The financial year under review was a difficult one for the global economy, which has been driven by higher than expected global inflation. This was further fueled by the Central Banks raising interest rates which dried up liquidity. Combined with a global reduction in stimulus, global markets have vacillated in reaction to all of these factors.

The tensions between Europe and Russia continue to simmer, although Europe has come through the winter period better than most anticipated, thanks to warmer temperatures than are typical. One sincerely hopes that this conflict can be resolved, as not only will this provide much needed relief to the citizens of these countries, but it will also allow the significant contributions that both Ukraine and Russia add to goods and services emanating from this region, to resume.

The extended Covid disruptions the Chinese economy has faced and the escalation in tensions with the United States, have also contributed to the increased costs of doing business and caused supply chain disruptions worldwide.  In some instances, the USA have banned the use of certain technologies emanating from China and one can expect Beijing to react with similar sanctions against some American tech companies.

Geopolitically, there seems to be a consolidation of power between Russia and China (and potentially some of the BRICS countries) as well as some of the old allies under NATO. South Africa has, to date, chosen not to take sides citing historical partnerships with both of these factions. However, the recent joint naval exercises off the coast of South Africa between Russia, China and South Africa would indicate that our government is leaning their support towards BRICS.

The general opinion amongst economists is that these issues will likely dissipate over the course of the next financial year and hopefully, if the geopolitical tensions begin to ease, it will allow businesses, globally, to recover.

Surprisingly, given the negativity both locally and globally, South African companies have fared better than expected. Unfortunately, the high costs of energy, both from Eskom and alternative sources (e.g. generators, solar), as well as sustained power cuts, have resulted in margins being crimped. As always, South African businesses are finding ways to navigate these challenges but we are likely to see further fuel price increases, which will lead to increases in the cost of goods and services, ultimately affecting our overall cost of living.

South Africa has not been immune to these global issues and suffers from its own unique problems, highlighted in the recent budget speech delivered by Finance Minister, Enoch Godongwana. The crippling power disruptions currently plaguing Eskom have taken center stage in what would have otherwise been a very balanced budget. The recent departure of Eskom’s CEO, Andre de Ruyter, has added to the woes of the utility. Recent public statements made by the departing CEO, including allegations of corruption by a number of high level politicians within the ruling ANC, is of grave concern. One sincerely hopes that great strides are made to weed out those who are not serving the best interests of the utility and the country.

NERSA, the National Energy Regulator, has also given Eskom approval to impose a tariff increase of 18% in the 2023 financial year, which is significantly above inflation and a further 12% in 2024. This means that input costs in the South African economy will be higher over the next few years.

The lack of leadership within the ruling party, along with the endemic corruption that has plagued the government for many years, will make the recovery process that much more difficult to achieve.  Despite this, it may still be possible to overcome these challenges and find a way to restore this once world-class utility, if swift and decisive action is taken.

The grey listing of South Africa by the Financial Advisory Task Force (FATF), a global regulatory group, translates into a warning that concluding international business with South Africa could facilitate terrorist financing and money laundering. To date, South Africa has made significant strides in complying with the anti-money laundering and combating of terrorist financing measures put in place by FATF.  Unfortunately, the FATF does not believe enough has been done in terms of prosecutions and accountability. The rating downgrade will likely result in less capital inflows into South Africa from foreign sources but doing business within South Africa is unlikely to be significantly affected. Economic penalties may be imposed on South Africa in addition to the listing downgrade and coupled with less direct foreign investment and a decrease in South Africa’s external reserves, this will lead to South African companies being less competitive in the global market. It is important to note, that other countries who were placed on the grey list, such as Mauritius, managed to address the areas of concern and were subsequently removed.

As most of you are aware, we have implemented an online system which has alleviated a lot of the concerns around POPIA, as clients are now able to log on to the system at their convenience. The system has been designed to meet the needs of our clients, their accountants and tax practitioners and we would like to thank you for your patience during the roll-out process.

We are in the process of integrating a compliance function into this online program, which will hopefully reduce the amount of communications sent out for compliance documentation. This is an ongoing process and for the time being, we will still be contacting clients on occasion to update our records.

It is with a sense of great excitement that we move into the new financial year and look forward to the opportunities it will bring.  As always, our primary focus is to remain invested into good quality investments and allow time in the market to provide good returns. We thank you for your continued support and assure you that you are receiving our best attention at all times.

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