“There is something called the Queensbury Rule. You do not continue to beat up somebody who is on their knees. You do not. It is the rule. Civilized people abide by that Rule in business, sports, and politics. Rating Agencies should treat us the same way. During a global crisis!”



This was the response on Twitter of South Africa’s Finance Minister, Tito Mboweni on Sunday, November 21, after three dominant international credit rating agencies announced that the “outlook is negative” for the country.



American credit agencies, Fitch Ratings, announced on November 20 that South Africa&#8217;s Long-Term Foreign-Currency Issuer Default Rating (IDR) had downgraded to &#8216;BB-&#8216; from &#8216;BB&#8217;. Joining Fitch, Moody&#8217;s Investors Service (Moody’s) also announced on Friday that the country’s ratings had been downgraded from Ba1 to Ba2. This is in addition to S&amp;P Global Ratings status on the country in April 2020 when they downgraded the country’s credit ratings to BB- from BB.



What could this mean for South Africa in a year of the pandemic?



Professor Philippe Burger, Pro-Vice-Chancellor of Poverty, Inequality, and Economic Development at the University of the Free State in South Africa, says that the downgrade means that medium- to long-run interests will now be higher as opposed to what it would have been in the absence of a downgrade.



“That will affect everyone who needs to borrow, be it households or the government. It also means that to attract foreign investment into the country, we will have to offer more attractive returns on investment,” Burger adds.



The African Peer Review Mechanism (APRM), a specialized entity of the African Union (AU), noted that because this has happened twice now since the start of the pandemic, the “expectation that fiscal deficit will widen and government debt will rise.” Like many other countries, the Covid-19 pandemic has had a severe impact on South Africa’s economy. However, Fitch said that investment spending had already weakened in recent years in the country, falling last year to the lowest level in real terms since 2012. This reflects on challenges to the business environment such as the poor reliability of power supply, labor market inflexibility, and subdued domestic demand prospects. Although Moody’s said that the country had maintained a negative outlook in place since the beginning of November 2019, the South African National Treasury stated the Covid-19 pandemic hit South Africa at a difficult time. “Recent downgrades saw South Africa reaching its lowest credit rating levels from the ‘big three’ rating agencies since 1994. Economic growth has continued to decline irrespective of the attempts to reduce structural constraints,” the statement read on Saturday. Fitch further said that though President Cyril Ramaphosa announced an Economic Reconstruction and Recovery Plan in October, which focuses on boosting infrastructure investment, increasing energy supply, job creation, and re-industrialization, the country’s “track record” leaves nothing to be desired. “The track record of implementation of earlier reform initiatives has been relatively weak and, even if implemented, the effect of the reforms would be limited and take time to accumulate,” Fitch’s statement read. Unemployment in South Africa continues to be one of the country’s biggest challenges as it sits at 30.8%, according to Statistics South Africa (Stats SA).



“While South Africa is not alone in having been severely affected by the crisis, its capacity to mitigate the shock over the medium term is lower than that of many sovereigns given significant fiscal, economic and social constraints and rising borrowing costs,” Moody’s stated in their release. South Africa’s Minister of Finance, Tito Mboweni, stated that the downgrade “is a painful one” and the implications of this will now affect the country’s borrowing costs. The National Treasury added that as outlined by the president’s recovery plan, the government’s plan to prioritize economic recovery and fiscal consolidation remains the same. “The downgrade will not only have immediate implications for our borrowing costs, but it will also 6 constrain our fiscal framework,” Mboweni said in a statement. “There is, therefore, an urgent need for government and its social partners to work together to ensure that we keep the sanctity of the fiscal framework and implement much-needed structural economic reforms to avoid further harm to our sovereign rating.” Professor Burger believes that from an expert’s perspective, the government would need to take the following steps to alleviate the problem: “Re-establish fiscal sustainability and take steps to arrest the upward trend in the public debt-to-GDP ratio and ensure it does not breach 100%. This will require enforcing the medium-term budget policy statement (MTBPS) plans on the salary freeze on civil service salaries for this year and the next three years; Take necessary steps such a reducing red tape and policy uncertainty; Take steps needed to release spectrum and restructure and liberalize the energy sector. The latter includes getting the green energy sectors going. Many of these plans are in the pipeline but need acceleration.”



Treasury stated however that the rating agencies have indicated that the country’s rating strengths include “a credible central bank, a flexible exchange rate, an actively traded currency, and deep capital markets, which should help counterbalance low economic growth and fiscal pressures.”

Economy Concept

What South Africa’s Recent Credit Rating Downgrade Actually Means

In recent months,&nbsp;various debates&nbsp;about the South African Reserve Bank have focused broadly on three aspects – its shareholding, its mandate and its independence.



The three debates are somewhat convoluted. They are indeed three different issues, but they are interlinked.



Let’s turn to the issue of ownership first.



The South African Reserve Bank is one of&nbsp;only eight central banks&nbsp;in the world with private shareholders. The others are in Belgium, Greece, Italy, Japan, San Marino, Switzerland and Turkey.



The debate about shareholding in South Africa’s Reserve Bank centres around the issue of&nbsp;nationalisation. Some political players, such as the third largest party – the Economic Freedom Fighters – are&nbsp;calling&nbsp;for the ownership of the Bank to be transferred from current private shareholders to the South African government and has tabled a bill in Parliament to achieve this objective.



The issue is very charged. But it’s also confused and not very well understood. There’s an assumption that a change of ownership would automatically mean a change in the role the Bank plays. This isn’t the case because in fact the Bank’s shareholders play no role in its mandate. In that sense it doesn’t matter who the shareholders are. Because they can’t affect its mandate, nationalisation&nbsp;won’t affect&nbsp;the independence of the central bank.



But there are other ways in which the Bank’s ability to do its job can be undermined. This is where the Bank’s&nbsp;primary mandate&nbsp;comes in.



<h2 class="wp-block-heading">The mandate issue</h2>



The mandate of South Africa’s central bank is set out in the&nbsp;<a href="https://www.gov.za/documents/constitution-republic-south-africa-1996">Constitution</a>, which says:



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">The primary objective of the Bank shall be to protect the value of the currency of the Republic of South Africa in the interest of balanced and sustainable economic growth in the Republic.</blockquote>



The Bank also adheres to an inflation target which was&nbsp;<a href="https://www.resbank.co.za/MonetaryPolicy/DecisionMaking/Pages/default.aspx">put in place</a>&nbsp;in 2000. This requires it to keep inflation within a band of 3% to 6%. The Bank uses monetary policy and interest rate decisions to achieve this objective. In short, when the inflationary trend declines, the interest rate declines and when the inflationary trend increases, the interest rate increases.



The issue of the Bank’s focus on keeping inflation within this band – and the fact that its mandate sets out clearly that managing inflation is it’s core job – is hotly contested.



Those on the left of the political spectrum, including the country’s largest trade union federation,&nbsp;argue&nbsp;that the South African Reserve Bank shouldn’t focus primarily on inflation. Instead, they say, it should also be taking account of economic growth as well as the employment rate in the country.



The Bank’s response has been that its current mandate is broad enough because it says quite clearly that, while managing inflation, it must do so “in the interest of balanced and sustainable economic growth in the Republic”.



For those like myself who oppose a broader mandate, the issue is quite simple: giving the Bank a broader mandate raises the danger that the Bank will take its eye off inflation because it’s having to concentrate on other issues. This, in turn, could lead to rampant inflation.



The Bank’s mandate is crucial in another respect. The SA Reserve Bank’s ability to pursue its mandate without interference from government is how its independence is measured.



South Africa’s central bank has acted on the whim of politicians before. It didn’t end well.



<h2 class="wp-block-heading">How political interference can hurt</h2>



In the 1980s inflation rose dramatically, resulting in the country suffering its&nbsp;highest inflation&nbsp;rates ever: on average about 15% per year for the decade.



Despite the fact that rising prices called for the Bank to act by raising interest rates, it failed to do so on instructions of the government. Inflation wreaked havoc on the earnings of ordinary South Africans, as well as on the value of people’s pensions.



The government’s interference was dramatically brought to light ahead of a by-election in 1984 in a Johannesburg suburb called Primrose. Just prior to the by-election the government instructed the South African Reserve Bank to drop the interest rate. This subsequently became known as the&nbsp;Primrose Prime incident.



<h2 class="wp-block-heading">Where the focus should be</h2>



The debates swirling around the central bank have&nbsp;created uncertainty. This is despite&nbsp;reassurances&nbsp;from South African President Cyril Ramaphosa.



The President needs to do more: he also needs to establish certainty about the executive management of the South African Reserve Bank.



An executive vacancy at the central bank, created by the&nbsp;resignation&nbsp;of one of the Deputy Governors, Francois Groepe, must be filled as a matter of urgency. And the President should make clear his intention to reappoint the Governor, Lesetja Kganyago, and the Deputy Governor, Daniel Mminele, whose terms expire this year.



These appointments are under the purview of the President. The SA Reserve Bank Act&nbsp;stipulates&nbsp;that the President must fill executive positions after consultation with the Minister of Finance and the Bank’s board.



South Africa needs stability at the central bank to ensure a growth trajectory for the country. The President should get the process of filling the vacancy and providing certainty about the future of Kganyago and Mminele underway sooner rather than later. -The Conversation



-Jannie Rossouw: Head of School of Economic &amp; Business Sciences, University of the Witwatersrand



<img loading="lazy" decoding="async" src="https://counter.theconversation.com/content/110365/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important">

South African Reserve Bank Rate Announcement Ahead Of Stimulus Plan

Explainer: South Africa’s Central Bank – Ownership, Mandate and Independence

The South African Reserve Bank will not raise interest rates again until May, according to a Reuters poll, taken after the central bank surprised many economists last month by adding 25 basis points to borrowing costs.



The median forecast in the poll of 25 economists, conducted over the past week, suggests the central bank will wait until May before hiking interest rates by another 25 basis points, taking its key rate to 7.00 percent.



The Reserve Bank increased its benchmark lending rate for the first time in nearly three years last month, saying the risk of higher inflation in the longer-term remained elevated and that it could not risk waiting until later to take action.



“Risks to the inflation outlook remain to the upside, on possible rand depreciation and above inflationary increases in administered prices, particularly electricity tariffs,” Investec economist Kamilla Kaplan wrote in a note.



She pointed out that debt-troubled state-run utility Eskom proposes to increase electricity tariffs by 15 percent a year for the next three years.



The poll predicted inflation would quicken to 5.3 percent next year from 4.7 percent in 2018.



A separate poll last week suggested the rand&nbsp;<a href="https://www.reuters.com/finance/currencies/quote?srcCurr=ZAR&amp;destCurr=USD">ZAR=D3</a>&nbsp;will erase around a third of the 10 percent gains it made in the past two months in the run-up to elections next May as strong volatility rattles the currency, adding to inflationary pressures.&nbsp;



However, the Reserve Bank reacts more strongly to any signs of second round effects on its inflation outlook rather than to currency weakness.



Another poll showed analysts are increasingly pessimistic about the prospect of an oil price rally next year, even though markets expect OPEC to cut output.&nbsp;



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Wall Street rises on trade optimism



Brent crude LCOc1 eventually affects local inflation, from factories through to consumers.



South Africa’s Reserve Bank tries to keep inflation in the middle of its 3-6 percent target range.



The South African economy is expected to expand to 1.5 percent next year from 0.7 percent this year. The economy expanded 2.2 percent in the third quarter, taking the country out of recession. -Reuters



<ul><li>Vuyani Ndaba</li></ul>



<ul><li>Additional polling by Khushboo Mittal in Bengaluru</li></ul>

South African Reserve Bank, Pretoria, Tshwane, Gauteng, South Africa

South Africa’s Central Bank To Wait Until May For Next Rate Hike

The world is still reeling from the shock of the financial crisis of 2008. For South Africa, the biggest takeaway was there are no substitutes for strong institutions.

It has already been 10 years since the collapse of Lehman Brothers in the United States (US), an event that shook the world and triggered the biggest financial crisis since the Great Depression of 1929.
People from New York to London, Hong Kong to Johannesburg, lost billions as stock markets crashed and the global economy plunged into recession.
Watching it all happen was Russell Loubser, the former boss of Africa’s largest stock exchange, the Johannesburg Stock Exchange (JSE), located on Gwen Lane in the plush suburb of Sandton. For him, memories of September 15, 2008, are as clear as day.
“I will never forget it, I was too scared to leave the building,” says Loubser.
<div id="attachment_37534" style="width: 210px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-37534" class="size-medium wp-image-37534" src="https://www.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-94887185-200x300.jpg" alt="" width="200" height="300" srcset="https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-94887185-200x300.jpg 200w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-94887185-300x450.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-94887185-600x900.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-94887185-768x1152.jpg 768w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-94887185-683x1024.jpg 683w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-94887185.jpg 1365w" sizes="(max-width: 200px) 100vw, 200px" />Russell Loubser.</div>
<blockquote>“I was convinced the world financial markets were on the brink of collapse.”</blockquote>
He wasn’t alone.
Never before had the world seen such a crash of that magnitude. Finding an investor that thought rationally was almost impossible. Panic was the name of the game. This showed in the 40% plunge in share prices across the JSE. The JSE all-share index nosedived from about 32,000 points to just below 18,000 as investors tried to save as much money as possible by exiting the risky bourses. The rand’s fortunes were no different (it weakened from XXX to the dollar and settled at XXX).
And despite repeated calls for calm, there was very little bosses like Loubser could do.
“I remember I was contacted by my regulator, the FSB (known today as the Financial Sector Conduct Authority or FSCA) and the South African Reserve Bank (SARB), and asked what we were doing about stabilizing markets.
“Other stock exchanges stopped trading and banned short selling. I said we would not do the same thing because short selling is a vital exercise that allows overvalued share prices to be brought back to market levels under controlled circumstances. And we had that,” he says.
Turns out, the former JSE boss made the right call as stock exchanges in New York and Europe that had banned trading, eventually reversed what they had panicked into.
So what was really behind the crisis?
<a href="http://www.forbesafrica.com/focus/2012/05/01/time-africa-cash-now/" target="_blank" rel="noopener">READ MORE: The Time For Africa To Cash In Is Now</a>
Simply put, greed, reckless lending, poor management and loose regulations. Bankers from mainly America cashed in on opportunities to make big bucks from buying up cheap US home loans, packaging them with better quality mortgages and then selling them on as risk-free assets known as mortgage-backed securities.
They lent recklessly even to people whose credit scores were not up to scratch. In 2006, when interest rates in the US started rising, many Americans could no longer afford their home loans and defaulted. House prices subsequently fell and the securities initially deemed risk-free were revealed to be toxic resulting in big losses. The collapse of Lehman Brothers was the match that set the crisis alight.
Big US banks like Citibank, JPMorgan and Merrill Lynch had to be bailed out by the Federal Reserve. Then chair Ben Bernanke, along with other central bank chiefs in Europe, entered uncharted waters. They printed trillions of dollars to starve of the drought of liquidity in the financial system. These unconventional monetary policies were known as quantitative easing (QE), something Japan had been doing prior to 2008.
Many South Africa banks, however, suffered minimal losses and remained sound. Even those with their headquarters in New York and London like Citibank, Goldman Sachs and HSBC. The South African Reserve Bank (SARB) governor at the time, Tito Mboweni, explains why.
“Mine was a basic Tzaneen approach”, says the former governor referring to the tropical garden town located in the Limpopo province of South Africa. “You don’t adopt what you don’t understand,” he adds, speaking of the synthetic derivative products used by American bankers in the build-up towards the crisis.
“Thank God I didn’t understand a damn thing. Growing up in Tzaneen helps, it kind of makes you slower but that saved the situation,” he says with sarcasm.
Looking back at what the former South African governor describes as a traumatic time when headline inflation reached 11.5% &#8211; the worst in two decades – and prime lending rates spiraled to 15%, he says one of the most revered institutions in the country did the right thing by sticking to its mandate of inflation targeting.
He says its ability to act independently during that time was and still should be, sacrosanct.
Sizwe Nxasana, the former CEO of FirstRand, one of the biggest banks in South Africa, agrees SARB played a big role in averting a banking crisis in the country and a run on the banks.
“Clearly, there was a lot of concern at that time. What helped calm people down was the messaging from the SARB that the risk for retail depositors (losing their money) was low. That assurance helped.”
He also agrees that global central bankers made the right call by implementing QE.
“When you look at what was going on at that time, the response was absolutely correct. They injected liquidity, which is the lifeblood of the banking system. The impact was that confidence was returned to the banking system, although this has had some unintended consequences,” he says.
One of these consequences that arose with tighter lending criteria has made banks more cautions to lending to small business and startups, deemed more risky, even though these enterprises are pitted as the future economic-spinners and job creators for Africa’s economies.
So what are the lessons learned from the biggest stock market crash the world has seen?
For Donna Nemer, the ex-CEO of Citibank South Africa, one of the American banks that lost billions during the crisis, it’s a return to basics.
“What we saw after that were very significant changes that happened in banking. There was a far greater focus on compliance, security and risk… I believe the world has learned a lot, some of that regulation may have been too tight but the bulk of regulation was good,” she says in reference to the Twin Peaks and Basel codes that caution banks to exercise greater prudence in lending and risk management.
For governor Mboweni, the biggest lesson is to never allow the banks to run away with products that banks can’t regulate. And for the former boss of the JSE – the biggest takeaway from the historic crash is that there are no substitutes for strong institutions like the SARB and the FSCA. “People come and go but institutions must be left to continue.”
When I asked the experts whether the 2008 financial meltdown is the last the world has seen or are we at risk of another crisis? The response of caution, that there would be another seismic event that would shock the financial system, was unanimous. It’s not clear, however, where it would come from.
One of the potential triggers was the looming trade war between the world’s biggest economies – China and the US. The end of QE, rising US interest rates and lower US corporate taxes, was also flagged as a risk. Unconventional monetary policies benefited emerging markets, which offered investors better financial returns than their US counterparts, helping their currencies strengthen. The risk is that the reverse will happen or the unexpected may occur because the reverse of QE has never been tested before. The 2008 crisis took the world by surprise and many continue to worry about it 10 years on. The world is wiser, but really, is it?
&#8211; Fifi Peters

Lehman Brothers Files For Bankruptcy Protection

The Crash – 10 Years On

Mark Shuttleworth is a South African-born tech entrepreneur and venture capitalist who is perhaps best known in the rest of the world for being the second “space tourist” to spend time living and helping with experiments on the International Space Station. After a year of training and reportedly paying about $20 million, in early 2002 Shuttleworth rode on Soyuz spacecraft to spend about eight days on the space station.
Shuttleworth had the wherewithal to buy his space ride since 1999, when he sold his four-year-old internet security company to VeriSign for about $570 million. Since then, he has used his wealth to finance and build new companies as well as to fund charitable ventures.
But living in South Africa, with its restrictions on capital movements, created problems for Shuttleworth’s international operations. This soon prompted him to take advantage of his dual British citizenship and emigrate from the land where he got his start to the United Kingdom, where he settled on the Isle of Man.
An international move is never cheap, but it wasn’t until Shuttleworth tried to move his capital out of South Africa that things got really expensive thanks to the South African authorities. That is why Shuttleworth also made the news this year in his attempt to get back a substantial sum (taken in levies) by suing those same authorities.
Perhaps the greatest irony of that case, Shuttleworth vs. South African Reserve Bank and Others, was that the laws relevant to the contest were themselves the cause of the very actions they were intended to prevent. In other words, had exchange controls not existed, Shuttleworth might still be living in South Africa.
The exchange control laws created two problems for Shuttleworth as a resident of South Africa. First, by imposing paperwork and bureaucratic second-guessing on all transactions involving foreign-exchange, the exchange controls prevented the efficient and competitive operation of any international business or charity projects. Second, the bureaucratic controls imposed costs and barriers to the optimal international deployment of already existing capital.
Although South African exchange controls have been loosened considerably during the past 20 years, they are still in force and they still place hurdles before travelers and businesses, especially when large sums of money are involved. The sums involved in the Shuttleworth case were not only very large but also subject to a 10% levy imposed as a condition for the granting of permission to expatriate blocked assets. For the privilege of moving the last of his own money out of the country, Shuttleworth paid, understandably under protest, a levy of more than $30 million to the South African Reserve Bank.
As if to highlight the irony, in a statement to the court, the Reserve Bank described the purpose of the levy: “The 10% charge, generally speaking constituted a disincentive to the exit of large amount (sic) of capital, thus asserting to maintain the financial stability of the South African economy.”
No doubt, the 10% charge was a disincentive to his decision to expatriate his capital, and it is understandable that Shuttleworth would later sue (unsuccessfully) to have the amount of the levy returned. But the interesting fact is that, despite the legally imposed cost, Shuttleworth still chose to move the money out.
Although exchange rates fluctuate for myriad reasons, it is not irrelevant that since early 2010, when Shuttleworth received approval to expatriate the last of his funds, the rand has depreciated 23% against the US dollar. Exchange controls are most likely to be in force in countries that have other self-imposed problems. South Africa’s relatively high inflation is entirely self-imposed and is one of many good reasons for South Africans to diversify into other currencies. It was Shuttleworth’s judgment that he would lose less by leaving.
The persistence of exchange controls, albeit liberalized, almost 20 years after the transition suggests a lack of confidence by the South African government in its own policies. It also signals a poor understanding of the rationale for its own policy of exchange-control liberalization. Such signals are not lost on either South African or foreign investors. But on the other side of this, a naïve belief that exchange controls give the government the ability to respond efficaciously to financial and economic crises, might embolden the government to enact the very types of policies that make such crises more likely.
The existence of exchange controls in any country is a special, and perhaps extreme, manifestation of a general failure to recognize that such regulations are more likely to aggravate, if not cause, the kinds of problems for which they are believed to be the cure. The Shuttleworth case itself gives us an example.
Proponents of regulation have claimed that exchange controls protected the South African financial system from the 2007-08 financial crisis. A weak response to such claims would suggest that sensible banking regulation protected South Africans, as it did residents in other countries such as Canada and Australia, neither of which has exchange controls. But a more sophisticated response would emphasize that it was not the presence of supposedly protective regulations but rather the absence of the types of pernicious regulations that set up the American financial and real estate sectors for failure.
A proper analysis of that crisis cannot ignore the distortions created by a host of government interventions such as government loan guarantees, the regulatory compulsion of banks to make subprime loans, tax incentives to purchase property, government-backed companies created to hold mortgage bonds, government-backed insurance of bank deposits, and central-bank accommodation of the financial and real estate bubbles.
The key intellectual error underlying the existence of exchange controls lies in the belief that government officials have the knowledge necessary to coordinate our lives and to provide for our needs. History has demonstrated that where this belief is most firmly held and has manifested in the various shades of central planning, the people have suffered accordingly.
It is naïve to believe that government officials have both the knowledge and nimbleness required to protect us from the symptoms of international financial crises. In a world of fiat currencies with routine official interest-rate manipulation and credit expansion, it is no wonder that we have periodic currency crises and disruptions in the foreign exchange markets.
In the early 20th century, South Africa followed the lead of Britain in its experiment with exchange controls. Neither country can claim to have had a good experience with such controls—they never live up to their stated purpose—which is why Britain eliminated its controls in 1979. South Africa should do the same.

It Cost Mark Shuttleworth More To Leave South Africa Than It Did To Leave The Earth

The South African Reserve Bank (SARB) has admitted that not all required quality criteria were met in the production of krugerrands by the South African Mint—which is wholly owned by SARB.
Tests on certified krugerrands have been carried out in the presence of FORBES AFRICA journalists. The results show that some contain less than the required amount of gold. The highly-valued collector’s items make up an industry worth billions of dollars. Depending on the gold price a one ounce, proof krugerrand is worth around $2,000.
<div id="attachment_613" style="width: 484px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-613" class="size-large wp-image-613" src="/wp-content/uploads/2017/04/IMG_2917-1024x683.jpg" alt="" width="474" height="316" />Patrick Willis</div>
Patrick Willis, a South African gold investor of 12 years, is behind the claim. He noticed that a number of his krugerrands were losing their lustre—often a sign of too much copper and zinc. These are base metals used to strengthen the gold and decrease wear and tear.
“The issue is that they are under spec. I made the discovery about the colour. It has not happened anywhere in the world, where a national mint produced coins for sale that are under spec,” said Willis.
Tests on several krugerrands found that some were “under specification”—as they say in the trade. By law each krugerrand has to contain at least 91.7% gold. This measure is so important that international gold mints often include a small amount of ‘extra’ gold to ensure they reach the stipulated requirement. A gold assay test proved that one of the coins in question had merely 87% gold. That is nearly 5% less than it should be.
“If I see such a result, I will panic. I’m not pointing any fingers. This is quite anomalous [referring to the 87% result]. I’ve never seen something like that on a coin before. It cannot be explained by sample prep [the margin is too large]. That is a big red flag right there,” says Jaco le Roux.
He is an employee of Spectromed—a company which sells and conducts tests using Niton XRF analyzer guns—who tested multiple krugerrands using the Niton analyzer in front of FORBES AFRICA journalists to verify the results.
The disgruntled krugerrand owner took up the issue with SARB. Natanya van Niekerk, acting head of numismatic coins, at the SA Mint replied:
“As the krugerrand is the flagship of the South African gold industry and has reputational value to South Africa, we will leave no stone unturned to rectify the situation. I am of the opinion that the coins in question are now strictly speaking illegal and that the Reserve Bank has the right to demand all the coins to be returned.”
Hlengani Mathebula, head of group strategy and communications at SARB released an updated media statement on April 13, claiming: “…investigations into the matter have revealed that some of the proof krugerrand coins casted between April 2011 and May 2011 may not meet all the required quality specifications.” Early investigations show that of the 1,500 krugerrands minted in this time only six have, so far, have been found to be under spec.
The SA Mint called a meeting with a number of local and international dealers. They explained that the April and May 2011 batches were under spec. In his most-recent statement Mathebula continued, “…should any of the dealers have reasonable concerns that some proof krugerrand coins may not comply with all required quality criteria, they could return such coins to the SA Mint.”
At stake is the reputation of the gilt-edged SA Mint which created an optimum way in which to market South Africa’s gold. Kruggerrands are one of the safest and most effective ways to secure assets against uncertain markets. They are called ‘liquid gold’ since there’s never a shortage of buyers who can easily turn them into cash.
Willis risked devaluing his investments by performing Niton XRF tests and destructive fire assays on proof krugerrands. The SARB is threatening FORBES AFRICA’s anonymous source with legal action for “destroying legal tender” in order to conduct the fire assays. During a fire assay test, the metal object is smelted to determine its composition. However the concentration of gold would not be accurately proven, without such procedures. This is because the Niton analyzer is not a certifiable method of testing gold quantity. It is not as accurate as a fire assay. However results can be proved against known certified materials.
“The Niton analyzer gives a chemical analysis within a couple of seconds. It quantifies content and concentration in metallic objects. The results are shown onscreen. Its limiting factor is that it depends on the sample prep. If the sample is not clean, or flat or contains impurities on the surface, the results may be misleading,” says le Roux.
The same sample underwent a fire assay at two independent refineries. The results from First Refinery showed it was 87.40% gold while the results from Rand Refineries showed 87.46% of gold concentration. These results prove that the Niton analyzer was fairly accurate in comparison to the fire assay. When the SA Mint was alerted to the results on October 25, it collected the samples and test results to conduct their own investigation.
“Our assay indicated that this batch was in spec when we casted this. If we are at fault, we will make it good to the customer as we followed our procedures and something could have happened. We want to know what happened to ensure it is not repeated in the future,” wrote Tom Davel—while he was still in office—in correspondence with our source.
There is no proof that this is linked to the suspension of both the managing director, Andile Mvinjelwa, and the general manager of Numismatic Coins, Tom Davel on December 8. Their press release stated: “The board has become aware of certain technical issues within the operations of the South African Mint Company. Investigations into the matter have been instituted and are ongoing.” No results from the pending investigation have been produced.
In the statement related to the two suspensions at the SA Mint last year, Mathebula said, “The Mint is a high-security area for SA and I cannot reveal any details of the operations. There are no irregularities. Technical operational issues are being investigated.” He maintained that the suspensions could “never be related to fraud.”
A disappointed Willis said, “Surely, that kind of company would want to be transparent with everybody, seeing as it is a touchy subject and a worldwide distributed product from South Africa. If I were a dealer in South Africa or any other country, and I had coins which were part of the batch that is said to be under spec, I would certainly want to return them to the SA Mint and say ‘give me back my dough.’”

Tag: South African Reserve Bank

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