I attended a presentation by one of the SA asset managers recently…it was a good job that there were no sharp knives around. It was real slit-your-wrists stuff!
Their view is that SA is pretty much stuffed and that unless there is a significant change in ANC leadership that we are on the “low road” scenario. The reasoning is as follows:
- SA stuck is in a no growth-low inflation scenario. The only reason the Reserve bank is not cutting interest rates is due to political risk fallout.
- The global search for yield has kept the ZAR strong (for now) – they see it considerably weaker over 3 years, especially if we get the Moodys’ downgrade on local debt (it seems inevitable at this stage).
- SA consumers are very stressed with much higher than normal variance in the payday compared to mid-month purchasing patterns (there is a massive spike at pay-day compared to mid month and this is much higher than normal). In addition to this, people are switching away from brand names to “no-name” products.
- SA food retailers have noted significant change in the composition of the average food basket – food inflation as measured by retailers is very different compared to what is measured by Stats SA.
- One of the SA retailers reported that for every R100 they are lending consumers, there is an additional R1700 in unsecured credit! Unsecured credit demand has increased radically.
- Another SA retailer has reported worst figures in 20 years.
- There are 17million people on social grants and this number is increasing rapidly…government is running out of money to fund this.
- SA facing poor consumer confidence (reduced spending), poor business confidence (reduced investment in SA) and poor employment numbers.
- The revenue (tax) base is shrinking, SARS is missing money due to incompetence.
- SARS (and treasury) have been haemorrhaging skills and there is a significant loss of expertise at both organisations.
- Tax payer non-compliance has increased as a result (and will continue to increase) thus worsening government revenue.
- Government is going to be desperately short of funds!
- The risk of a return to “prescribed assets” for pension funds has increased and along with this a limit on moving funds offshore and possible cancelling of asset swap capacity for local funds!
It’s a good job that there were no sharp knives around…having said this though, they are still positive medium-to-long term IF the Zuma faction is outed from government.
I found myself facing a crisis recently. I have always promised clients that I would only invest their funds where I myself am prepared to invest for myself and my family and yet with the recent shenanigans from our president who saw fit to remove the finance minister, I found myself at a cross roads. From my very simplistic point of view, South Africa is facing one of two future outcomes:
- We are either at the point where Zimbabwe was 20-25 years ago, or
- We are facing a short-to-medium term of economic pain (5+ years) from which we will ultimately emerge.
The crisis for me is that if I believe that we are a future Zimbabwe then it requires action now, 10 years’ time will be too late. At the very least it would require financial emigration which would involve selling our house, taking the capital offshore and then renting. On top of that it would mean no longer contributing to retirement funds in SA. That’s a radical departure and advice of that nature could be considered reckless at the least. But it would be what I am doing and it would require telling my clients about the path of action that I have taken.
On the other hand, if I believe that our crisis is going to be short-to-medium term but that we will ultimately emerge then we can stay in SA, keep the house and still continue to make use of retirement funds here. That does not mean to say that regulations around retirement funds wont change (think prescribed assets and the withdrawing of asset swap facilities). If that happens then we adjust at that stage, but for now we continue. In addition to continuing to contribute to retirement funds in SA, it makes sense (from more than a fear point of view) to continue to invest discretionary funds outside of SA via the annual discretionary allowance. It’s a big wide world out there and if you sat on the moon and looked at the earth as an investment destination, you would not put 99% of your money into the very small economy at the tip of Africa. Diversify!
So with these two scenarios in mind I went looking for some answers. The problem is that there are few people who you can ask and who will give an honest answer. There are too many conflicts of interest. Pension fund managers’ incomes are a function of people investing in their products, so too for asset managers and there are few economists who are prepared to be quoted as saying that SA is a complete basket case and that it’s time to get out before it is too late. Yes, there are some “journalists” and commentators who have written about the doom filled future but their articles are too sensationalist, emotive and lacking in substance for me.
I finally managed to have a few off the record chats with some asset managers and strategists and last week I resolved the issue for myself.
I truly believe that we will emerge from the crisis that we are facing as a country. It’s going to be tough in the short term, even if Zuma is removed. There is still a lot that is rotten in Government and our State-Owned Enterprises and this is not going to change overnight. We are also facing an increasingly divided society with yet another generation of poorly educated youth. These are significant challenges that face us.
But there are brave, principled people who are finally starting to take a stand against the blatant and unashamed looting of state resources and our country. These are the future leaders of this beautiful land and this is one of the reasons that I have hope and am not selling my house. I will contribute to my pension fund this year and I will continue to diversify any surplus investments offshore. I also commit myself to building a fairer, less divided country for all. For now, “normal” service has resumed.