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Monday, 24 February 2020

Dr Zainab Ahmed, Nigerian Minister of Finance, Budget and National Planning, says the Federal Government will further introduce incentives to boost investments in the nation’s capital market.

Ahmed gave the assurance during a visit to the Nigerian Stock Exchange (NSE) in Lagos on Monday.

The minister said the ministry would work closely with the exchange to put policies in place that would boost investment and enhance the growth of the market.

She noted that the government had in the past, worked with the NSE in various forms to ensure market growth and development.

Ahmed stated that some tax provisions made in the Finance Act of 2019 would assist in deepening the market in areas of Real Estate Investment Schemes (REITS) and securities lending.

“Given the need to accelerate reforms to attract the capital available for real estate development across the continent, we have worked very closely with the SEC, industry groups and the Capital Markets Master Plan Implementation Council for several years, to reform our tax laws.

“We have asked the NSE to continue to work with us so that we can encourage Nigerians to invest more in the Nigerian capital market.

“We have a lot of resources locally and we are working with the NSE to ensure we mobilise resources through the market.

“Any policy that government needs to put in place to enable the growth of the market, we will do that,” Ahmed said.

She assured the capital market community that the next Finance Act would make provisions for incentives that would make the market more attractive to investors.

Ahmed said the Finance Act of 2019 had taken care of some incentives, adding that, every appropriation bill going forward must come with finance bill on a yearly basis.

Responding to the capital market operators plea to defer the planned recapitalisation exercise in the market, she stated that the exercise would make them stronger and more competitive.

She explained that with the demutualisation of the exchange, stockbroking firms would have more businesses to embark on and therefore needed to recapitalise to operate better.

Also, responding to comments by stockbrokers that many ministers had in the past come to the NSE with many promises without fulfilment, Ahmed assured the market operators that her visit would be a different one.

She assured the brokers that she was committed to ensuring that the capital market was used to unlock the economic potential of the country.

Earlier, in his welcome address, Mr Oscar Onyema, NSE Chief Executive Officer, said they were delighted and honoured to host the minister and her delegation to the event, themed: ‘A day at the NSE.’

Onyema said the initiative was one in a series of the NSE’s renewed government relations, where key government stakeholders interacted with the capital market community on important issues that affected the market.

He said that the issues ranged from Nigeria’s economic management and policy reforms to ease of doing business, foreign and local investment attractiveness, among others.

Published in Business

Dangote Group has in the last five years invested over N63bn in the South East with the purchase of over 3,500 units of locally assembled Shacman trucks at the production plant of Anambra Motor Manufacturing Company (ANAMMCO), Enugu.

The order was delivered over a period of five years after Dangote Group signed an agreement with Transit Support Services (TSS), a subsidiary of ABC Transport PLC.

The partnership started in 2016 with an initial order of 350 Trucks by Dangote and as at today no fewer than 3,500 trucks have been supplied to Dangote from the ANAMMCO plant. Each of the trucks costs over N18m.

Apart from being the single largest buyer of the locally assembled trucks, the patronage by Dangote Group has revived the ANAMMCO plant, a vehicle assembly facility commissioned in 1980 by the Federal Government in partnership with Mercedes Benz.

Speaking at the weekend after a tour of the expansive ANAMMCO plant which was filled with Dangote trucks undergoing semi knocked down (SKD) production, Chairman of TSS, Mr. Frank Nneji said if not for Dangote’s magnanimity and his commitment to empower local manufacturers, the ANAMMCO plant would have remained perpetually moribund.

According to him, the revival of ANAMMCO was made possible by Dangote’s patronage “in identifying a plant that has capacity in the south-east, in Enugu to give us the opportunity to produce trucks locally instead of importing them.”

He said, “And of course you know what it does for us here in the South East. For more than seven years this plant was shut down. There was no activity here until we made an agreement with Shacman group and started skeletally. But we were only to start full step production when we offered the logistics solutions to Dangote and the production facility of ANAMMCO way back in 2016. That was the time we signed agreement for the first 500 units of trucks.”

Nneji who added that 90 per cent of trucks produced at ANAMMCO plant were for Dangote said the patronage has also brought back Onne Port in Rivers State which he disclosed has handled over 3000 containers since ANAMMCO was resuscitated.

He said, “ANAMMCO like I told you is a plant that was commissioned in 1980 by the Federal Government, it used to be in collaboration with Mercedes Benz. Of course you know what has happened to the auto industry. We had gone down over a long period prior to the inception of the automotive policy.

“What we are saying in ANAMMCO coming back is actually as a result of this auto policy. This is one of the benefits. And the second thing is the benefit of Dangote’s patronage in identifying a plant that has capacity in the south-east, in Enugu to give us the opportunity to produce trucks locally instead of importing them.

“And of course you know what it does for us here in the South East.

For more than seven years this plant was shut down. There was no activity here until we made an agreement with Shacman group and started skeletally. But we were only to start full step production when we offered the logistics solutions to Dangote and the production facility of ANAMMCO way back I 2016. That was the time we signed agreement for the first 500 units of trucks.

“What this initial capacity surge did was to ensure that all the staff of ANAMMCO who had been at home had to come back to work. Some local suppliers, lubricants, electrolytes and the rest of them also had to come back to doing business. And it goes even further than that because we are in Enugu, we used the Onne Ports to bring in these goods. You know many people are complaining that Onne Port is moribund, no good is coming. Of course we directed all the containers here and from 2016 up till now courtesy of Dangote, the Onne Port has handled more than 3000 containers coming to this place.

“So you see how we can spur capacity by utilizing our local capacity that is available and this is courtesy of Dangote and the patronage and each time we had approached Dangote, we said, ‘look if you are going to do this number of trucks, it is important that the Shacman apart from its quality, we are also representing a firm that has production capacity in the South East in the stake of ANAMMCO.’ That is how Dangote is keeping the South East automobile sector working.

“According to the National Automotive Policy, Enugu and Nnewi has been designated as the automotive centre for the South East in this axis. This is because of the stay of ANAMMCO over a period. They have acquired a lot of technical capacity. There is also a training school that produces technicians, training young school leavers here.

“So this is what we are doing here. This place is busy producing quality trucks with Dangote as the largest single patron. 90 per cent of the trucks produced here are for Dangote.

“Totally here we have done 3,500 units for Dangote. Additionally the trucks used at the refinery are also Shacman trucks. Because of the quality of Shacman trucks Dangote also patronizes that for the refinery.”

General Manager, Media, Dangote Group, Mr. Sunday Esan said the group is satisfied with the Shacman Trucks churned out from Onne Ports, adding that the partnership would last for a long time as the group continues to expand across its various business segments.

Esan added that as the Dangote refinery comes on stream, the group would require more trucks hence the sustained relationship with TSS/ANAMMCO.

According to him, the massive investment in the south-east is contrary to the assumption that Alhaji Aliko Dangote, the President/CEO of Dangote Group is not patronizing local manufacturers.

“This is why he agreed we should come and see how ANAMMCO plant has come alive, the impact he has made in the country and the employment this patronage has generated,” he said

Published in Business

From my standpoint, the trade war between China and the United States is holding multilateralism in contempt, disrupting free trade and making small and medium-sized enterprises (SMEs) vulnerable, with adverse implications for Africa’s growth and development.

Trade wars undermine the rule-based institution created to resolve dispute between complainants and respondents. China and the United States are members of the World Trade Organization (WTO), and by their membership are required to solve trade differences through rule-based channels.

America drew first blood by threatening to impose heavy tariffs on aluminum and steel from China. In a retaliatory response, China also threatened to impose tariffs on American products and agricultural exports to China and further imposed heavy tariffs on refined aluminum and pork from America. When these two economic powerhouses engage in such a spat, it undermines the usefulness of WTO in settling trade disputes among member States.

 US China Trade War

 In the 2019 November-December edition of The Economist, it is elaborated that the appellate body of the WTO has been able to prevent “some of the nastiest rows from spiraling into outright tariff wars”, particularly between America and the European Union with regards to subsidies for aircraft giants, Boeing and Airbus.

Furthermore, the Economist observes that WTO “has been the enforcer-of-last resort for over 500 cases”. World Bank data also shows that trade grew from 41% in 1994 (a year before the creation of WTO) to 58% in 2017. Thus despite reservations that member States may have about the institution, the WTO has been a useful referee that arbitrates trade through dispute settlement. Therefore, its power cannot be allowed to be usurped by two countries, despite their huge market sizes.

Drawing again from WTO data, the current trade tension is already affecting world merchandise trade, which is expected to rise by only 1.2% in 2019, much slower than an initial forecast of 2.6% in April. Economists project an increase for 2020 at 2.7%, but this is also lower than a previous projection pegged at 3%. In response, the WTO Director General Roberto Azevedo cautions that the trade war could be severe and catastrophic.

It is allegorically said that when two elephants fight, the ground on which they fight also suffers. To wit, trade wars between two economic giants also affects third-party partners. According to the Financial Times, some German carmakers, which manufacture in China and export to the United States, are worried about being hit by the tariff impasse. Chrystia Freeland, Canada’s current Deputy Prime Minister, also bemoans the repercussions of the trade war for Canada, as steel and aluminum industry are highly integrated and supports critical North American manufacturing supply chains (captured by Al Jazeera).

Trade war disrupts global supply chains made possible by free trade. Global supply chains are geographically dispersed across many countries under the control of powerful producers and buyers. For instance, the making of the Boeing aircraft is embedded in a multi-billion dollar industry scattered across the globe. However, trade allows the final assembly of the aircraft through supply acquisition. In many instances, suppliers are SMEs. So when China threatens to impose tariffs on US imports including Boeing aircraft, as was the case in April 2018, it is indirectly fighting free trade and creating an undesirable domino effect. That is to say, Boeing may reduce the prices paid to suppliers due to the tariff on the final product. In turn, SMEs may lay off employees in order to meet production costs. Unemployment may increase and contribute to unrest in local economies. The same is true when the United States imposes tariffs on aluminium and steel from China.

Borrowing Mr. Donald Trump’s quote but also used as a book title by Michael Wolff, “fire and fury” in the context of trade war leave undesired consequences. It breeds protectionism even among matured industries and ultimately makes free trade a mirage. 

Image result for impact of us china trade war on africa

Huawei is paradigmatic of the challenge China poses the United States. Huawei’s leadership in 5G could give China an edge in developing entire new industries.

It is contended by many that the trade war between China and the United States has the potential to cause collateral damages for Africa. According to the International Monetary Fund, China and United States trade levels with Africa were almost at par in 2010 at over US$ 70 billion. China increased its trade with the continent to about US$ 150 billion by 2017, but the figure for the United States dropped to about US$ 50 billion over the same period.

Trade war has the potential to reduce investment drive on both sides with ripple effects in terms of less job creation and greater poverty. Trade wars should forewarn Africa to invest and increase intra-African trade. According to the African Development Bank, intra-African trade was 10% in 2000 but current estimates peg trade at 17%. While this increase is a positive gain for the continent, data from the United Nations Conference on Trade and Development shows that Africa’s share of intra-regional trade is far low in comparison to intra-regional trade in Asia (49%), Europe (69%) and North America (51%).

The current trade spat presents Africa with the opportunity to swiftly operationalize the Africa Continental Free Trade Area (AfCFTA) to increase intra-African trade. The AfCFTA is designed to make Africa one single market. When tariffs are removed, the United Nations Economic Commission for Africa estimates that intra-regional trade could increase to 50 percent by 2040. Thus, the AfCFTA has the potential to stimulate the creation of regional and/or continental supply chains and to boost the production and consumption of goods and services on the continent. This should also contribute to the economic and political stability of the continent. Conversely, trade wars have the tendency to breed economic and political instability.

Richard Adu-Gyamfi currently works as a consultant at the International Trade Centre, Geneva, Switzerland. He holds a BA in Publishing Studies from the Kwame Nkrumah University of Science and Technology, Kumasi, Ghana. He also holds an MBA and PhD in Small and Medium-sized enterprise Development from the Leipzig University, Leipzig, Germany.

Published in Opinion & Analysis

Nigeria will review the sale of power assets to private investors after they have been unable to improve power supply in Africa’s most populous country.

The buyers of the assets are making technical and commercial losses and only distribute a fraction of existing capacity to end-users, the Power Minister said.

While the West African nation can generate 13,000 megawatts, it is only able to transmit about 4,500 megawatts to the power grid with only 3,000 megawatts of that getting to consumers, Sale Mamman, Nigeria’s Power Minister said Wednesday in Abuja.

A proposal to review the privatization has been submitted to the cabinet for consideration. Companies incapable of running the distributors “should give way to whoever that is ready to come and invest,” Mamman said.

Nigeria, which vies with South Africa as Africa’s largest economy, is still grappling with blackouts despite power privatization seven years ago that promised to fix its electricity challenges. Only 60% of residents have access to electricity and even those still remain plagued with regular outages due to poor infrastructure.

A $2.7 billion debt owed to power producers by the state-owned company that buys their output and resell to distributors, is threatening to undermine their viability and crumble the power market.

Nigeria plans to use a $3 billion loan it’s negotiating with the World Bank to tackle mounting debt in the power sector after approving a tariff increase that comes into effect in April.

 

Source: Bloomberg

Published in Engineering

Google on Friday evening published a support article meant to clarify the ongoing situation with Huawei. Last year, the United States government barred companies in the US from working with the Chinese hardware maker. “Google is prohibited from working with Huawei on new device models or providing Google’s apps including Gmail, Maps, YouTube, the Play Store and others for preload or download on these devices,” Tristan Ostrowski, legal director for Android and Google Play, wrote in the post, which was picked up by 9to5Google.

According to Google, there’s still plenty of confusion around what’s going on — and exactly which products are subject to the Google services ban.

We have continued to receive a number of questions about new Huawei devices (e.g., new models launching now, or earlier models launched after May 16, 2019 but now becoming available in new regions of the world) and whether Google’s apps and services can be used on these devices. We wanted to provide clear guidance to those asking these important questions.

The article contains some of Google’s most direct comments on the Huawei saga yet.

The company steers clear of weighing in on whether Huawei poses any threat to US national security, which intelligence agencies and lawmakers have insisted is the case. “Our focus has been protecting the security of Google users on the millions of existing Huawei devices around the world,” Ostrowski wrote. “We have continued to work with Huawei, in compliance with government regulations, to provide security updates and updates to Google’s apps and services on existing devices, and we will continue to do so as long as it is permitted.”

Huawei products released on or before May 16th, 2019 may continue to get those updates — for now. But anything that came later is considered “uncertified,” as Google has been unable to put those devices through its “rigorous” security checks or preload them with Google Play Protect software, which can detect when hardware has been compromised.

But Google does have a warning for customers with newer Huawei products: don’t try to sideload Gmail, YouTube, the Play Store, or other Google software onto those uncertified devices. Because the company can’t guarantee that they’re the real deal or free of malware.

Sideloaded Google apps will not work reliably because we do not allow these services to run on uncertified devices where security may be compromised. Sideloading Google’s apps also carries a high risk of installing an app that has been altered or tampered with in ways that can compromise user security.

Google is trying to avoid the politics side of this, while also sternly dissuading people from going the backdoor route to maintain access to the company’s popular services. Ostrowski ends the support article by outlining how to see whether the Android device you’re using has been certified under Google Play Protect. “To check if your device is certified, open the Google Play Store app on your Android phone, tap ‘Menu’ and look for ‘Settings.’ You will see if your device is certified under ‘Play Protect certification.’’

 

Credit: Vox Media

Published in Telecoms
Monday, 24 February 2020 08:52

Ecobank to host Regional Trade Forum 2020

All is set for Ecobank Nigeria’s 2020 Regional Trade Forum in Lagos.

The forum taking place in March, will be a two-day event, providing the opportunity for exporters and importers within the African region to exhibit their products in a marketplace scenario with panel discussions by highly experienced and diversified stakeholders and leaders of thought in the industry.

Ecobank Nigeria is a member of the pan African banking group with unparalleled Africa wide Network Advantage across 33 countries catering for businesses and providing world class trade services to its customers. The Ecobank Group network has over 30 years been enhancing the financial integration of the continent. The Group provides solutions to facilitate trade in the various trade corridors and groupings across Africa

Announcing the Trade Forum in Lagos, Sunday Abah, Head Trade Finance of Ecobank Nigeria said Ecobank is using the forum to unveil its comprehensive trade solutions to its existing and prospective customers alike by sharing the various payment methods available to facilitate cross border trade throughout its network across Africa. According to him, Ecobank recognizes the role of exporters and importers in driving economies through trade.

“By creating a networking forum for importers and exporters via the trade exhibition slated for the first day of the forum, the Bank extends support to stakeholders in export and import businesses.

“Ecobank’s trade products and solutions are designed around two broad areas: Trade finance which enables customers benefit from adequate and well mitigated credit facilitation in the area of Import finance, export finance, bill discounting, trade loans, distributor finance, structured trade and commodity finance amongst others; also we do Trade Services, which gives our customers the advantage of speedy turnaround time and error free processing of Import Letters of Credit, Import collections, Customs bonds, Export collections and regional trade services amongst others,” he noted.

Ecobank’s unique intra-Africa trade solutions enable settlements of trade transactions and mitigation of payment risk; provide regional solutions and enable exporters obtain payment guarantees without the need for a letter of credit and its related costs to the importer. Ecobank works closely with clients in reviewing key factors regarding transactions processing, settlements, financing, and risk mitigation as well as credit enhancement. The bank boasts of a unique and large Pan-African platform that positions it to support trade at all levels. Its technology platform is designed to help unlock the opportunities of the continent through standardization across 33 countries, while fueling regional integration, trade and investment across borders.

The Ecobank Africa Trade Forum is expected to attract hundreds of guests and participants. Leaders from across Ecobank Group will also be attending to share their market specific trade knowledge and information.

Published in Bank & Finance

Economic growth is driven by a number of factors. These include foreign direct investment, national savings, household spending, fiscal and monetary policies. Since the late 1980s African governments have fully embraced foreign direct investment as a major driver of growth.

One of the avenues through which countries have sought to attract more foreign direct investment has been investment summits. These are hosted jointly with developed countries. They include the Africa-China Investment Summit, Africa-UK Investment Summit and the Africa-US Investment Summit.

Despite these efforts, data shows that Africa has not been a major recipient of these flows. In fact, it attracts a lot less than other developing countries.

There’s a bigger problem too – the impact on economic growth of the foreign direct investment the continent attracts is lower than other comparable parts of the world. In our research we set out to understand why. To do this, we looked at the financial services sector which is underdeveloped in most African countries.

The search

We examined data from 45 countries between 1980 and 2016. The variables we looked at included economic growth, foreign direct investment, financial sector development, human capital, government expenditure and gross fixed capital formation.

The countries were selected based on data availability. They comprised several countries from all the regional blocs, including six countries from Northern Africa.

Overall, the countinent’s financial sector is under-developed compared to other emerging economies, with the exception of South Africa which is relatively well-developed. The countries’ financial sectors are bank-based, thus providing limited space for the equity (capital) markets.

We sought to examine the relationship among three factors: foreign direct investment, economic growth, and financial sector development. Financial sector development measures a country’s financial institutions to make financial services available to citizens. It also includes the provision of finance to businesses.

There has been a lot of economic literature on the impact of foreign direct investment on economic growth. And there have been many studies on the linkages between foreign direct investment, financial sectors and economic growth. But less has been done on the extent to which Africa’s financial sector is a conduit through which foreign direct investment drives economic growth.

Research findings on the impact of foreign direct investment on a country’s economic growth are mixed. This implies that the extent of the impact is determined by other factors and characteristics of a country’s economy.

That’s why we chose to look at how the financial sector, in particular its stage of development, can moderate the impact of foreign direct investment on economic growth.

What attracts foreign direct investment

For the most part, foreign direct investment inflows to Africa have generally been attributed to five factors. These are regulations (ease of doing business), the general investment climate, broader economic reforms, information communication and technology development, and improvements in infrastructure.

Foreign direct investment plays an important role in economic development. It provides financial resources, technological spillovers and improvement in human capital. These are all critical factors that can spur Africa’s economic development by addressing infrastructural deficits and reducing unemployment.

The effect of foreign direct investment on economic growth is well documented globally. Funds from foreign investors are channelled through a country’s financial system before being allocated to the targeted beneficiary of the investment.

In Africa’s case we found that the continent’s underdeveloped financial sector has dampened the impact of foreign direct investment on economic growth.

To measure financial sector development we calculated credit provided by the financial sector to the private sector as a percentage of GDP. On this measure, Africa’s financial sector fails to allocate financial resources effectively and efficiently to the productive sectors of the economy.

When the financial sector does allocate resources, it invests in risky projects. The net effect is that it hurts economic growth and therefore fails to support foreign direct investment.

What’s to be done

Foreign direct investment inflows to Africa are increasing, albeit marginally. What our study shows is that African governments need to spend more effort on maximising the impact of foreign direct investment on economic growth. This is over and above current efforts to gain a bigger share of global foreign direct investment flows. Failure to raise the impact of foreign direct investment on economic growth will mean that African countries will not fully benefit from higher inflows.

Improving the performance of the financial sector should be one of the major preoccupations of African policymakers. This should include regulators improving their supervisory roles. And they should strengthen the financial sector’s ability to allocate resources effectively to the productive sectors of the economy. Improvements in corporate governance and risk management strategies would also help.

 

This article was co-authored with Abraham Mensah Acquah. He holds BA (Integrated Business Studies) and a Master of Commerce degree in Banking and Finance from the School of Business and Law, University for Development Studies, Wa, Ghana.The Conversation

Muazu Ibrahim, Lecturer, Department of Banking and Finance, University for Development Studies

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Published in Business
Monday, 24 February 2020 07:42

Coronavirus batters oil prices

Coronavirus outbreak is causing havoc in the crude oil market. Prices tumbled more than 2% on Monday, with investors worried about a hit to demand as the virus spreads rapidly outside China.
 
Brent crude fell by $1.50 or 2.5% to $57.00 a barrel by 2332 GMT. U.S. crude futures fell by $1.26 or 2.3% to $52.12.
 
Concerns about the coronavirus grew on Sunday after sharp rises in infections in South Korea, Italy and Iran.
 
South Korea’s government put the country on high alert after the number of infections surged to over 600 with six deaths, while in Italy, officials said a third person infected with the flu-like virus had died, as the number of cases jumped to above 150 from just three before Friday.
 
“We should not underestimate the economic disruption as a super spreader could trigger a massive drop-in business activity around the globe of proportions the world has never dealt with before,” said Stephen Innes, chief market strategist at AxiCorp.
 
China, the world’s largest energy consumer, will adjust policy to help cushion the blow to the economy from the coronavirus outbreak that authorities are still trying to control, President Xi Jinping said on Sunday.
 
Meanwhile, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman described as “nonsense” a media report that Riyadh is considering a break from the OPEC+ alliance with Russia.
 
His comments followed a Wall Street Journal report that said Saudi Arabia was considering leaving the OPEC+ alliance as China’s coronavirus outbreak contributes to a drop in global oil demand.
 
In the United States, the oil rig count, an indicator of future production, rose for a third straight week. Drillers added one oil rig last week, bringing the total count to 679, the highest since the week of Dec. 20, energy services firm Baker Hughes Co said.
Published in Business

If Finance Minister Tito Mboweni announces significant changes to individual taxes during his Budget speech on February 26 it could have wide-ranging implications for South Africa’s heavily burdened tax base.

There are numerous actions which the Minister could take to bolster the state’s coffers, including a possible VAT increase, an increase in Personal Income Tax as well as Capital Gains Tax.

Of course, tax increases, while driven by fiscal policy, have weighty economic implications, which I am sure the Minister and his team have considered extensively.

For investors, any increases or changes could have an impact on estate and financial planning moving forward. Here is how any one of these increases could impact you.

Value Added Tax:

In 2018 the tax charged on goods and services was increased from 14% to 15%. It’s uncertain whether another increase would be implemented but if it is it would mean an almost immediate increase in the cost of living which will impact any household’s financial plan.

The point of departure for any financial plan is to determine the living standard of a person and his or her family. The living standard of a household drives a well-prepared budget for the family. 

Since VAT is a consumption tax, it will have a direct impact on the budgeting discipline of a household. One should re-visit your priorities, re-arrange, and start making tough decisions between what is necessary to have, and what is nice to have. 

Personal Income Tax

I am sure the Minister will have looked at ways to adjust personal income brackets and even weighed up an increase on personal tax across the board.  Currently the continuum of income tax ranges from 18% at the lower end to 45% and R532 041 of taxable income at the upper end.  It’s difficult to see how government could justify a wholesale income tax increase but it is not impossible to see a rate hike to 46%, or perhaps a once off levy for persons in the top tax bracket. 

The marginal rate was much higher in earlier years. 

What is more a given, is that the necessary inflationary adjustments will not be made in the income tax brackets. It may also be far too optimistic to hope for an increase in the medical credits, and to a lesser extent age credits. 

To neutralise the effect of personal tax increases one must maximise on tax deductions, for instance contributions to retirement funds. These contributions will drastically reduce the effective rate of tax payable. 

Currently the taxpayer enjoys generous tax relief for contributions to a retirement fund, and since retirement is a definite goal in our journey through life, the full amount invested in a tax-free growth portfolio, will be of personal benefit one day.  It is unlikely that the maximum tax-deductible amount will be increased, given the favourable tax relief we currently enjoy.

Capital Gains Tax

This is probably the one area where there is room for significant change. Government is under pressure from certain quarters to increase tax on the wealthy and taxing the gains made on the sale of assets could be where they make up some ground. 

It has been four years since we saw a significant increase in the capital gains inclusion rate.  Initially the inclusion rate was 25%, and gradually increased to 40%.  It is ironic that the original rate in 2001 was to allow for relief in inflationary growth of capital assets. Increasing the current 40% inclusion rate will pay lip service to the original intent and will be a serious factor to consider.

Should the effective rate for capital gains be increased the popularity of tax-free investments, where no capital gains are paid upon maturity, will become much more attractive for the long term. 

The role of the financial planner and a suitable long-term investment strategy, aligned with a future lifestyle goal, will become important for the investor.

Wealth Tax:

The idea of a Wealth Tax has been bandied since 2018 following the conclusion of the Davis Tax Committee. To date very few recommendations were incorporated, save for the curbing of the use of trust for estate duty saving purposes and an increase in the estate duty rate. However, the collections from estate duty was meagre.  It will be interesting to see if some of the other recommendations will be considered, for example the estate duty relief for spousal bequest. Spousal bequests currently escape estate duty.

****

Whatever the Minister announces on Wednesday South Africans will be impacted in some shape or form. There are immense pressures on his Department to cut costs and demonstrate responsible fiscal spending. This, however, must be weighed against the growing need for income to aid government in meeting its infrastructure, health, education and social welfare responsibilities. Investors, in fact all South Africans, would do well to tune in to the Minister’s speech to gauge the likely impact on themselves and their finances.

Published in Opinion & Analysis
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