Luno now supports Ethereum in South Africa

Bitcoin exchange and online wallet platform, Luno, has announced that it has added support for Ethereum – the second-largest digital currency after Bitcoin.

Customers from over 40 countries, including South Africa, can now easily buy and sell digital currencies like Bitcoin (BTC) and Ethereum (ETH) using the Luno wallet, the company said in a statement.

“It is core to our beliefs that decentralised digital currency will form the basis of the future of finance” said Marcus Swanepoel, co-founder and CEO at Luno.

“Our mission at Luno is to bring digital currencies to everyone, everywhere. It is our view that we will end up with a multi-digital currency world and Ethereum is aligned with this view”.

The announcement follows the company’s recent R9 million Series B announcement and expansion into Europe.

Balderton Capital led the round which followed a R60 million Series A funding round led by Naspers.

Luno said the funding would be used for product refinement and development, and global expansion. The company added it will be hiring in London, Singapore, and Cape Town.

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30% of banking jobs threatened by AI and blockchain

Blockchain

Industry experts believe that between 2 million and 6 million jobs will be lost over the next decade due to disruptive financial technologies like Artificial Intelligence (AI) and blockchain.

A report by Citigroup revealed that the downsizing of the bank workforce is about to accelerate as more technology takes over jobs humans used to do.

The smartphone revolution has already shifted the e-commerce landscape, along with sophisticated robo advisers and other technological advances in the financial sector.

Yet, at the same time, there are massive opportunities in the fintech space, with thousands of new ventures in all segments of finance.

Enormous sums of money being poured into such emerging financial technology, with over 70% of this investment is focused on making the customer experience better, according to Citi and CB Insights.

Recognising these simultaneous threats and opportunities, Saïd Business School, University of Oxford has launched a new online fintech programme in collaboration with GetSmarter.

The course is designed to equip you with the ability to identify opportunities for disruption in the financial services sector.

It also enables you to both launch new fintech ventures and harness new technology to build better financial services firms.

After successfully completing this highly interactive and supported online learning journey, you’ll walk away with:

  • The expertise to draft, strategise and develop disruptive fintech innovations using appropriate tools and techniques.
  • The ability to hypothesise about the effect new regulations will have on future commerce products.
  • A knowledge of the future of money, markets and transactions, and possible future trends in fintech, regtech and proptech.
  • A certificate of attendance from Oxford University as validation of your newfound fintech knowledge and skills.

Designed as a hands-on, experiential programme, it is being run by Nir Vulkan, Associate Professor of Business Economics at Oxford Saïd and David Shrier, business author and CEO of Distilled Analytics – both leading authorities on fintech.

The programme also features academics from the UK and the US, and over 60 curated expert perspectives from banking and technology guest speakers such as Sopnendu Mohanty, Chief Fintech Officer at the Monetary Authority of Singapore, and Anne Boden, CEO at Starling Bank.

The programme will begin on 21 November 2017, and run for 10 weeks, after a 1.5 week Orientation Module.

Sell your rands for dollars and euros, JPMorgan warns investors

South African money rand

Following similar sentiments from local economist Dawie Roodt, international investment firm JPMorgan has advised investors to get out of the rand ahead of a possible junk rating downgrade.

“The market is too optimistic that downgrades would be postponed and/or on the outcome of the ANC’s December elective conference,” said Anezka Christovova, a foreign exchange strategist at JPMorgan, quoted in an investor note sent out this week.

“We share neither of these hopes,” she said. “We believe current ZAR levels reflect complacency in the face of imminent sovereign rating downgrades.”

“Currently USD/ZAR is only 1.5% weaker than what is consistent with US yields and an index of other EM FX. In periods of stress, this deviation can easily rise to 5-10%,” Christovova said.

While South Africa has already faced a downgrade to full junk status by at least one ratings firm (Fitch), both S&P Global and Moody’s have a the country at head above water.

S&P has downgraded South Africa’s foreign currency debt to junk, but because the country’s debt is mostly carried in rands (which is still one notch above junk at S&P) the full impact of sub-investment grade has not yet been felt.

Moody’s is currently the only agency that has SA above wholly above junk status, with both local and foreign currency debt sitting at one notch above junk.

If South Africa loses both its investment grade ratings, however, its government bonds would be excluded from the Citi WGBI local-currency bond index.

This would see index tracking funds and investment grade credit funds forced to sell their South African holdings, and as a result, Christovova believes that sovereign rating downgrades by both S&P and Moody’s would trigger about $5 billion – $7 billion (R70 billion to R100 billion) of forced outflows.

She also noted that JPMorgan was skeptical that the December ANC conference would bring any relief from “the structurally low growth and fiscal challenges”, and that the “continued fiscal deterioration also depresses substantially the long term fair value for ZAR.”

Local analysis

On Monday, economist Dawie Roodt advised South Africans to take their money out of the country amid looming downgrades which would send the economy into another recession.

Speaking to IOL following the release of the auditor general’s report on the financial health of state-owned entities last week, Roodt said that the country is in dire straits.

The reports showed that irregular expenditure in South Africa increased by 55% since 2016 to R45.6 billion and could still rise to R65 billion as 25% of those audited acknowledged that they had incurred irregular expenditure, but could not say how much.

“We’ve reached the end of the line. Pushing the economy into recession is the only option. The best advice I give to my clients is take your money out of the country,” Roodt said.

Roodt’s position echoed sentiments expressed by many other economists and analysts, who say that South Africa is on a downward trajectory, with a rating cut to full junk status an inevitability.

“It is highly unlikely that we will retain our current ratings for the next 12 months and we need to adjust our base case to be that South Africa will be kicked out of the WGBI government bond index,” analysts at Anchor capital said.

The expectation should be that rates will gravitate towards 10.25% and the rand towards R15.00 to the dollar at some point over the next year.

While most are bleak on the prospects for South Africa, academic Dr Conrad Beyers warned against taking a ‘hysterical’ approach to the country’s economic woes, and acting rash by taking all invested money out of the country.

According to Beyers, “physically taking money out of the country” is not the only way to protect savings against a weakening South African economy, and investing in JSE listed companies or unit trusts with significant international exposure is another way to hedge savings.

Here’s where you can read the leaked Gupta emails online – for now

A selection of leaked emails from the hundreds of thousands that make up the so-called “Gupta Leaks” has been made available to the public by the Protection of Whistleblowers in Africa (PPLAAF).

The PPLAAF said that the selection has been published following testimony of whistleblowers represented by the group in South Africa’s parliamentary Portfolio Committee on Public Enterprises, and at the request of acting chair Zukiswa Rantho.

“The information (curated to show interactions) will be publicly accessible for a period of ten days only, to assist with the completion of the inquiry,” the group said. “It is a sample from hundreds of thousands of emails, documents and invoices related to the Gupta Leaks.”

The PPLAAF, in partnership with South African media amaBhungane and Daily Maverick, said it has opted to provide access to the information via a single portal – an ‘Investigative Dashboard’, that will soon be available to global media via the Organised Crime and Corruption Reporting Project (OCCRP) with the support of Finance Uncovered.

For now, you can access the curated documents on the PPLAAF’s website.

The Gupta Leaks are central to ongoing investigations looking at the links between the controversial Gupta family and many state owned companies and standing politicians.

They detail how the Guptas used political influence to secure government contracts, and how many political events (cabinet reshuffles, appointments and investigations) may have had a Gupta hand in them.

Following the leaks, many companies have been implicated and faced massive public backlash. These include now defunct PR firm Bell Pottinger; KPMG; McKinsey and Company; and many other Gupta-linked firms.

The parliamentary portfolio committee on public enterprises is currently probing Eskom, and investigating to what extent the Guptas have influences the power utility.

South Africa’s tax revolt may have already begun

Following the Medium Term Budget Policy Statement (MTBPS) delivered on 25 October 2017 there is growing concern that South Africa has reached its limit in terms of the amount of tax revenues it can extract from taxpayers through further tax increases.

This is according to Kyle Mandy, Tax Policy leader at PwC who was part of a number of commentators which warned National Treasury and Parliament that tax increases announced in the February Budget, particularly on personal income tax, would likely push tax revenues very close to the top of the Laffer curve.

This is the point at which tax revenues are maximised and beyond which tax rate increases will actually result in a decrease in tax revenues, said Mandy.

The Laffer curve was developed by economist Arthur Laffer to illustrate the relationship between tax rates and the amount of tax revenue collected by governments.

It suggests that as tax rates increase from low levels the tax revenues collected will increase.

However, at some point further tax rate increases will actually lead to lower tax revenues as the disincentive effects of higher taxes begin to dominate.

While Laffer’s primary objective was to illustrate the relationship between taxes and production (i.e. that taxing any economic activity results in less of that economic activity and resultantly lower tax revenues), the Laffer curve also illustrates that higher tax rates result in a greater incentive for tax avoidance and evasion which could also cause tax revenues to fall.

“In this regard, it is important to recognise that a tax system does not operate in a vacuum,” said Mandy. “It is impacted by the social, economic, and political environment in which it operates.”

“The result is that, where taxpayers perceive a government to be corrupt, inefficient and wasteful, not delivering benefits to taxpayers or the broader citizenry or a country is in tough economic times, this will result in the Laffer curve shifting downwards and to the left.”

“The result is that the tax system will be able to deliver less tax revenues at a lower maximum rate than would be the case in the absence of such conditions,” he said.

Downward slope

According to Mandy, the evidence emanating from the MTBPS suggests that, in the current environment, South Africa has maximised the tax revenues that it can extract from its citizens and has possibly even gone past that point and is now on the downward slope of the curve.

“The last few years have seen significant tax increases directed at fiscal consolidation in a low growth environment and amid growing concerns of levels of corruption and government inefficiency,” he said.

“These tax increases saw the main budget tax-to-GDP ratio increase from 24.5% in 2012/13 to 26% in 2015/16, primarily led by increases in personal income tax. However, since then the tax-to-GDP ratio has stalled at 26% in both 2016/17 and in the revised forecast for 2017/18.

“It is not unreasonable to expect that the tax-to-GDP ratio for 2017/18 may fall below 26% in the final outcome. The stalling of the ratio comes despite significant tax increases in each of 2016/17 and 2017/18 which were expected to deliver R18 billion and R28 billion of additional tax revenues, respectively.”

Between a rock and a hard place

Regardless of the reasons, the evidence suggests that tax increases are no longer providing the desired result in the form of increased tax revenues, said Mandy.

“Simply put, National Treasury have been placed in an invidious position,” he said.

“Increasing taxes further in the current environment could be self-defeating and result in a decline in the tax-to-GDP ratio.”

He noted that this was  particularly prevalent insofar as further tax increases in the form of personal income tax are concerned.

“Increasing the corporate tax rate would further dent investor confidence and economic growth while Value-Added Tax is politically sensitive due to its regressive nature, notwithstanding that this is the one area where large amounts of revenue could be raised across a broad tax base while minimising the damage that further tax increases would do to economic growth,” he said.

“Realistically, it is probably the only tax that could be increased and deliver increased tax revenues in the current environment.”

The other option would be to cut expenditure, said Mandy.

“This aspect of the budget, however, is also inherently political with significant pressures for increased spending stemming from new initiatives such as National Health Insurance, social security reform and higher education funding while also having to contend with negotiations for public sector wages increases and bailouts of state-owned entities.”

“In light of all these issues, it is no wonder that we saw the Minister of Finance simply setting out an honest assessment of the state of affairs in the MTBPS while presenting no proposals on further fiscal consolidation measures.

“One gets the sense that National Treasury is pinning its hopes on a more conducive environment come February 2018, which will potentially give it a greater level of flexibility on the tough fiscal choices which will need to be made.

“In the meantime fiscal policy will mark time.”

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