Indonesia, Korea, Sweden, and Israel. Staff from the London BIS Innovation Hub and Federal Reserve Bank of New York also observed.
During a speech at China’s Bund conference, Yue separately discussed the waning support for globalisation. “We now seem to be moving down the path towards fragmentation, as practical and pragmatic economic considerations are giving way to protectionism and cross-border restrictions,” he said. He added that China’s role in regional supply chains will become even bigger.
“As trade and supply chain linkages in Asia become more integrated, there is greater scope to use local currencies in regional trade settlement and beyond. Indeed, an increasing number of economies, including those in the ASEAN, want to use the RMB to settle their trade with China,” added Yue.
Time nearly up for India’s 2,000 rupee banknote
India’s highest value banknote will be withdrawn at the end of this month, although reports state that there are still almost Rupees (INR) 24,000 crore (US$2.9 billion) worth of the notes in circulation.
The Reserve Bank of India (RBI) ordered the withdrawal of the INR 2,000 note on May 19, giving people and businesses more than four months to exchange or deposit them with banks. While most of the INR 3.56 trillion in notes have since been banked, 7% remained in circulation as of September 1.
The pink-hued INR 2,000 note was introduced in November 2016 to remonetise the economy, after Prime Minister Narendra Modi’s shock decision to remove INR 1,000 and 500 notes as legal tender overnight, as part of an anti-corruption push. It quickly became a favourite storage of value and the note of choice for large cash deals.
In its withdrawal notice, the RBI said the notes had served their purpose and were not commonly in use. It also cited its “clean note policy” to replace soiled notes within four to five years.
The May announcement led to a mini consumer boom for India’s economy, with local media reporting packed jewellery shops selling gold at a premium.
The notes will continue to remain legal tender even after September 30, but they will not be accepted for transaction purposes and can only be exchanged with the RBI. The holder will also be required to explain why the general deadline could not be met.
Finastra and Corvallis boost instant payments for Italian banks
UK-based financial software provider Finastra has extended its partnership with Tinexta Group company Corvallis, an IT services provider for the Italian financial services sector.
The partnership is tailored to expedite the modernisation of IT structures and the integration of real-time payments, ensuring Italian banks stay ahead of the EU’s impending mandatory transition to instantaneous credit transfers.
Finastra offers “pioneering financial software applications and marketplaces”. Its Essence, a Software-as-a-Service (SaaS) digital banking solution, is now enhanced to incorporate Finastra Payments To Go, a holistic SaaS payment processing solution, and Global PAYplus, a feature-loaded payment hub solution. These developments are intended to simplify Single Euro Payments Area (SEPA) and international payments, enabling Italian banks to align with the forthcoming European instant payments regulations.
Corvallis provides value-added solutions in arenas like anti-money laundering (AML), payment and settlement, and fraud management.
The collaboration promises an expanded focus from just Finastra’s Essence to also cover Finastra Payments To Go and Global PAYplus. The goal is to modernise outdated banking IT systems and ensure compliance with upcoming EU instant payments regulations.
Payments To Go offers a streamlined process for banks to expedite their instant payments service rollouts. On the other hand, Global PAYplus provides a comprehensive spectrum of payment services, grounded on microservices and an ISO 20022 native data model.
Varo Bank offers instant payments to users with US debit card
Varo Bank, a US ‘digital, nationally chartered consumer techbank’ has launched “Varo to Anyone”, a free, instant payments service that can be sent to anyone with a US debit card.
The payment app is designed to send payments to anyone with no fees, backed by an Federal Deposit Insurance Corporation (FDIC)-insured national bank. The speed, cost-effectiveness, and security inherent in Varo to Anyone are made possible by Varo’s national banking charter and distinctive tech bank business model.
“Shortly following the successful launch of Zelle, Varo is continuing its investment and innovation in payments with Varo to Anyone,” said Colin Walsh, CEO of Varo Bank. “We are providing the ultimate instant money flexibility, with no fee structure and the security only a bank provides. Varo to Anyone’s three-month development cycle and no-fee basis truly demonstrates Varo’s bank charter with FDIC insurance in action.”
Customers will find Varo to Anyone on the “Move Money” page inside the app and can send money instantly to anyone with a US bank account, no matter where they bank, by allowing access to phone contacts or inputting the recipient’s US phone number or email manually. After sending the money, the recipient will get a text or email notification about the payment with instructions on receiving their funds by entering their debit card information in the Bank’s portal.
CBA signs electric vehicle financing deal with Tesla
Commonwealth Bank of Australia (CBA) has announced a deal with Tesla for electric vehicle (EVs) loans at a discounted rate direct from the Tesla website.
The deal allows Tesla purchasers to apply for a CBA personal loan as they order an EV online. As with other EVs the bank will offer loans at a fixed rate of 5.49%, a discount of up to one percent on the price of a standard vehicle loan.
CBA General Manager Asset Finance, Chris Moldrich, said he expected many loan applications to come from Australian businesses after a study for the bank from East & Partners showed 40% of companies expected to deploy electric and hybrid vehicles in their fleets within 12 months.
“All customers I'm talking to on the business side are interested in what's happening in electric vehicles, how they can think about the transition, how they can adapt their buildings to charge. Provided the flow of stock continues to come into the country, I think we'll continue to see substantial increases on the business side” he said.
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