Business Update Issue 15 by Yes Media

BUSINESS

A publication for progressive business

DAVOS: SA’S GLOBAL INVESTMENT AGENDA LAND REFORM LESSONS Algeria, Tanzania and Zimbabwe’s epic fails and how to triumph

MIXED ENERGY Emerging power technologies in the spotlight prompt new business opportunities

DELOITTE PAY REPORT The lowdown on how much high-level executives are really making

SMALL BUSINESS Tips and advice for entrepreneurs, from starting up to keeping it clean

Issue 15 | 2019

EDITOR’S MESSAGE

Investment on the table This year’s World Economic Forum in Davos served to confirm that South Africa has indeed dawned a new era of appetite for investment in South Africa. Following President Ramaphosa’s forthright conveyance of the South African government’s plans to usher in structural reforms, policy certainty and a new partnership with business, there is renewed confidence that the economy will be steered towards

better and sustainable growth. This issue of Business Update focusses on the outcomes of the Davos forum. It reveals that significant progress has been made in securing foreign direct investment. South Africa is well on the way to achieving the president’s goal of attracting US$100-billion in new foreign direct investment over the next five years. Other articles in the magazine give the same sense of renewing optimism in the economy. Of course, hard work still lies ahead and all role-players need to remain vigilant in order to ensure we stay the course. The Progressive Business Forum, the publishers of Business Update, urges its participants to present themselves to government as partners for growth.

To this end, a summit is planned midyear to consolidate thinking and collaboration. Please look out for the invitation in this regard, and start preparing your own inputs into these deliberations. We hope you find this read, which is once again packed with useful best business practice, business information and advice, useful. Enjoy the read.

Daryl Swanepoel

Editor Daryl Swanepoel

Managing Editors Alwyn Marx and Olivia Main

Chief Albert Luthuli House 54 Pixley Ka Isaka Seme Street Johannesburg

Art Director Kamiela Abrahams

Contributors Khanyisile Kweyama, William Gumede, Clement Marumoagae, Hein Kruger, Prakash Singh, Vernon Subban, Ebben van Zyl, Andrew Campbell, Henning Pieterse, Sisa Njikelana, Anja van Wijk, Kyle Venter, Chantelle Gladwin-Wood, Marthie Claassens, Jan Coetzee, Jannie Rossouw

Images Shutterstock.com Business Update is published by Yes Media. Opinions expressed in Business Update are not necessarily those of Yes Media, the ANC or Progressive Business Forum. No responsibility can be accepted for errors, as all information is believed to be correct at the time of going to print. Copyright subsists in all work in this magazine. Any reproduction or adaptation, in whole or in part, without written permission of the publishers is strictly prohibited and is an act of copyright infringement which may, in certain circumstances, constitute a criminal offence.

Publisher Yes!Media Suite 20-207 Waverley Business Park, Kotzee Road, Mowbray, Cape Town PO Box 44383, Claremont 7735 Tel: +27 21 447 6467 www.yesmedia.co.za Printed by CTP Printers Project Sales Managers Christa Nel, Crosby Moruthane Project Sales Henry Musoke and Zinigisa Sitole Production Coordinator Ursula Munnik

Lengwati Electrical was established on March 2000 as a black Economic Empowered Engineering company. We have various branches all over the country such as in KZN, Gauteng, and Mpumalanga with divisional heads to master our projects in accordance with industry standards. Lengwati Electrical as a company is qualified in Electrical Engineering & Financial Professional Discipline and have in-house capabilities. Our vision is to be a world class leading electrical services company in SA and beyond and a reputable player in the transformation of the South African Industry. Our mission; we will substantially take customer service to an unprecedented level by putting the customer first.

The services we offer: ELECTRICAL: • Termination and joining of cables up to 22 kV • Network reticulation on LV and HT Overhead and underground • LV and HT termination and jointing • Electrification design and electrical load analysis • Load calculation, volt drop calculation and load balancing • New service connections – from 1KVA to 10MVA • House, commercial and industrial new electrical installations • 24 hours repair and maintenance – (zonal) • Backup generator installation, repair and maintenance • 1KVA to 600KVA UPS installation repair, service and maintenance • Inverter installation service and maintenance • Communication mast installation and maintenance • Traffic signals maintenance and new intersections construction • Verifications, testing, commissioning and C.O.C Issue • Cable fault location HV and LV network • Infrared Scan • Oil sampling and purification • 1kV up to 22KV Transformer and switchgear repair, service & maintenance • Transformer and switchgear comprehensive testing e.g. turns ratio test, etc • Supply all electrical and mechanical materials. • Telephone system (PABX) installation maintenance and installation • Fire detection system installation, repair and maintenance • Crane load transportation • CCTV camera Design, installation and Maintenance • Radio network maintenance • Communications Radio network Repeater installation and

• •

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BUILDING (AD-HOC) • General building • Painting • Partitioning • Plumbing • Plastering • Glazing • Joinery • Paving • Motor gate installation and Maintenance • Electric fence installation and maintenance MECHANICAL • Plant and Machinery maintenance and general engineering works • High protection CNC cutting and profiling • Hydraulics and Pneumatics works:- Design and manufacture of cylinders and pistons including the maintenance thereof • Metal Fabrication: - Design and construction of steel structures as per drawing or requirement Support Services: - Our professional support services include: a) On-site support b) Help desk c) Post-implementation Support Our Company offers services, material and equipment that are approved by SABS. All work is done in accordance with SABS 0142 standard and as specified by the industry standards.

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Contents 6 Cover story Khanyisile Kweyama reflects on the WEF Summit in Davos and the next phase of South Africa’s Investment Drive.

36 Auditing Do you truly know what an auditor is? They are not accountants, for one thing… By Marthie Claassens

12 Land reform We can learn much from the attempts of Algeria, Tanzania and Zimbabwe to redistribute their land fairly and constructively. By William Gumede

38 Investment Retirement funds are a secure way to firm up your future quality of life, but it is crucial to know what you are signing up for and who will benefit when. By Clement Marumoagae

18 Human resources Deloitte’s Executive Compensation Report shows damning evidence of the increasing wage gap between top-rung employees and the general workforce. 20 Energy There is hope yet for SA’s energy crisis to be turned around, with new power technologies on the horizon. By Sisa Njikelana

24 Business law Before you launch your business, make sure you’ve chosen the right ‘vehicle’ and ticked all the legal boxes. By Henning Pieterse 26 Water tech There are new rules when it comes to water heating systems that could land you in hot water, so take note. By Chantelle Gladwin-Wood and Kyle Venter

42 Coaching An intervention with your employees to implement a long-term strategy in your business can be a fear-inducing experience. By Jan Coetzee 44 Body corporates Preparing for a body corporate audit need not be a complicated event. By Prakash Singh 50 Finance What we do with our money has a knockon effect, and the workplace is rapidly transforming. By Heinrich Kruger 52 Property law It is easy to make costly mistakes when trying to cancel a lease agreement with a bothersome tenant. By Anja van Wijk and Chantelle Gladwin-Wood

28 Small business The Small Business Site offers key advice for entrepreneurs who are looking to run their business efficiently and effectively.

56 Ethics Being honest in your business dealings not only lets you sleep better, it also gives you a competitive edge. By Jannie Rossouw

34 Insurance It is vital that businesses in the food industry invest in product recall insurance to safeguard against loss of profit when a product is defective. By Vernon Subban

60 Book review Peace Leadership by Prof Ebben van Zyl and Dr Andrew Campbell sheds light on how to be an emotionally intelligent leader.

Kgosihadi Trading is a 100% black owned company established in November 2010. Our core business is to provide professional Civil and Structural Engineering and Project management services and goods to Private Sector and all spheres of Government. Since establishment the company has provided services to various entities and sectors, and we have continuously proven that service excellence can be achieved through dedication, focus and hard work. Our current CIDB grading is 7 CE PE. While we provide various services to the different industries, our experience has allowed us to be pioneers in the water sector service provision, where we have worked with various municipalities on major water projects. These include installation of all types of meters (bulk, conversational and pre-paid) and supply of all water pipes and ﬁttings including meter reading service, vending and after installation maintenance. We have also completed several residential building turnkey projects in The Eye of Africa Golf and Residential Estate, Parys Country Estate, and Henly on Klip. Our approach to client care is to ensure that we include training services to both the client and the end-user to ensure that they are competent on how the goods and services provided for them are put to productive use. We also provide awareness programmes whereby clients are educated on the importance of, amongst others, water saving and avoiding water leakages. CORE BUSINESS • Project management • Supply, installation, maintenance and reading of pre-paid meters • Water and sewer reticulation infrastructure installation and maintenance • Housing development • General building maintenance

• Roads construction and maintenance • Mining and general supplies CURRENT EMPLOYMENT Kgosihadi Trading and Project cc currently employs 18 permanent employees and 41 contract employees. Contract employees are employed for specific projects. TRAINING PROGRAMME Training of Mogale city local sub-contractors and cooperatives for installation of water pre-paid meters. CORPORATE SOCIAL RESPONSIBILITY INITIATIVES As Kgosihadi, we believe that business has the responsibility to partner with other private entities to assist government to uplift the lives of the poor especially in communities where we operate. A few of our social projects: • Donated furniture to a family in Bekkersdal after their house was burnt down • Paid for the education of three learners from Kagiso to further their studies in safety management, firefighting and environmental management • Cleaned, painted a house and bought furniture for an elderly citizen in Swanneville (Mogale City)

CONTACT DETAILS Tell: +27 11 762 2382 • Cell: +27 84 621 6672 • Email: tmofokeng@kgosihadi.com • Website: www.kgosihadi.com

TG MESSAGE

CUTTING THE RED TAPE FOR SMALL BUSINESS ’Small businesses play an important role in the economy, as they create jobs for thousands if not millions of people,’ said PAUL MASHATILE, ANC Treasurer General, during his address at the SBi SME Indaba on 14 November 2018

resident Cyril

Ramaphosa has made a clarion call – ‘Thuma Mina’. This is a call to action to rebuild our country and its economy. The call is not only reverberating across our country but also globally. Our message has been and is a simple one: South Africa is open for business! We are escalating our efforts to rebuild our country’s economy through, among other measures, massive investment in infrastructure, education, health and agriculture. Already, President Ramaphosa has unveiled a stimulus package to kickstart our country’s economy. We have also held a successful investment conference that has seen huge investments pledged. We therefore call upon small business to join us in this challenging but fascinating journey of

rebuilding our country’s economy. We will ensure that there is fundamental change in the ownership structure of our economy through ensuring access to, and ownership of, financial institutions by black people, youth, women and the disabled. This will include new approaches to regulation and licensing in the financial sector to foster diversified ownership and competition. Development finance institutions and the mooted state bank will be directed to give greater emphasis to employment creation, empowerment, industrial diversification and the development of small businesses and cooperatives. It is against this backdrop that the conversation on the nationalisation of our central bank should be conducted. The idea is to review the mandate of our central bank, so it also contributes towards meeting the socio-economic challenges that our country is facing. Small businesses are a crucial partner in building our economy and, in the process, assisting in meeting the triple challenges of poverty, unemployment and inequality. For this to be possible, an enabling

environment, including friendly legislative and regulatory frameworks, has to be in place as rigid legislations and regulations have a devastating effect on business generally and SMMEs in particular. We have to provide consistent and better support to SMMEs for them to flourish and this must include the Development Finance Institutions (DFIs) being sensitive to the realities and needs of small businesses. Government must also nudge commercial banks to provide better support to SMMEs by relaxing their stringent lending criteria. The other obstacle that must be removed is the high cost of doing business, as this has led and leads to SMMEs, particularly, going out of business. We must lower the cost of doing business in our country and this must include cutting the red tape. The leadership of the African National Congress and the government it leads, are seized with, many tasks such as turning around our country’s economy so we improve the lot of everyone. We are urging all stakeholders, including business, to be part of this rewarding journey.

Davos: South Africa’s global investment agenda Team South Africa attended the 49th annual World Economic Forum (WEF) Summit in the snowy Swiss mountains of Davos, 22-25 January 2019, under the theme ‘Globalisation 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution’. KHANYISILE KWEYAMA reports on the next phase of South Africa’s Investment Drive. And then President Cyril Ramaphosa levels the local and global playing fields in his message of growth and renewal

COVER STORY

outh Africa is one of Africa’s largest investors and has a track record of being the most mature and most diversified economy on the continent. The country has a pivotal role to play in Africa’s growth story. In unlocking this potential, we have a responsibility to make a significant contribution to ensure that we not only shape and influence the future, but we collectively chart its success. Since last February, South Africa’s President, Cyril Ramaphosa, has been promoting the country’s role in driving sustainable and inclusive growth across Africa, by targeting US$100-billion in new investments over the next five years. Initially the intention was to get half of that finance sourced from outside South Africa. As things stand, a significant amount has been raised both domestically and internationally – by the end of the inaugural Investment Conference, US$55-billion had been raised. This has not come without challenges: the country’s Economic Stimulus and Recovery Plan is still in its early stages of implementation, and has yet to see tangible results; and issues such as land reform continue to contribute significantly to investor uncertainty. From my own experience and observations, the state of mismanagement of some of our public enterprises has created a huge threat to South Africa gaining the confidence we need from outside investors. Rebuilding trust in government from our citizens, the international investment community and both global and domestic businesses, infrastructure projects must shed their vulnerability to perceived corruption. Turning the tide to ‘recapture’ our stateowned enterprises will take time, but it is fundamental to South Africa’s future

growth agenda and economic prosperity. We need to repair these organisations with competent management teams and viable business plans to create and influence a positive change in investor sentiment. I believe we have a window of opportunity to change the country’s trajectory, based on a new narrative centred around clean governance and integrity. Our remedial actions must address the structural challenges that inhibit our state-owned enterprises from serving the South African public and supporting our economy in the ways that they should. As a society, we must show our strength by ensuring resources are used effectively and projects are implemented to the highest standards, so our state-owned enterprises (SOEs) are fit for the future. Our SOEs can be the cornerstone of our success to inclusive growth, acting as the catalyst to improve fiscal sustainability, increase job creation, strengthen private and public investment, and create a better standard of living for all South Africans. The country’s economic reforms are designed to resuscitate our growth rate, so that our performance is recoupled with that of the global economy. Indeed, the President’s investment envoys spent most of last year criss-crossing the world to enhance international confidence in South Africa and rally investor support. But looking overseas is not a new phenomenon for South Africa. The country has a long history of courting and successfully attracting foreign direct investment to help drive its growth. For decades we have hosted global corporates across multiple sectors – from motor manufacturing to technology and consumer brands – which is unrivalled across the continent. Two-thirds of EU

COVER STORY

I believe we have a window of opportunity to change the country’s trajectory, based on a new narrative centred around clean governance and integrity companies that operate in Africa are headquartered in South Africa, for example. As Africa’s most industrialised economy, South Africa’s diversification makes it less reliant on a commodities economy. Instead, it offers a plethora of opportunities to foreign investors who can tap into multiple sectors and their investment potential. In areas where there is policy uncertainty, such as mining, the Presidency has committed to create an environment that gives both international corporates and investors the confidence to do business in South Africa and use it as a springboard into the balance of Africa. Considering this background, Team South Africa’s agenda at the recent World Economic Forum (WEF) in Davos, Switzerland, remained imperative given the country’s socio-economic challenges and plans to counter these through the aggressive investment promotion programme led by the President, the 2019 national government elections, and the continued positioning of South Africa’s key competitive strengths. To this end, Brand South Africa partnered with ABSA to host an investment promotion seminar on the margins of WEF 2019 in Davos, with the objective of supporting and initiating the next phase of the country’s Investment Drive. At the most basic level, the Davos investment seminar showcased successes of the first Investment Conference held in October 2018, while it also utilised this as an opportunity to communicate on the reforms government has initiated to improve ease of doing business, and to enhance the Nation Brand’s profile as an investment partner of choice. Potential investors were afforded with the opportunity to hear from and engage with South African government and business representatives on the country’s progress towards political and economic renewal, strengthening the credibility of

public institutions, and unlocking the latent potential and innovative spirit of South Africa’s economy. This 49th edition of the WEF Annual Meeting was hosted under the theme ‘Globalisation 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution’. South Africa stands to gain from the Fourth Industrial Revolution, only if we are better prepared to harness the potential that we have. Our President has been forthright about government’s plans to steer the economy towards a better growth trajectory – a number of structural reforms have been implemented and some are in the process of being implemented. The partnership we have forged with the business community is critical, as we spearhead these reforms. The South African government continued to communicate clearly and implement changes to policies to reduce perceived uncertainty. The WEF Annual Meeting provided an opportunity for us as Team South Africa to arrest and address issues of inequality, poverty and the high unemployment problem in our country. We can only achieve this through concerted effort together; we need investments flowing into our country from both domestic and international sources. Team South Africa’s participation in Davos aimed to reinforce our message to investors here and abroad – that South Africa is serious about increasing investment in our country through increased policy certainty, a competitive business environment and effective governance in all sectors of our economy. Since last year our focus has been renewal, unity and inclusive growth. This is critical for the country’s socio-economic development, as we continue to target interventions aimed at tackling our challenges. At Davos, Team South Africa reiterated our commitment to build a compact with

all our social partners, business, labour and civil society, that will serve as a framework for achieving renewal, unity and shared growth. We also utilised the platform to reiterate our commitment to address corruption and state capture; the ongoing Zondo Commission of Enquiry is an essential first step. Work is underway to ensure that the law starts taking its course with those implicated. This is one of the key ways in which Government will regain trust and integrity with South Africans, thereby injecting much-needed confidence in the economy. Our commitment as a nation is to continue with our efforts in creating an enabling environment for greater investment cooperation and paving for growth that is inclusive. Our ability to attract international investment, as well as produce export-led growth, will help us realise our economic potential. It bodes well not only for South Africa, but for its multiplier effect on economies across the rest of the African continent.

Khanyisile Kweyama, Board Chairperson: Brand South Africa

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2019/04/09 14:13

PRESIDENT CYRIL RAMAPHOSA’S SPEECH AT DAVOS 2019

Thank you for this opportunity to brief you on the visit by Team South Africa to Davos 2019 and to offer some views on developments in our country. Over the past few years, representatives of the South African government, business leaders, labour leaders and delegates from other sections of society have come to Davos as Team South Africa. Although we represent different constituencies, we have a common interest in the development of our country and the promotion of inclusive growth. GROWTH AND RENEWAL We therefore come to Davos with a single message, and this year the message is that South Africa is on a path of growth and renewal. After almost a decade of economic stagnation and political paralysis, we have begun to turn things around. We have entered a new period of hope and renewal, and over the last year have taken decisive steps to correct the mistakes of the recent past and put the country back on the path of progress that we embarked upon in 1994. We have placed the task of inclusive growth and job creation at the centre of our national agenda. Around a third of working-age South Africans are unemployed, poverty is

widespread and levels of inequality are among the highest in the world. We recognise that we cannot create work on any meaningful scale unless we grow the economy at a far greater rate – and for that we need much more investment in the productive sectors of the economy, in infrastructure and in skills development. Last year, we launched an ambitious drive to raise US$100-billion in new investment over five years. At the inaugural South Africa Investment Conference in October last year, both local and international companies announced around US$20-billion of investments in new projects or to expand existing ones. According to a report released by UNCTAD, direct foreign investment into South Africa increased by more than 440% between 2017 and 2018, from US$1.3-billion to US$7.1-billion. We aim to sustain – and further increase – this growth in investment. We are dedicating effort and resources to investment promotion and facilitation, having appointed four prominent investment envoys who have been meeting with investors to promote the opportunities in our country. They have also been engaging with investors on their concerns and expectations, which is greatly assisting our efforts to create an environment that is even more conducive to investment. Over the last year we have undertaken measures to ensure greater policy

Direct foreign investment into South Africa increased by more than 440% between 2017 and 2018 certainty and consistency, including economic reforms in sectors that have great potential for growth. For example, in the mining industry, we finalised a new Mining Charter that balances the need for transformation with the imperative for new investment in an industry that, despite its difficulties, could be growing and creating jobs. In telecommunications, we have set in motion the process to allocate highdemand radio spectrum to accelerate broadband access and promote competition within the sector. In energy, we have signed longoutstanding agreements with independent power producers for another round of renewable energy projects and have published a new energy plan for the country for public consultation. In tourism, we are reforming our visa regulations to encourage more visitors, as well as making it easier for investors and

COVER STORY

business people to visit South Africa. In the wake of a recession in the first half of 2018, we announced an economic stimulus and recovery plan to reignite growth. It included a reprioritisation of public spending towards sectors like agriculture and small business development, which have great potential to make an immediate impact with longterm benefits. We also announced the establishment of an Infrastructure Fund that would consolidate all public spending on infrastructure and leverage further funding from the private sector and development finance institutions. The Fund would also harness private sector expertise to bolster infrastructure management capacity in the state. South Africa has emerged from recession, and although growth forecasts are subdued, we are determined to unlock the many opportunities that exist in our economy. PUBLIC INSTITUTIONS Another critical undertaking that we have embarked upon is the restoration of the rule of law and the integrity and credibility of our public institutions. A commission of inquiry into state capture, which is headed by the Deputy Chief Justice, Raymond Zondo, has begun in earnest to uncover evidence of the ‘capture’ of several state institutions and processes by private interests. This state capture has damaged several critical institutions, damaged confidence in our economy and resulted in the theft of billions of rands from the state – and from the people of South Africa. The commission has heard evidence of corruption on a scale far greater than many people had expected. As difficult and damaging as some of the testimony may be, this is an absolutely essential process that must be seen through to its conclusion if we are to put this shameful episode in our history behind us. As part of our drive to end corruption – and to improve the safety of all South

Africans – we have taken steps to strengthen the National Prosecuting Authority, South African Police Service and State Security Agency. We have also addressed problems at the South African Revenue Service and are in the process of putting in place new leadership. We have also taken measures to stabilise several state-owned enterprises that had been weakened by state capture, corruption, mismanagement and poor policy decisions. We have replaced the boards and executive management in strategic SOEs and have been working closely with the new leadership on the implementation of credible turnaround strategies. We are currently developing a response to the financial and operational crisis at the country’s electricity utility, Eskom. In the next few weeks, we will be announcing a set of measures to stabilise and improve the company’s financial position and to ensure uninterrupted energy supply. We are also tackling the contentious issue of land reform, which has generated a great deal of interest globally and a healthy and

vibrant debate within the country. We are dealing with this issue in a manner that takes the interests of all into account, fully in line with the prescripts of the law and our Constitution. We are taking a comprehensive approach that sees historical redress as an opportunity for greater agricultural output, improved food security, empowerment, job creation and poverty alleviation. The progress we have achieved over the last year – and the successes we need to register in the months and years ahead – ultimately depends on our ability to revitalise and strengthen the social compact between government, business, labour and civil society to accelerate infrastructure investment, broaden access to, and ownership of, the economy, and create decent jobs. This is well within our means – partnership and dialogue are integral to the South African DNA. As Team South Africa, we call on all our people, and all our friends across the world, to join us on the path of growth and renewal.

Lessons in Land Reform

When land reform triumphs, it heralds movement in the production structure of agriculture, says WILLIAM GUMEDE. On the other hand, when it fails it can be disastrous – as was the case with attempts in Algeria, Tanzania and Zimbabwe

lgeria is Africa’s number one importer of agricultural goods, with food making up 15% of the total. It is one of the world’s largest importers of wheat and brings in a considerable amount of beef to boot. Algeria is also the secondlargest importer of milk powder globally and the fourth-largest of skim milk. Tanzania spends over US$500-million every year in food imports, which is equivalent to almost 90% of the country’s yearly budget for agriculture. The country is a net food importer: it imports more than

it exports. Even during decent harvests, scores of regions often face dire food shortages. In 2016, then Zimbabwean President Robert Mugabe declared a state of disaster for agriculture in the country – a declaration which allowed international donors to step in. According to the United Nation’s children’s agency, UNICEF, around three million Zimbabweans are in regular need of food aid. What Algeria, Tanzania and Zimbabwe have in common is that all have pursued

the most far-reaching land reform in Africa since the beginning of independence from colonialism. It is obvious though from the fact that all three countries are now lacking food security and having to import food for their starving citizens, that their land reform strategies have failed dismally. ALGERIA’S STATE-LED LAND REFORM When Algeria claimed independence in 1962, roughly 40% of French farmers abandoned their land and fled to France, decimating agricultural production.

LAND REFORM

Consequently, the Algerian National Liberation Front (FLN) government expropriated the majority of commercial agricultural farms, which were transferred to state ownership. A number of the farms deserted by former French colonial settlers were confiscated by leaders of the FLN elite as private farms. In fact, Algeria’s first president, Ahmed Ben Bella, transformed seized land into state farms run according to the Yugoslavian modus operandi of workers managing themselves. Government also provided finance centrally, securing supplies and selling on the produce. The worker-managed farms floundered under commercial management; production fell well below the level achieved during the colonial period. And a scant few state-owned farms yielded a profit. Concurrently, small peasant-owned family farms continued to function, but under communal control. Houari Boumediene took power in Algeria in 1965. He proceeded to institute a novel land reform – the ‘agrarian revolution’ – which donated state and private land to landless and poor peasants. But not without conditions: it was compulsory for those who received expropriated land to take part in state agricultural cooperatives, which provided finance, equipment and seeds. This too failed. The programme suffered massive financial losses, productivity and output slumped, food imports increased. The financial costs of both the imports and state investment in agriculture, which did not deliver, pushed up the budget deficit and inflamed foreign debt. The Algerian government set in motion its third plan, spanning 1980-1984, which included drawing in the private sector once again, by opening up state finance to private farmers.

The government also phased in a homesteading strategy, encouraging small subsistence farming on unused state land – homesteaders were afforded property rights. It was only in 1985 that the government proffered selected privatisation, privatising or leasing of large formerly expropriated farms in state hands to private farmers, and handed back several formerly expropriated farms to private owners in return for their commitment to restarting production. The government, for a long time the sole buyer of state farm products, paid below market prices, disincentivising production. It also paid state farm employees salaries way below market-related rates, leaving them with no other choice than to engage in other income generating activities, allowing less time and energy to focus on farming. And let us not forget that large tracts of agricultural land were appropriated by struggle leaders. It was necessary to source basic food from abroad throughout the entire reform period. Imported food prices were subsidised and, together, the imports and

subsidies increased government debt markedly. Today, Algeria’s foreign debt has grown dramatically to over a third of GNP. TANZANIA’S IDEOLOGICAL-DRIVEN LAND REFORM Tanzanian independence in 1961 saw private commercial agriculture occupying 1% of the land, but producing 40% of the value of the country’s exports. In 1963 Julius Nyerere, leader of the Tanganyika National Union (TANU) and Tanzania, disbanded the chiefdoms and traditional leader and king structure, rightly arguing they were undermining social, economic and cultural equality of all citizens. Julius Nyerere, in a 1958 paper entitled Maliya Taifa (National Property), advocated for land in a post-independence Tanzania to be controlled by government through leaseholds. In 1967, he issued his Arusha Declaration, which called for ‘villagisation’ of rural areas as the anchor development strategy of the newly independent government. The grand plan was to get rural Tanzanians to live communally in villages – in many cases this involved resettling

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LAND REFORM

people from areas far and wide into central villages. The intention was to promote collective farming and establish a modern agriculture industry, while also making it easier to provide public services. The villagisation concept was based both on African socialism – a variant proposed and conceptualised by Nyerere which combined African communalism with socialism – and the African traditional concept of extended family, with villagisation touted as an extended family but over a larger scale than is typical. In 1962 the government, through an act of parliament, nationalised the land, handing it over to the state. Those who owned private land were still permitted to retain possession, but ‘on condition that they used it’. As the state took power over the land, customary land rights were abolished. The newfound independence culminated in a Five-Year Plan, starting in 1964, promising 60 additional agricultural villages. Production was to be collectivised; cultivation communal. However, in the end the plan bombed, with experts arguing it was too much driven by the given, which lacked technical capacity Communities were not adequately consulted and, as a result, were not often enthusiastic about the actions. In September 1969, TANU took control of overseeing all Ujamaa villages to secure ‘uniformity’ of development. The TANU government demanded that all Ujamaa villages must be managed the same way, organised by strictly socialist lines and follow party edicts. A presidential circular in 1969 instructed government officials to continue ‘discouraging the continuation of private individual farming’. With agriculture already disrupted by the villagisation programme, Tanzania took a turn for the worse when it experienced low rainfall over a three-year period, 1973-1975. Predictably, food production took a nosedive, so food had to be imported. This coincided with the oil price crisis of the early 1970s, ushering in rising fuel prices. In 1976, the government issued a directive admitting mistakes in the implementation of the villagisation programme.

Following this, the country was plunged into economic crisis in the 1980s, forced to seek support from the World Bank, IMF and international donors. As they say, ‘there’s no such thing as a free lunch’: in return, they insisted that Tanzania implement structural adjustment policies, reducing the role of the state, cutting state subsidies to the poor and liberalising markets to allow in foreign competitors. In response to these requests, in 1983 the government released its National Agricultural Policy, which liberalised land, allowed wider private ownership – including foreign investment in land – and effectively ended the post-independence villagisation programme. Overall, the programme managed to produce for local subsistence, but failed to produce on a large commercial scale for export. The error was in overlooking the private small and medium farming sector, in which lay a wealth of experience, just waiting to be upscaled to greater output. Unfortunately, the state bureaucracy did not have the technical capacity to drive an effective land reform programme; it was overextended. By focusing mostly on the state – which lacked the dynamism, experience and technical capacity – the private sector, boasting all three of these facets, was excluded. The state simply became a site of patronage, opportunities and enrichment for many TANU cadres, given the fact that

the development of the private sector was discouraged by the TANU leadership. TANU was increasingly run by an elite group: who marginalised critical local expertise and relied steadily more on foreign expertise; who were either overly ideological, knew nothing of the local conditions or offered government policy advice based on what they wanted, rather than on what was needed. ZIMBABWE’S POPULIST LAND REFORM A decade ago former President Robert Mugabe, with Zimbabwe at the coalface of economic collapse and his leadership held up to scrutiny within Zanu-PF, launched a populist land reform programme. The objective was to strengthen his waning position within the governing party. Whiteowned land was expropriated and he achieved his desired result: his and ZanuPF’s popularity was boosted, particularly in the rural areas. The programme focused exclusively on expropriating – without compensation – high-flying commercial farms. Almost immediately there was a sharp decline in agricultural productivity, causing a ripple effect, with income from exports being devastated. And as productivity plummeted, so too did food production. Although some of the land was reassigned to poor blacks, possessing basic farming skills, much of the most soughtafter land was transferred to Zanu-PF politicians. Even the ordinary Zimbabweans

LAND REFORM

with bona fide farming skills who were assigned land often lacked the commercial management skills indispensable to modern-day commercial farming. But most importantly, this approach to land reform did nothing to empower the genuine subsistence of, small and medium and emerging commercial black farmers – or to upscale them, give them access to finance, help them to adopt new production methods and diversify their products, secure markets for them. Land reform in Zimbabwe did not form part of a long-term industrialisation strategy: in which entirely new commercial black farmers would have been created, with a manufacturing sector developed in alignment and industrially-relevant technical higher education institutions established to generate innovative, agricultural-related skills. Instead, the expropriation undermined market confidence in the credibility of the government’s policies; it undermined the value of property and disrupted the financial system by disrupting the system of seeking credit based on one’s assets. Foreign and local investors shifted their money out of the country and started divesting – their assets were no longer secure. This disastrous programme not only caused unemployment within the agricultural sphere, but within the sectors that fed into the commercial agriculture economy. IN CONCLUSION All three countries made the mistake of expropriating working commercial farms, with one country now stuck undermining farming productivity, food security and export income. Algeria and Tanzania discouraged commercial farming, depending solely on state, collective and communal farming – a strategy which was woefully unsuccessful in delivering food security. As we all know, land reform is complicated: it demands complex coordination and management of market perceptions, therefore needing a

Redistribution strategies are by their very nature highly prone to corruption, rentseeking and manipulation competent public sector driving it. The state institutions – whether state development finance institutions or agricultural marketing boards – responsible for supplementing finance and skills transfer to indigenous farmers were run abysmally, due to patronage appointments, siphoning off development funding to party bigwigs. Redistribution strategies are by their very nature highly prone to corruption, rent-seeking and manipulation – this is one of the main reasons why redistribution strategies in almost all African and developing countries fail. And it is no different here: corruption undermined land reform in all three countries. As I have mentioned, the land reform plans in Algeria and Tanzania failed because the state had way too much control, yet too little technical capacity, and did not comprehend how crucial the voices of the communities were to the cause. Further to this, the plans did not include building mass housing in urban areas, which any meaningful land reform programme must provide if it has any hope of success. As this is a critical aspect of the industrialisation strategy, so too is building a manufacturing sector, expanding industrially relevant technical skills and fostering technology development based on producing the materials for the build programme. In Zimbabwe and Algeria, land controlled by traditional leaders through customary law remained untouched. The ramification is that the vast majority of rural dwellers are still living as second class citizens, with little rights of tenure, on communal land controlled by traditional leaders as though they own it themselves. Although these rural citizens technically ‘own’ land, they cannot invest in it, use it for

commercial purposes or to secure finance – their property ‘rights’ can be rescinded if they do not tow the line with the traditional leaders, Zanu-PF or FLN. But land reform must grant communal land to individual households, not just to collectives, as was the case in Tanzania and Algeria, to create the possibility of unlocking real value, energy and entrepreneurship. When land reform triumphs, it heralds movement in the production structure of agriculture: it modernises farming methods, diversifies products and designs a manufacturing industry. Sadly, none of the attempts at land reform in Algeria, Tanzania or Zimbabwe clocked the bigger picture of using a long-term industrialisation strategy. While they have yielded much in winning back their land from colonial governments, settlers and businesses, these countries have lost much in their defeated attempts to garner competitive agricultural industries, transform colonial-era ethnic, social and power inequalities, or redistribute wealth to their stricken societies countrywide. Let this be a lesson.

WILLIAM GUMEDE Questions? William.Gumede@wits.ac.za

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Deloitte Executive Compensation Report Financial services company Deloitte published its annual Executive Compensation Report in late 2018, revealing the salaries of top South African executives. And the trends are staggering

HUMAN RESOURCES

quality in the work space is a fierce perennial debate, shifting focus from black vs white to male vs female and, now, executive vs workforce. The increasing disparity between the pay of top executives and those lower on the rung has been the subject of much attention of late, locally and globally. Deloitte’s 2018 Executive Compensation Report confirms this trend. The report is an analysis of the salaries disclosed by top-notch executives from 150 JSE-listed companies – spanning top-tier, mid-tier and low-tier groups – over seven years, serving as a barometer of executive pay. The cold hard truth for South Africa is that we have been fingered for being ‘the most unequal country in the world’, according to a BusinessTech report. A sentiment reinforced by the data: the average total remuneration for the top 25% of executives ranges from R8,9million to R85,4-million; middle range stretches from R5,1-million to R40,9million; and at the bottom, 25% earn between R3,4-million and R29,9-million. Of course, keep in mind the variables affecting these figures, such as the size of the organisation and market- and economic-related factors. Although it is clearly a concern for all societies, Leslie Yuill – Actuarial, Reward and Analytics leader at Deloitte Africa – believes that South Africa suffers particularly due to ‘its additional transformational needs and high levels of unemployment, which contribute to a powder keg of potential dissent and disharmony’. He qualified that the Deloitte report is a qualitative and quantitative review of the nature and disclosure of executive compensation, and doesn’t comment on its relevance or impact on societal considerations. However, he added that there are discussions afoot with regards the design and implementation, the documentation, communication and disclosure of

executive pay. Deloitte has proposed that the ‘single figure’ metric – a director’s or prescribed officer’s salary, benefits, shortterm incentives, long-term incentives and performance awards – a requirement of King IV reporting standards, become the baseline of executive pay design. Yuill said this could open up a dialogue about internal and external pay comparisons, and shareholder and societal concerns around fair play. It would extend a modicum of flexibility to companies when it comes to pay design, while keeping in line with an acceptable single figure parameter. This is in contrast to the current situation in which companies are supposedly conforming to or being dictated to conform to many and varied benchmarks, which are ‘maligned, misaligned and often misused’. The Deloitte report predicts that King IV will encourage engagement between companies and their shareholders, which should have a positive impact on the overall structure of remuneration policies and quality of disclosure in implementation policies. ‘Remuneration committees will have to continue to focus on the target setting process to ensure targets are appropriately stretching, as well as on the disclosure of these targets in relation to the pay-outs. We also expect to see greater vigilance around malus and clawback arrangements.’ Malus refers to the reduction of unvested or unpaid variable pay before the date that it vests, while clawback refers to compelling executives to repay amounts to the company that should not have been paid to them. ‘The Single Figure Standard might become a way by which all stakeholders could assess the full quantum of executive pay over time, from the perspective they view it, whether internally, externally or by sector and/or societally,’ said Yuill.

Uncovering business opportunities in emerging power technologies The PBF Energy Desk held a seminar in Johannesburg in late 2018 to enlighten PBF members about the potential for new business revealed in the review of the 2018 Integrated Resource Plan. SISA NJIKELANA brings us up to speedâ&#x20AC;Ś

ENERGY

t is clear that we need to be alert to and respect the government’s position on the mixed energy strategy. Instead of standing by the sidelines jeering, it may be more helpful to lend the government a hand by analysing and evaluating the application of this strategy. So, which power technologies and systems are we talking about? While South Africa is fairly familiar with certain technologies and systems in the power industry – wind, solar, hydro, nuclear energy, biogas, waste-to-energy, fossil fuel-based technologies, co-generation, power storage, energy efficiency – it is equally important to consider the emergence of new technologies and systems, as well as the improvement of those in existence. The new talk of the town is hydrogen fuel cell, polygeneration, small-scale embedded systems, nuclear pebble bed modular reactor technology, compressed air, to name a few. Let’s start with hydrogen fuel cell technology. With more than 20 types, it is slowly growing where it is commercially viable and is a subject of intensive research and development. It is expected that its wide range of applications and ongoing research may bring down overall costs. Moreover, the introduction of this technology creates a conducive platform for the growth of the hydrogen economy, which has its own encouraging future prospects. Then we have biogas technology – around for some time now – which mainly uses anaerobic digestion of waste, resulting in methane gas destruction. The attraction here is that biogas is renewable, has good energy density, and is clean burning. It can also be widely applied, from households to commercial and transport sectors. Power storage is another technology to

The future will see the transition from fission to fusion in nuclear energy place nuclear energy on top keep an eye on, especially when it comes to power interruption, emergency situations, enhancing efficiency and saving excess power (e.g. wind) from waste. The hydro pump storage and lead-acid batteries, lithium-ion/flow/compressed air/capacitance are emerging technologies which are, notwithstanding current costliness, fast gaining traction with those sporting keen commercial ‘hunting noses’. Although, there are a few concerns: high infrastructure requirements when it comes to large volumes of storage, as storage has evidently excelled in consumer electronics particularly. Battery costs are still a major concern, but will probably decline in the near future, especially if the government introduces incentives. Waste-to-energy technologies are steadfastly garnering more attention by both developers and consumers. Sources include, inter alia, waste gas, waste heat, sugar cane and cane residue – in other words, bagasse, from the sugar industry; waste of different kinds from the paper industry; wood waste from the saw milling industry; sewage effluent; organic waste; landfills; the list goes on. The vast variety of technologies within the sector also includes biogas digester, pyrolysis and fuel combustion. As a replacement for current coal-topower technologies, clean coal as well as high efficiency and low emission technology (less known) is forging ahead

globally: super-critical, ultra-critical, carbon capture and storage as well as underground coal gasification technologies are all catching on fast. An interesting one is energy efficiency – nominally called the first fuel – which is in line as part of growing technologies in the power industry, though associated mostly with the demand side of the power markets. Energy Services Companies (ESCOs), sharing the core position of providing energy efficiency services, are advancing in number, albeit slowly, as a result of increasing awareness around factoring in energy efficiency, especially in the private sector. Just emerging in the power market is the pebble bed modular reactor – the latest trend in fourth generation technology in the nuclear energy industry. Being easily adaptable as part of the decentralised system, this technology is bound to be popular. Lastly, we look at compressed air energy storage, at utility scale, which is energy generated and stored during periods of low energy demand (off-peak) and released to meet higher demand (peak load) periods. These kinds of smallscale systems have long been used in applications such as propulsion of mine locomotives. In fact, a growing number of engineers and researchers argue that the future is not in large-scale compressed air energy storage, but rather in small-scale or micro systems, using man-made,

aboveground storage vessels as opposed to underground reservoirs. The draw here is that these systems can be off-the-grid or grid-connected; either operating independently or alongside a battery system. SYSTEMS THAT GET INTEGRATED WITH MIXED TECHNOLOGIES • Decentralised/distributed systems are the application of various power technologies in a localised manner, as compared to centralised power plants. • Small-scale embedded power systems are suitable for households, SMMEs, and involve a number of technologies that fit the category of decentralised systems. • Poly-generation – an energy supply system which delivers simultaneously more than one form of energy to the final user. For example, electricity; heating and cooling; and in many cases, it also uses one or a combination of primary energy sources such as fossil fuels and renewable energy: solar energy, biomass, geothermal energy, etc. EMERGING TECHNOLOGIES UNDER RESEARCH AND DEVELOPMENT The future will see the transition from fission to fusion in nuclear energy place nuclear energy on top, given that experts claim that fusion technology is three to four times more powerful than the current fission technology. Another technology of the future will use magnetohydrodynamics (MHD) (magneto fluid dynamics or hydromagnetics): the study of the dynamics of electrically conducting fluids. In the same breath, it is appropriate to highlight that technology rivalry – a

leprosy in the power industry – must be fought tooth and nail by the power industry’s role-players. It has not only a devastating effect on the industry itself, but also on the economy. Of course, this means competition has to be suppressed under the pretext of addressing technology rivalry. WHERE TO FROM HERE? Factors to take into account for any entrepreneur when diversifying must include the extent of availability and stability of resources for the technology; maturity of the technology, especially its track record and reliability; its contribution to energy security; sustainability; ease (or constraints) of implementability; environmental impact; regulatory considerations; and economic viability. Other vital factors to look into are availability of equipment and power, robustness of design, and capacity. Regulatory considerations such as environmental impact, wheeling of power, co/tri-generation should also be carefully addressed. For those who do not view power as part of core business, do yourself a favour and make a few calculations on power as a cost centre. You might be surprised. And wealthier for knowing! Another suggestion is to add finance and other support programmes, such as skills development geared towards the Fourth Industrial Revolution, to your business plan – growing your people is integral to growing your business.

CONCLUSION One article can never do justice to the complex and far-reaching topic of power technology or systems. And venturing into its (sometimes overwhelming) realms is not for everyone. But with strong will and resolve, our country has the power to take advantage of the wealth of technologies at our disposal and of those waiting to be developed. Our power supply should be sustainable by the time the world runs out of fossil fuels, in the light of the advancement of science, engineering and technology in providing viable alternatives. On the business front, exploring alternative power technologies and systems for competitive advantage is a crucial practice to incorporate into any company’s strategy and practice.

SISA NJIKELANA Questions? sisanjikelana @gmail.com

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The legal ins and outs of building a business in SA HENNING PIETERSE, Partner at Bisset Law Firm, offers legal advice on the technicalities of getting a business up and running in the South African context, whether you are ‘local is lekker’ or from far and wide

s Walt Disney once said, ‘The way to get started is to quit talking and start doing.’ It can be daunting to figure out what the next step is once you have refined your business idea, prepared a business plan, and assessed the business environment. The various considerations to be taken into account when starting a business in South Africa differ depending on whether you are a born-and-bred South African or foreign entrepreneur. There are also a list of regulatory requirements – involving company law, labour law and tax law – which need to be kept top of mind in the formation and conduct of your business. SELECTING A BUSINESS VEHICLE This is one of the most crucial decisions you will make in your new venture. Do your research on what the ideal business vehicle would be for you: business may be conducted in your own name as a sole proprietor, in a partnership with others, in a business trust, or in a company. To limit the associated risks, many entrepreneurs prefer to use a company

as their business vehicle. The attraction here is that a private company has a separate legal personality, which means that the shareholders are generally not personally liable in respect of the company’s business. Whereas, sole proprietorships and partnerships are not classified as legal entities and do not have the benefit of a separate legal personality. There are numerous contingency plans when it comes to The Companies Act (the Act), which come into play in the business arena. It often happens that a business opportunity arises before a company has even been registered by the entrepreneur. To offset this, the Act offers a preincorporation contract: an agreement entered into by a person who acts on behalf of the company before it is legally seen as such, committing the company to becoming incorporated. While the pre-incorporation contract is a useful business tool, be weary of the personal liability the entrepreneur faces if the potential company does not fulfil the obligation of the contract.

MOLDING A COMPANY The Memorandum of Incorporation, known as the MOI, is pivotal to a company, and is regulated by the Act – it sets out the rights, duties and responsibilities of shareholders, directors and others within a company. The MOI is standard fare for companies and there are scant few opportunities for amendments down the line. From a procedural perspective, the MOI is filed together with a Notice of Incorporation and the prescribed fee at the Companies and Intellectual Property Commission (CIPC). Then, the company is assigned a unique registration number and (usually) simultaneously registered as a taxpayer. In the event that this falls through, it is up to the company to register with the South African Revenue Services (SARS) within 60 days to be in line for tax payments – a Tax Clearance Certificate is a non-negotiable. Depending on factors such as turnover, payroll amounts and whether the company is involved in imports and exports, it may also have to register and fork out for other taxes, duties, levies

BUSINESS LAW

and contributions such as Value Added Tax (VAT), Pay-As-You-Earn (PAYE), customs, excise, Skills Development Levy (SDL) and Unemployment Insurance Fund (UIF) contributions. Furthermore, while a nonresident of South Africa may sit as a director, SARS still requires a resident South African to represent a company. BUYING AN OFF-THE-SHELF COMPANY Instead of launching a new company, an appealing option is to buy a shelf company: one which is inactive but has been pre-registered with the CIPC. The big advantage here is that there are no waiting periods before the company can start contracting and transacting. In addition, for the most part, the procedural rigmarole of registering the company falls away. As for naming, there are no concerns about changing the shelf company’s recorded name at a later stage. For companies still to be incorporated, it is possible to reserve a name under certain conditions.

MORE LEGAL REQUIREMENTS Legal requirements abound in the business space – and not only during the initial stages of founding a business. The Act prescribes various duties for directors of companies, including the duty of good faith in their fiduciary capacity. These duties are fairly extensive, and the Act is the judge of the liability that is incurred if they are contravened. Other legislation that regulates the rights and duties of the employer and the employee in the workplace include the Labour Relations Act, Basic Conditions of Employment Act, Employment Equity Act and Compensation for Occupational Injuries and Diseases Act. In addition, companies providing goods or services to the public would do well to examine the Consumer Protection Act. Depending on the nature of your business, a licence from the local authority may also be mandatory. FUNDING YOUR VENTURE Access to finance and capital is a significant challenge for all startups, let alone for small and medium-sized enterprises (SMEs), who suffer far more trying to nail down backing. And so, it is a saving grace for these diverse types of businesses that funding is made available through the Industrial Development Corporation or the Department of Trade and Industry’s Government Investment Incentives. FOREIGN ENTREPRENEURS In terms of the Act, an external company must register with the CIPC within 20 business days after it first begins to conduct business. A foreign company will be regarded as conducting business in South Africa if the company is: • a party to one or more employment contracts within South Africa • engaging in a course or pattern of

activities in South Africa over a period of at least six months, which would lead a person reasonably to conclude that the company intended to engage continually in business in South Africa. As you can see, it would be foolhardy for foreign entrepreneurs not to familiarise themselves and obtain advice in respect of South Africa’s Exchange Control Regulations. THE RIGHT SUPPORT Small enterprises can look to The Small Business Enterprise Development Agency (SEDA) for business development and support services. SEDA will guide you all the way: from starting your business to writing a business plan and growing your business. On the legal front, seek advice from an experienced attorney. Keeping the legal aspect of your business above board is equally fundamental to its success and, consequently, its reputation.

HENNING PIETERSE Questions? hpieters@bissets.com

The new rules of water heating tech Homeowners and manufacturers should err on the side of caution when it comes to the new legislation concerning water heating systems, say CHANTELLE GLADWIN-WOOD, Partner, and KYLE VENTER, Candidate Attorney at Schindlers

re we in hot water? The image that immediately springs to mind is that of a lobster being so slowly boiled alive that it doesn’t realise what’s happening. Not a pleasant thought, to say the least. But that’s what it feels like for many amid the never-ending Eskom debacle of spiralling tariffs, load shedding and tales of corruption. And the cherry on top is the more onerous legal requirements relating to geysers and other hot water systems that the Legislature has decided to throw into the pot. The government’s latest scheme to attempt to curb energy loss and promote sustainable living (and the practical and financial consequences of that) is the real hot topic of the day. A fine balancing act of remedying the dire struggle of power giant (Eskom) to meet South Africa’s current electricity demand on one hand, or at least alleviating it in some way, while lightening the financial pressure on the tighly-pulled purse strings of the people on the other, that comes with legislative implementation of new technology. THE IDEA BEHIND THE NEW REGULATIONS The National Regulator for Compulsory Specifications (NRCS) published amended standards during 2018, changing the requirements for installing new domestic geysers and other domestic hot water systems, and replacing existing systems. The message to all parties involved in the production or manufacturing of heating systems is that they are now required to ensure that their respective products are more energy efficient and fall within the so-called ‘B Class’ or ‘B Energy’ bracket.

The new geysers in the B Class are said to have thicker insulation between the inner cylinder and the outer casting, which subsequently prevents heat loss and reduces your energy consumption (and, hopefully, your electricity bill). In essence, the aim is to achieve the same outcome that a thermal geyser blanket would achieve but on a much larger scale. The new regulations also require that you get issued a compliance certificate when these newer geysers are installed. In the unfortunate event that the installation is non-compliant with the regulations, a certificate of non-compliance will be issued, explaining the non-compliant aspects in order for them to be fixed. ENFORCEMENT AGAINST MANUFACTURERS/IMPORTERS The proposed changes will bring into force the new requirement for businesses manufacturing geysers to apply for Letters of Authority (LOAs). And only once an LOA has been obtained can a manufacturer or importer lawfully trade these newer geysers. Furthermore, to ensure effective implementation and regulation the NRCS has devised a plan called ‘VC Enforcement’, including a mix of actions: spot inspections, stakeholder engagements, more or better consumer awareness, and surprise raids on business premises. Failing to stick to prescribed manufacturing specifications could land you with a hefty sanction from the NRCS – by either confiscating the product, destroying it and/or imposing a penalty appropriate to the circumstances.

WATER TECH

ENFORCEMENT AGAINST HOMEOWNERS Watch out, homeowners, you face two potential problems: the apparent size difference in geysers – which might become an issue in sectional title schemes, as the new geysers are bigger than their older and less energy efficient counterparts, so might not fit into the ceiling or ducted space provided for them; and then there is the risk of a rejection of a claim by your household insurance if a geyser bursts or for knock-on damages from a burst geyser that was installed incorrectly according to the new standards. There is a silver lining for homeowners with an existing but non-compliant geyser – they are exempt from these new regulations in the short term. That is, the law doesn’t require the immediate replacement of all existing geysers, only that those installed for the first time or those replaced after the regulations came into effect be Class B. But what happens if your installation is non-compliant with the relevant legislation and there is a claim? Will it be rejected? Rest easy, this issue won’t affect claims on geysers installed before the

new regulations came into play; the law only requires that they be replaced as and when necessary. For example, if you file a claim for your old geyser bursting – installed before August 2018 – and it is non-compliant, this won’t affect your claim. However, if your geyser was installed sometime since August 2018 and it bursts, and it is non-compliant, then you might find yourself in a regrettable situation, with the insurers calling it non-compliance with the prescribed standards, raising your risk profile and lowering the chances of you being covered. Likewise, remember that, to the extent that an insurer can show that a burst geyser or other form of damage arose from a lack of maintenance, it will not be covered. Some proponents are of the view that, much in the same way that not having a valid licence disk for your vehicle doesn’t increase your risk of having an accident, having a piece of paper that says that you are compliant doesn’t necessarily make it true or alter your risk profile. Others disagree, for obvious reasons. But, as the saying goes, it’s better to be safe than

sorry – if in any doubt about either your insurance cover or the new regulations, it’s time to check in with your insurer and plumber.

CHANTELLE GLADWIN-WOOD Questions? gladwin-wood@schindlers.co.za

3 ways to make your small business big THE SMALL BUSINESS SITE shares some key tips on creating an invoice that will be accepted by your most fussy customers; getting through your ﬁrst year as a new business owner; and developing your product to win in the open market How to make an invoice that will get you paid Start by making sure your customer is expecting your bill. This makes for good etiquette – if it comes out of nowhere, they may be slow to approve it, or even annoyed. Explain your process before you supply anything, so they know when to expect your bill. If you don’t have an agreement in place, at least tell them when an invoice is about to be sent. WHAT INFORMATION GOES ON AN INVOICE • Information about you Your name, address and contact details. Freelancers can use a personal name; otherwise stick to your business name. • Information about the customer Add the customer’s name and contact details. If it’s an organisation, confirm their legal name; it could be different from the brand name you’re familiar with. • Details about what was sold List the products you supplied, their prices,

and the quantities of each. Or list services, with professional fees against each. • The cost Total all your charges, making sure to apply any discounts you’ve offered. Add sales tax at the end. • The customer reference If your customer has given you a reference or purchase order number, include it. This will increase your chance of being paid promptly. • Instruction on when and how to pay State when the invoice is due, and be clear if there are late fees (or on-time discounts). Tell them which types of payment you’ll accept and give the information they need to make those payments, such as a bank account number or a link to online payment. HOW TO CREATE AN INVOICE NUMBER An invoice number can be anything – and can include letters – as long as none of your invoices have the same number. You can simply number them sequentially –

INV-OOl, INV-002, INV-003, and so on. If you want your invoice number to be more informative, you could: • give each customer a separate code (Vandelay Industries becomes VAN) • create a job number for each project (001 for cleaning their sales offices and 002 for cleaning the factory offices, for example) • include the invoice date (using the yyyymm-dd format will make it easier to group jobs this way) So, for cleaning the factory offices on 21 January, 2018, you’d make an invoice with the number VAN002-20180121. INVOICE DETAILS - HOW MUCH IS TOO MUCH? Always provide a description of the goods or services supplied, so the customer knows what they’re paying for. But don’t add so much detail that it slows down your invoicing process. Here are some guidelines to help you make an invoice that’s straightforward:

SMALL BUSINESS

• Use language from your original quote so the customer can see you’re delivering on your promise. • Be as concise as possible. You can keep a more detailed record of the work in a private diary, but don’t put it into the invoice unless you’re asked for it. • If a customer requests a lot of detail, add it as an attachment. Keep the invoice itself to one page if you can. NOW YOU KNOW HOW TO MAKE AN INVOICE • Open your invoice template • Create an invoice number and add the date • Fill out information about you, the customer, and the goods or services • Total the costs and double check your maths • Send the invoice • File a copy for your tax records

A basic guide to surviving your first year in business With about 80% of small businesses failing in their first year, it seems like a useless task to take the risk of starting a small business. But there are those 20% who are successful, who make it out of the first year alive. Let’s look at how you can be part of the 20% who survive their first year of business intact and ready for more... RESEARCH YOUR BUSINESS IDEA You have a sparkling new idea bouncing around your head. It’s triggering fancy ideas of overseas holidays and meals at lavish restaurants. But will your business idea be profitable? Your idea may be good, but will someone take their hard-earned cash and purchase your product? This is where research comes in. It’s important to do a survey with independent consumers – not family and friends – to check whether

there is true demand for the product or service you want to offer. If you can create a prototype and test it on your market, then do it. This will also create an awareness of your product, so that if you do go ahead you will already have a set of potential customers. DRAW UP A BUSINESS PLAN Some entrepreneurs leave this to the last minute, when they need financing or need to pitch for a tender – but it is vital to have a carefully made plan before you venture out with your product or service. By writing out your mission statement and doing a SWOT analysis you will be able to make sure your business is on the right track or identify areas where you need to tweak it. A business plan gives you a clear idea of your purpose. With this in mind you can assess your decisions, making wise choices which will continue to grow your business. KEEP EXPENSES LOW The best way to start your business? Use the lean start-up method, where you only acquire the things that are fundamental to running your business. You invest in items which will bring returns. If the item will not contribute to the sale or making of the product, then wait to purchase once you are making a profit. If you don’t need an office, then don’t rent one. It’s essential to look at your needs and wants objectively at the start. REINVEST YOUR MONEY This is another area where entrepreneurs often come short: they forget that they will be the last to be paid, especially in the first year. You must reinvest your money into your business to help it grow from strength to strength. If you do not reinvest the money, your business may become stagnant.

MANAGE YOUR BUSINESS WELL Small businesses also fail in the first year because of poor management. There are many sides to a business: finance, sales, product production, purchasing, and employing and managing employees. It’s crucial to know which areas are your strong points. In the areas where you are weak, educate yourself. You can even do this simply by signing up for a free online course. If that’s not your thing, you could employ someone or outsource the work to a professional. If you neglect business management, you will struggle to keep your business afloat. GROW STEADILY It may be exciting to see your business expand quickly, but you could come to a grinding halt just as fast. It’s always better to grow it steadily – build a good foundation for your business and then stretch it from there. If you don’t have a solid foundation, then when you stretch your business it may crumble. Expand as you have the resources available to grow into the market you love.

SMALL BUSINESS

With about 80% of small businesses failing in their first year, it seems like a useless task to take the risk of starting a small business. But there are those 20% who are successful HAVE A GOOD LOCATION Location is another critical aspect which often gets disregarded when people start their business. When you choose a location for your business, whether physical or online, consider the following questions: • Where are your customers? • What is the accessibility like with regards to traffic, parking, lighting and disability access? • Where are your competitors located? • What is the condition of the building and is the building safe? • Will the community accept your new business in the location you have selected and what is the history of the site? When you have answered these questions, you will have found an ideal spot for your business. By keeping these seven points in mind, you will be well on your way to being part of the 20% of entrepreneurs who survive and thrive in their first year of business ownership.

8 steps in product development for small businesses

Whether you are starting a new small business or trying to grow your business, it makes perfect sense to learn how to develop your products. What should you do to get your great idea off the drawing board and into the hands of your customers? Here are eight steps on how to develop a captivating product. BRAINSTORM YOUR IDEA At this point you can let your mind run wild – any and every idea is welcome. These will be trimmed through the validation process,

which follows. So, write down every idea that comes to you. Look at the market trends. If your business already exists, do a SWOT (strengths, weaknesses, opportunities and threats) analysis; this may reveal new product ideas. It will also help you to focus on creating a product in line with your business strategy. SCREEN YOUR IDEA Get the appropriate decision makers involved. Share your ideas with them; they are skilled at highlighting the pros and cons. This will help you to narrow down which are your best ideas, the ones which have the greatest potential to attract revenue and that you have the time and resources to produce. Don’t miss this step or you may end up wasting money on developing a bad idea. DEVELOP YOUR CONCEPT AND TEST IT Take your concept into the market to test it. By testing your idea on your true customers – those that have purchased from you before – you can make sure your idea is feasible. Allow your customers time to give you feedback. And answer these two questions: • Do they understand what the product is you are trying to sell them? • Do they want or need it? From your customer’s feedback you can further develop your idea and also work out what your marketing message will be. DO A BUSINESS ANALYSIS Once your idea has been finalised, it’s time to create a business case. This will highlight whether or not your product is viable. You will look at what the market demand for

your product is, who your competition is, what the costs involved in creating the product are and what your break-even point will be. You will also go into the marketing strategy for your product: How will you position it in the market? What will the product mix be? And who will be your target market? DEVELOP THE PRODUCT This is the exciting part, where your idea becomes a tangible product. This is usually done using a limited volume to test against the market. You investigate manufacturing methods, how the product will be designed and what the packaging will look like. TEST THE MARKET With the prototype created, it is time to test the product with your target market. This testing is different from the screening in that you will use the whole marketing strategy to test the product. The consumer will get the feel for the product as a whole. With the feedback from your customer you can make further refinements. COMMERCIALISE THE PRODUCT This is the final stage before you officially launch the product into the market. Pricing and marketing need to be finalised and the sales and distribution departments need to be made aware of the new product entering the market. You need to make final decisions about the product. LAUNCH THE PRODUCT When launching your product into the market, think it through methodically. Decide where and when to target your primary consumers. By following these eight steps you will be well on your way to developing a great product.

Product Recall Insurance: A South African Perspective VERNON SUBBAN explains the ins and outs of why product recall insurance is a safety must-have for all businesses in South Africa

ast year, 2018, saw South African consumers being exposed to one of the largest product recalls in history in the food industry. When a product’s safety is in question, timing is everything. Decisions need to be made; there is no room for ill-judged ones. Product recall costs can spiral out of control and drain the pockets of a business if not properly managed. And then there is reputational damage, hitting a business the hardest when social media goes viral. The best remedy? Product recall insurance, which is any business’ ‘handmaiden of commerce’ to cover the costs incurred to recall that defective or unsafe product from the market. PRODUCT RECALL INSURANCE EXPLAINED When a product poses a hazard to consumers, there are two parties that can initiate a product recall: the first being the product manufacturer, making the recall a voluntary one; the second being the National Consumer Commission (NCC)

under the auspices of the Consumer Protection Act (CPA) No 68 of 2008, initiating a recall that is involuntary or compulsory. In both instances the affected business is left covering the huge costs. However, whereas the product manufacturer may be ultimately accountable for initiating a voluntary product recall, other role-players in the supply chain would be opportunistic to think they would be absolved of any responsibility as per the CPA. In legal terms, product recall insurance covers costs incurred in recalling the products that are likely to cause harm to consumers or their property, for which the affected business may become legally liable. To be clear, it is not liability insurance, but rather, it covers costs that will prevent future liability claims against the business – this is covered by the Product Liability aspect of the portfolio. Product recall insurance will also not cover the costs of repairing and replacing the product, as this is covered by the Product Guarantee policy. When it comes to the crunch, product

recall insurance is an essential part of an all-encompassing liability insurance programme for both large and small commercial businesses. Cover includes: • Cost of withdrawing and recovering defective products from the shelves • Transport costs • Staff overtime and cost of extra personnel • Warehouse and storage costs • Loss of profits • Crisis communication – to inform consumers about the recall • Ensuring brand integrity is kept in check, as a poorly handled product recall can lead to irreparable reputational damage • May include third party recall expenses. The trigger for product recall insurance policies to respond is that the defective product must pose a danger to consumers or their property. If a product merely does not live up to its expectations, it will not be covered under this policy.

INSURANCE

WHO NEEDS PRODUCT RECALL INSURANCE? Businesses in any industry, large or small can be affected by a product recall if its end users are consumers. Particularly susceptible industries are the automotive, household goods manufacturing, food and beverage, and electronics sectors. Unfortunately, although product recall Insurance is part of large multinational and commercial businesses, most small and medium-sized businesses have yet to keep pace with the need for this allimportant cover. At the core of the issue is that every business in the supply chain must take due care to ensure that the products they supply are safe for consumption. The food industry leaves no stone unturned: the farmers, processors, transporters, wholesalers, distributors and retailers can all be held accountable during a product recall. So, it cannot be overstated – all businesses, large and small, need to assess their risk profile for a potential product recall and get appropriate insurance cover. WHY IS PRODUCT RECALL INSURANCE A MUST-HAVE? Concerns grow over a business’ capabilities when a product is recalled for any of the three Rs: Replacement, Refund or Repair. In some instances the product may be banned altogether. Irrespective of the reason, the costs associated with any recall remain staggering. In both cases, voluntary and compulsory, the chain of events that follow the recall are the same: • Loss of consumer confidence • Surrendering hard-won retail shelf space • A drop in sales

• Loss of valuable supply contracts. Product recall risks for businesses have escalated in recent years, shaped by the dominance of social media, and tougher and more onerous consumer regulations – globally and locally. Add to that an increasing complexity of supply chains in all industries, and the result is that there is no place to hide for businesses during a product recall. Simply, it is a must-have if you have any hope of preserving your business’ reputation, brand and bottom line, in crisis that has the potential of spiralling out of control. RISK MANAGEMENT AND PRODUCT RECALL INSURANCE The major causes for recall claims are defective products and product contamination. Emerging causes for a recall include advances in product testing, which make it easier to trace contaminated products and hold liable businesses accountable. Furthermore, cyber recalls may soon become more prevalent – where hackers contaminate or change a product by taking control of automated product plants, particularly in the automotive industry. From another vantage, product recalls for ethical reasons like the use of child labour or mislabelling of vegan foods are becoming more prevalent. The National Consumer Commission

(NCC) has also initiated various product recalls, actively collaborating with affected businesses, to rid South African shelves of potentially harmful products. In light of the above, businesses are likely to be faced with an increasing number of product recalls, and rather than yearning for 20/20 hindsight after facing a costly product recall, they need to devise a more effective risk management programme. One that incorporates resilient safety systems and crisis management as part of its DNA cannot be overestimated. Indeed, the cost of product recall insurance is dwarfed by the potential catastrophic consequences a business has to face in the event of that fated recall that threatens human life or limb.

VERNON SUBBAN Questions? vernon@subban.co.za

The auditor’s role in the balance MARTHIE CLAASSENS, a Registered Auditor, gets up close and personal about the truth of being an auditor, for the benefit of anyone who has ever wondered where the auditors were when the economic shenanigans were raging in South Africa

am an auditor – please do not hold it against me! I have a heart (and a personality, contrary to popular belief). I cheer my kids on when they take part in school athletics, whether they win or barely finish. I also pack lunch boxes and wonder what to make for dinner. Although you may think I am all sage knowledge and seriousness, I can assure you that I am equally fallible and funny; I’m human. Even though auditors are touted as ‘earning so much money’, I too work hard to make ends meet and often do not have any financial security. Together with any other normative South African, I share the economic reality of a country facing huge challenges, which are being exacerbated by the magnitude of corruption, fraud, corporate greed, uncontained capitalism, blind governance, and the many other evils that have become part of our South African vocabulary. People ask – and they have a right to – where the auditors were when all this nasty business was going down? My intention here is not to defend any wrongdoing by any auditor, but rather to create some perspective with regards to

our role and, hopefully, bring better balance to the truth of it. Auditors are the gatekeepers (at most) of businesses and legal entities. They are not the creators or managers of business. And this is not limited to the private sector. Any time that an entity exists by virtue of someone else’s money (be it loans, share capital, government funding, grants or taxes), the management and governance structures of those entities must remain accountable to their capital providers, and also their stakeholders, to act responsibly and in the best interests of that entity. The word ‘auditor’ comes from the Latin word ‘audire’, which means ‘to listen’. Centuries ago an auditor, in its most primitive state, was the person who had to listen while management gave an account – made statements – of their handling of the capital entrusted to them. In modern times auditors read a set of financial statements, prepared by management, and then give an opinion on whether these statements reflect the truth. But this truth is not an absolute truth; it only reflects the truth up to the level of ‘fair presentations

free from material misstatements’, not all misstatements. Written statements, commonly known as the annual financial statements, are essentially no different from the verbal statements made hundreds of years ago by managers to the landlord’s auditors. Let’s unpack this further. I often hear even highly educated people loosely refer to people who offer any form of auditing service as ‘the auditor’. But beware: Not all people who use the term ‘auditor’ are ‘Registered Auditors’. This title is reserved for Chartered Accountants who have demonstrated a variety of prescribed competencies and who are then registered and proactively regulated by the Independent Regulatory Board for Auditors. Frequently, internal auditors, forensic auditors, and others who think they are auditors use the title, when actually, only a Registered Auditor is certified to claim the title of being a company’s statutory auditor. And with that title comes huge risks, legal liability and professional responsibility – only Registered Auditors are permitted to express an opinion on a set of financial statements.

AUDITING

The public also confuses the role of the accountant and the auditor. In South Africa, these two roles are essentially segregated by law (the Companies Act). The person who compiles the financial statements is the accountant, who may either be employed by the entity (listed company, private company, government department, State-Owned Entity (SOE), municipality, school, church, club, etc.) or the entity can engage with a firm of accountants. The accountant, if employed by the entity, is expected to be present during the recording of every transaction throughout the year. They have control over the allocation of the transactions into the financial records of the entity and are responsible for translating these activities into a set of financial statements for the year. By law, the directors or accounting authority remain/s responsible for preparing accurate and complete financial statements of the entity and, only once they have completed this process, signing these statements as a fair representation of the year that has passed. They then present the statements to the auditor, who forms an independent opinion on the matter. Auditors remain involved for maximum a few weeks during the process. In more extensive audits, auditors are indeed involved for a longer period, but it is not a single requirement that the auditor will have ever tested the full year’s financial activities. Registered Auditors exclusively audit samples, and never express absolute assurance. An uncomfortable truth in South Africa is that there are a whopping 60 000-odd accountants, but just over 4 500 Registered Auditors. Of these auditors, not more than 2 500 choose to express opinions on all financial statements produced in South Africa. Furthermore, it is a profession that is growing at a snail’s pace – it takes nearly nine years to qualify as an auditor, and after qualification the legal and regulatory risks are so high that

the trend is for young people to lean towards more lucrative careers with less risk and stress. Over a recent decade the South African auditing profession saw a net growth of a mere 50 people. Comparing the needs of our economy with the number of available Registered Auditors, it seems daunting and nearly impossible to comprehend any radical economic forward momentum in the near future. So where were the auditors when listed companies, private entities and SOEs were being looted, investors conned and pensioners robbed? I say the more important questions to ask are: ‘Where are the accountants who processed the accounting transactions for the year and who compiled the financial statements?’, ‘Where are the directors who approved the financial statements that were presented to the auditors as a fair reflection?’ And yes, sometimes it is valid to ask ‘Where were the auditors?’ But the true answer rests in the value chain that leads to a set of financial statements on which many critical economic decisions are made, starting with the bookkeepers and accountants, then management, followed by the governance structures. Once all of these role-players have fulfilled their tasks with the necessary level of professionalism and skill, only then do the Registered Auditors get involved. How can a role-player who is not onsite be expected to take full

responsibility for all misrepresentations in the financial statements of an entity? And more so, when these misstatements were deliberate? Accountants are not proactively regulated – although they can choose to be a member of various institutes, there is no official regulator. On the other hand, Registered Auditors are proactively regulated, and sanctioned for unprofessional conduct. The bottom line is that financial statements are only as reliable as all the role-players in this critical value chain are responsible and held accountable.

MARTHIE CLAASSENS Questions? marthie@protectadirector.co.za

Retirement funds: Death Benefits and Freedom of Choice CLEMENT MARUMOAGAE, an attorney with his own law firm, tackles the extra sensitive topic of who gets to decide what happens to your material life when you die one day

INVESTMENT

inancial comfort and freedom in old age is what we all hope for. But it isn’t easy to make that happen – not in this woeful economic climate, or in this social one, with new material trends constantly swaying our attention from saving to spending. One way to make sure your future is secured in the present (and to keep spending impulses at bay) is to invest in a retirement fund. One such investment is an occupational retirement fund: an option to those in the formal employment bracket, where the amount the employee chooses to contribute (save) is simply subtracted monthly from their salary, and the employer also contributes to the employee’s pension. Basically, the primary goal of every retirement fund should be to provide a platform for members to save and invest their money over a long period of time in order to ensure their financial security when they retire. Fund members should be given access to information and education relating to the benefits that their retirement funds offer and when these benefits will be due to them or their beneficiaries. And members are encouraged to take their own steps to being aware of the rules of their pension scheme. Mostly, retirement fund rules take into account certain events – resignation, dismissal, retrenchment, disability, and death of the member – which trigger the early payment of retirement benefits. In this article, the focus is on the law regarding the payment of retirement fund death benefits in South Africa. We also take a look at the powers (if any) that fund members have to ‘dictate’ how such benefits should be distributed. To clarify, death benefits are the amounts that the retirement fund must pay to the beneficiaries of the fund in the unfortunate circumstance that the contributing member dies. FRAGMENTED REGULATION OF THE RETIREMENT INDUSTRY The assorted occupational retirement funds are regulated by different statutes in South Africa. It is essential that fund members are not only privy to the name

of their pension scheme, but are also aware of particular legislation that regulates it. All retirement funds – be it umbrella funds, specific industry funds, pension funds, provident funds, preservation funds, or retirement annuity funds – that are established for employees within the private sector are regulated by the Pension Funds Act 24 of 1956. On the other hand, there are retirement funds that are established for those employed by public enterprises such as the Post Office and Transnet. These hold their own legislation, such as the Post Office Act 44 of 1958 and the Transnet Pension Fund Act 62 of 1990. Government employees boast a unique retirement fund too: the Government Employees Pension Fund, which was put in place by the Government Employees Pension Law, Proclamation 21 of 1996. This fund wins the position of largest retirement fund in terms of membership and assets not only in South Africa but also on the African continent. Some of these statutes do not explicitly provide for the distribution of death benefits, but rather, empower the board of management to determine how death benefits should be distributed (according to the fund rules, of course). For instance, section 5 of the Transnet Pension Fund Act merely provides that ‘… the benefits due to pensioners and dependent pensioners … shall be governed by the Rules of the Transport Pension Fund’. However, the Pension Funds Act (PFA) and the Government Employees Pension Law are specific in this regard; Section 22(1) of the latter appears to empower members of the Government Employees Pension Funds to nominate their beneficiaries. But in principle, the board of management should be able to intervene and override the nomination if it prejudices any of the member’s factual and legal dependents. As for the Pension Funds Act, Section 37C regulates when and to who the fund member’s benefits get paid when they die. According to Associate Professor DyaniMhango from Wits University, this rule particularly empowers the boards of management to not only consider the

It is essential that fund members are not only privy to the name of their pension scheme, but are also aware of particular legislation that regulates it

nominated beneficiaries but also the members’ dependants when allocating death benefits. Section 37C(1) of the PFA further empowers the boards of management to allocate death benefits to those who the fund member was legally tied into maintaining, irrespective of whether or not the member fulfilled that obligation while alive. For example, if it appears that the member had a child somewhere which they withheld telling their family about, that child is entitled to a portion of the death benefits on the member’s passing. And to top it off, the board can also allocate a certain percentage to the member’s dependants, even if there was no legal duty to maintain them – for instance, grown-up children already taking care of themselves can benefit. FREEDOM OF TESTATION First, let’s unpack this phrase: freedom of testation is the right that a person has to divvy up their wealth and leave it to whoever they please. Now, the important takeaway from Section 37C of the PFA (mentioned above) is that it is designed to protect financial dependency over and above the clear wishes of the member, whether from a will or beneficiary nomination (ratified by the case of Steenkamp and Others v South African Breweries Staff Provident Fund and Others in 2013). From this perspective, Section 37C(1) of the PFA then unarguably limits the member’s right to freedom of testation –

The board can also allocate a certain percentage to the member’s dependants, even if there was no legal duty to maintain them saying a member cannot dictate how their death benefits should be shared out, through either their will or nomination form. In particular, the member cannot simply disinherit someone they are legally obliged to support. So, it is the boards of management that are called upon by Section 37C of the PFA to ensure that retirement benefits are divided between dependants and nominees, with the testator’s (member’s) maintenance commitments in mind, and considering social and economic implications. A key point is that the fund member’s choice of heir to the benefits is not necessarily a conclusive decision; it is merely a guide to the board when figuring out the best way to apportion death benefits. Of course, it does not mean that the board will just ignore the member’s choice; the nomination is one of the factors that must be taken into account. In fact, it was made evident in the case of

Itumeleng v SALA Pension Fund in 2007 that the board must be proactive in tracing beneficiaries and also in investigating the extent of the dependency of any beneficiary on the member while they were living. There are many factors that the board needs to take into account when deciding who should get what when it comes to death benefits. When looking at dependents, there are specific assessments to make: the wishes of the deceased; the extent of dependency; the ages of the beneficiaries; the relationship with the member; the amount available for distribution; and the financial status of each beneficiary, including the future earning capacity of each of them (citing Sithole v ICS Provident Fund in 2000). My parting advice is to always keep up to date with the personal information that shows on your retirement fund, including who you wish to leave your material

possessions to. You never know what life has in store for you – circumstances can change in the blink of an eye.

CLEMENT MARUMOAGAE Questions? clement@gaeattorneys.co.za

Overcome the Fear of Change and Intervention JAN COETZEE, Strategic Management Consultant, coaches us on how to implement an intervention strategy for long-term results

PLANNING

CONTROL

STRATEGIC

DEPARTMENTAL

PLANNING

KPI’s COMPANY PROFILE

DEPARTMENTAL BUDGETS

LONG TERM PLANNING

OPERATIONAL BUDGETING

CAPITAL FORECAST

ACTION PLANS

COMPANY KPI’s

WHAT DRIVES RESULTS? Just as a major heart defect requires an operation and not only a handful of tablets to swallow daily, so too does a business need a more permanent solution that yields long-term sustainable results when the going gets tough. The focus should be on homing in on the smart way of doing things, supported by the shoulder to the wheel commitment and loyalty of the management team, working closely with the intervention team. But most of the time we end up getting lost in reams of paper work and unnecessary meetings, instead of concentrating on measurable and achievable results. The success of an intervention depends on agreed-upon objectives, with regular follow-up meetings and measurement of sensible and results-driven targets. The following diagram gives an indication of a results-driven system with meaningful returns:

STRATEGIC APPROACH TO OPERATIONAL MANAGEMENT

BUSINESS PLAN

e get confronted daily by the forces of survival and results pushing us in the direction of change, improvement, intervention and re-engineering. But with uncertainty of the real outcome – largely due to underperforming in the marketplace by so-called experts – we keep putting transformation on the back-burner year after year and, instead, focus our energy on short-term fixing. We remain stuck in daily survival mode, losing out on expansive long-term strategy.

INDIVIDUAL 1. KPI 2. TARGET

ACTION

1. JOB DESCRIPTION

PLANS

2. KPI’s 3. PERFORMANCE APPRAISALS 4. INCENTIVES

COACHING

Make no mistake, planning is hard work. And it is useless unless continued measurement and control is in place, from the lowest through highest level of employees, with all levels of management accepting accountability for any intervention process and team. The intervention team itself, more than anybody else, should set the example by working towards set targets and only being rewarded according to milestones achieved. MEASURING SUCCESS Fundamentally, the boss, management team and employees should know what they are aiming for. Then, their continued progress towards the overall objectives must be recorded and measured. Keep in mind that the two pillars of transparency and trust are essential to the implementation of change in any intervention process – it will go a long way to easing and managing the fear and uncertainty that inevitably accompanies the process. Management and staff will not be satisfied with the blanket statement ‘all

good’ from the intervention team; they want to see the results. This will give them peace of mind in terms of the overall productivity, cash flow and profitability of the organisation. But more importantly, results will highlight individual, sectional and departmental performance in relation to agreed-upon objects and targets. It is also vital that the intervention team be measured and given feedback during regular structured meetings. Of course, performance appraisals are never popular, but they have the potential to form the backbone of a reputable incentive scheme, strengthening and motivating management and staff to go the extra mile, as it will allow them to see and celebrate the fruits of their hard labour. Employees need to witness the constructive input and contribution of all management – specifically top management and the owner – in order to fully embrace the principles of teamwork. THE RIGHT MINDSET A team can only work towards the same goal and be successful if they all understand every facet of the change and intervention process. No employee should ever have reason to doubt anything during the process; they should believe in their own abilities and be confident about its success. Constructive and consistent communication sessions will ensure that this happens. It strengthens morale and gets employees motivated. In addition, department results should be made known to all. One successful story has the potential to have a snowball effect throughout the rest of the company, with the ultimate reward being improvement in individual working environments. Engaging personally with each employee is fundamental, so each person feels they are making a significant contribution to the success of the total process. Of course, the change can’t simply be an

internal process to be properly effectual, suppliers and customers also need to be included. Think of it as one big family, with each individual contributing to create one big success story – and the bonus for them is a healthier bottom line. The overarching result: the change in your organisation will be seen as change for the better, for all parties involved. An intervention process uncovers the reality of your dreams and expectations. Remember, change and belief starts at the top, but implementation should start at all levels of the organisation. This way, employees will shift from just going through the motions, to feeling part of the new language and way of life. This way, it’s not just another programme, it’s a process that adds value not only to the work lives of employees, but to their whole lives. Let’s make tomorrow more secure because of today’s confident step in the right direction.

JAN COETZEE Questions? info@makarioscm.co.za www.makarioscm.co.za

Dos and donâ&#x20AC;&#x2122;ts for a body corp audit PRAKASH SINGH on how to prepare for a body corporate audit

BODY CORPORATES

All body corporates must present audited annual financial statements to a general meeting for consideration within four months of year-end

s of 7 October 2016, a new amendment to the Sectional Titles Scheme Act 8 of 2011 requires that all body corporates be audited. According to the amendment, the auditor cannot be involved in or give advice on the day-to-day management of the body corporate, and is also not allowed to do the preparation or compilation of the financial statements of the body corporate. WHAT IS THE SECTIONAL TITLES SCHEMES ACT? The purpose of the Sectional Titles Schemes Management (STSM) Act No 8 of 2011 is to provide for the establishment of body corporates to manage and regulate sections and common property in sectional titles schemes and, for that purpose, to apply rules applicable to these schemes. The Sectional Titles Schemes Management Act was gazetted and signed by the President in June 2011. This Act as well as the Sectional Titles Schemes Management Regulations, 2016, became effective on 7 October 2016. Here are the rules... Financial Management In the management of its finances, body corporates must refrain from the following: • Make loans without a unanimous resolution • Refund to any member a contribution lawfully levied and paid • Distribute to a member or any other person any portion of the business corporation’s profits or gains (except on destruction/deemed destruction of the building where the profit/gain is of a capital nature). The business corporation may on authority of a written trustee resolution: • Levy members with a special contribution

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– required to meet additional expenditure that cannot be reasonably delayed until the budget next year Increase the contributions due by a maximum of 10% at the end of the financial year for anticipated increases in liabilities. Effective until notice of next year’s contributions are given (here notice and context are required) Charge interest on overdue amounts payable (can’t exceed max rate per NCA, compounded monthly in arrear) Invest any money in the reserve fund in a secure investment with a ‘financial institution’ Enter into contracts Join organisations and subscribe Delegate to trustees/members/ management/agents/employees (can revoke delegation; must specify power/ duty, maximum amount of business corporation funds that can be spent and conditions) Approach Community Services Ombudsman Service for relief The business corporation must ensure all money received by it is deposited into an interest-bearing bank account in the business corporation’s name, or an estate agent’s or attorney’s trust account.

Maintenance, repair and replacement plan (MRRP) The body corporate must prepare a written MRRP for common property, setting out: • The major capital items expected to

require MRR in the next ten years • The present conditions of items • Time when those items will need to be MRR • Estimated cost of MRR • Expected life • Anything else. Additionally, the annual contribution to the reserve fund for maintenance, repair and replacement of the major capital items must be determined with regards to the estimated cost, past contributions and expected life. The MRRP is effective pending members’ approval at the general meeting where members can lay down conditions of payment. At the annual general meeting, trustees must report back on implementation of the plan. Financial records, budgets, reports and audit In terms of its finances, a body corporate must keep proper books of account that: • Record all its income, expenditure, assets and liabilities • Disclose all amounts recovered from members by the body corporate or any managing agent or other service provider acting on its behalf • Include individual accounts for each member • Contain all other info necessary to allow members to assess the body corporates financial position and situation. For its administrative fund and reserve fund, a body corporate must keep separate

Mr. Musa Mchunu (CEO & Founder)

Cingwane Projects (Pty) Ltd was established in 2015 by Mr. Musa Mchunu (CEO & Founder) to provide Earth Science and Engineering professional services to engineers, contractors, industrial clients and government entities.

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BODY CORPORATES

books of account and bank accounts. When it’s time for the annual general meeting, annual financial statements including the following must be prepared: • The amounts due to the body corporate IRO. contributions, special contributions, other charges, classified per member and in the periods for such amounts were owed (aging) • Amounts due by the body corporate to its creditors generally, and prominently disclosing amounts due to public authorities and in periods these owed • Amounts advanced to the body corporate by way of levy finance, a loan in terms of guarantee insurance policy or otherwise, setting out actual or contingent liability • Amounts in the reserve fund, showing the amount available for MRR of each major capital item as a percentage of the accrued cost and the Rand value of any shortfall • Premiums and other amounts paid and payments received by body corporate or any members in terms of insurance policies of the body corporate, and expiry date of each policy • Amounts due and payable to the Community Schemes Ombud Service (CSOS). Additional reports at annual general meeting In addition to the reports stated above, the following documents are required: • Budgets for admin and reserve funds with maximum 10% discount for early payment of levies • A report by the trustees reviewing affairs of the business corporation • Records of registered bond holders or the managing agent on application • All and any books of account and records available for inspection

• Records kept for six years after the completion of transactions, acts or operations to which they relate. Insurance Every three years, a business corporation must insure and obtain a replacement valuation of all buildings and improvements and present it at the annual general meeting, showing estimates of: • Replacement values of buildings and improvement to common property • Replacement values of each unit, excluding members’ interest in land. In terms of cover, the business corporation must take out: • Public liability insurance (not less than R10-million) • Insurance for risk of loss of funds • Anything else that a member may request. In addition, the business corporation may insure against (S3 (1) (h)), which are: • Lightning, explosion and smoke

• Riot, civil commotion, strikes, lock-outs, labour disturbances or malicious persons acting on behalf of or in connection with any political organisation • Storm, tempest, windstorm, hail and flood • Water escape, including bursting or overflowing of water tanks, apparatus or pipes • Impact by aircraft and vehicles • Housebreaking or an attempt. Administration and reserve fund The reserve fund is the amount that is set aside by the body corporate to meet unexpected costs that may arise in future and must be used for the implementation of the MRRP of the business corporation The administrative fund must be used to fund the operating expenses of the body corporate for a particular year. For the purpose of S(3)(1)(b) of the Act – the minimum amount of the annual contribution to the reserve fund for the

BODY CORPORATES

financial year being budgeted for must be determined as follows: • If the closing balance in the reserve fund for the previous year is less than 25% of the total contribution to the administration fund for the previous year, the budgeted contribution to the reserve fund must be at least 15% of the total contribution to the administration fund. • If the closing balance in the reserve fund for the previous year is equal to or greater than 100% of the total contribution to the administration fund for the previous year, there is no minimum contribution to the reserve fund. • If the amount of money in the reserve fund at the end of the previous financial year is more than 25% but less than 100% of the total contributions to the administrative fund for that previous financial year, the budgeted contribution to the reserve fund must be at least the amount budgeted to be spent from the administrative fund on repairs and maintenance to the common property in the financial year being budgeted for. The following amounts must be paid into the Reserve Fund: • Annual levies designated for MRR • Amounts received from insurance policies (damage or destruction) • Interest earned on invested fund money • Other amounts received per the business corporation. All other income must be paid into the administration fund. Amounts paid out of the funds must have trustee resolutions. If the trustees resolve that payment is a

necessary and urgent MRR expense, including court/adjudicator order; MRR due to safety or prevention of significant loss or damage to persons/property; repair to property of the body corporate responsible for that which could not have been foreseen in the MRRP; enabling the body corporate to obtain adequate insurance. Contributions and charges A body corporate must give each member written notice of contributions and charges due and payable not later than 14 days after the approval of budgets at the general meeting. The notice must state obligation, due date of interest on overdue charges, and details of dispute resolution. If money owing is not paid, the body corporate must send a final notice stating the obligation and interest that will be charged, if applicable, details of interest (rate and amount) that the body corporate intends to take action within 14 days. In terms of collecting money, the body corporate cannot debit members account without consent/authority and judgment. The corporate must in its annual financial statements account for all contributions and charges debited to members’ accounts. On written request the body corporate must give a written detailed account of the member’s account with the Body Corporate. Audit of annual ﬁnancial statements All body corporates must present audited annual financial statements to a general meeting for consideration within four months of year-end, except if registered in one person’s name.

The Independent registered auditor can’t participate in the preparation of the annual financial statements or render any advice on any aspect of the accounts during the period being reported on. Following an audit, the independent registered auditor’s report will include an opinion on whether or not: • The annual financial statements accurately reflect the body corporate’s financial position • The body corporate complied to the financial year-end, functions and powers, the funds and the financial records, budgets, reports and records specifically • Books of account have been kept and its funds have been managed with a reasonable level of protection against theft • The financial affairs appear to be effectively managed.

PRAKASH SINGH INSTITUTE OF ACCOUNTING AND COMMERCE

Questions? gm@iacsa.co.za

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Our Real Wealth is Our People Are you a money maker or a money burner? HEINRICH KRUGER, Managing Director of Kruger International, explains how what you choose to do with your money not only affects you and those nearest and dearest, but also the lives of your fellow South Africans. In addition, he offers smart tips on being a successful business owner at this time of unbridled change in the world of work

here are two types of people in the world: those who make money and those who burn money. And you are the type that you choose to be. Both types contribute to a country’s economy. Yes, even those who burn money contribute, because if you are a big spender, those you buy from make money and those you borrow from make money. But in the end, you lose out, and so do those around you. On the ﬂip side, the money makers become the wealth creators; they become the job creators, the builders of the economy, the taxpayers, the contributors to a better life for all South Africans. They are the leaders of tomorrow. The first step on the road to becoming a money maker is the unequivocal decision to become one. Make the choice. The second step is deciding to have a positive attitude, allowing your money to contribute to the greater good. Thirdly, to be a successful business owner and money maker, you need knowledge and skills. Not necessarily a

matric or a diploma, or even a degree – these days you can acquire the same knowledge and skills you would while studying virtually any degree, and from the top universities in the world, for free online. For instance, on the Massachusetts Institute of Technology (MIT) website (mit.edu) you can pick and choose whichever courses you would like to study without having a single qualification or any money at all! The benefit of being your own boss is that you don’t need recognition through official or recognised education channels. All you need is the savvy to produce something of value that people need: a service or a product that enhances the quality of people’s lives. (And, of course, you also need the gumption to do so.) Start your business with an idea, turn the idea into a plan, and then begin to implement your plan by turning it into action and production. If you don’t have capital you can start small, even micro small. There is no need to make millions; small inputs by millions of small-business

people become big outputs, billions of rands. If ten million small businesses each employ two people, add the business owner and we have 30 million people contributing to our economy, to our tax base. METAMORPHOSIS OF THE WORKSPACE Every industry and occupation in the world will transform radically in the next few years. The pace of development is speeding up exponentially, disrupting businesses, industries and jobs – there is no hiding or protection from this fastpaced shift. The answer: Take responsibility. You can either be afraid of it or excited by it. Stay ahead of the race. What took 50 years to develop and evolve in the past, takes only three years now. Almost anything is possible today. Jobs that have existed for eons are disappearing overnight and jobs that have never existed are appearing just as quickly. And these changes are not being decided upon by governments. They are materialising from the needs of people of

FINANCE

all races, colours and creeds, rich and poor, across the world, and through global technological advancement. South Africa used to be the largest producer of gold in the world, but technological advancements have puckered this trend – mining production processes elsewhere in the world are now cheaper than those in South Africa. This has cost us dearly: the loss of millions of job opportunities, taxes and economic growth. Today, it is much cheaper to extract the same amount of gold from one ton of disposed smartphones than from 70 tons of gold ore. As a result, the continued existence of gold mines around the globe is under threat. That is disruption. According to Prof David Roberts of Singularity University – one of the world’s top experts on technology disruption, innovation and exponential leadership growth – there are more rare earth metals in landfill electronics than in all known global reserves. Less than 1% of rare earth metals are recycled. Guiyu, the largest e-waste disposal site in China, receives

All you need is the savvy to produce something of value that people need: a service or a product that enhances the quality of people’s lives 4 000 tons of e-waste every hour. De Beers, the largest producer of diamonds on the planet, announced three years ago that they have started to invest in manufactured diamonds as opposed to mined diamonds. With our cutting-edge technology, it is far more economical to manufacture diamonds than to dig them out of the ground. This is disruption. United States Integrated Steel Mills, some of the largest steel mills the world over, lost over a relatively short period up to 89% of tonnage steel milled and 67% of its gross margin to mini steel mills – I refer you to my earlier comment that small can be big! As Prof Roberts says, according to an old African proverb: ‘The best time to plant

a tree was twenty years ago. The second best time is NOW!’

HEINRICH KRUGER Questions? hein@krugerinternational.co.za

7 Common Mistakes when Cancelling a Lease Agreement Top tips on making a clean break from an irksome tenant, courtesy of Senior Associate ANJA VAN WIJK and Partner CHANTELLE GLADWIN-WOOD at Schindlers Attorneys

CANCELLING THE TENANT’S RIGHT The Constitution clearly states that no one may be evicted from their home without a court order. This effectively means that without an eviction order, any attempt to dispossess a person, even a squatter, from your property, would be considered unlawful. In order to obtain this necessary notice, the owner needs to prove that the tenant has no right to occupy the property any longer. Once this is achieved, any and all lease agreements in place need to be properly cancelled according to the terms of the lease and law. If not correctly cancelled, the eviction will not be granted. Here are some common errors to avoid cancelling a lease agreement which could leave you in a tight spot, often resulting in the appeal of, or delay in, obtaining the

eviction order (and, of course, the continued headache of dealing with an unwelcome tenant). 1. Indulgences Imagine that it has been weeks or even months and the tenant has yet to pay the rent. The landlord begrudgingly continues to chase up the payment with the tenant, but the demands are met with excuses and promises that it will be settled ‘next week’. Compassion and hope may drive the landlord to be lenient. Yet as time passes, the reality that the promises are empty becomes alarmingly clear. During this time, the debt keeps escalating, municipal accounts keep pouring in and mortgage bond payments are due. A bad situation has become

worse and the need for urgent intervention is paramount. However, the eviction process is not the speediest of remedies; it takes time, which is now lost due to the various indulgences allowed to the tenant. Rather than ‘letting it slide’, we suggest that the landlord acts without hesitation by the seventh day of the rental being overdue, by sending a formal letter of demand (in writing). Unfortunately, if the lease does not contain a clause that stops the tenant from using the history of indulgences to force the landlord to continue with this mercy going forward, the landlord may find themselves in a pickle when trying to exact payment in a shorter period than previously agreed.

PROPERTY LAW

2. Does the Consumer Protection Act (CPA) apply? In demanding payment and eventually cancelling the lease agreement, no matter what it says, it is imperative to first figure out whether Section 14 of the CPA applies to the lease – legislation like the CPA will trump any clause if it is not in line with that law. Furthermore, Section 14 of the CPA has to be followed to cancel a lease in these circumstances: a) Both landlord and tenant are not juristic persons, defined by the CPA as a company, close corporation, trust or partnership b) The fixed term of the lease agreement is still in operation. In cases where Section 14 of the CPA applies, the landlord has to furnish the tenant with a letter of demand, allowing 20 business days to settle the outstanding rental amount. If the tenant fails to remedy the breach of contract, the landlord is at liberty to cancel the lease agreement on or after the 21st business day by sending a second letter. On the other hand, if either the landlord or the tenant is a juristic person, the breach clause comes into play. 3. The Breach Clause In cases where Section 14 of the CPA does not apply, the landlord has to rely on the breach clause of the contract to ascertain how to cancel the lease. This relates to instances where one of the parties is a juristic person or when the fixed term of the lease period has expired. For example, the breach clause in the lease may stipulate that the landlord has to provide the tenant with a letter of demand for

Without an eviction order, any attempt to dispossess a person, even a squatter, from your property, would be considered unlawful payment within only seven days before cancelling the contract. In the event that the fixed term of the lease agreement has lapsed, the Rental Housing Act (the RHA) applies. The Rental Housing Unfair Practice Regulations state that in order to prevent a tenant from maintaining a hold over the property (and to obtain an eviction order), the landlord is obliged to provide the tenant with seven days’ notice in which to make right the specific infringement of the contract. Having said that, this notice is not necessary if the tenant is behind on rental payments and remains indebted after seven days from the due date – many have been known to misinterpret this (at their pevil) as the ‘seven-day grace’ period. 4. Counting the days It is considered a simple exercise to count the days between when the letter of demand was dispatched and when the

cancellation letter may be sent, but the ramifications of sending the cancellation out too early can be severe. In counting the days, the rule of firstday-in and last-day-out holds. Watch out when counting business days: days such as public holidays can be easily overlooked. If the lease agreement is cancelled even a day early, this may be seen as the landlord abandoning the terms of the lease, potentially leading to a damages claim from the tenant. 5. Delivering the letter of demand The domicilium citandi et executandi (chosen address) clause of the lease agreement sets out how and where any notices, including any letters of demand and cancellation letters, must be sent. If these notices are not delivered correctly they may be considered invalid – the tennant can then deny ever receiving them or be backed by a court’s decision that the

PROPERTY LAW

It is a myth that a landlord needs to allow the tenant extra time to pack up and go after the cancellation tenant did not receive proper notice while the eviction application is underway. Older lease agreements sometimes require the notices to be sent by post or registered mail. As antiquated as it may seem, they really and truly do need to be sent by these methods. ‘Demands’ for payments made by text, WhatsApp and email may be considered valid if you can prove that the tenant has, or should reasonably have, received the message. But we would recommend that you also send notices as specifically agreed to in the lease, cover all the bases. So, when in doubt, we advise that the notices be both hand delivered to the property and emailed. For hand delivery, the letter simply needs to be slipped under the door or attached to the gate – not actually handed over personally – in order to be considered official. Nevertheless, if no one has signed for it, it is best to make a service affidavit immediately after delivery, to keep as proof for court, just in case the situation goes pear-shaped. 6. Content of letter of demand and cancellation letter The wording of the letters is vital. For example, if the content of the letter of demand is vague about the consequences of default, it may be considered insufficient. The letter needs to specify the exact amount due, the amount of time in which the tenant to pay additionally, it must clearly indicate that, for example, upon non-payment, the lease agreement may be cancelled, the tenant may be blacklisted, and/or the tenant may be sued for arrears and/or damages. Threatening with the broad phrase ‘legal action’ is not

going to do the trick. The letter also needs to be addressed to each and every lessee (as in cases of co-lessees, they are all responsible for the full claim and it is up to them to divvy up the payment). The cancellation letter, on the other hand, specifically needs to confirm that the lease agreement is cancelled and insist that the tenants take their leave. The landlord may also make it clear that should they fail to vacate the property, eviction proceedings will follow. It is a myth that a landlord needs to allow the tenant extra time to pack up and go after the cancellation – in actual fact, a landlord can order them to leave immediately. It is the court’s decision whether to grant more time; in our experience, tenants are usually given about a month. Again, the cancellation letter needs to be addressed to all the lessees listed on the lease. 7. Correspondence after cancellation As soon as the contract is nullified, the landlord should seek out legal counsel. Waiting to see whether the tenant clears out of their own volition will merely delay any proceedings and may even concede further entitlements. For instance, in terms of the PIE Act, which refers to cases where the tenant has overstayed their

ANJA VAN WIJK Questions? vanwijk@Schindlers.co.za

welcome by more than six months, the municipality may be called on to file a report on the availability of alternative accommodation. The downside of going this route is that the report will inevitably delay any eviction proceedings pending. To be safe, all engagement (even sending rental invoices) should stop posthaste; any further communication should be handled by the attorney. This is imperative as any correspondence (including possible settlement negotiations) can be seriously detrimental to the eviction application, no matter how seemingly insignificant. For example, by the landlord sending invoices and demanding ‘rental’ after cancellation, the landlord may tacitly reinstate the lease agreement. At that point, it is back to the drawing board to begin the process all over again. CONCLUSION This area of law is fraught with technicality. So, it is always best to consult an expert on these issues – the consequences of delaying could find you making critical errors that could land you in the hot seat!

CHANTELLE GLADWIN-WOOD

Questions? gladwin-wood@schindlers.co.za

BHADAMA PROPERTIES AND PROJECTS CC T/A BP PROJECTS, is a 100% Black Owned and Managed Professional Services Entity providing Project Management, Civil & Structural Engineering, Construction Management, Mentorship and Turnkey Services within the Built Environment Industry. Established in 2006, some of our key clients over the last 13 years include iLembe EPC JV, Independent Development Trust (IDT), KZN Sharks Board, Development Bank of Southern Africa (DBSA), KZN Department of Transport, Transnet, Africa Health Research Institute (AHRI), Cato Ridge Logistics Hub Consortium (CRLHC) and the Private Sector. We are registered with the Construction Industry Development Board on three categories / levels; 5GB PE, 4CE PE and 2ME PE. BP Projects is a level 1 BBBEE EME, committed and focused in providing excellent quality services within budget, scope, time and in an integrated manner to the satisfaction of our diverse clients. Fees and Rates are negotiated based on scope and complexity of service required. We take pride in having registrations with the SACPCMP, CESA and CIDB for compliance.

Memberships: SAIBPP - South African Institute of Black Property Practitioners • GBCSA Green Building Council South Africa (SMME Development) Contact Details: Durban: -3 Floor, 18 The Boulevard, Westway Office Park, Westville, 3629 - Tel: +27 (31) 003 3137/8, Fax: +27 (86) 671 3682 • Johannesburg: 2nd Floor, West Tower, Nelson Mandela Square, Maude Street, Sandton, 2196 - Tel. +27 (11) 881 5742 • P.O. Box 251, Gillitts, 3603, KwaZulu Natal / P.O. Box 785 553, Sandton, 2196, Gauteng Contact Person: Sbu Bophela (Principal) - Cell: +27 84 715 3165 - Email: bhadama@mweb.co.za / sbu@bhadama.co.za

A go-getter’s guide to running a clean business JANNIE ROSSOUW, Head of Sanlam Business Market, discusses the ethical case for ‘doing the right thing’ in business

he world and South Africa are plagued by scandals of corruption and alleged wrongdoing in politics and business alike. You may recall the ENRON scandal in the 90s, though we aren’t short of examples closer to home: the Gupta saga and ethical indiscretions at Steinhoff, McKinsey and KPMG have most recently shone the spotlight on unethical business practices in South Africa. Some of the allegations against these companies have not yet been put to trial, but the collateral damage is done. Tainted reputations have driven away important clients to the detriment of share price performances. Though these examples are known because they have been exposed in the public domain, forensic research shows that some small businesses are just as bad, and are using smarter ways to

conceal bribes to win contracts, tenders and appointments. GOOD GUYS COME LAST? The reality is that one wrongdoing can ruin it all. You may believe that in business it’s about ‘dog-eats-dog’ or that ‘good guys always come last’, but the reality is that if your actions are not consistent with what society and individuals typically think are good values, you may slowly drive yourself out of business. Individuals and communities want to do business with ‘good’ people. If they are supporting you with their hard-earned money, they expect you to be honest, fair and to treat everyone with dignity and without prejudice. If you are charging unsuspecting customers more than you reasonably should, or if you are not honest with your business partners and suppliers

about your operational and financial standing, you are likely to get caught up sooner rather than later. Similarly, evading tax or helping someone else to write non-existing business expenses, or being involved in unlawful activities, such as price fixing, means that you are not operating within the parameters of the law. There is truth in Aldo Leopold’s statement that ‘ethical behaviour is doing the right thing when no one else is watching – even when doing the wrong thing is legal’. Sewing moral fibre into all your business decisions will help you build a good reputation and offer the peace of a clear conscience. You’ll also stand a better chance of retaining good employees, giving you a competitive edge.

ETHICS

‘Ethical behaviour is doing the right thing when no one else is watching – even when doing the wrong thing is legal’ - Aldo Leopold APPLYING ETHICS IN YOUR BUSINESS DEALINGS Negotiations: Every business owner knows that there is always room for negotiating a business deal. But some bully their smaller suppliers into reducing their mark-up to the point that the transaction is not beneficial to the other party. Ask yourself if you are looking for a win-win outcome where all parties will benefit. Taxes: There is nothing wrong with looking at legitimate ways to reduce your tax bill. But as soon as you pay less tax than you are legally obliged to or avoid paying tax altogether, you are in breach of the law. Failing to declare any income, claiming deductions for expenses that you didn’t incur, creating false invoices or not registering for VAT when you exceed the exempted threshold are some of the

unethical business practices that amount to tax evasion. Creditor payments: You should be paying your creditors and suppliers on time and not use them as a bank. Late payments can cause your smaller creditors to collapse. A survey by accounting firm Xero found that late payments were a source of cash flow problems for 32% of surveyed small businesses, while 16% felt that chasing invoices reduced productivity. Invoicing: Do you bill for actual expenses and a reasonable mark-up or do you charge some clients more than others? Government regulations: Are you operating within the ambit of all local authority regulations? Software piracy: Do you have official licencing agreements in place to use proprietary software? Staff: Are you paying your staff a market-

related salary for their services and do you have formal employment contracts in place? Do you comply with the department of labour’s regulations requiring businesses to employ not more than 40% foreign labour? Also make sure that you comply with the minimum wage and the provisions of the Employment Equity Act. Business partners and associates: The saying that if you lie with dogs you will catch fleas sums up the importance of choosing your business partners carefully. If you get into business with people of compromised ethical standards, you might be setting yourself up for future challenges.

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BOOK REVIEW

A PATH TO PEACE Anyone who leads will gain massive insight into how to do so with emotional intelligence – starting with how to lead your ‘self’ – by reading this book, written by PROF EBBEN VAN ZYL and DR ANDREW CAMPBELL

e live in a world constantly at war as leaders and governments fight to, among other things, hold on to what they believe is rightfully theirs. The way things stand – there are currently 40 active conflicts on the planet – you will be forgiven to think true world peace is indeed a fantasy. In their book Peace Leadership – SelfTransformation to Peace Prof Ebben van Zyl and Dr Andrew Campbell set out to prove otherwise, albeit on a non-global scale. Focusing on how ‘peace can be established by first leading self, which will enable one to lead others’ the book is primarily aimed at academics and researchers, but with obvious benefits to anyone who leads. It provides a practical peace leadership-in-action model and identifies the important building blocks for peace leadership as emotional, social and communal intelligence. There is a chapter dedicated to the role of wisdom and spirituality in leading self and others plus a look at the ‘individual, social and cultural inertia preventing humanity from attaining peace’.

A name that appears very early on in the book is that of Nelson Mandela – arguably the greatest example of a peace leader in modern history. In subsequent chapters mentions are made of former UN leader Kofi Annan and the Indian activist Mohandas Karamchand Gandhi, who led his country to independence from British rule through non-violent civil disobedience. On the other end of the peace spectrum leaders such as George W. Bush and Saddam Hussein are mentioned as forming part of a failed state framework. Looking at peace from all sides, Peace Leadership – Self-Transformation to Peace is extremely well-researched, with various references to literature and studies into the nature of peace and how it is defined. Its authors are fully qualified to discuss the matters at hand. Prof Ebben van Zyl is currently Professor in the Department of Industrial Psychology (University of the Free State, South Africa) and has published 48 scientific publications, 39 research projects and 45 papers at national and international conferences with regard to

industrial psychology and leadershiprelated topics. Dr Andrew Campbell is the Director at the International Peace and Leadership Institute. In addition, as a retired senior military officer, he works for the Department of Defence specialising in Counter-Terrorism and Global Security Cooperation. For company executives and politicians looking to improve their leadership styles, the book provides an actionable roadmap on how to lead themselves in order to lead others.

ORDER INFORMATION Peace Leadership – Self-Transformation to Peace can be ordered from Knowledge Resources Ground Floor, Yellowwood House, Ballywoods Office Park 33 Ballyclare Drive, Bryanston Contact: tel: (+27 11) 706 6009, fax: (+27 11) 706 1127, e-mail: orders@knowres.co.za Available online at: www.kr.co.za

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