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.

 

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.