Eskom Planning to Take Power Units off the Grid for 75 Days at a Time

According to the City Press, Eskom is planning to reduce exhaust steam temperatures by modifying the boilers at the Medupi and Kusile power plants. 

The plan involves making the 130-metre-tall an extra 12.5 metres tall. This will then make the boilers taller than Standard Bank and Absa’s Johannesburg head offices that currently stand at 140 metres. 

The modifications will also mean that each of the 12 generation units will be taken off the grid for 75 days for repairs. Each unit produces about 600 MW of power. 

Andre De Ruyter the chief executive officer at Eskom said that during this downtown, engineers will also be fixing other issues at the plant, which includes the equipment that is used to handle coal. 

These upgrades will mean that Medupi is expected to cost R145 billion once completed, which is R65 billion more than the original budget of R80 billion. Kusile will now cost R161 billion instead of the R100 billion that it was originally budgeted. 

Five Years of Load Shedding

This new construction, as well as the other issues, will take around 5 years, which will hopefully bring the power plants to a place where load shedding is no longer needed according to Ted Blom, an energy expert. 

He also said the claims that load shedding will only last for another 18 – 24 months made by Eskom and energy minister Gwede Mantashe are ill-advised. He went on to say that the new CEO Andre de Ruyter has not been there long enough to make accurate predictions and the energy minister is not close enough to the operations of Eskom to know what is going on. 

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Ramaphosa Says that the Whole Country will be Covered by the NHI in the Next 5 Years

The NHI is planned to roll out nationally within the next 5 years and Ramaphosa is urging South Africans and the private sector to get behind its plans. 

In the weekly open letter to the nation, Ramaphosa has said that there is broad support for the NHI Bill as many people are still struggling to access healthcare when they need it. 

There are currently two health care systems in place that are running parallel to one another. At the moment about R250 billion is being spent per year on less than 20% of the population, which is the section of the population that has access to private medical insurance. The rest of the country has about R220 billion being spent on them. 

On top of this, Ramaphosa also highlighted the rising cost of health care, which is affecting all South Africans and their pockets. 

Even those that have private health insurance are falling under the pressure of rising premiums and decreasing benefits according to the report of the Health Market Inquiry, which was published last year. 

The president also said that the out of pocket payments are now increasing, which is draining the disposable income of South Africans. 

The Roll Out

Ramaphosa said that the government will not be thoughtless in implementing the NHI and that the Department of Health will need to prepare adequately. 

The implementation will occur in increments and by 2025 they aim to have the whole country covered.  They aim to use an affordable approach to make the progressive move towards a comprehensive NHI environment. 

He further reiterated that the private sector and the citizens of South Africa need to get behind the planned NHI to see it implemented. He said that he wants the private sector to join the government to transform the health care landscape so that it becomes more cost-effective and efficient and to do so they need to form public-private partnerships for the delivery of services. 

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Top Tips to Increase Your Credit Score

Your credit score is important as it will determine if you can get credit and at what rate. Having a good credit score shows lenders that you can manage your debt and you are more likely to be approved for a loan with a good interest rate. 

Your credit profile then shows how good you are at paying and managing your debt. Your score will be lowered if you miss payments, gone over your credit limit or if you have judgements against your name. Your score will go up if you pay your bills on time, maintain a low balance and use your account regularly. 

In South Africa having a good credit score is an asset as it could be your ticket to getting your dream home at an affordable rate, having a nice car or getting a loan to start a business. 

The average credit score is generally between 500 and 600 and a good credit score is 650+.

If your score drops then you can improve it, but you will need to be patient and practice good financial behaviour. 

Here are our top tips to increase your credit score

How to Increase Your Credit Score?

You are not able to change your score overnight as it will take time for it to gradually increase, but putting in the effort now can pay off as you will be able to get credit in the future at a lower interest rate, saving you money. 

Make Your Repayments

35% of your credit score is made up by your payment history. Late repayments can stay on your credit report for 7 years and how much your score drops will depend on how late you were paying, the amount you owe and how frequently you miss payments. The average number of points though is between 60 to 110 points and these points make a big impact. 

If you have missed a payment in the past, then you can try and remove it from your report. You can ask for a goodwill adjustment if you have only missed one payment with a credit provider. If this fails, then negotiate and see if they are willing to remove your late payment in exchange for setting up an automatic payment. If you are not able to get the late payment removed, then you will need to be patient and allow the late payment to age off your report. 

Reduce Your Account Balances

30% of your credit score is made up of the amounts you owe. If want to improve your credit score sooner, then you need to aim at bringing down the amount that you owe on each of your revolving accounts like a store account or a credit card. 

If you have a credit score that is 650+ then you don’t usually owe more than 20% of the balance. If you have a score of between 550 and 600 then you owe at least 40% of the balance. 

If you want to get extra and easy points, then you just need to pay down those balances.

Use your Credit Accounts Regularly

15% of your credit score is made up by the length of your credit history. You should leave a small balance on your account each month and keep your accounts open for as long as you can. Your credit score can improve quickly if you are clever with your credit and keep your balance below a certain amount each month. 

However, keep in mind that it’s not a good idea to keep credit accounts open that you no longer use as this will lower your score, so rather close credit accounts that you are not using. 

Don’t Have Too Many New Credit Accounts

10% of your credit score is made up of new credit. Your score automatically drops when you open a new credit account. New credit accounts don’t have any payment history, your score is determined by an average of all accounts and new accounts drop the average. 

Managing Different Types of Credit is Good for You

10% of your credit score is made up of the types of credit you use. Generally, there are two main types of credit available those being instalment and revolving, which is the credit mix. It is good to have both types of credit on your report and it actually shows lenders that you are less of a credit risk. Instalment loans like car finance require a set monthly repayment over a long period of time, showing that you can pay and maintain this type of credit shows a lender that you are trustworthy. 

Debt and Your Credit Score

Debt is a part of life because if you didn’t have it then you wouldn’t have a credit score, but if you are over-indebted then it can be difficult for you to manage your credit. If you are struggling with debt, making late repayments, have maxed out credit and don’t have enough money left after your debt repayments to pay for your living costs then its time to get help. 

Debt counselling is a great way to get the help you need and to help you manage your debts. A debt counsellor will look at your finances, negotiate with your creditors and draw up a debt repayment plan that will help you to pay your debts whilst still having enough left to cover your living expenses.  

Credit is important, but managing it correctly is key. Your credit score doesn’t grow overnight and it takes a good mix of things for you to improve your credit score and get the benefits of having a good credit score. You need to understand your finances, find areas of improvement and work on these, so you don’t end up in financial difficulty. 

More Banks in South Africa are Granting Home Loans with Some Extras

On 26thFebruary, finance minister Tito Mboweni is expected to make some tough calls during his budget speech as he tries to raise revenue and cut public sector expenditure. 

The managing director of the Rawson Property Group, Tony Clarke said that in 2020, the real estate prospects are looking positive. Over the past year, there has been an increase in housing demand, especially within the lower end of the market and the trend is expected to continue. 

A contributing factor to this prospect is that inflation has declined, leading to reduced financial pressures on consumers. Also, over the past four years’ house price growth and rental increases has been slow. The rand has also shown to be quite resilient over recent months as investors have been favouring emerging markets. It is expected that the international oil prices will decline, which will hold inflation below the midpoint of the Reserve Banks target range for most of 2020. 

Repo and prime interest rates also saw a decline in January by 0.25 percentage point. This has led to reduced monthly instalments on various debts including car and credit card repayments. Consumers now have the ability to afford and qualify for home loan repayments. Clarke also said that at least one additional rate cut is expected this year which should give the economy and the property market even more of a push. 

Rawson finance national admin hub manager, Leonard Kondowe has noted that banks are in competition to grant new home loans, especially to those that have strong credit records. Borrowers will be in the winning position as banks are offering loans with lower deposit requirements at the best interest rates they have seen in years. 

To sweeten the deal even further, there are banks which will even include costs for transfer and bond registrations in the loan, especially for loans of about R1.8 million. They may even grant loans of up to 105% loan to value. Kondowe said as an example if you are buying a R1 million property without a deposit, then your bond with transfer costs will be about R57 000, but with the extra 5%, it equals R50 000, which can then be used towards such costs. 

First time buyers will then find it easier as they will not need to save up a large amount of cash to cover transfer costs as well as the deposit. Lower priced homes, sectional title apartments and townhouses will then sell, but homes in the higher priced categories will need to wait or be willing to negotiate. 

The potential junk downgrade by Moody’s seems to have been factored in already to bond and equity markets according to Clarke, so the negative effect previously feared might not be as big. 

Even so, Clarke said, that the government will need to make some critical moves to attract and keep more investments from private businesses and individuals so that economic growth can be sped up and hopefully make a dent in the unemployment rate. 

Both Clarke and Kondowe agree that to maintain the current momentum in the market, job growth will be key because, without it, consumers will lose confidence to buy property even if they can do so. This year could then be the making or the breaking for SA’s residential property sector. 

According to FNB’s House Price Index, the bank believes that long term trends will continue to be dictated by broader economic developments, especially that of employment growth.

According to Siphamandla Mkhwanazi, FNB property economist, there have been some signs of improvement in all price sectors. However, it was also noted that some sellers took their properties off the market because of poor selling conditions, which has curbed the pace of supply somewhat. 

CEO of consumer first digital estate agency PropertyFox, Crispin Inglis, said in response to the lack of growth, the big banks are now open to giving 100% bonds to encourage the buying and selling in the current environment.

What are 100% Bonds?

Kevin Penwarden, CEO at SA Home Loans, said that there has been a consistent trend towards 100% bonds due to the competition between major lenders. 

This means that qualifying buyers can get a loan without needing to pay a deposit and those that can afford a deposit will find that the required deposit for a loan has decreased steadily. 

100% bonds can be beneficial in the short term, but there are long term risks. SA Home Loans say that they still need to lend responsibly and they pay close attention to whether applicants can afford to pay the loans over the long term whilst remaining competitive, but not at the cost of their clients. 

Inglis said that we are currently in a buyer’s market, which means there are more houses for sale then there are suitable buyers. Buyers then have far more room to negotiate. 

100% bonds usually have higher interest rates and if circumstances change or interest rates are hiked it can make it difficult for the consumer to pay their loan. Consumers then need to enter a home loan with their eyes open. 

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The First Steps to Trim Outsized Wage Bill are Being Taken by Eskom’s New CEO

The first steps have been taken by Eskom’s new boss to reduce the indebted power utility’s massive wage bill while ensuring that there isn’t a clash with labour unions. 

Andre de Ruyter, CEO who began his position at the beginning of the year plans to trim Eskom management by offering personnel aged 60 to 62, voluntary severance packages. There has been R400 million set aside for the plan according to the utility. It expects to recoup the allocation through savings within a year. 

According to Andrew Levy, managing partner at Andrew Levy Employment that advises on labour relations within companies, asking staff to leave of their own accord is an easy measure to take to start trimming staff numbers. 

Eskom has R454 billion in debt and isn’t able to generate enough income to cover its operating costs. In its last financial year, the headcount fell about 4% to 46 665, but it has about third more staff than it needs and labour unions have resisted wider job cuts. 

During his previous occupancy as CEO of packaging company Nampak Ltd, De Ruyter embarked on extensive cost cutting, disposing of loss making units and reducing staff numbers to shore up the company’s balance sheet. He has ruled out firing Eskom workers, but the utility does need to reduce the workforce further, which in the past decade has expanded by more than 23%, even as electricity sales volumes declined. Levy said that without massive staff cutbacks, Eskom can’t survive. 

In the third week of February, applications for voluntary packages will start, with exits planned by the end of April and in the process, no critical skills will be lost. Voluntary severance won’t be offered to staff that do not hold management posts. 

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An Increase in Wuhan Coronavirus Deaths Pushes the Rand to R15/dollar

On Friday, 7thFebruary, the rand hit R15 against the dollar as emerging markets took a hit on news that the death toll connected to the Wuhan coronavirus is increasing. 

As the death toll reached 636 in China, with the majority of deaths being reported in the Hubei province, an index of emerging market equities fell 0.6%, according to Reuters.

In the previous session, data showed that in January business confidence in the country fell and now the rand has slid even further. This year we have experienced the worst power cuts in a decade and a jerky economic growth that has led to the currency lagging its emerging market peers. 

According to the Guardian, the coronavirus infections within China are at 31 161 and global infections have passed 280 in 28 countries. 

After the Department of Health in KwaZulu-Natal said that it was testing two people for the Wuhan coronavirus, South Africa has been on high alert. The patients, however, have been given the all clear, but there is a fear that it will only be a matter of time before we have our first case. 

China’s economic growth has also been cut by 0.75 percentage points by S&P saying that the country’s economy will take a big hit because of the coronavirus and the rest of the world will feel it. 

The Rand is at Risk

According to a recent Reuters poll, the rand and other emerging markets are at risk of weakening in February if the Wuhan coronavirus spreads. According to Annabel Bishop, chief economist at Investec, South Africa is more likely to receive a downgrade from Moody’s if the rand approaches and exceeds R16/dollar this quarter. The currency has already reached a low base due to the virus impact on risky assets. 

At the end of next month, South Africa has a credit review due. If Moody’s lowers its rating to junk, then investors will automatically sell its bonds. 

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Tax Free Savings Account Vs Retirement Annuity Fund

We all know that we have to save and the benefits thereof as well as knowing the benefits that are offered by tax free savings account (TFSA) and a retirement annuity fund (RA). However, do you know which one is the best savings vehicle? Certified financial planner at Alexander Forbes Financial Planning Consultants, Jaco Prinsloo sheds some light on these saving types, so you can make the best choice. 

The Differences 

The TFSA was introduced by the National Treasury as a way to get South Africans to save for future expenses and long term investment goals with flexibility, affordability and simplicity in mind. 

RA’s were created for those that are facing a retirement shortfall like self-employed individuals, so that they can save in their personal capacity for retirement specifically.

The Benefit with Tax

TFSA’s and RA’s give you the ability to grow your savings tax-free, which means that there is no interest, income or capital gains tax or dividend to pay on the investment growth. However, the tax implications on contributions and withdrawals are different. 

How Contributions and Withdrawals Work

A TFSA allows you to start saving from just R250 per month or you can choose to make a lump sum payment each tax year of R33 000. A TFSA has a lifetime limit of R500 000 and if you exceed the limits then you will be taxed at 40%. The contributions don’t offer a tax saving, but you can withdraw your savings as a monthly income tax-free or as a lump sum. TFSA’s don’t have a minimum investment period, but the penalty for withdrawing funds is that these withdraw funds cannot be replaced and your annual and lifetime limits are permanently reduced. 

With an RA, you can reduce your income tax legally through your contributions. There is a maximum on your taxable income of up to 27.5% or R350 000 per tax year. The tax deduction is then a tax saving, which is like a reward for making arrangements for your retirement. There are no contribution limits and any non-deductible contributions are rolled over and deducted in the following tax year. You can retire at 55 years and have your RA savings converted into an income, which is an annuity. If the value is more than R247 500 then two thirds will need to be converted. The income gained from this will then be subjected to income tax. The remaining third can be taken as a lump sum. You will receive R500 000 tax free once in your life and the balance is taxed at between 18-36%. 

What Can You Invest in?

TFSA and RA’s have access to multiple asset classes, including bonds, local and global cash, shares and property. 

RA’s are protected and regulated by the Pensions Fund Act that includes Regulation 28 that imposes certain limits on how much and where you can invest. 

TFSA’s, on the other hand, are not subject to Regulation 28, which means that you can invest as much as you want and where you want within the limits set by any asset class. 

Creditors and Estate Duty

Your savings in an RA are protected from creditors and estate duty. Your nominated beneficiaries will receive your savings once the trustees of the fund have approved. 

With a TFSA, you will not receive any protection against creditors. If it is invested in a life policy then the savings are paid to your nominated beneficiaries, otherwise, it will be paid to your estate. If your estate is worth more than R3.5 million, then you may pay estate duty.

So Which One is Better?

An RA might be the better option if you are fine with Regulation 28, can afford to have your money invested until 55 years of age and are paying tax on your income due to the tax saving on the contributions you receive. 

A TFSA might be best if you want to invest in a specific asset and want to access your funds as they offer flexibility. 

However, a combination of both will reduce your income tax whilst saving and provides you with tax free withdrawals on withdraws.

You can then avoid the restrictions of Regulation 28 with a TFSA flexible asset allocation that you can use, based on your investment goals, to increase your specific asset class exposure.

TFSA and RA’s offer unique benefits and both should be included in your overall investment strategy. The choice will come down to your circumstances and your goals. 

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Brace Yourself for More Power Cuts

About 95% of South Africa’s power is generated by Eskom and it has warned that we need to brace ourselves for more frequent power cuts as it stops the rescheduling of planned maintenance. This also means that the rand took a hit and weakened. 

Andre de Ruyter, who at the beginning of the year took over as Eskom’s chief executive officer said that we need to, unfortunately, expect an increase in load shedding as we need to give ourselves the space to fix what needs to be fixed. 

Since late 2005, South Africa has been facing an energy deficit due to the ageing plants, the failure to keep pace with demand and the government stalling on giving the go ahead to invest in new capacity. 

The finances of Eskom are also in dire straits with over R450 billion of debt and it isn’t able to generate enough income to cover its costs, which has left it reliant on bailouts. As it refinances debt the utility expects a rise in interest costs.

According to the Council of Scientific and Industrial Research, power cuts reached 6000 megawatts late last year and last year alone may have trimmed about R118 billion from the GDP.

After, De Ruyter issued his warning about more outages, the rand continued its decline.

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As Load Shedding and the Coronavirus Hit, here is Where the Rand Could End Up

In early trade on Monday 3rdFebruary, the rand was on the back foot and for the first time in 2020, it broke the R15/dollar threshold. 

In January, following the South African Reserve Bank and International Monetary Fund (IMF) downgrading their growth predictions, the South African rand came under pressure. Last week, the rand continued to slide due panic about the coronavirus spreading, which led to the sell off of emerging market assets. 

Treasury partner at Peregrine Treasury Solutions, Bianca Botes said that as investors are trying to calculate the economic impact of the virus, many emerging markets are coming under pressure, whilst the death toll continues to rise. 

On top of the virus, rolling blackouts by Eskom will be continuing until Thursday, which has also played its part on the rand. 

As the fiscal situation continues to decline which is fuelled by the continued SOE bailouts, the IMF has sternly warned the government. She also said that the rand is expected to test a sustained break above R15.00.

The Rand is Vulnerable

The rand is vulnerable and the recent sell-off shows how vulnerable it is to both local and international shocks. The fiscal and growth of the country is still a concern said, Nedbank analysts. They also said that after the FED held its course at its Federal Open Market Committee meeting, they will be standing by their mid-year target of R16/dollar. The SARB, on the other hand, turned more dovish at its last MPC meeting. 

Nedbank analysts do believe that the rand could recover some ground once the equity markets become comfortable with the potential coronavirus pandemic. 

Absa’s views are similar with them predicting that the rand will likely weaken back up to R15.16/dollar by the end of the first quarter and by year end it will reach R16.13. Absa also believes that due to capital outflows in the first half of the year, the rand will continue to be vulnerable as it is expected that Moody’s will downgrade South Africa rating in March. This will then result in the South African Government Bonds being ejected from the World Government Bond Index. 

In the first half of 2020, JP Morgan is expected to reduce South Africa’s bond weighting even further within its emerging market bond index, which is putting extra weight on the rand. 

According to Absa, all these factors could actually weaken the rand more than what is expected. Policy rates could be cut more by SARB and economy could end up back in recession. 

Bank of America is relatively bullish on the local currency and are predicting trade at R14.85 over the next 12 months. 

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