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Invest low, borrow high


Heated debate marked the monthly meeting of the Polokwane Municipal Council last Thursday after it was revealed that the municipality had invested R174 million at VBS Mutual Bank, also dubbed the Zuma Bank, at a low interest rate of 8,8% while approval was being sought to borrow R440 million from two other financial institutions at an interest rate of 10,99%.
A report tabled at the meeting revealed that the municipality had, from September to December 2016, invested an amount of R174 million at VBS Mutual Bank at an interest rate of between 8,5% and 8,65%.
The term of the three investments respectively amounting to R80 million, R50 million and R44 million is 180 days and the first matures on 14 March.
VBS Mutual Bank, which has its headquarters in Louis Trichardt, was in the news when it provided a loan of R7,8 million to President Jacob Zuma to repay the South African Reserve Bank for expenses incurred during upgrading done at his family home in Nkandla.
Toni Mphephu Ramabulana, King of the vha-venda is a major shareholder of the bank. Mphephu made media headlines when his position as rightful heir to the vhaVenda dynasty was disputed by Masindi Mphephu Ramabulana, a princess. The court at the time barred Zuma from conferring the kingship on Mphephu.
Capricorn District Municipality (CDM) also invested R120 million at VBS Mutual Bank during 2016 and West Rand District Municipality in Gauteng invested R61 million during the term February 2015 to April 2016. All the investments have matured.
The amount of R440 million is made up of R235 million to be sourced from the Development Bank of Southern Africa and R205 million from Standard Bank that is repayable over a term of 15 years. According to the report, the funds are required to replace the ageing water and related infrastructure in the Central Business District, Seshego and Annadale.
Democratic Alliance (DA) Councillor Franco Marx, representing Ward 39 in the municipality, pointed out that the municipality did not follow the provisions of the Municipal Finance Management Act and insisted that the report be referred back. The meeting deliberated for an hour and thereafter the African National Congress (ANC) requested a caucus. After the caucus, the ANC agreed that the correct procedures had not been followed and attempted to remedy the situation by requesting that the failure to follow process be condoned. It was vehemently opposed by the DA and the report was finally referred back.
“I can still not see the financial sense in investing funds at a low interest rate while we have to borrow at a much higher rate,” Marx commented to Polokwane Observer.
The Economic Freedom Fighters (EFF) did not support the recommendations of the Mayoral Committee while the Vryheidsfront Plus did not voice an opinion. The Congress of the People (Cope) was absent from the meeting.