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I see a bad moon rising

Several red flags must surely be flapping furiously in the wind by now.

There’s no doubt any more that the ruling ANC has embarked on a policy path of radical populism in order to stay in power in the next and possibly several more national elections. It has stolen most of the radical ideas from the Economic Freedom Fighters (EFF) leaving its leader Julius Malema with only pure and unadulterated racism towards all non-blacks as his only source of political oxygen.

The long-dormant policy of Radical Economic Transformation (RET) has, with the disappearance of Jacob Zuma from the levers of power in February, suddenly been resuscitated and injected with a new sense of urgency.

So far we have had:

* Free tertiary education for the children of people earning a certain minimum salary, in effect almost 90% of the population.

* The planned expropriation without compensation (EWC) of property.

* The introduction of minimum wages.

* The wages and salaries of government employees – after a short but cowardly showdown with the unions – have been increased more than planned for, leaving an unbudgeted hole of R30 billion in the budget.

* Government also caved in to the radical demands of militant labour unions at Eskom, with minister in charge Pravin Gordhan scrapping the previously announced zero-increase for the bankrupt monopolist supplier of electricity, with negotiations now on the table again for increases around 9%. This in a time when inflation is below 5% and with wages at Eskom much higher than in the private sector.

* The introduction of the long-threatened national health insurance scheme (NHI) which, together with proposed changes to medical aids, will radically overhaul and possibly destroy one of the few remaining pockets of excellence we still have left in the country.

If there is one thing that fills me with absolute dread, it’s that the ANC government, with its proud record of spectacular failures in almost all spheres within its control, takes full control of the provision of medical services to the people of this country. Think Home Affairs on steroids. Think the Life Esidimeni disaster which led to the deaths of 168 patients – yet to this day no one has gone to jail or even paid a fine for this. Think Aarto, think e-tolls. Think our crumbling municipalities all around the country.

What’s even more terrifying is the quote by health minister Dr Aaron Motsoaledi on Bloomberg: “This is the first time in the world that this will be done. We don’t know how we are going to do it, but we are going to do it.”

When asked on Moneyweb Radio by journalist Ingé Lamprecht about mismanagement and corruption, Motsoaledi glibly batted these questions away. One would be forgiven for thinking that state capture, poor governance, fraud and corruption were just a bad dream, such was his dismissal of such concerns.

A short look at government’s attempts at running essential services should serve as a warning that the NHI has a low level of success:

* SAA. A disaster year after year with total losses over the past seven years now in excess of R33 billion.

* SA Express, also bankrupt but now grounded as a result of failing to adhere to internationally imposed safety and maintenance standards.

* Transnet. In 2008 Transnet was profitable with 3.7 million passengers using its services daily. As the layers of fraud, corruption and mismanagement are peeled away for all to see, the rot is to be found in every nook and cranny. Oh, and did I mention that only about 1.8 million passengers use its services today.

* Eskom. Probably our biggest financial catastrophe to date, with its total debt of about R350 billion now guaranteed by government. Or should I say, taxpayers.

Motsoaledi’s comments about the high levels of reserves held by the country’s medical aids – R60 billion, which represents a solvency ratio of 33% against a statutory 25% as described by law – reflect a poor understanding of the financial discipline required to operate a medical aid. Medical aid costs are greatly exposed to the vagaries of the rand. Any sharp decline in the currency could easily wipe out these reserves. He also revealed a deep-seated ignorance of the business world when he indicated that medical aid brokers will be banned, on the basis that they earn R2 billion a year. If only he really knew how little medical aid brokers earn.

It is the first sign, in my view, that government has its beady eye on these pots of money.

Expropriation without compensation

The issue of EWC by itself, if handled poorly, could pose a possible economic risk to the country, despite the repeated assurances of president Cyril Ramaphosa that it will not affect the economy or food security. It hasn’t taken long for much of the Ramaphoria to fade into Ramareality. This can already be seen in the sharp decline of -2.2% in GDP in the first quarter (not foreseen by our institutional economists), a decline in the current account deficit to 4.8% in the first quarter (ditto) and the drop in the rand by almost 20% so far this year (ditto again), while the JSE remains one of the worst performing stock markets in the world so far this year.

So far this year the JSE has shown no growth in ZAR terms, while the MSCI Index is up 9.4%, the S&P 500 up by 12%, even the Emerging Market index is up 3.7%. What should one make of these initial, albeit early, signs that investors are not going to hang around to see what could happen?

In a previous column I pointed out that more than 20 000 farms and plots are currently on the market, almost all of them marked down, while the latest figures from FNB reflecting transactions at the deeds office indicate a decline of almost 8% in the number of bonded properties being registered at the deeds office in the first quarter of 2018. I wonder why?

These numbers indicate to me that the state of the residential property market has gone from bad to terrible. Properties now remain on the market for almost six months, and an increasing number are being sold for less than the purchase price.

The balance sheet of millions of middle to upper class property owners are being devastated by this slowly unfolding financial disaster.

The banks, acutely aware of the true state of the residential property market, have warned government that EWC could put the R1.6 trillion outstanding loan book to the property market in danger. We are talking solvency here, ladies and gentlemen. 

At what stage does the normally secretive Bank for International Settlements (BIS) – the central bank of central bankers – issue warnings about the reserve levels of our banks, which are still a centre of excellence, but for how long?

Red flags galore

It’s been a while since I’ve listened to scenario-planner Clem Sunter who, with his concept of warning flags, tries to identify danger areas – flags – that people and investors in particular need to look out for. Many are global, such as the rise of Isis, a possible Korean conflict and so on, but many are local.

Surely by now several red flags must be flapping furiously in the wind.

I have in several columns in the past written about one of my own personal red flags, the brain drain and the capital drain.

According to a recent report from the PEW Institute, an American think tank, more than 900 000 people have emigrated from South Africa since 1990. Countries of choice were the United Kingdom, Australia, Canada and New Zealand.

You can only get into these countries if you have historical family ties, certain qualifications and/or money, lots of it.

At the same time, a total of 4 040 000 people have immigrated to SA, mostly from Mozambique, Zimbabwe, Malawi, Kenya and the DRC. The majority of people from these countries have left their homes and families in search of a better life. Although there are some wealthy people settling in South Africa from other African countries, notably Angola I am told, would it be fair to say that most people in this grouping bring only their limited skills and determination to improve their lives.

The introduction of a national health scheme is just another tax to be added to the already crushing tax burden on ordinary South Africans.

Government seems to think the tax base is like a never-ending font of money. The tax base is already incredibly small, with only 102 000 taxpayers paying almost 60% of all personal income taxes. How much more can this grouping be taxed before they react negatively? Some two weeks ago the New York Times published an article on its website about how Sars officials were so desperate about their revenue targets for the year ending February 28 2018, that they started cold-calling from a list of high-earning taxpayers, literally begging them to pay their taxes on time.

Rush for the exit

The old saying that money is a coward partially explains the sharp rise in the number of high net worth individuals (HNWIs) who are leaving the country. Recently, a research company called New World Wealth (NWW) published a lot of data about the HNWIs in SA, which according to NWW totalled 43 800 at the end of 2017, and conveniently compared this to a number of 43 600 some 10 years ago.

What it didn’t publish was that at the end of 2014 its own numbers reflected the total number of HNWIs in SA at 46 800, which means there was a rush to the exit doors at OR Tambo by people in this category – 5 000 in total. This was counterbalanced by an inflow of 1 800 HNWIs from Africa, mostly Angola and Mozambique, according to Andrew Amoils from NWW. 

Any serious attempt to push through land reform – which will entail the confiscation of commercially valuable land from persons, companies or trusts – will have serious effects, notwithstanding Cyril Ramaphosa’s regular mantra that it will happen without affecting the economy or food supply. He needs to spell out how his four emissaries, who have been tasked with raising $100 billion worth of foreign investments over the next five years, will convince foreign investors to overlook this threat to property rights. With great difficulty, I would suggest.

The western world places great emphasis on property rights.

You will find very few analysts or commentators speaking about these rising threat in our media. There are the exceptions such as Mike Schüssler (economists.co.za), Dawie Roodt (Efficient Group) and Frans Cronje from the Institute of Race Relations.

Cronje has just returned from delivering a lecture at the Cato Institute in Washington where he addressed a grouping of business people and academics, warning about SA’s slide into a socialist utopia, along the lines of Venezuela. Having listened to him a few years ago at the annual SA Quo Vadis seminars hosted by Moneyweb and Brenthurst Wealth, I can state that Cronje’s views on SA’s future have deteriorated significantly

The 2018 series of SA Quo Vadis seminars have just been held countrywide. The focal issue was land reform and its potential impact on property values, the rand, the JSE and the state of the country generally. I have never experienced such sell-out crowds, where white and black were fearful of the future of this country. Not one of the attendees in Pretoria, Johannesburg and Cape Town, would – publicly at least – get up and say that “alles sal regkom”. Moenie worry nie.

Denial is not an investment option anymore. I repeat for the benefit of Moneyweb readers what I said at all of these seminars: if government is prepared to take the populist route in expropriating your property without compensation and dismantling your current entitlement to world-class medical care, how long will it be before it realises that too much money is leaving the country (which it is) and cancels your foreign investment allowance?

That’s when we will be – as the one turkey said to another one a week before Thanksgiving –  “truly stuffed.”

Magnus Heystek is the investment strategist at Brenthurst Wealth. 

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As I have said before: sage advice from Magnus. You are welcome to shoot the messenger but the truth is the truth as much as it hurts. This is probably the last window of opportunity and the next exogenous shock will probably lead to a massive rand depreciation and re imposition of currency controls.

Is South Africa about to fall apart? R.W. Johnson

“Sorry we didn’t make it to you yesterday,” said the delivery man. “We had to come from the other side of the city and there was all that trouble in Mitchell’s Plain. They were stoning the vehicles on the highway and there was a lot of shooting. There was more shooting due to the bus strike too. Today the trouble seems to have shifted to Grassy Park and Hout Bay — we have heard of shooting in both those places but luckily they’re not on our route.”

I nodded — I’d heard about the Mitchell’s Plain trouble but these days civil strife is so common in South Africa that it often doesn’t make the papers at all, only the traffic news, and nobody bothers any more to say what the cause of the trouble is. Instead, it is all put under the general rubric of “service delivery protests”.

What seemed to be the problem, I asked. “Oh, you know how it is,” says the delivery man, who is Coloured. “Some of them say their housing conditions are bad, others are demanding houses or land to build shacks on. That’s what it’s like in the new South Africa, hey? Some people think they will be given property if they just make enough trouble.” A black workman, overhearing this, tells me more bleakly: “What’s happening at Mitchell’s Plain is that the Coloured people and the blacks are fighting one another.”

On April 21 the Kaiser Chiefs soccer team played at the World Cup stadium in Durban — and lost. Their angry fans went on the rampage, burning and looting vehicles and committing some Rand 2.6 million (£150,000) of damage to the stadium itself. On April 1 on the main N3 motorway at Mooi River, more than 100 miles out of Durban, protesters had attacked and burnt 35 large trucks and looted and destroyed a considerable number of other vehicles. This was only a small item in the news and no reason was given for the violence. However, a friend phoned me from the scene, describing a situation of utter chaos. The protest had been against the employment of Zimbabweans as truck-drivers — there is usually a xenophobic element to such troubles — but once the vehicles had been successfully stormed an army of looters joined in. My friend said that the police were just standing watching. When he asked them why they made no move to stop the looting, they had explained that it wouldn’t be safe — some of the looters had guns. This complete passivity on the part of the police is also part of the new normal — it had been just the same at the soccer riot.

President Cyril Ramaphosa had to cut short his attendance at the Commonwealth conference in London to rush back to deal with a huge wave of civil violence in Mahikeng (the old Mafeking) and throughout the North West province, all aimed at trying to get rid of the province’s hated Premier, Supra Mahumapelo. Ramaphosa held meeting after meeting, failed to push Mahumapelo out, and immediately faced a further wave of rioting and arson as a result. Again, it was notable that shops owned by Pakistanis, Somalis and other foreigners were particularly targeted.

Elsewhere land invasions are common and often end in violence with the police using rubber bullets and stun grenades against groups loosely labelled as “protesters”. Land is, indeed, often the heart of the matter — not white-owned agricultural land, despite all the rhetoric about it, but urban land wanted for residential purposes. For many years people have been patient as they hoped for houses. They are patient no more.

How to understand such strife? The sources are complex. Everywhere in independent Africa a small successor elite grabbed all the key political and bureaucratic positions and used them as a source of personal enrichment. There was no parallel in the pre-colonial situation for the gross inequalities that this produced: Leopold Senghor, the President of Senegal, owning a French chateau, Krobo Edusei, one of Nkrumah’s ministers in Ghana, owning a solid gold bed, the Congolese dictator Mobutu becoming one of the world’s richest men. This was achieved, moreover, in bone-poor countries. But when the ANC elite came to power in South Africa they were taking over the richest country on the African continent. The result has been a feeding frenzy which no Senegalese, Ghanaian or Congolese could ever have dreamt of. In a nutshell, the South African black elite has been involved in a vast, continuous party for the last 24 years.
Take, as a very small example, Gengezi Mgidlana, the Secretary to Parliament (i.e. to the Speaker) who, it is now revealed, used his position to acquire a large cash bonus, a study bursary for which he was not qualified, expensive clothes for his wife and himself, and business-class travel for himself and his wife. These he used on a number of foreign trips, most of which seem to have been nothing more than luxury holidays and shopping expeditions, in which he, his wife and friends stayed in top hotels and, at home, enjoyed chauffeured travel in luxury cars, often with blue lights flashing and outriders to emphasise his elite status.

Mgidlana was just a minor functionary, nothing more, but in effect he stole many millions of Rand — such were the resources available that even a minor functionary could steal for years without detection. And every cent of it has gone on conspicuous consumption, thus proving what a Big Man Mgidlana is or was. This is a perfect microcosm of what has happened with the South African black elite. Among the many billions thus peculated perhaps the most shocking thing is how few assets have been acquired.

The corruption took off under Nelson Mandela, accelerated under Thabo Mbeki and reached its current apogee under Jacob Zuma. What was different about Zuma was that the President himself set out quite openly to enrich himself and his family, that in return for kickbacks he allowed the state to be captured by an Indian immigrant family, the Guptas, and that corruption became systemic. Every town, every city, every province, every nationalised industry and every government department became a patchwork of interlocking rackets and patronage networks, often criminally enforced. Those brave enough to blow the whistle on what was going on were, quite normally, assassinated. But the fruits of office were universally known so that not infrequently even figures as lowly as town councillors were murdered by rivals eager to get their hands on contracts and tenders. Even the teachers’ union regularly sold teaching jobs, and the whistleblowers there too were sometimes murdered, for a thriving hit-man racket has sprung up and “contracts” to terminate witnesses are relatively cheap.

Zuma’s South Africa resembled a feudal kingdom with the monarch at its head. Beneath Zuma served the great bosses of the cabinet and the nationalised industries, each of whom controlled lucrative patronage networks. Political control was assured by what was known as “the Premier league”, the Premiers of KwaZulu-Natal, the North West, Mpumalanga and the Free State. Exactly like a feudal monarch, Zuma would maintain each of them in office in return for tribute and their solid support at party conferences. The Premiers would then be free to loot their province and to exercise patronage networks of their own, running down to the mayors of all their province’s towns, who in turn would be free to loot their towns provided they repaid the Premier with tribute and solid political support. Naturally, the Premier league was in bed with the Guptas as well.
One could see the results of this system not only in large cities like Johannesburg or Pretoria, where hundreds of ANC activists would be on the municipal payrolls but never came in to work and where contracts, tenders, pension funds and appointments would all lie within the patronage system, but even in the smallest country towns and districts. In the bone-poor towns of the Eastern Cape, for example, one finds over and over again that almost the whole of the municipal budget is spent on the salaries and perks of the mayor and councillors, comfortable men driving around in Mercedes, while nothing is left for capital expenditure or even for maintenance. The result is that these towns are visibly falling to pieces.

This blight now affects large parts of rural and small town South Africa: one finds potholed roads, water and electricity shortages as infrastructure is allowed to decay, and polluted rivers and lagoons because corrective measures are no longer applied. Everywhere the money for infrastructure and maintenance has simply been stolen.

A friend who owns a hotel business on the KwaZulu-Natal south coast told me how he had approached his bank to secure a loan to expand his thriving business. The bank refused, quoting their own confidential intelligence that the entire infrastructure of the lower south coast would collapse in around five years. My friend responded by tarring his own road, installing huge generators and building his own fresh water reservoir — just in time, as power cuts, water cut-offs and potholed roads have since become endemic in the area. Rival hotels in the area have been badly hit, but he continues to thrive only because he has become almost completely self-sufficient. The same situation now applies in much of rural South Africa, but few can afford such self-sufficiency.

The black bourgeoisie has been so caught up in this frenzy of enrichissez-vous that for all its notional ideological commitment to the ideas of the Left, the interests of the mass of the population have simply been ignored. In large areas of life things have gone backwards. Even former anti-apartheid activists agree that the state schools were better under apartheid, as were the hospitals, that law and order was much better maintained and there was a lot less corruption. Perhaps most striking of all, when the ANC came to power in 1994, their posters proclaiming “Jobs, jobs, jobs”, there were 3.7 million unemployed. Today there are 9.4 million.

Inevitably, the always very unequal society of the apartheid era has become a whole lot more unequal as the black elite claims more and more resources for itself. Nobody regrets the demise of apartheid and certainly no one wants it back again. But the sad truth is that its successor regime has not just failed to govern well: it has failed to preserve its own sense of national purpose from dissolving into a vast myriad of contending local and personal interests.
On the ground the result is that after 24 years of empty promises the black and Coloured rank and file have simply had enough. For the last five years per capita incomes have been dropping while poverty, inequality and unemployment grow. People feel enraged at the sight of elite corruption and they have also inherited the struggle tradition: if you feel angry, march, stone vehicles, burn tyres, burn buses — it’s the one certain way to get people’s attention. But such activity is now almost invariably accompanied by looting. Any large-scale protest march by strikers, by the trade union or by Julius Malema’s Economic Freedom Fighters now resembles a medieval army, with a following host of scroungers eager to pillage the battlefield once the fighting is over. In the modern South African case large demonstrations will inevitably have a tail of street people who loot and vandalise as they clean up behind.

It’s hard to interpret this situation. It feels as if the country is beginning to unravel, that it is slipping towards ungovernability. Perhaps it can still be pulled back together but nothing is certain. One should not forget that the different territories which make up this country were only forged into one by dint of the British force of arms: South Africa was not, so to speak, a natural country. Its future national unity cannot be taken for granted.

Enter Cyril Ramaphosa, stage right. He is in a weak position, coming from a small minority tribe, and without a significant base. He was elected by only the slimmest of margins because David Mabuza, alleged to be one of the most corrupt bosses of the Premier League, came over to his side at the last moment — and was rewarded with the deputy presidency. Ace Magashule, the equally controversial Premier of the Free State, became the ANC’s secretary-general. So Ramaphosa is hedged in on both sides by some of the worst elements of the old Zuma regime.

Under that regime, Premiers were like feudal barons, free to loot their fiefdoms. Only if they went too far and caused a peasant insurrection against them, would the king step in. And that is pretty much what has indeed happened in the North West province where the corrupt and oppressive Premier, Supra Mahumapelo, is clearly about to be forced out. Ramaphosa would doubtless have liked to see him gone some time ago but the leadership group around him are worried that this might start a chain reaction in other provinces. Magashule has deliberately hindered the investigation into Mahumapelo (the consultative meetings with local officials were often held in remote and sometimes lion-ridden places, gatekeepers kept many relevant people out, etc) and also openly opposed the VAT increase just decreed by the government. Ramaphosa seems powerless to discipline him.

For the reality is that the ANC is still honeycombed with corrupt placemen entirely willing to fight their corner to keep their rackets going and Ramaphosa is far too weak to carry out the general purge that many would like to see. Indeed, in the ANC’s biggest province, KwaZulu-Natal, Zuma has dug in and is playing the Zulu card for all it is worth, with his supporters angrily protesting against the fact that their leader will soon be brought to trial for corruption. They blame Ramaphosa for having forced Zuma’s resignation and angrily insist that they will force Ramaphosa out too before long. Some are even suggesting secession from the centre by the KwaZulu-Natal ANC.
Faced with this sea of troubles Ramaphosa’s main initiative has been to launch a campaign to attract $100 billion in foreign investment. He is certainly right to see economic growth as the essential means to get out of the current mess, the other necessary elements being a thorough purge of corrupt elements and a large programme of infrastructural investment.

The trouble is that foreign investors are hardly clamouring to pour their money into a country that is in such a mess and which, according to the US State Department, is among the world’s top ten most anti-American countries, judged by UN votes. Most businessmen would like to see evidence of some tough-minded market-friendly reforms before risking their cash. But Ramaphosa is too weak to carry out such reforms even if he wanted to.

At present he is trying to talk up the economy — which, as Larry Summers argued some time ago, is the very cheapest form of economic stimulus. Most predict that this will only produce growth of 2 per cent or less, in which case the country will drag along much as now. The sad irony is that Ramaphosa is probably the best President that the ANC has yet produced. But he has taken power at a juncture when the cumulative mistakes and squandered opportunities of ANC rule have not only become a crushing burden but have largely worn out the patience and public support on which the party has depended until now.

Violin – Congratulations with the longest comment ever posted by any commentator to any Moneyweb article, in the history of MW.

The Western Cape must hive off and secede.

We must regain control of our borders.

Note, this isn’t my article, it’s by RW Johnson, the only reason I’ve posted it is because you won’t find it anywhere in mainstream SA media. IF you want to find the article, just copy the intro sentence and search on Google.

Sheesh…do you have a one liner for what you just wrote?? Basically “we are f*ck*d”!

@pacaratac

It’s time to give the Cape Party more support, it seems.

@Step.

That may well be a start to getting other parties taking seccesion seriously.

It will be expensive but as in Brexit, may be the only way to ensure a civilized survival of a part of what was once South Africa.

South Africa is dead; Cyril, EWC and the NHI have delivered the last rites.

What Magnus is describing also ammounts to destruction of the middle class. Under NHS the wealthy must may for the poor. They already pay their taxes. Just because some can afford medical aid it does not make them wealthy. Only in a communist utopia they can be considered wealthy.

When did we not have a “Bad Moon” of some sort in South Africa?

South Africa has a lot to offer, most people reading or writing these articles have jobs? that is already better than in most countries.

SA’s unemployment rate is ridiculously high. What on earth are you trying to say?

I would love to see all the pessimists in this blog around a table having a discussion.

We are all aware of the challenges facing the country and so is the new government administration.

I am sure that President Ramaphosa puts in more working hours a day than most people on this blog.

One of the bloggers here mentioned a hyperlink to offshore services?

Please provide the hyperlink?

@TheSpeculator : First you try deny huge problems facing SA and its ‘snake in a suit’ Pres Ramaphosa

Then in your next post you ask for a link to ‘offshore services’

Talk about hypocritical !

Thanks for your article, always look forward to it.
I can see you spend time and put research into them.
Really makes you think about any rapids ahead!

Moody’s is watching!! Get ready for the interest rate cycle to kick into FULL gear!! Home bonds 14 % in the next 18 – 24 months.

Exactly Jim M, that’s what I’m worried about. Just imagine the fall in property values at those rates (or even higher 🙁

Am surprised that the interest rates (and hence local inflation) is still holding up so well.

If you want to see a live exhibition of the future he is talking about, there is one daily in Lagos, Luanda and Dar es Salaam. I have been to all three and it clearly an eye opener. Such misery, mismanagement and suffering of the general population is truely sad. In Angola there is not even one public hospital. If you are sick you die. But the Dos Santos family are billionaires.

“Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.” Winston Churchill,and
“An appeaser is one who feeds a crocodile, hoping it will eat him last.” also Winston Churchill…..
Oh, how will “we” go about reminding a seemingly rational, reasonable individual like CR of these truths? Because
“The truth is incontrovertible. Malice may attack it, ignorance may deride it, but in the end, there it is.” Sorry – it’s him again.
Magnus for president! (he’ll make a decent trump for this desperate hour!!)

SA needs a hero and a leader. A true one; not a media made non-event like mandela.

Is there anyone?

Not even Batman can clear up this mob. And even if he could there’ll be no electricity to shine the batsignal, nor a police officer dedicated enough to do it.

The default status for any business is bankruptcy. It requires great skill, determination and focus, on an ongoing basis, to save a business from bankruptcy. The default status for a country is anarchy, poverty, the implosion of infrastructure, hyper-inflation of the currency, and eventually famine. A business without competent management, and a country without competent leaders, trend towards the default status.

Being a socialist organisation, “the accountability lies with the collective” for the ANC. This implies that the voting majority, who are unemployed with no education or skills, are actually in charge of policy and execution. Clueless voters who do not realize that they are the managers of the economy, are in charge.

In the same way the value of assets of a company is the reflection of the mindset of the owners and management, the infrastructure and level of service delivery in a democracy is only a reflection of the mindset of the average voter.

Now if you are able to determine the mindset and the relative level of sophistication of the average voter, you will be able to anticipate the eventual status of infrastructure and service delivery in South Africa. It is not rocket science. You do not need a PhD in Political Economy to figure it out. The process is absolutely logical and predictable. This unavoidable outcome is basically guaranteed by the Constitution.

If a country is a constitutional democracy, and the majority of voters in that country are unemployed, uneducated and suffer from the victim complex, the destruction of infrastructure and service delivery is basically baked into the cake. The topping of this cake is hyper-inflation of the currency.

@sensei
Bravo. Must have re-read your comment at least five times over the last two weeks. The logic is incontrovertible.

One small correction, dear MW readers. The percentage of taxpayers paying 61% of all personal income tax —the 1% of taxpayers earning more than R500 000 per annum–totals about 800 000. The 102 000 taxpayers referred to in article pay 12% of all PIT. Apologies.
(Source: Rollingalpha; SARS).

mmmm.. can’t be. Must be 80,000 making up 1%, otherwise we have 80 million taxpayers?

Magnus you may want to check your statement on Transnet as well. For one I think your are referring to Prasa.
On a different matter referring to Farms and plots and residential properties in the same paeagragh may confuse matters.
We are heading for tough times on all asset classes

Magnus, you mention something that worries me: how long will our local banks continue to remain “centers of excellence”?

(It’s no use representatives from local banks puts the public at ease, about their current capital adequacy, solid management, etc. Yes…that applies to NOW. And 10-20 yrs down the line…??)

I think S’Africans in the know, should place all their retirement & discretionary investments directly offshore & their debt (house/car) at local banks.

Socialism works, and I think that South Africa has been able to achieve equality.

Equality has been achieved only in the sense that everyone is equal in his or her misery.

I agree brother…socialism works extremely well: so that everyone’s life can becomes EQUALLY KAK!

(Socialism, hasn’t as yet achieved much in SA. The gap between poor and the wealthy remains large. But don’t worry….give some of us time to leave SA, and then what remains will be more or less equally dire.)

Magnus you are the bollocks! The writing is on the wall indeed and you have spelled it out factually and succinctly – no one can argue with that.
However, you did forget to include a hyperlink to your offshore services

offshore services???

Thank you Angelo for that bit of very useful information.

Myself and many others have been asking why such negative articles.

Magnus, so are you in the process of retrenching all your staff and moving to Mauritius? I agree SA has huge (almost insurmountable) issues. However I don’t think we should lose sight of Cyril’s efforts. I has actually achieved a fair bit given the cards he was dealt. I wonder how well you would do in his situation? Its always easy to criticise from the sidelines.

While MH is talking his own book, you’re being somewhat harsh. There is a need for expat services and as such can generate a return – his business is invested here and provides a good income and jobs. As such, no I doubt you would just close up shop at this stage.

What you would do is to weigh his advice, and decide to invest your money outside SA, or to take a look at your personal situation and decide with the resources at your disposal where is the best place to invest/live. That may be SA, or if you have small children it might be somewhere that you get better public schooling and security, why not. It also might be to live here, because you have a good lifestyle and have hope that SA will continue to improve.

Interesting article. Are we still a democracy? Why would the majority of SA be unhappy if it’s going in the direction they’re planning and voting for? If the government is making choices that cause suffering for its populace why are we not switching?

I think it’s that the readers of Moneyweb/MH are in the minority, and as such our future may need to diverge from the future of SA… ie those with means will become expats in their own country with majority of wealth offshore. Eventually you relocate in another location more in line with your ideals.

Hi Magnus
I have noticed how critical you are of South Africa. May i ask ask why you have not yet left the country?

Dear Zama -suggest you ask your school fees back because obviously you do not understand the article. Truth hurts. Oh wait- education is for free.No wonder then.

Zama was one of those that were burning down the schools, hence the ignorance.

There is a difference between being physically present in a country and financially present in a country, many people tend to go and live in countries funny enough like SA because its cheap* (or well it was not so much anymore) but keep their assets somewhere where they feel they will appreciate in value and seen as a “good investment”, so he might physically be present but his wealth as long boarded for greener pastures.

Not critical of SA.

Critical of the ANC and it’s abysmal failures.

He’s probably a patriot. Out of curiosity why cant you contribute anything besides for attacks on the author and not what he’s got to say?

because dimbulb some of us who dislike the the destruction of SA by YOUR govt.
still find small sanctuaries of sanity amongst the mess Azania has become.

I see you work at Old Mutual, if you are in fact the same Zama Dikana.

Do you disagree with what has been written, or do you believe everything is going fine with this country? Especially being in the finance industry, dealing with this type of information on a daily basis? Things are not ok, and if it’s not magnus, there are plenty of other people who are critical.

Go to any (“openly democratic”) country in the world, and there are always people and opposition who are critical of the ruling party. I bet they aren’t asked why they still live in the country? They are critical because they are providing their opinions, and those opinions are usually backed up with facts, to make their arguments more substantial.

Where a person chooses to live should not influence their opinion. In fact, for Magnus still living and working in SA gives him even more credibility to be critical of SA.

@Zama:…..typical response from the ANC supporter masses…..reveal any shortcomings of those incompetent thugs in power and you get asked ‘why havent you left the country”

Huh ???

Seriously,…its this kind of prevalent attitude that allows this treachery to thrive

Sad sad sad

Dit is soos Shane gesing het, ‘n klompie jare terug ” Die land is in sy moer”

Agreed, but one question lingers. Why is Magnus Heystek still in South Africa ? I would have left if I was him ?!!?

His money has definitely left the country by now.

The bad moon was the ANC, especially since Tabo Mbheki took over from Nelson and it has gone from bad to worse under Zuma.

The ANC may have even kept the sun from ever shining again.

Do you think the likes of Gordhan, Manual and others in the inner circle will sit quietly on the side and watch things fall apart?

Just to clarify, to you mean “start falling apart” or “the last bit falling apart before there is nothing left”. One has to try and stay positive if you live here, but things are not looking good. As long as you have plan for the harder times, then I guess one is doing something proactive whilst living here.

They have done that since 1990.

What will get them going now?

They have been watching it all fall apart for years and done nothing!

Off topic, on democracy, Socrates was not in favour of democracy saying that
voting in an election is a skill, not a random intuition. And like any skill, it needs to be taught systematically to people. “Letting the citizenry vote without an education is as irresponsible as putting them in charge of a trireme sailing to Samos in a storm!”
Our situation is worse than that, the majority of voters here have no education and believe what they are told i.e. unless you vote for the ANC your ancestors will be angry. So what we have is Voodoo democracy!
Amazingly, in spite of this and 24 years of continuous government failures and theft with no consequences, there are still optimists left in our emaciated country. Like religion, facts are ignored, thinking is not required and neither is education, just blind faith and obedience.

See the need for a place to store your value in a decentralized uncensored network yet?

No?
Continue on then.

Wiekey History
Caesar Cyrilius Ramaphosos IV…leader of the Ponzi clan..a clan that plundered and looted until nothing remained…loyal only to Emperor Jakus Zumos…

I am just surprised that more people are not seeing th writing on the wall. Time to get your money out of the country is now. When the paw paw hits the fan the rand depreciation would have wiped out your hard currency net worth.

Free education + NHI + land expropriation will be the deathknell of SA. SA media much too busy writing rambling op-eds about identity politics.

Yep the identity politics debates are completely frivolous against the backdrop of this looming economic disaster.

The only honest and therefore relevant article in the entire mainstream media. Our media resembles the very poor state of our country.

For most people emigration is not an option. You need a huge amount of money to be anything close to middle class in most 1st world countries. You have to find a good paying job (much tougher than you think). Your standard of living WILL drop (despite what all the emigration consultants tell you). The cost of living is significantly higher on other countries. You will probably pay of your house for the rest of your life. Other countries have their own problems (travel and do you research).

The middle class is being gouged in SA as much as anywhere else.

If you look a bit further afield than the usual emigration destinations, the world is a big place indeed.

It also depends what you mean by standard of living. If you mean servants for a pittance, a large house, overseas holidays and so on, that’s beyond most “middle class” citizens’ reach in SA as well.

Almost every friend I have who’s emigrated has thrived in their new countries. South Africans of all hues mostly do very well in their new homes. The ones who don’t often have unrealistic expectations of it.

What price a future for your kids?
What price a tertiary education at a reputable institution for them?
What price your access to them when they’re adults (they WILL leave SA thanks to heinous racist employment laws and lack of opportunity).

We simply have to face these realities now that we know the idea of a united South Africa or “rainbow nation” is a unicorn, a dream that will never be realized.

Fortunately in this age of connectivity you can do huge amounts of research on Google, YouTube and Facebook about the realities of moving.

With all due respect I think your opinion about emigration reflects a South African mindset from around twenty years ago.

People are worried about missing a boat that has already sailed.

Dear Worlds_Smallest_Violin. Its just my opinion and you don;t have to agree with it. I have visited about 32 countries to date. If you really want to see 1st world countries then travel to Scandinavia and Switzerland. I also have friends that have emigrated (shock horror). Some do well and some don’t (so please don’t generalize). I’m not naive – If you have the right skill set or lots of money you can have a great life somewhere else, if not you will struggle. Youth unemployment is rising across the globe. In developed countries most young people have degrees, some have 2 or 3. That’s your competition. Private universities are hugely expenses overseas – Unless you go to a country with free tertiary education but then the tax you pay will be enormous. But to each his own – As for low unemployment in the developed markets – See what happens to the fairy tale when rates start rising…

You need to evaluate two investments

(a) there is a 80% probality that you get an inflation adjusted return of 6% pa for the next 30 years and a 20% probability that you lose everything.

(b) 100% probability that you generate an inflation adjusted return of 5%

Which one would you chose? At the moment you are choosing option A.

I think we can agree that:

(a) The living standard of white Saffas are unmatched and there are significant downside to emigrating

(b) The risk of things going pearshaped in SA exists and is increasing.

Expected return of both is 5%, but option A is the riskier bet.

I think that otherwise risk averse people are making emotional choices about their future. People who typically opt for a low equity balanced fund because they cannot stomach market volatility are in effect betting their life savings and the future of their children on a junior miner with declining profits and a history of poor management (my somewhat forced metaphore for SA).

If you believe the excess returns you get in SA justifies the risk that you are taking then you are making teh right choice. If you base you decision solely on the excess returns you get in SA, without considering the additional risk you should do a bit more work.

“(a) The living standard of white Saffas are unmatched and there are significant downside to emigrating”

Even this statement has lost a lot of its shine the last 3 years, I was in the US a couple of months ago for about a month, and I spent most of my time in the known but not spectacular cities as well as small towns (E.g Atlanta, Houston, San Antonio, Auburn, Denver)

Fuel in the south was generally around R7-8 per liter, you can buy a niceish apartment in these places for around 70-100K USD (So R1M-R1.4 for a flat, some people in Cape Town would kill for that)
Cars, way cheaper.
Electronics way cheaper.
Taxes, If you live in Texas there is no state income tax, and if your a middle class guy in the USD 91901-191650 bracket you are taxed at 25%
Takeout isn’t cheap, but not stupid expensive like in Scandinavian countries.

And then we are not even talking about Eastern Europe.

Gee, I’m not saying don’t emigrate! I’m saying for most people its not that easy! The average salary in the US is about 60k – You will be very lucky to earn close to a 100k. Yes cars and fuel is really cheap (far less taxes). For a young couple its def an option (not disputing that at all). But you still have to secure a job in a market where you are the outsider and you have to buy a house in a decent suburb to get into a decent school and the decent school will allow you to apply to a decent (very expensive university). The wealth in the USA is staggering. Even if you earn an above average salary you will never catch up with the really wealth in the USA.

Gemini, I may not have travelled to as many countries as you but I have been to more than 15 and my viewpoint differs. Please don’t resort to that appeal to authority fallacy.

I agree when you say different people will have different outcomes based on their skill and wealth and age if they emigrate. However you’re also using blanket groupings and vague generalisations in a manner I don’t agree with to advance your point. You’re also only highlighting certain expensive locations, not expanding on the nuance of the costs of living in places and not offering any proper insight into the process of emigration and settling in that you have put yourself forward inadvertently as knowing.

I’ve emigrated with my family to Brisbane. Was it difficult at first and did our standard of living and earnings fall? Yes. Was it difficult initially to find work? Yes. Was our wealth effectively shrunk by moving it? Yes.

Yet less than two years later and we’re earning more, have a bigger place than before and have almost already recovered all the costs of emigrating. Why?

Some of the insights I offer are such:
– You need to get local work experience and prove yourself in the eyes of Australian employers so you do start lower than you were. Expats here, including other nationalities, joke that we all have to go through our ‘One Year of Ozzie service’ and then our salary prospects jumped. I also played the looking for work game correctly and patiently. Further, the vast majority of committed emigrants do find work within the space of three months.

And is it hopeless if you don’t have a fancy CA qualification or BSc in advanced computer science? No – they’re itching for those like plumbers, electricians and the boys like here.

So time and smart hard work can certainly change ones initial situation.

I also found work quicker than in SA with its AA and BEE requirements.
– Bringing Rands and the subconscious Saffer cost expectations did make things seem horrifyingly expensive at first but once we started earning local currency the cost of things strangely almost immediately made more sense. Sure, a loaf of bread can cost roughly R40, which sounds crazy back in SA but my private medical aid costs are a third of what I was paying Discovery in turn. The list goes on.
– Education here is simply far, far better. We are on Permanent Residency so we do get more entitlements but for our oldest next year we have to choose between two schools – one public and one semi-public (for a more religious-value background). They both have iPads for each child, less than twenty kids to a teacher. Skilled teachers with Honours and years of experience each. Their outcomes are excellent too. We couldn’t get that in SA as we would never have afforded it in SA.
– Universities are indeed horrifically expensive in Rands but in AUD for those with PR or citizenship it’s actually affordable. The degree are also from institutions that are ranked in the top 100 of the world. Not just under 400th at best and slipping.
– Taxes are much lower here and we’re entitled to some of the public benefits (in a sense some of our own taxes paid) that we didn’t get in SA. The 10% Sales Tax and effective income tax rate of 25% are very nice.
– Property is expensive but not everywhere. Sydney is indeed beyond our means but that didn’t mean Brisbane was as well.

I could go on but the one thing I notice too is that you’re fuelling your words with fear. Implying that it’s too hard to emigrate, it’s too hard, people won’t cope, most will fail – so don’t even try. That’s awfully close to the sense of hopelessness others here are expressing. I say no – look into yourself and you can do better.

It’s true then that one has to have the right attitude to emigrate successfully. Three key factors in failing to emigrate and returning to SA are: not having the right expectations (E.g. I want my maid to clean up after me at home); not doing your research (we went to Brisbane on the back of our research and studied the job market before deciding) ; and not having the strong commitment to follow through/having a negative attitude.

I mean even when we went to Brisbane we were being scolded that its job market is terrible. What a surprise to find it more bountiful than in SA. Again – research, commitment and work. As for luck I tend to believe the harder you work the luckier you get (if you take your opportunities).

Ultimately you may want others to stay in SA because you don’t want to see them go but I am not convinced by your reasoning.

Well done to you and the best of luck for the future. This make so much more sense to me than the unjustified, unthinking “positivity” of the anti-emigration brigade in SA.

To each his own – I never said don’t emigrate (clearly it takes time to sink in). If you actually took the time to read Walker’s reply its not that easy and dependent on the mindset of the person emigrating and doing your homework before you leave.I still stick to my view (and everyone is entitled to their own views)that emigration is not that easy. If you have the right skills or enough money it is an option. And yes, its terribly hard to see friends go (and I suppose i’m being a bit is a bit selfish in a way). But this forum should be about balanced views and everyone has the right to express him/her self. There is no need to be nasty if my views differs from yours. The cost of living/salaries etc varies wildly. I’m really glad its worked out so well for Walker but I have also heard of cases where it has not. Que Sera,Sera

Unfortunately true, but doesn’t make experiencing one’s own country disintegrate any easier or satisfying.

On cost of living, Here is some insight into what things cost, in one of the most expensive states in the US where I have been for the past 10 years.

Just for interest sake…..

Water/Storm drain:$120 pm
Gas/Elect:$200pm
VW Golf 2.5: $280pm
Car Insurance: $60pm (one car)
Petrol per gallon: $3.30
Oil change labor: $20
5.7L dodge ram “bakkie”: $45,000
5.7L dodge ram payment: $500pm
5 bedroom house: $2200pm
2 Bedroom apartment with appliances: $1200
Home Insurance: $200pm
Expensive loaf of bread: $5
Cheap loaf of bread: $1.50
Box of Rice Crispies: $3
Pizza-large:$15
2l coke: $2
Bottle rum: $20
Expensive white wine:$25
Good white wine: $15
Cheap white wine: $5
House cleaning for 2 hours: $100
Typical grocery cost for family of 6: $800pm
Avg Tax Rate for middle class: 20%
Public school: $0
Expensive Lunch: $8pp
Cheap lunch: $8pp
Grassfed beef: $5 per pound
Decent Queen mattres: $500
Min wage: $12ph

Admin clerk salary: $50K/year
Dept store floor worker: $60k/year
Marketing admin:$60k/ year
IT tecnician: $70k/year
IT Developer: $120k
Manager:$130K
Director:$150K
VP:$200K
Plumber/electricians: Dont get me started. Our last electrician drove a corvette!

I have never seen so much negativity!

It is not all doom and gloom as some people portray it.

There is a lot of good in South Africa, starting by its people.

I often hear how great the people of SA are in response to what a mess the country is.

Are we really that great, compared to any other nations?

After all, who are the ones that provide the corrupt politicians or vote for them? Who are all the burglars, muggers, murderers and rapists, the litterers, the racists, or the ones that burn trains or evade tax? Who provides the sullen, slow service one usually gets or the arrogant, dangerous or even drunken drivers? Who are doing the violent protests or calling for cutting the throat of other sections of the populations, or supporting those people? Who are the uncaring overpaid civil servants?

IMO having travelled a lot and lived overseas, the people of SA are not that great.

Just as Julius the proclaimed commander in chief of the “EFF-IE” party said “not all, but the majority”

Yes, there are great South Africans. The problem is that they are a very small
percentage of the population and they are being exploited to the extreme with taxes and overwhelmed by the avalanche of government disasters. As I posted elsewhere, it’s amazing that we have any optimists left, perhaps they are simply uninformed about the state of the country or do not comprehend the scale of the disintegration.

@TheSpeculator…wrote “I have never seen so much negativity!

Famous last words of the captain of the Titanic

ANC will be in a coalition come 2019. Even populist rhetoric wont save them.

Australia,NZ,UK,USA, Canada are not another version of SA, remember that. Be prepared to roll up your sleeves, get your hands dirty & hit the ground running.Your entire family will have to do all the housework,since domestics are hugely expensive there.And unless you have a very scarce skill don’t expect to earn a fortune like here.And by the way, the wife will have to work as well if you want to pay off the mortgage.

The tragedy is that the individuals at the helm of this NHI hair brained scheme are totally devoid of all logic, incapable of learning from similar catastrophies around the world and are hell bent on only getting back into their ivory towers at any cost. Who are the victims? The poor, as if they are not suffering enough.

It saddens me to say, South Africa is fast becoming Zimbabwe#2.

The destruction of this country (by the ANC) and the waste of one of the greatest opportunities ever will in future be regarded as one of the greatest tragedies of this century.

Colson, your quote should be the quote of the century.

I’m amazed at most comments. Surely it must be clear that MH is talking from an investment perspective !?

I too try to only invest offshore because of many reasons listed by MH

Still, i live in SA, love my country and family and our nature. I help the poor and try to help to make things better.

But investments…naa…not SA. I go where my money, which i save for myself/family and for charity, will grow.

Is that a sin?

Quick question. How many people are reading Magnus articles on MoneyWeb and hoping the situation change so that they can come back to South Africa as they planned for almost every year for the last few years? The problem being early to react out of SA means I must wait the longest before I can come back.
While my friends are still enjoying, potentially the very last moments, of an amazing life in the Western Cape.
I am ready and waiting, the first signs of a momentum shift I am back in SA. I still have 30 odd years to work and help rebuild. Till then, we are tourist in December & January.

So Ramapadda has just gone and announced that NO black land will be expropriated, only that of people of other race groups. How will the 4 Wise Emissaries being sent into the world, explain THAT to potential foreigners. If they still invest in SA, then they are equally racist and supporting white genocide.

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