Eskom: we’re not broke

Eskom has lashed out at media reports that it was “broke”, saying it was confident it could keep going.

“Eskom refutes the notion that it is facing a cash crisis, and that it has only enough cash to last for the next three months,” it said in a statement.

“The company is confident that it will maintain sufficient liquidity to support its operations,” it added.

The state-owned enterprise said that it had noted weekend media reports about apparent financial problems.

However, it said that, because it was making an official announcement on its finances this coming Wednesday, “Eskom is not in a position to respond comprehensively to the specific issues raised at this stage”.

The power utility said that “external auditors have confirmed Eskom as a going concern, and as a result the company sees these reports as being inaccurate and misleading…

“It is important to reiterate that Eskom is not facing any liquidity challenges.”

The parastatal also said it wanted to highlight certain points, including that “whilst Eskom’s financial position has always been supported by significant reliance on debt and borrowings, its improved overall financial and operational performance over the last two years has led to an improved balance sheet”.

Eskom said it had “sufficient government guarantees” in order to be able to carry out its funding plan. It also had “maintained access to capital markets and raised committed funding”.

‘Eskom may not be able to pay salaries’

The Sunday Times newspaper published an article on Sunday in which it claimed that, according to financial statements it had seen, Eskom only had enough money to last approximately three months.

According to the weekly publication, Eskom has R20bn left, but has proposed to pay millions in bonuses, including to former CEO Brian Molefe and suspended acting chief executive Matshela Koko.

This week, Fin24 reported that, late last Monday, Eskom postponed its financial results presentations which had been due to take place last Tuesday.

Earlier this month, external auditors SizweNtsalubaGobodo reported the state utility to the Independent Regulatory Board of Auditors for apparent irregularities.

Koko has been on special leave since May, pending an investigation into an apparent conflict of interests, while a legal battle continues into the reinstatement and subsequent removal of Molefe.

On Sunday, the DA called on Public Enterprises Minister Lynne Brown to reject the proposed multi-million rand bonuses for the executives, past and present.

“The fact is that Eskom may not be able to pay salaries to its 49 000 employees come November,” said DA MP Natasha Mazzone in a statement.

Recent controversy

Here is a list of some recent controversies Eskom has been embroiled in.

  • Boiler tender worth R4-billion set aside

At the end of June‚ the Johannesburg High Court set aside a R4-billion tender given to Chinese firm Dongfang to replace a boiler at Mpumalanga power station Duvha.
Losing bidders‚ Murray and Roberts and General Electric‚ which had put in much cheaper bids than the Chinese firm‚ approached the Johannesburg High Court to have the tender set aside. Price was supposed to be a factor in the choice‚ Eskom had said.

  • Eskom paid Trillian R266-million without invoices

The Trillian report‚ released recently by advocate Geoff Budlender‚ SC‚ found millions were paid by Eskom to Trillian without proof any work was done for the power utility.
One invoice was for the broken boiler station that Dongfang had won a bid to fix. The boiler remains broken.
Budlender linked the Trillian company to the Guptas because their associate Salim Essa owns 60% of Trillian.

  • US firm acts

US auditing firm McKinsey has taken steps against its SA director‚ Vikas Sagar‚ after he wrote letters saying McKinsey was doing work for the company‚ something the company denies took place. The action taken against Sagar is part of a probe that is looking into Eskom contracts given to a Gupta-linked company.

  • Tegeta‚ Eskom and the Guptas

The Guptas received a R600 million pre-payment for coal from Eskom and used this money to buy the Optimum Coal mine.
Eskom said this was a pre-payment‚ but former Public Protector Thuli Madonsela said in her State of Capture report that this prepayment was irregular.

  • CEO Brian Molefe resigned‚ retired‚ rehired‚ rescinded

Molefe announced he was stepping down as Eskom CEO in November 2016 in the wake of the Tegeta incident and Madonsela report.
In May‚ he returned to Eskom as CEO‚ saying he had just retired.
After Public Enterprises Minister Lynne Brown was forced to explain his reappointment‚ she filed an affidavit saying he had never retired but had taken “unpaid leave”.
The scandal led to the Eskom board firing him at the end of May

  • Revelations in the Denton report‚ published in the Financial Mail

Eskom wasted about R200m over two years by failing to negotiate proper discounts with diesel suppliers. The company paid billions to companies without having received proper invoices‚ in many instances paying for services without evidence of having received the supplies for which it was paying.
Eskom contributed to its own financial problems‚ and contravened the Public Finance Management Act by failing to put proper controls in place.
It consistently overpaid for diesel‚ coal‚ logistics and other contracts.
Eskom employees diverted business opportunities to themselves at the expense of the utility.

Source: News24; timesLive
Image credit: National Geographic

With €22-billion (about R330-billion) in revenue last year, German software multi-national SAP should have all the expertise it needs to close major deals.

Instead, the #GuptaLeaks and related information show, the world’s third largest software company is not above calling in help from the politically connected, risking contravention of international anti-bribery laws.

AmaBhungane and Scorpio can reveal that in August 2015, SAP signed a “sales commission agreement” with a small Gupta-controlled company that specialises in selling 3D printers.

The terms suggest a thinly-disguised kickback arrangement: If the Gupta company were the “effective cause” of SAP landing a Transnet contract worth R100 million or more, it would get 10 percent.

In the year to follow, SAP paid the company, CAD House, a whopping R99.9 million, suggesting SAP used the Gupta influence network to drive sales of a billion rand to Transnet and other state-owned companies.

SAP denies it paid kickbacks or was party to laundering the payments, arguing that CAD House had “the necessary skills in terms of positioning our solution” and was paid a sales commission for acting as “an extension of the sales force”.

But there are factors suggesting that SAP’s denial does not hold water: there is no evidence that CAD House had any experience marketing or selling SAP software. And CAD House appears to have been used as a front, both to distance the transaction from the Guptas and to launder the proceeds to them.

Neither CAD House nor the Gupta family responded to detailed questions.

Strategic customer

In 2014, Transnet was considered so key to SAP’s business that it was defined as a “strategic customer” – a designation given to just 300 out of 197 000 SAP customers worldwide, according to a SAP presentation found in the #GuptaLeaks.

Despite its special relationship, SAP was seemingly having trouble closing deals with Transnet and turned to the Guptas for help, the trove shows.

CAD House, which specialises in selling 3D printers, is not widely known to be part of the Gupta empire. At the time it was, on paper, half owned by Santosh Choubey, a key Gupta lieutenant employed by their Sahara Systems.

Minutes and other #Guptaleaks records show, however, that CAD House was managed as a subsidiary of the Sahara group – indicating that beneficial ownership rested with the Guptas themselves.

In an interview, SAP South Africa chief financial officer Deena Pillay claimed that CAD House was no different to other sales agents SAP uses. “They’re small guys who would go out there, identify business and come to SAP with that opportunity.

“It’s a lever available to SAP to sell its software… We’ve got a sales force that we employ, so these are the agents on the ground… They are an extension of the sales force.”

In SAP’s world, commission agreements are not unusual. Except in this case Transnet was already a client of SAP and the commission agreement with CAD House made it clear SAP was not so much hiring a sales agent to market a product to Transnet as a fixer to clinch the deal.

The commission agreement was signed on 20 August 2015 by Pillay and another senior SAP executive. It promised CAD House 10 percent if CAD House was the “effective cause” of Transnet signing a R100 million-plus deal with SAP.

CAD House’s “main purpose”, it specified, “is to assist [SAP] in obtaining Customer consent to the Customer Contract and Customer’s requisite signatures to such agreement”.

Due diligence

SAP’s Pillay told us that an “external reputable company” did a “rigorous due diligence” on CAD House before the agreement was signed. Pillay’s colleague Candice Govender, who is SAP South Africa head of legal, confirmed that SAP was aware CAD House was connected to Sahara, but found “no red flags”.

Yet, by the time SAP signed the commission agreement in August 2015, the red flags were in plain sight.

Three weeks earlier, amaBhungane and the Mail & Guardian had revealed how telecoms firm Neotel agreed to pay letterbox company Homix R104 million in what were also termed “commissions” – clearly kickbacks – to land Transnet contracts.

Our exposé at the time showed that a Gupta man was behind Homix. Immediately after the exposé, Neotel’s chief executive and chief financial officers went on “special leave”, ultimately to lose their jobs.

Two possibilities present themselves: Either SAP ignored the obvious red flags about the Guptas’ alleged involvement as fixers at Transnet, or it signed up for exactly the same service.

In a settlement with the US Securities and Exchange Commission last year, SAP agreed to pay a $3.9 million fine after a senior SAP official paid bribes for state business in Panama via a local partner.

The SEC had jurisdiction because of SAP’s secondary listing on the New York Stock Exchange.

The road to closure

Even for questionable commission agreements, 10 percent appears to be high. One industry insider put the usual “fixer” fee at closer to two or three percent. With the Neotel deals, Homix was to receive roughly five percent of the roughly R2 billion Transnet contract value.

But SAP not only wanted a Transnet deal worth a minimum of R100-million, it wanted it signed within just one month.

In an attached timeline of deliverables, referred to in the commission agreement as the “Road to Closure”, CAD House and Choubey were expected to secure a meeting with Transnet chief financial officer Garry Pita within just three days to “position the financial benefit” of SAP’s proposal.

After that it was not a sales effort, but one simply of getting Pita and Transnet to give the necessary approvals. The timeline provided that Pita would have the required R100 million-plus “budget reallocated for capital approval” only a week later.

By 21 September 2015, a month after SAP signed the commission agreement, CAD House was expected to “fast track and attempt to obtain contract signature” from Pita and Transnet’s chief information officer – although it had leeway until the end of December still to qualify for the commission.

While there is scant information in the agreement about how CAD House would work such a miracle, the agreement – in common with many commission contracts – contained extensive anti-bribery clauses, making CAD House promise that it would not pay any money in turn to government, state owned company or party officials.

But the circumstances suggest this was little more than a fig leaf.

Fronting for the Guptas

The evidence suggests that CAD House was interposed as a front to avoid exactly the kind of red flags that the Guptas as politically connected persons would have raised during a due diligence.

For a company with a turnover of less than R20 million and struggling to make any profit at all, the prospect of millions in commission should have been a major development.

Yet, #GuptaLeaks minutes of monthly CAD House meetings straddling the date of the commission agreement make no mention of the expected windfall. The meetings, at Gupta holding company Oakbay Investment’s Sandton offices, were attended by both Sahara and CAD House officials and discussed revenue-generating proposals for the latter.

A CAD House budget signed off in February 2016 – six months after the commission agreement was signed and shortly before SAP’s payments were to start rolling in – made no mention of the income either.

As we shall see, this was with good reason: SAP’s payments were not to stay with CAD House, but flow straight out to other Gupta companies.

Although SAP vehemently defended the decision to hire CAD House, Pillay and Govender seemed unable to explain why a company that sells 3D printers was an ideal partner for a complex software deal.

“We were doing a proof of concept and CAD House was an existing vendor at Transnet and we were looking at doing 3D models for these guys to show them the value and the benefit of using our solution,” Pillay told us.

When pushed for further detail of what SAP product required it to be modeled in 3D, Pillay said: “[The deal] was about Transnet in terms of the rail infrastructure, the way the operations work, the yards, the trains – all of that these guys were able to do the necessary 3D modelling as well as being able to position the SAP solution.”

Vetted

When we pointed out that CAD House’s speciality is selling printers that make physical 3D models, Govender deflected: “At the end of the day they [CAD House] were vetted internally and externally; SAP was happy that they added value; [Transnet] was happy that they added value… Look you have the CFO and SAP head of legal in front of you… If you need more technical detail you don’t have the right people in front of you.”

There are compelling reasons to be skeptical of SAP’s explanation:

One, Pillay signed the commission agreement on behalf of SAP and would surely have been privy to why SAP was giving away 10 percent of a minimum R100 million deal.

Two, If SAP honestly did want plastic models of its software solution it could have bought them at a fraction of the cost.

And three, despite Pillay maintaining that SAP engaged CAD House because of its “existing relationship [and] understanding the processes within Transnet”, Transnet denied it had any relationship with CAD House whatsoever.

Pita, the Transnet chief financial officer and “Road to Closure” target of SAP and CAD House’s lobbying efforts, wrote in reply to our questions: “According to our records, Transnet has not conducted business with CAD House. I have never heard of CAD House or dealt with them, nor have I had any discussions with a Mr Choubey about them.

“I have never been approached by CAD House or Mr Choubey to discuss Transnet’s contract with SAP or SAP’s services and products. I have not met with any third party to discuss contracts between Transnet and SAP.”

All in all, a more plausible explanation for the payments to CAD House may be that SAP willingly entered into a kickback agreement where both parties knew the Guptas, not CAD House, were to receive SAP’s millions and use their politically-derived influence to secure business for SAP. This is supported by what happened in the run-up to the deal.

The start of a beautiful friendship

The #GuptaLeaks show that Lawrence Kandaswami, SAP South Africa’s managing director, was the software multinational’s key contact with the Guptas.

As far back as 2014, when he was still SAP’s account director responsible for Transnet, Kandaswami exchanged emails with Choubey, who used his Sahara Systems email address.

At the time, SAP was trying to close a separate deal with Transnet to buy SAP Hana, a database management product.

A day after meeting with Transnet, Kandaswami forwarded Choubey the SAP presentation marked “strictly confidential”, detailing the proposed deal.

Kandaswami’s message read: “This is to prompt movement on the opportunity.” Choubey immediately forwarded the email to Salim Essa, with a note saying: “Sir – FYI – Supporting for Hana from SAP.”

Essa, a key Gupta lieutenant, has often been the family’s most direct point of contact at Transnet and Eskom.

The #GuptaLeaks do not show what Essa did after receiving Kandaswami’s email but Transnet confirmed that it agreed to go ahead with the proposed SAP Hana deal in late 2014.

By February 2015, Kandaswami had been promoted to SAP South Africa’s head of public sector, according to his LinkedIn profile. Both Transnet and Eskom’s accounts were now under his purview.

There are indications that a similar role was played at Eskom too.

On 17 February 2016, the #GuptaLeaks show, Choubey scheduled a meeting between Sahara and SAP. Two weeks later, on 2 March, Kandaswami emailed Eskom chief financial officer Anoj Singh, head of procurement Edwin Mabelane and head of generation Matshela Koko about an urgent deal for Eskom to acquire SAP Hana.

The offer would expire, he warned, at the end of March unless Eskom seized the opportunity.

In a pattern that has now become familiar, Kandaswami almost immediately forwarded this email to Choubey, who forwarded it to one of the Gupta brothers’ adult children.

Eskom spokesperson Khulu Phasiwe confirmed that Eskom signed two contracts with SAP during 2015 and 2016, but declined to provide any further detail citing a confidentiality agreement signed with SAP.

Shortly after these exchanges took place, Kandaswami was promoted to managing director for SAP South Africa.

R99.9m payday

Following the signing of the Transnet commission agreement, the money started flowing to CAD House – and straight out again.

The first SAP payment we know about landed in CAD House’s bank account in April 2016. The R17 million did not stay there long; on the same day R2 million was transferred out to Sahara Computers and R2.3 million to an obscure Eastern Cape company whose owner we have been unable to trace.

Within five days another R10 million was transferred out: R9 million to Sahara Computers and a million to Baroda, the Guptas’ bank of choice.

A similar pattern was repeated that July when R9.2 million came in from SAP. Within two days, R7.7 million bounced to Sahara Systems and R1.1 million to the Eastern Cape company.

In December that year, a massive R73.7 million rolled in from SAP. Within a fortnight, R71.1 million had gone out to three companies in the Sahara orbit: Cutting Edge, Futureteq and Sahara Systems.

All in all, we identified R99.9 million in SAP payments of which only R5.7 million did not flow straight out.

The amount appears not to relate only to the R100 million minimum Transnet contract that was the subject of the commission agreement we know about. Pillay and Govender confirmed that SAP paid CAD House in respect of “other customers” too, but refused to give details, citing client confidentiality.

This pattern, of money being cycled through Gupta-controlled accounts at a rate that defies all commercial reason, has become familiar through the #GuptaLeaks.

When we put it to SAP that it may have become party to a money laundering scheme by contracting with CAD House, Govender objected strongly, saying: “We are not aware of any payments being made to Sahara or anybody else. Our contract is with CAD House.”

Pillay added: “What the partner does with their money I have no control over. If you say these guys pass the money up the line, I have no control over that, I have no visibility over that.”

SAP may end up having to explain that to the Securities and Exchange Commission too, which will have SAP on a watch list after last year’s settlement over bribery in Panama. In that matter, the SEC found that SAP “failed to devise and maintain an adequate system of internal accounting controls” to prevent bribery.

Transnet did not respond to questions other than to mirror Pita’s comments, saying it had “never conducted any business with CAD House. The company is not aware of CAD House’s involvement with SAP or Mr Choubey”.

Detailed questions were sent to SAP’s Kandaswami and Sahara’s Choubey, but neither responded.

In a written statement, Govender said: “SAP is dedicated to conducting every aspect of our business responsibly and in accordance with the highest legal standards… With regard to CAD House and SAP SA Business Development Partners in general, please note that any selected SMMEs and/or partners are verified, both in terms of SAP’s rigorous internal forensic procedure as well as by an independent forensic law firm.”

By AmaBhungane and Scorpio for News24

Have you been breached?

It seems like there is a new data breach every other day, causing companies untold embarrassment and reputational damage when customers’ private details are leaked.

A new Web site called www.haveibeenpwned.com allows you to see if your details have been compromised by a data breach.

Simply click on the link, enter your email address and click the pwnd? button to find out if you’re a victim.

Major data breaches

Some high profile leaks in the last while include:

  1. RNC (2017)
    A misconfigured database containing the sensitive personal details of over 198-million American voters was left exposed to the internet by a firm working on behalf of the Republican National Committee (RNC) in their efforts to elect Donald Trump.
  2. Zomato (2017)
    Zomato, which provides users with an online guide to restaurants, cafes and clubs, reported that data from 17-million users had been stolen, including email addresses and hashed passwords.
  3. NHS (2017)
    The recent WannaCry ransomware infected 47 NHS England Trusts and hundreds of companies across the world.
  4. ‘Eddie’ breach (ongoing)
    Security researchers at the Kromtech Security Research Center discovered a massive database of 560-million login credentials which is believed to come from up to 10 popular online services such as LinkedIn and Dropbox, obtained during previous data breaches.
  5. Wonga (2017)
    Payday loan company Wonga has fallen victim to a large data breach that could have hit as many as 245,000 of its customers including bank account numbers and sort codes.
  6. Tesco Bank (2016)
    Late last year, Tesco Bank, the consumer finance wing of the British supermarket giant, froze its online operations – after as many as 20 000 customers had money stolen from their accounts.
  7. Sage (2016)
    As a FTSE-100 firm, the apparent insider attack admitted by accounting and HR software firm Sage could turn out to be one of the most important in UK data breach history if its scale is confirmed.
  8. Ashley Madison (2015)
    In July 2015, a group calling itself “The Impact Team” stole the user data of Ashley Madison, a commercial website billed as enabling extramarital affairs. The group leaked more than 25 gigabytes of company data, including user details.
  9. Mumsnet (2014)
    A direct victim of the infamous and widespread Heartbleed SSL software flaw, the compromise allowed hackers to access anything up to 1,5-million user accounts on the hugely popular site, its owners revealed.
  10. Yahoo (2013, 2014)
    It seems hard to pin down just one data breach spawning from Yahoo’s 22 years in business. Last year appeared to unearth a mammoth lack of security on Yahoo’s part with reports uncovering a breach affecting over 500-million Yahoo user accounts during 2014.
  11. Sony PlayStation Network (2011)
    The largest data breach in history at the time, Sony’s disastrous 2011 breach saw hackers make off with the customer records of 77-million people relating to its PlayStation Network, including a small number revealing credit card numbers.

Sources: www.techworld.com; wikipedia; www.haveibeenpwnd.com

Are our cellular providers stealing from us?

The hashtag #datamustfall is currently trending on Twitter where people are calling for an end to high data prices.

Consumers have once again become fed up with the high cost of mobile data in South Africa.

Apart from the cost of data, users are also complaining that cellular providers should not be able to set “expiry” dates on data – and that once purchased, data should be the users’ to keep.

A recent Facebook post on the matter went viral when it was shared over 7 500 times, sparking a resurgence in the anger towards SA’s main providers: Cell C, MTN, Vodacom and Telkom.

The questions consumers are now asking revolve around whether this is tantamount to theft, and what impact it has on the country’s small businesses – and the poorest sections of society.

Poet and activist Ntsiki Mazwai has called on South Africans to boycott all social media platforms from midnight.

The social media blackout campaign has the following aims:

“The social media blackout is a campaign that is aimed at lowering data prices. Data costs are obscene and are not affordable for people on the ground. We want to bring attention to this issue; we want to engage government and cellular network companies.”

Mazwai says that from midnight people should log off social media.

“We don’t buy data for 24 hours, we will meet back on social media the following day to discuss the way forward. Why should data expire after 30 days when you’ve paid for it?”

She has encouraged people to take part in the campaign because it is too expensive to access information.

“We keep talking about #feesmustfall but how must students access information or hand in assignments if data costs are so high? This has a negative impact on entrepreneurs and our families because we can’t communicate with them.”

Mazwai has further called on the country to unify for a good cause.

Refilwe Pitjeng for EWN; My Office News

Darkness descends on Eskom

South Africa’s state-owned enterprises have been hit by one scandal after another signalling serious political and corporate governance failures. The largest of these, the power utility Eskom, has seen its CEO Brian Molefe resign, then return, and then be fired – all in the space of seven months. This was followed by the unexpected resignation of Eskom Chairperson Ben Ngubane. The Conversation Africa’s Sibonelo Radebe asked Owen Skae to make sense of it all.

What do you make of what’s happening at Eskom?
It’s an unholy mess. The entire basis of the departure, reappointment and subsequent firing of the Eskom CEO raises so many red flags it’s hard to know where to start. And, to cap it all, the chairman has resigned with immediate effect. That means Eskom is without a CEO and now has a stand-in chairperson.

One thing is clear. The board, the chairperson Ben Ngubane, the minister of public enterprises Lynne Brown, and Molefe failed in their duties to serve Eskom. They failed South Africa’s taxpayers who are the indirect shareholders of Eskom. And they failed the country.

To understand their duties, one has to consider the basic principles of governing state owned enterprises. Eskom is a public company and its sole shareholder is the government. The shareholder representative is the ministry of public enterprises. A shareholder compact guides the relationship between the board, the executives and the minister.

The shareholder compact is an annual agreement between Eskom’s leadership and the minister. It documents the power utility’s mandate, as well as key performance measures. It also sets out what’s expected from a good governance perspective. It’s meant to avoid the kind of mess that has visited Eskom over the past few months.

What went wrong?
A number of things.

The main one is that corporate governance rules designed to manage conflicts of interest were totally disregarded.

The country’s Companies Act spells out what a director may or may not do if they have a personal financial interest in a matter. These rules apply as much to state owned enterprises as they do to publicly listed ones. The Eskom situation suggests that directors, and Molefe in particular, disregarded this principle.

This is highlighted in the former public protector Thuli Madonsela’s “State of Capture” report which suggested that Molefe had had an improper relationship with the Guptas, a family of businessmen with close ties to President Jacob Zuma. Among other things, the report questioned the way in which the Eskom leaders collaborated with the Guptas to buy, some say hijack, a mine supplying power utility with coal.

The Eskom board and the minister also failed to apply their minds properly around Molefe’s controversial departure and return. This includes a deal to give him a pension payout of R30 million just 18 months in the job and 13 years before he is due to reach retirement age.

A good understanding of the act, as well as the codes of good corporate governance that have been developed in the country, make it clear that the board should have:

  • Called a special meeting to consider Molefe’s departure;
  • Applied its mind to the circumstances of his departure; and
  • Ensured that the necessary legal, risk and reputation issues were addressed.

Another big area of failure was the role of the board’s chairperson. Even though he has resigned, he should still be held accountable for not providing the necessary oversight at such a momentous time.

As the only shareholder, the government is also complicit. As the shareholder representative the minister of public enterprises had the responsibility of asking the board questions as part of a consultative process that’s set out in the shareholder compact.

Either the minister wasn’t properly informed or didn’t ask the questions she was entitled to ask, or a mixture of both. This raises red flags about her level of commitment to the shareholder compact.

What does it tell us about the broader political environment?
There’s just too much interference – for nefarious reasons – from outsiders in the running of state owned enterprises. Excessive power and authority is vested in too few people. I often use the analogy of being a sports coach. Imagine a situation where the coach is called to account for his actions every day, where he has no say in who is picked and is told to change the game plan. The situation becomes unmanageable.

Interference undermines the way things should be, erodes confidence and allows conflicts of interest to flourish. This is particularly true when the interference is from people who aren’t acting in the best interests of the team.

But being untouchable is also a recipe for disaster. So we have to find a middle ground. The rules of the game must be established and the parties must carry them out with integrity, competence, responsibility, accountability, fairness and transparency.

These rules of the game are clearly set out in the South African context. Nobody can claim they don’t know what they are. In the case of Eskom they’ve simply been flouted.

What do the events at Eskom tell us about state owned enterprises in South Africa?
Sadly, state owned enterprises are seen as instruments to serve an elite few rather than fulfilling their broader mandate.

On top of this they aren’t financially viable which means they’ll continue to be a drain on the fiscus. The government must consider partnerships with the private sector. This can be done by selling minority stakes as suggested by former finance minister Pravin Gordhan.

The success of the partly privatised telecommunications entity Telkom supports this view. The company has just posted handsome profits, suggesting it’s a model that could be used to turn around other state owned enterprises, including Eskom.

By Owen Skae for www.mg.co.za

South Africa enters a recession

Gross domestic product contracted 0.7% for the first quarter of 2017, indicating that the country has entered into a recession, according to deputy director general of Economic Statistics at Statistics South Africa (Stats SA) Joe de Beer.

The latest GDP data was released by Stats SA on Tuesday.

For South Africans, this means:

  • The value of the rand is weaker, driving the price of commodities and imports up

  • Food and petrol prices are likely to increase

  • Foreign investment will slow

  • Local job creation will slow

  • The unemployment rate will continue to rise as companies contract and lay people off

The contraction follows the GDP decline of 0.3% in the fourth quarter of 2016. In 2016, the economy grew only 0.3% for the year.

Compared to the previous year, GDP growth came to 1%. “Over the last four years there were instances of negative economic growth prior to the last two quarters,” said De Beer.

The main contributors to the contraction were the trade and manufacturing industries. Trade declined 5.9% and manufacturing contracted 3.7%.

The agriculture and mining industries were the only sectors which made positive contributions. Agriculture increased growth by 22.2% on the back of the drought recovery, and mining grew by 12.8%.

However, expenditure on GDP contracted by 0.8% in the first quarter.

Household consumption declined 2.3%, with spend of food and non-alcoholic beverages, clothing and footware and transport the major contributors to negative growth.

Gross fixed capital formation grew by 1%, mainly due to machinery and equipment which grew by 7.9%.

Net exports contributed negatively to growth and expenditure on GDP, while goods and services contributed negatively to growth in exports. Exports of mineral products and vehicles and transport equipment were largely responsible for the decrease in goods, according to Stats SA.

Imports, which increased 3.2%, were driven by imports of mineral products.

Government consumption expenditure contracted 1%.

Recently the World Bank projected low growth for the following two years. The World Bank expects growth of 0.6% for 2017, 1.1% for 2018 and 2% for 2019. The projections for 2017 and 2018 are 0.5 and 0.7 percentage points less respectively than its January 2017 figures, Fin24 reported. data

The Reserve Bank also revised down growth forecasts. At the monetary policy committee rates announcement in May, Reserve Bank governor Lesetja Kganyago said political tensions and the sovereign downgrades to junk status have presented risks to growth.

The Reserve Bank’s growth forecast for 2017 is now 1%, down from 1.2%. Growth projections for 2018 were cut down from 1.7% to 1.5%. Similarly, the 2% growth forecast for 2019 was revised to 1.7%.

At its recent credit review, ratings agency Standard and Poor’s (S&P) emphasised that low growth remained a concern. S&P explained political risks would weigh heavily on growth priorities and this would slow fiscal consolidation.

“We believe the current political environment could result in the private sector delaying business investment decisions, thereby restraining GDP growth,” said S&P.

S&P projects growth to rebound to 1% in 2017 and average at 1.5% between 2017 and 2020.

By Lameez Omarjeev for News24

SA banks once again in trouble

Several local and international banks have been slapped with administrative fines by the South African Reserve Bank, for weak anti-money laundering and combating of financing terrorism controls.

The banks include Investec, Absa, Standard Chartered, as well as Habib Overseas Bank.

Overall, banks were fined a total of R46.5-million.

Absa was fined R10-million for weaknesses related to their transaction monitoring. Investec received the largest fine of R20-million. This was due to their failure to implement adequate processes to screen the related parties of customers.

Meanwhile, Habib bank was fined R1-million for “inadequate controls and working methods pertaining to the reporting of suspicious and unusual transactions”, the Reserve Bank said in its banking supervision report released on Friday.

The decision to pose the penalties was not as a result of evidence that any of the banks had facilitated illegal activity the SARB said, but rather because of the weakness of their control measures.

These banks have been issued with a directive to take remedial action.

Habib Overseas Bank was the target of a fraught acquisition bid by a company with links to Gupta family associate Salim Essa.

In March, Vardospan went to court to try and force the Reserve Bank, the registrar of banks and the finance minister to clear its purchase of Habib.

Vardospan accused the regulators and treasury of dragging their feet in authorising the purchase.

The Mail & Guardian has previously reported how Vardospan concluded a share purchase deal to become the majority shareholder in Habib Bank in August last year.

The deal came shortly after the country’s four major banks closed the accounts of the Gupta family and their related companies.

Vardospan is owned by CINQ Holdings and Pearl Capital Holdings. Vardospan director Hamza Farooqui owns 100% of the shares in Pearl Capital, which has a 33.33% stake in Vardospan. Essa owns 100% of CINQ, which holds the other 66.67% in Vardospan.

The court struck down Vardospan’s attempts to force the authorities hand. Incidentally, the court’s decision came hours after President Jacob Zuma axed former finance minister Pravin Gordhan in a major Cabinet reshuffle late on March 30.

The decision on the application now rests with new finance minister Malusi Gigaba.

By Lynley Donnelly for www.mg.co.za

Terror on the dance floor

Monday night’s explosion at an Ariana Grande concert in Manchester, England, that killed at least 22 and injured more than 50 is the latest in a series of recent terror attacks aimed at the West.

British Prime Minister Theresa May said the government is trying to establish the “full details” of the “appalling terrorist attack” and was expected to call an emergency cabinet meeting to deal with the horror.

But this was not the first time May, and other European leaders, have had to deal with a deadly terror attack — and the threat to the U.K. from international terrorism is severe.

Here is a timeline of recent terror attacks in Europe:

April 20, 2017: Champs Elysees Attack in Paris

An attacker got out of a car and fired an automatic weapon at a parked police van, killing the officer inside, before shooting at others standing on the nearby sidewalk, injuring two before he was shot and killed by police.

The French president said the attack was “terrorist in nature” and promised “utmost vigilance.”

The Islamic State claimed responsibility for the attack.

April 7, 2017: Stockholm Truck Attack

Five people were killed when a truck driven by a man drove into a pedestrian shopping street and department store in Sweden’s capital city, wounding over a dozen others.

The 39-year-old man allegedly admitted to being a member of ISIS and told police that he had “achieved what he set out to do.”

April 3, 2017: Saint Petersburg Bombing

A suicide bombing on the subway in Russia’s second largest city killed more than a dozen passengers and injured dozens more.

March 22, 2017: Westminster Bridge Attack

Five people, including a London police officer who was stabbed and the perpetrator, were killed in a terror attack. More than 40 people were injured outside the Parliament building.

British Prime Minister Theresa May said the act was “sick and depraved.”

ISIS later claimed responsibility.

February 3, 2017: Louvre Knife Attack

A machete-wielding man yelling “Allahu Akbar” attacked soldiers in a shopping mall near the Louvre in Paris. He was shot and wounded by soldiers.

December 19, 2016: Germany Christmas Market

A large truck plowed through a Christmas market in central Berlin, which killed 12 and injured 48 others.

ISIS claimed responsibility for the attack and said the attacker was “a soldier of the Islamic State” through Amaq news agency.

November 28, 2016: Ohio State

Abdul Razak Ali Artan, an Ohio State University student, ran his car into a group of students, and slashed people with a butcher knife.

The Islamic State claimed responsibility for the attack and called Artan a “soldier.”

October 16, 2016: Hamburg, Germany

There was a “lone wolf” knife attack in Hamburg, Germany, killing one teenager.

July 26, 2016: Normandy, France

Two men took five people hostage during a mass at a church in Normandy, and murdered an elderly priest by stabbing him in the chest and slitting his throat. The hostages were freed later, and the two men were arrested.

Then-President Francois Hollande said that the men carried out the attack in the name of ISIS.

July 14, 2016: Nice, France

77 people were killed in Nice, France when a truck drove through a crowd on Bastille Day.

ISIS claimed responsibility for the attack.

June 12, 2016: Orlando Nightclub Shooting

Omar Mateen attacked an Orlando gay nightclub, killing 50 people. Mateen pledged allegiance to ISIS on a 911 call, after the worst mass shooting in U.S. history, and the worst terrorist attack on U.S. soil since 9/11.

ISIS later claimed responsibility for the attack

March 22, 2016: Belgium Attack

There were two suicide bombings on March 22, 2016—one at Brussels Airport and the other in the city’s subway system. Combined, the attacks killed 32 people.

The ISIS cell that claimed responsibility for the Brussels attack was also linked to those involved in the November 13, 2015 terror attacks in Paris.

January 11, 2016: Marseille, France

A teenager attacked a Jewish teacher in Marseille with a machete. He told police that he carried out the attack in the name of the Islamic State.

January 7, 2016: Philadelphia, Penn.

A man shot and wounded a Philadelphia police officer. The man claimed the attack was in the name of Islam and the Islamic State.

December 2, 2015: San Bernardino Shooting

A married couple shot and killed 14 people in San Bernardino, Calif. The FBI is investigating the shooting as an act of terrorism inspired by ISIS.

November 13, 2015: Paris Attacks

A series of coordinated terrorist attacks in Paris killed 130 people and injured hundreds more. The attacks consisted of mass shootings and suicide bombings.

The Islamic State claimed responsibility.

August 21, 2015: Paris

Three Americans were at the center of an attempted mass shooting. They helped to overpower a gunman who was armed with a Kalashnikov, and opened fire on a train from Amsterdam to Paris.

The gunman was on the radar of European counterterrorism agencies, and appeared to be sympathetic to ISIS.

February 15, 2015: Denmark

A Denmark national who was inspired by ISIS went on a rampage through the nation’s capital, killing two and wounding five police officers.

January 7-9, 2015: Charlie Hebdo

There was an attack on the offices of the satirical magazine Charlie Hebdo, and four attacks around Paris followed, killing 17 people.

ISIS claimed responsibility for the attacks.

By Brooke Singman for Fox News

On Friday, doctors at Whipps Cross Hospital, east London, logged into their computers, but a strange red screen popped up. Next to a giant padlock, a message said the files on the computer had been encrypted, and would be lost forever unless $300 was sent to a Bitcoin account – a virtual currency that cannot be traced. The price doubled if the money wasn’t sent within six days. Digital clocks were counting down the time.

What happened?

It was soon revealed Barts Health Trust, which runs the hospital, had been hit by ransomware, a type of malicious software that hijacks computer systems until money is paid. It was one of 48 trusts in England and 13 in Scotland affected, as well as a handful of GP practices. News reports soon broke of companies in other countries hit. It affected 200,000 victims in 150 countries, according to Europol. This included the Russian Interior Ministry, Fedex, Nissan, Vodafone and Telefonica. It is thought to be the biggest outbreak of ransomware in history.

Trusts worked all through the weekend and are now back to business as usual. But the attack revealed how easy it is to bring a hospital to its knees. Patients are rightly questioning if their medical records are safe. Others fear hackers may strike again and attack other vital systems. Defence minister Michael Fallon was forced to confirm that the Trident nuclear submarines could not be hacked.

So how did this happen? The virus, called WannaCry or WannaDecrypt0r, was an old piece of ransomware that had gained a superpower. It had been combined with a tool called EternalBlue which was developed by US National Security Agency spies and dumped on the dark web by a criminal group called Shadow Brokers. Computers become infected with ransomware when somebody clicks on a dodgy link or downloads a booby-trapped PDF, but normally another person has to be fooled for it to harm a different computer. EternalBlue meant the virus could cascade between machines within a network. It could copy itself over and over, moving from one vulnerable computer to the next, spreading like the plague. Experts cannot trace who caused it, whether a criminal gang or just one person in their bedroom hitting “send”.

Like a real virus, it had to be quarantined. Trusts had to shut down computers and scan them to make sure they were bug-free. Doctors – not used to writing anything but their signature – had to go back to pen and paper. But no computers meant they couldn’t access appointments, referral letters, blood tests results or X-rays. In some hospitals computer systems controlled the phones and doors. Many declared a major incident, flagging up that they needed help. In Barts Health NHS Trust, ambulances were directed away from three A&E departments and non-urgent operations were cancelled.

The tragedy is that trusts had been warned of such an attack. Dr Krishna Chinthapalli, a junior doctor in London, wrote an eerily premonitory piece in the British Medical Journal just two days earlier telling hospitals they were vulnerable to ransomware hits.

How to avoid ransomware
Ransomware is a sophisticated piece of malware that blocks the victim’s access to their files, and the only way to regain access to the files is to pay a ransom.

Here are a few tips to avoid ransomware:

  1. Back up everything on the company network – create a sane, quiet backup system and use it daily.
  2. Don’t use Windows XP – it’s a little hard to believe but unsupported operating systems on office computers put data at risk. Consider an upgrade.
  3. Buy a hard drive and back up documents off-site – even if ransomware hits you overnight, you’ll have a few days’ data on this external backup. This will prevent the destruction of important records.
  4. Back up to the cloud – use an internet-based service like Google to store back ups.
  5. Ensure your network security is up-to-date. Install any patches provided by the security software you use.

Businesses often cite cost as a pain point when explaining why they don’t have back-ups or adequate security.
The ultimate question businesses need to ask themselves is: can your company afford to pay the ransom?

Sources: Madlen Davies for www.newstatesman.com; www.techcrunch.com

My Office News launches

My Office magazine unveiled its new direction at a launch breakfast at the Bryanston Country Club in Johannesburg today.

My Office News will provide both members and readers with a variety of new digital offerings.

The breakfast was opened by shop-sa chairman Hans Servas, in which he introduced the morning’s guest speaker: Matt Brown of Digital Kung Fu.

Brown set about explaining what digitisation is and how it will impact businesses across industries, which is discussed in detail below.

After the talk held by Brown, Rob Matthews of My Office News presented an outline of the product offerings.

Matthews outlined the advantages of digital, which include reduced cost to advertisers; flexibility to change artwork; broader coverage; speed of publishing; and better metrics (regarding delivery and readership).

“My Office is getting 6 000 unique visitors a month, with over 21 000 visits. The majority of the readers are in the Gauteng area, with an above-average concentration in the Western Province. These visitors spend in excess of three minutes on the site.”

The newsletter, sent out once a week on Wednesday, is received by more than 5 000 people with an average of 99,5% delivered and an open rate in excess of 25%.

“We are aiming to grow the database by 8 000 by the end of the calendar year,” says Matthews.

Digitisation and disruptive technologies

The changing digital environment
Digitisation is the conversion of something non-digital into something digital, disrupting it using digital technology.
“When it comes to digitisation, experts are clueless,” says Brown. Many great minds have missed some of the largest technical inventions of the 19th, 20th and 21st centuries. Examples of this include Western Union brushing off the telephone, and the head of IBM questioning the validity of the personal computer.

Drivers of disruption  
The drivers of disruption in the evolution of media include:
Consumer pull – a growing number of people willing to use the product
Technology push – more people are connecting to technology than ever before
Economic benefits – the benefits of going digital are now exponential

‘Digital’ is more than marketing
When digital arrived in South Africa, major advertising agencies bought out smaller ones in order to bring advertising in-house.
In the 1970s, WPP, OmniCom and IPG had traditional companies. Now the most forward-looking digital agencies in this century are Google and Facebook – technology companies.

The six Ds of Digitisation
The process of digitisation is rapid – so rapid that it is now exponential. The six Ds show a road map of rapid development that results in upheaval.

  • Digitisation – when something is presented in ones and zeroes it becomes an information-based technology subject to exponential growth.
  • Deceptive – digitisation can be deceptive in its initial period because growth doesn’t seem that fast, but it soon picks up speed.
  • Disruptive – the digital technologies disrupt existing industries because they outperform them in both effectiveness and pricepoint.
  • Dematerialised – major devices of the 1980s (such as a boom box and a telephone) have been are now in one device – the smartphone. Separate products become one product.
  • Demonitisation – this occurs when commodities (such as vinyl record stores) are made accessible via technology (such as iTunes) and thus become worth less or even free.
  • Democratisation – this is where the marketplace explodes. As more people join the digital world, technology becomes available to more people to use.

In 2000 6% of the world’s population connected to the Internet; 66% of the population will be connected by 2020. Companies like Google seek to democratise technology and connect the world with projects such as Google Loon.

Artificial intelligence
Intelligent machines that can behave like humans has become the next frontier. Many major companies have invested R&D money in this field.
Currently, we think AI is “dumb”; just embryonic technology that is used in “personal assistants” on platforms such as iOS (Siri), Amazon (Alexa) and Microsoft (Cortana).
There are three types of AI:

  • Artificial narrow intelligence – such as Google Maps, this type of AI can do only one thing at a time
  • Artificial general intelligence – this is what we see in current levels of intelligence found in humans
  • Artificial super-intelligence – this level of AI is far more intelligent than all humans combined – and this could ultimately see the end of humanity. Examples of this power has been evidenced in robots that can beat poker players and predict Supreme Court decision outcomes.

Changes in banking
Banks will soon become outdated if they don’t want to adopt digitisation technologies such as BitCoin and Blockchain. High bank fees and the cost of employing humans will render the old systems obsolete. Examples of this have already occurred in the taxi space. Taxi drivers protested the arrival of Uber – so Uber decided to roll out self-driving cars. And Uber drivers then protested

Unlocking value with data
Sensors are being implemented in jet engines to measure data that is returned to data analysts who attempt to reduce risk and improve efficiencies. The sole purpose of this is to learn where money can be saved, streamlining companies and generating value from data.

Businesses must accept reality
“Most businesses refuse to accept the inevitable,” says Brown. “People think that things aren’t broken so why fix it? But if they don’t consider changing, they may be left behind.”
Businesses need to ask the tough questions so they can get the right answers.
“Companies need to bend with the wind. If they are to exist in the future, they need to be agile and change to adapt to the market.”

Consider what will put you out of business and start strategising about how you will address the problems that haven’t become problems yet.

Matt Brown is the CEO of Digital Kungfu, a digital business consultancy that specialises in helping companies accelerate innovation and disrupt traditional markets by enabling them with new ways to do business that serve their customers more effectively and responsively.

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