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Despite government making good progress with a number of initiatives to enable greater access to affordable housing opportunities, much work remains, says Deputy Minister of Finance Musa Nene. And, he says, the private sector can and should play a significant role in making such opportunities a reality.


The plight of the “gap market” was given prominence by President Jacob Zuma in his state of the nation address last year and again this year. The gap – or affordable market - refers to people who earn too much to qualify for government-subsidised housing and but not enough for homes in the traditional private market. Additionally, there is a major lack of available stock in this sector.


Delivering the keynote address at the recent investor conference of global private equity funder International Housing Solutions (IHS) in Johannesburg, Nene pointed out that the transformation of human settlements and spatial development - to create the conditions for more humane and environmentally sustainable living and working environments - was a key component of South Africa’s growth and employment-focused National Development Plan (NDP). Urgently addressing the needs of the “gap market” was, in turn, a central part of this, he said.


As a pioneer of affordable housing development in Southern Africa, IHS has thus far successfully placed R1.9 billion in equity funding enabling the construction of 27,000 affordable housing units in South Africa. The company’s latest conference was attended by major local and global investors drawn to the potential of the sector.


Nene sketched the ongoing fragility of the global economy and its growth prospects. He again pointed out that South Africa is not immune to the poor growth outlook and referred to the country’s revised growth outlook. In his latest budget speech, finance minister Pravin Gordhan said GDP growth was expected to be 2.7 per cent in 2013, rising to 3.8 per cent in 2015.


“But we require much faster and sustained growth to address our socio-economic challenges,” said Nene. The government’s plan to improve GDP growth, create jobs and eradicate poverty is captured in the NDP, of which the transformation of human settlements is a key element, he said.


“Although our budget forecasts might require some downward revision, we expect that a rebound in private sector investment and the improved capacity from higher government spending on infrastructure will raise growth levels from 2014 onwards.”


According to Nene the 2011 Census showed that 78.4 per cent of South Africa’s 14.5 million households live in formal housing.


The government-subsidised housing programme has provided housing opportunities to over 20 per cent of the population. The home ownership rate, confirmed by the census, is 53 per cent.


“The census also confirmed that the lowest home ownership rates are among households who have no income (48 per cent ownership) and households with a monthly income between R3 200 and R6 300 per month (49 per cent ownership),” said Nene.


While government is addressing the plight of the poorest segment, Nene also referred to the various initiatives launched by government to enable more households in the “gap market” segment to obtain houses.


One of these is the Finance Linked Individual Subsidy Programme of the Department of Human Settlements announced by President Zuma last year. In his most recent state of the nation address Zuma reported that in 2012 provincial departments committed a budget of R126-million of the Human Settlements Development Grant for this programme. Some R70-million has already gone to twelve registered projects while a further eight gap housing projects are currently underway.


In his budget speech Minister Gordhan again reiterated that South Africa is a rapidly urbanising society with 62 per cent of its people living in cities and towns and needs to meet urgent demand for housing, among other things. He announced that funding for improving human settlements was to be increased from R26.2-billion to R30.5-billion over the next three years.


Other initiatives to support mechanisms to increase the supply of affordable housing listed by Nene include the Urban Settlements Development Grant introduced to metropolitan municipalities in 2011, the Cities Support Programme and tax incentives to developers building houses with a sale value of up to R300 000 per house.


To overcome the resistance among banks to granting loans to this segment, the national treasury and the department of human settlements are also working together to find credit enhancement mechanisms that would assist households in this respect.


“As government, we want to create the conditions for more humane and environmentally sustainable living and working environments,” said Nene.

Referring to the achievements of IHS in South Africa in developing the affordable housing market, Nene said: “This is the kind of commitment we want to see from the private sector.”


He warned against the “many naysayers” saying it was “easy to get caught up in the immediate negative headlines and environment” and avoid investing in South Africa. Yet South Africa remained a “worthy and attractive investment destination”, he said.


Adding her voice to Nene’s, Soula Proxenos, managing partner at IHS, says Private Equity investment is key to Africa as public markets are not well developed.


“Private equity is an ideal way to build up capacity, capitalise young business and drive large entities," Proxenos says.

There are 19.69 million active credit consumers, of which 53.1% are considered to be in good standing. The number of consumers with impaired credit records has slowly been deteriorating from only 37.7% (in late 2007) to the current level of 46.9%.


Mchelle Dickens smlImportantly, a credit amnesty was applied in June 2007 just prior to the inception of the National Credit Regulator’s (NCR) reporting on the level of good standing of consumers. The 2007 credit bureau amnesty applied resulted in the automatic deletion of certain judgements. Research undertaken by the Credit Bureau Association on a sample of 600 000 affected consumers revealed that 64% of these consumers who benefited from the amnesty entered into new credit agreements and 74% of the individuals who obtained credit had bad (3+) or adverse accounts.


This exposes a crucial consideration, did the 2007 amnesty result in credit granting to consumers who were stilled stressed but not reflecting such in their credit profiles putting further strain on their monthly repayments; and did affected consumers benefit from any key learning’s regarding how to manage their credit and their credit profiles?


There are currently consultations underway to assess a second credit information amnesty. The Department of Trade and Industry (dti) and NCR recently provided interim feedback on the key findings of an impact assessment.


Some of these key findings include:

  • The need for appropriate affordability assessment guidelines
  • Appropriate credit literacy programme
  • Any amnesty should take place after affordability assessment guidelines have been implemented and should include a consumer education process highlighting the amnesty does not result in a writing off the debt nor the obligation to pay but merely expunges the display of the judgement or adverse information on the credit bureau

The findings seem to relate to the removal of judgements, dormant accounts and adverse information under R10 000. Specifically the removal of adverse information under R10 000, that would benefit 86% of people earning less than R15 000.


The final report is expected sometime next month; which will give clarity on what the final amnesty will include.

There has been significant interest among the smaller to medium sized (R500-million to R1-billion) corporate business segment in South Africa opting to go to the bond market to raise funding since the start of 2013.


This is according to Eyal Shevel, Head: Corporate Ratings at Global Credit Ratings (GCR), who says there has been a noticeable increase in interest in bond issues among smaller to medium sized corporates over the last 8 weeks. “While the larger corporates have successfully approached the bond market for issues in recent years, there is an emerging trend of smaller companies also choosing to raise capital through the bond market.”


He notes that these companies have made great strides in realigning their businesses since the global recession in 2008, with the result that many are now emerging much stronger. This is also reflected by the number of downgrades among this group having decreased significantly since 2008.


“Companies within the corporate sector have been forced to take some very large write-downs over the last few years and as a result have focused on cleaning out their books, cutting out unnecessary costs and getting back to basics by focusing on their core business. These companies are now more effectively managing their operating costs and their operating income, whilst identifying ways to better structure their balance sheets in order to reduce their interest charge.”


Shevel says that while smaller corporates may often have to sweeten the package to attract investors, as they are not necessarily investment grade companies, they can offer a package of securities as collateral such as bonds on properties or their debtors’ books.


He adds that while some companies may be looking to raise capital in order to fund expansion, others are simply looking to refinance their debt. “During the tougher economic climate, some companies had to take on debt at onerous interest rates; however, having streamlined their operations and improved their balance sheets, many are now in a stronger financial position to be able to refinance their debt.”


“The bond issues that are taking place are also getting placed quite comfortably – and there is a clear demand among investors for higher yielding bonds. While bonds remain a comparatively safer investment to equities, investors looking for yield enhancement can often obtain a higher return from bond issues by smaller corporates, as the interest earned is higher as a result of the increase in perceived risk.


Shevel cautioned that GCR has only noted this trend among the stronger corporates that have managed to clean out their books. “For those companies that have taken the pain in recent years, there are excellent prospects for them to achieve good solid organic growth of between 8% and 12%.”


“Clearly there may be a number of other companies who are not in such a strong position, and are therefore unable to raise further capital. However, this also presents acquisition opportunities at fair prices for those companies that are still able to raise funding,” concludes Shevel.


UK bank NatWest, a member of the Royal Bank of Scotland (RBS) group, suffered its second major IT system collapse in nine months last week, with the result that many of the 7.5 million customers affected threatened to cancel their accounts on social networking sites.


Ray Stride, Managing Director of Global Continuity South Africa - a group company of JSE-listed Metrofile Holdings Limited – says such incidents can cause severe reputational damage for businesses that do not ensure appropriate Public Response protocols are incorporated into their Business Continuity Management plans.


“Hours after the incident occurred, NatWest customers had still not received any feedback about the cause of the IT glitch or whether they would receive compensation. During times of crisis, it is imperative for any organisation with a large clientele base reliant on immediate access to critical services – especially the banking and telecommunications sectors - to ensure effective Public Response protocols are in place to mitigate the risk of reputational damage and the subsequent financial losses due to lost clients.”


Despite the financial losses, the reputational damage NatWest will suffer may be irreparable, says Stride. “Clients and staff could migrate to other banks, shareholders may dump their stock, public confidence in the brand will take a significant knock providing a perfect environment for competitors to take advantage of the situation and the banks could be heading for a rating downgrade which will increase interest rates and hammer profits and competitiveness. Certainly, since this is the second time that this has occurred, probably no public statement, however well crafted, will placate irate clients.


“At the heart of the matter is an inability to adequately manage the risks which give rise to these outages.”


These severe repercussions could easily have been avoided had the banks implemented effective Public Response plans that focussed on providing customers with a clear understanding of the situation and solution to their problem, says Stride.


“The lesson to be learnt from the NatWest disaster is that all industries and organisations that are heavily reliant on real-time service delivery must ensure an appropriate Public Response to disasters is incorporated into a sound Business Continuity Management plan to mitigate reputational, legal and financial damage,” said Stride.

FNB eWallet Solutions and Cash Converters today announced the launch of the ‘Cashies Card’ which will, over time, replace in-store cash payouts to customers.


From this month, Cash Converters’ PayDay Advance customers will have the option to receive their loans on an electronically loaded prepaid VISA card as an alternative to cash. Benefits of this card include the safety of PIN protection and convenience of unlimited free point-of-sale swipes as well as the ability to withdraw money at any ATM. The first cash withdrawal is free at any FNB ATM.


“A cashless platform has numerous benefits to both Cash Converters and our customers. We will be able to reduce our costs and offer our customers greater convenience,” says Richard Mukheibir, MD of Cash Converters.

FNB has provided an alternative payment platform called eWalletPRO to Cash Converters to help simplify the payment process to its customers.


FNB eWalletPRO is an enterprise payment solution that allows businesses to pay multiple beneficiaries through online banking or a host-to-host solution.  The recipient can receive the funds through a cellphone or prepaid card. This is a safer, easier and more convenient disbursement of funds, particularly cash.


“We aim to drive alternative cashless transactions for companies through eWalletPRO. The benefits to a business such as Cash Converters are numerous, as store owners no longer have the expense of transporting and holding cash,” says Yolande van Wyk, CEO of FNB eWallet Solutions.


Cash Converters customers will now have the choice of receiving their PayDay Advance on the ‘Cashies Card’.

Not only can the user withdraw cash from the card they have access to a variety of eWallet transactions such as buying prepaid airtime, data and electricity, send money to other people, transfer to SA bank accounts as well as make certain bill payments.    


There is no monthly fee, balance enquiries for the card and SMS transaction notifications from inContact are all free, as is the first cash withdrawal at an FNB ATM.

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