Small firms contribute to more than 40% of South Africa’s gross domestic product^[i]. Considering tax and labour legislation has made the SMME space a rather hostile environment, this figure is a testimony to the determination of our nation’s entrepreneurs.

 

In spite of its challenges, this sector of the economy is expected to become more lucrative thanks to pending initiatives by government to decrease tax measures on businesses in the lower end of the spectrum. Grants received by small and medium sized businesses are also expected to become tax exempt^[ii].

 

With the majority of South Africa’s small businesses operating in the agricultural trade-, tourism- and construction industries^[iii], business owners face a substantial amount of risk, as businesses in these sectors require a hands-on approach.

 

It’s important to insure your small business against those rainy days where disaster strikes. In addition to insuring the business’s physical assets, however, business owners also need to remember that they themselves are their businesses’ most important assets and should be covered too. That’s where life insurance comes in, in the form of contingent liability insurance for major debts, cover for buy-and-sell agreements and key man insurance.

 

However, the affordability of cover could be a stumbling block for many business owners.

 According to Schalk Malan, executive director at BrightRock, traditional business assurance policies are structured in the same form as personal life insurance policies.

 

“There tends to be a single capitalised block of cover for all needs, and this cover is priced for the maximum term. This cover structure is not necessarily in the best interest of the small business owner, because the cover increases as your needs decrease – leading to cost inefficiency in the way premiums are structured.”

 

This is why BrightRock decided to follow a more flexible approach, which allows an upfront premium savings of 30% on average, allowing business owners to invest more funds in their businesses, or allocate the savings to more cover in the event of underinsurance.

 

Malan explains: “By structuring business owners’ cover to meet their exact needs, BrightRock removes premium waste and saves money from the payment of their first premiums. BrightRock’s unique approach allows advisers to tailor business owners’ cover over time to match the profile of their needs.”

 

In addition to this, business owners have the unique ability to convert up to R7.5 million of their cover to personal cover at a later stage – without the requirement of medical underwriting.

“Standard BrightRock polices automatically include the ability for you to redirect your premiums to cover your personal needs if your business cover needs reduce or end. This is done free of underwriting, giving you the benefit of the underwriting you initially underwent and premiums you have paid thus far.”

 

But what to do in the event where the business’ growth exceeds expectations, leaving the business owner with a desire to increase his cover?

 

Not a problem for BrightRock policyholders, says Malan.

 

“Standard BrightRock policies automatically have access to an extra cover account, to access later in the business lifetime with only an HIV test.”

 

What short-term risks should be covered for your small business?
Fire, explosion and earthquake Acts of nature (wind, thunder, lightning, storm, hail, flood and snow) Damage caused by bursting and overflowing geysers and water pipes Malicious damage Power surges Impact Fire brigade charges Vehicles or fleets Buildings Contents Travel Employer’s liability Business interruption Stock and money Employee dishonesty Public liability

 

Long term insurance for a small business: What should be covered?
Contingent liability insurance for major debts	Long term insurance for buy and sell agreements	Key man insurance
Contingent liabilities are liabilities that may be incurred by an entity (like a small business) depending on the outcome of an uncertain future event – such as the inability to honour a major debt due to a serious illness, debilitating injury or death.	This will ensure that co-owners of the business can continue to operate the business with as little disruption as possible in the event of the death of the business owner. It also ensures that the estate of the deceased business owner receives fair value for his or her business interest, as well as the settlement of his credit loan account.	An insurance policy taken out by a business to compensate the particular business for financial losses that would arise from the death or extended incapacity of an important member of the business.

 

Is buying insurance products simply a leap of faith? Personal accounts about insurance cover not being adequate at the time of the claim, have aroused scepticism about the insurance industry. “The key is to understand what it is you are buying before the claim happens – learning about the policy at the time of the claim can be an expensive lesson,” says Peter Olyott Managing Director of Indwe Risk Services.

 

Understand your risk

Risk is becoming increasingly complex. Even a really good insurance product is only likely to protect one against some of the total risks one faces in life. Too often people are not given a balanced, objective and encompassing view of the potential risk exposures they face and what options are available to them. A lot of focus is placed on the premium, which attracts most people’s attention and very little emphasis is placed on what one is actually buying for the cheaper premium one is looking for.

 

A broker will ask you about your personal circumstances, knowledge and understanding of insurance products and other aspects to assist in finding you the right policy. “They’ll also be able to tell you if you’re already covered by your existing insurance policies so you don’t overlap, and they will often get you a good deal by comparing prices and product features,” Olyott explains.

Will the 4 million credit profiles you can no longer see, work for you?

The new regulations to the National Credit Act will keep companies in the dark about certain information pertaining to employee applicants and potential vendors.

 

This is according to Jenny Reid, CEO of iFacts, a company that takes care of corporate security and seeks to remove people risk in business through pre-employment screening, background checks, and individual risk assessments.

 

Background to the changes

In late February, Dr Rob Davies, Minister of Trade and Industry, gave notice of new regulations to the National Credit Act, 2005. The change came into effect 1 April 2014 and the Department of Trade and Industry (DTI) has given Credit Bureaus in South Africa approximately two months to remove adverse consumer credit information from, and information relating to paid-up judgements. In other words, 6.5 million status updates relating to 4.2 million credit profiles will soon be deleted.

 

Disappearing histories

This means that negative descriptions—such as slow payer, delinquent, default or non-contactable—will no longer be allowed. The bureau will also not be allowed to give out enforcement action indicators, such as legal action, written off, repossessed or overdue.

With the FSB conducting more supervisory visits to Financial Services Providers, and with those visits being more vigorous and in depth, you could soon be receiving a letter from the Supervision Department advising you that they will be paying you a visit sooner than you think.

 

Receiving such a letter normally puts FSPs into a spin; some cases for good reason. However, as with all such things, a little preparation goes a long way.

 

If you are running a business which is perceived by the regulator to have a higher risk rating i.e. collecting client premiums, hedge funds etc. the likelihood of a visit is much greater than for a ‘regular’ adviser . However, this won’t be the case if you’re on the regulatory radar screen for some reason or another. Examples of this would be late submission of compliance reports or financial statements, or an excessive number of complaints, or even one serious complaint.

 

So, there you sit in your office, with the FSB coming in two weeks’ time - what should you get ready?

Going against the grain is never easy, particularly when it comes to investing. But if you don’t take the risk of moving out of the crowd and taking a different path, you can’t really stand out. Since its inception, Templeton Global Equity Group has focused on bottom-up value investing, which often puts it at odds with the broader market consensus. Cindy Sweeting, director of portfolio management, Templeton Global Equity Group, goes back in history to describe how the strategy has persevered through different market cycles, and why the Templeton team has been going against the grain by investing in Europe at a time when other investors had lost faith.

 

The Templeton investment approach was born at a time of great turmoil. In 1939, with the onset of World War II, Sir John Templeton bought $100 worth of every New York Stock Exchange-listed stock that was trading under $1 per share. There were 104 names, and 37 were already in bankruptcy. In doing so, he went against the consensus of the time, convinced in his belief that the stocks would recover. Three years later, 100 out of the 104 names were generating a profit.¹

South African companies outside of the financial services industry are earnestly looking for data or information governance frameworks to meet statutory and regulatory requirements on the one hand and handle their data management lifecycle (DMLC) on the other. That’s the word from Johann van der Walt, MDM practice manager at Knowledge Integration Dynamics (KID).

Local Risk Industry evolves to manage complex risks

With new oil and gas ventures multiplying in Africa, including significant finds in Uganda, Kenya and Mozambique, traditional African oil and gas producing giants Nigeria and Angola are not alone in managing the risks associated with the location, production, distribution and sale of hydrocarbons on the continent. 

 

Africa is moving towards becoming self-sufficient in oil and gas production and, in time, is expected to become independent in petrochemical and hydrocarbon processing.

 

None of this will, however, become a reality “unless the continent also develops a risk management and insurance industry able to mitigate the very real, and potentially devastating, risks that face the energy sector” says Nicola Harris, Senior Vice President, Marsh Energy, Africa.

 

Given Marsh’s long association with and broad foot print in Africa, especially in the petrochemicals sector, “we are acutely aware of how critical managing risk is to the success or failure of oil, gas and energy operations on the continent – and how often they are overlooked” says Harris.

 

Determined to help grow an effective oil and gas risk management industry to compliment and facilitate Africa’s burgeoning energy industry, Harris in conjunction with the Marsh Energy International  team have developed an energy insurance and risk management training course. The course is specifically tailored for energy executives, underwriters, employees of oil and gas companies, loss adjusters and banks providing credit or risk transfer to energy projects in Africa.

 

“The four day course is a mixture of academic and practical learning.  At the end of the course participants tackle a scenario based on a real life crisis drawing on the combined expertise and learning of all participants” says Harris. The value of this practical application is that it allows participants from very different walks of life and disciplines to appreciate the full range of risks that face a complex oil and gas operation.

 

As such, these courses are “critical in growing the risk management skills sets needed to manage the continent’s booming energy sector” says Harris.

 

While the course is generally run privately for companies in Africa, the commercially accessible public courses run in Sandton attract participants from multiple disciplines and business – from all over the continent. “We’ve even had a Japanese participant working for an energy company in Australia contemplating an energy investment on the continent” added Harris.

 

Given the scale of investment and scope of risk facing even relatively small energy projects – especially in Africa – “understanding, predicting and mitigating risk is central to the successful development and operation of energy projects on the continent” concluded Harris.

 

Marsh’s next public Energy and Risk Management Course will take place in Sandton, Johannesburg from 8 – 11 April and can accommodate up to 25 people.

The term ‘geocoding’ has become one of the latest buzzwords in the business space, and is touted for its ability to deliver a host of benefits. Geocodes provide a precise location, expressed as latitude and longitude co-ordinates, and as such have many applications across different industries. This data is not new but is becoming more useful with the introduction of spatial business intelligence tools that present business information on a map.

 

Geocodes can be beneficial to any business which uses or manages address information in any way, as it allows objects which have an address, such as customers, to be plotted on a map and compared to objects that do not have an address, such as the customer demographic, or risk profile, of the area

 

The benefits and challenges of linking address and spatial data are explored in detail in the whitepaper An Introduction to Geocoding which can be downloaded .

 

One of the applications of geocoding is to improve service delivery, both for retail and government sectors. Geocoding data can be used to determine the density of populations or the density of customers in specific areas, as well as the layout and distance of these customers or populations to existing stores or facilities such as hospitals, schools and so on. A visual plot of store coverage overlaid with customer locations allows retailers to plan the locations for new stores thus providing convenience to customers and therefore more likely foot traffic in the stores. For government service delivery new facilities, such as hospitals and schools can be planned for precisely where they are needed, and costs can be allocated to the correct service area.

 

Location is also important for risk management. By plotting the location of an insured risk on a map, and overlaying this with risk factors such as flood plains, or crime levels, insurance firms can optimally calculate risk for each insured address. Location data can be critical disaster management, making it simpler to ensure that emergency services arrive as quickly as possible.

 

Another common application is to use location data for route planning. Shipping and logistics firms can optimise productivity by plotting delivery and collection addresses on a map, reducing errors in delivery and plotting the most efficient routes for each vehicle. This helps to optimise efficiency of the delivery chain, saving time, fuel and resources while at the same time improving customer service.

 

Geocoding data is available from various sources. However, it is often not a simple matter to add this data into existing address information, since lack of standardisation and poor quality data can negatively impact the applicability of geocoding data.

 

For example, the spatial data, or data from the geocoding database, may recognise “CAPE TOWN” as a city. However, in a company’s records, the name may be misspelled, as CAPE TWON or CAPETOWN, or even be in another language, such as KAAPSTAD, or may be buried in the wrong field in the database. These are common issues which can cause a failure in the lookup of geocoding data, meaning that accurate locations cannot be added.

 

In order to reap the benefits of geocoding data, it is critical to apply sophisticated cleansing and matching to improve address quality before geocodes are applied. Data quality and standardisation tools, such as the Trillium Software System, find these common errors and correct them, as well as identifying the same address that may be represented in two different ways, based on its elements. For example, data cleansing for geocoding should be able to recognise that KERKSTRAAT 11, Pretoria is the same address as 11 Church Street, Pretoria. By addressing data quality and standardisation issues, the probability of finding a match and being able to add an accurate location is vastly improved.

 

Geocoding data adds another dimension of information for businesses, and enables enhanced analytics to be conducted using geospatial information. Quality address data is a prerequisite for realising the benefits that geocoding can deliver! Download the to find out more.

Value-Added Tax (VAT) is fast emerging as the tax of the future, with governments worldwide shifting their focus from direct taxes to indirect taxes in the wake of the recent economic uncertainty. Rising budget deficits have placed pressure on many governments to look to raise additional forms of revenue, and they are increasingly turning to indirect taxes as the solution.

 

These are some of the highlights from PwC’s inaugural edition ‘Charting the changes, 21 years of VAT in SA’, which outlines the numerous reforms that have taken place in South Africa and on the African continent over the period as well as some of the challenges that lie ahead for the market.

Charles de Wet, PwC National Leader for Indirect Tax, says: “Indirect tax policies, legislation and compliance with the law are all under increasing scrutiny from governments and tax authorities.

 

“From a risk management perspective, it is important that VAT be managed properly as it can become a huge expense for a company if it is not correctly accounted for.” De Wet says that minor errors and flaws can have a cumulative effect where the volume of transactions is significant. Furthermore, if the VAT process is not adequately managed, it can have an effect on an organisation’s bottom line and even disrupt procedures and processes.

“Companies face significant compliance risk coupled with hefty penalties and interest levied by the tax authorities, as well as disruption to businesses and increasing reputational risk.”

 

Worldwide the efforts of governments to improve tax compliance have also placed increasing pressure on companies to put risk management high on the board’s agenda, he says. “The tax function needs to assume more responsibility for tax than the finance function of the organisation. Clear policies need to be put in place as to how the VAT function should be managed.”

 

Tax departments have up to now tended to focus their attention on direct taxes. “This will have to change with the emphasis being placed on VAT and indirect taxes,” says De Wet. “Organisations need to put adequate and efficient resources, processes and technology in place to manage VAT challenges.

“On the face of it, VAT may seem a simple and acceptable tax to businesses as it is passed on to the consumer. However, there is an invisible cost to organisations which is extremely high and burdensome, namely that of compliance with the law.”

 

De Wet says although the basic principles of VAT are similar in most countries, the administrative practices, and rules and regulations applied tend to differ which can affect the compliance burden for businesses. VAT returns are required at different frequencies; monthly, bi-monthly, or quarterly, he explains. “This will have a significant effect on how long it takes a business to comply with VAT.”

 

South Africa is considered to have one of the highest VAT burdens in the world, according to research carried out by PwC Tax Services. It takes far longer for companies to comply with the VAT laws than corporate income tax. Companies have to complete three tax returns for company tax purposes. Organisations with an annual income of more than R1 million have to complete 12 tax returns for VAT purposes.

 

The PwC report highlights the increasing focus on improving the administration of VAT, including the use of electronic filing of VAT returns and reducing the compliance burden on the taxpayer, with the report drawing on data gathered from analysts across the PwC Southern Africa indirect taxes network.

 

To date VAT has been implemented in 151 economies worldwide.  De Wet says there is no VAT system in the world without flaws if one has to carry out a comparison and review of such systems. “There is a need for the tax authorities to eliminate non-compliance with the laws and fraud.” Established VAT systems such as those in the European Union appear to have fewer opportunities for fraud and higher levels of compliance than those introduced in the past decade.

Other key highlights from the PwC report include:

• Most countries in Africa tend to apply a single tier system of VAT, which, if properly administered is better than sales or turnover tax, as it leaves an audit trail;
• South Africa’s banking system could face higher VAT costs in the wake of new regulations;
• State owned entities need to include VAT compliance in their strategic planning activities and where necessary, be prepared to defend business and VAT decisions from tax officials;
• There is a general trend for tax authorities to take a more aggressive approach to compliance and penalties are reflective of this;
• All countries with a VAT regime are now using automation to some degree.

Extensive flooding across the entire country has displaced over 2000 people in the Eastern Cape and caused severe infrastructure damages amounting to millions of rands in damages, such as the 25m wide and 50m deep sink hole on the N2 between Port Elizabeth and Grahamstown.

 

According to Anwa Adams, Manager: Corporate Sales at Lion of Africa Insurance, it is not possible to predict a catastrophic event caused by inclement weather. In order to prevent devastating financial losses in the event of an unpredictable event, corporates are urged not to become complacent when it comes to protecting their businesses. The total cost of damages could reach over a billion rand and may even surpass that of 2011, which was reported to be the costliest year for natural disasters in South Africa’s recorded history, with economic losses amounting to over R160 billion due to flooding alone.  Adams says that these losses once again highlight the importance of companies preparing for catastrophes well in advance.

 

“A catastrophe is an extensive and widespread event which results in large scale loss and damage to property and life, adversely affecting business operations. Catastrophe cover provides indemnity against such disasters to ensure continuity of business.  The absence or inadequacy of catastrophe cover could result in gross financial loss or even worse, closure of the affected organisation,” says Adams.  

 

“It is tragic and unpredictable accidents like these that highlight the severe impact that damage to property and loss of life could have on a Company’s operations says Adams.

 

According to Adams, it is the broker’s duty, or where direct business is transacted, it is the insurers duty to ensure that the client has adequate and appropriate coverage for their assets. He says risk management solutions that identify, assess and mitigate risk and exposures should be carefully explained to any business owner.

 

According to Adams some of the most common risks for corporates include loss or damage to the insured’s property caused by fire, storm, wind, water, earthquake etc,  Business Interruption losses following there from and insurance cover for theft of stock, money, goods in transit; employee and director liability, personal accidents,  crime and machinery breakdown.

 

“It is not possible to predict when these risks may become a reality and it is too late to react once they have occurred. With the correct levels of protection in place, businesses can ensure that damaging effects of catastrophes and interruptions are mitigated,” he says.