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Sleepwalking to a financial collapse?

SA would do well to look to the East for some inspiration.

Travelling to far shores should be one of the most satisfying personal pursuits known to man. And so it still is.

But returning recently from a two-week trip to attend amongst others two investment seminars — the one in Singapore and the other in Tokyo—organised by Investec Asset Management, I was filled with a deep sense of foreboding for our country.

The seminars at which investment gurus from Blackrock, Morningstar and other top investment firms addressed a small group of South African financial advisors focused on China, India, Japan and the Asian countries. South Africa was only mentioned in passing and often in terms of a comparison of what we should be doing and are not.

From the moment you board Air Singapore (landing 11 hours later at the Changi Airport) you are in another world. No, that’s not true. Japan is another world in terms of its language, culture and customs. More about that later.

Singapore on the other hand is on another planet in terms of efficiency, delivery, friendliness and cleanliness.

Singapore, whose enigmatic and farsighted leader Lee Kuan Yew died earlier this year, is celebrating its 50th year of independence. First it became independent from British rule in 1959 and then it broke away from its short-lived coalition with Malaysia as an independent city-state in 1965.

There are many parallels with South Africa. Both broke loose from British colonial rule at the same time. SA went its disastrous route in terms of apartheid. Singapore, guided and inspired by Kuan Yew set out to become the most modern city-state (its total land area is about a third of Johannesburg) in the world.

No natural resources

Singapore, situated in a tropical swamp, has no natural resources. Its major asset is its port in a very strategic position in terms of trade between east and west. It grew its economy in 50 years by focusing on trade, port services, financial services and more recently tourism and air travel. Changi Airport, for instance, receives 50 million visitors per year and the plan is to push that up to 70 million in the next couple of years. Singapore only has 5 million people and no unemployment.

Singapore’s largest export item is refined oil, yet it doesn’t have any oil. How is that? It refines a great deal of the oil found in the Far East cheaper and quicker than anyone else. That’s why when standing on the top floor of the Marina Bay Sands hotel – the one with a 150 metre rim flow pool on the top floor – all you can see as far as the eye stretches, are tankers waiting to offload crude oil and pick up the refined oil.

All the stories you hear about Singapore and chewing gum are true, Not only is it an offence to chew gum, but is it not to be found anywhere on the island. This magnificent city is spotlessly clean and you very soon start to think and act like a long-standing Singaporean.

You don’t dream of dropping any litter and any rubbish you might have is automatically sorted in many paper, plastic and glass bins. The Singaporean economy should see growth of around 5% this year, and the GDP per capita, which used to be half of South Africa 30 years ago, has grown to $83 000 or more than five times that of South Africa.

The work ethic is astounding. On returning from a dinner in the financial centre at 11 pm one evening, we noticed all the lights still burning in the gleaming office buildings of Deutsche Bank, HSBC and a host of other financial names not familiar to South Africans.

On quizzing our tour guide on why this was so, we were told people were still working and that they were about to knock off for the day. Very soon thereafter the pavements were filled with people heading in every direction, either to bars, cafes or train stations. It was not uncommon to see dark-suited businessmen and women with attaché cases using bicycles as their mode of transport. Motor vehicles are only for the very rich and, apart from the huge cost of getting a licence, all cars are automatically scrapped after 10 years. No question about the condition: they’re scrapped by law.

Japan awakes

And then on to Japan – still the world’s third-largest economy.  The country is busy with its own form of quantitative easing known as Abenomics, to stimulate its moribund economy after a 20-year slump.

And it seems to be working. Growth in the first quarter this year was just under 2% annualised. It is heading higher and there is even a glimmer of hope for inflation in the economy. The Japan stock market is up 20% in the past 12 months.

At an investment seminar held at a building overlooking the Japan Central Bank, we were told that the Japanese business world is also busy doing its part in terms of running companies on a more Western basis. There is a greater focus on corporate governance and the appointment of outside directors to boards, to name just a few.

Japan is like no other country I’ve been to. I don’t for a second try and pretend to even scratch the surface of this fascinating place, but the little I learnt left a lasting impression. If Singapore took your breath away in terms of its modernity, architecture and efficiency then Japan left you with a deep desire to know more about its culture and rituals.

It is a country of rituals where serving and drinking tea can take more than 30 minutes. Or where the pre-amble and warm up to a sumo match can also take up to 20 minutes before, in whirl of massive flailing arms and legs, the actual confrontation is over in seconds. It’s very rare for a sumo match to last longer than 10 seconds.

You cannot discuss the outlook for any Asian economy without analysing what is happening in China, that great lumbering hulk of a country overshadowing all its neighbours.

China, for instance, used more cement in the past three years than the USA used over the last one hundred years! There are 18 cities with a population of more than 10 million people, most built in the last ten years.

For 18 of the past 20 centuries China was the largest economy in the world and it is just a matter of time before it regains this spot. Talk of a collapse in China is unfounded and misplaced.

The Chinese dragon awakes

The Chinese stock market has more than doubled over the past 12 months and this is considered to be a forerunner of things to come.

There are two huge events that are about to unfold over the next months and years.

First, there is the high probability that the Chinese renminbi could be included as one of the reserve currencies of the International Monetary Fund (IMF) and World Bank in October. The current four currencies are the US dollar, the euro, the British pound and the yen.

The second and perhaps even more dramatic likely development, is that the Chinese equity and bond-market could be included into global indices used by pension funds and institutional markets later this year or sometime next year.

China is currently included only in the regional indices and a move into the global indices would, in the view of the presenters, be a game-changing event for Chinese equities and bonds. Global pension funds and fund managers would have to massively increase their holdings into Chinese stocks and bonds over the next couple of years.

Back to Zuma and his antics

Why would such a trip make one depressed on your return?

While leaders in countries like Singapore, India, China and Japan, to name just a few, are doing everything in their power to get economic stumbling blocks out of the way in order to accelerate economic growth, back in SA our leaders are doing everything to block economic growth.

If it’s not the new BEE-codes, affirmative action, visa regulations, land reform and strikes, it’s the dithering about Eskom, for example.

Heaven forbid, poor old retired ex-world champion boxer Dingaan Thobela found himself arrested by our ‘elite’ crime-fighting unit the Hawks for not being registered at the Financial Services Board. What a silly waste of precious resources.

Thobela, no doubt, sells funeral policies and in terms of the Fais Act he has to be registered and should have passed the exams….

Add to that the deeply revolting spectacle of our President, Jacob Zuma, actually mocking Parliament and the country with his “Nkandla, Nkandla Nkandla…parody in Parliament last week.

The sharp drop in GDP growth to 1.3% in the first quarter of the year does not surprise me. I think that type of growth is likely to become the norm. In the same week unemployment figures shot up to more than 26%, the highest since 2003. We are third in Bloomberg’s Misery index, after Venezuela and Argentina.

And still we don’t think it’s a crisis. We spend more time on analyzing the poor performance of the Blue Bulls rugby team than the prospect of economic Armageddon that is busy unfolding.

Two weeks ago government announced, on the threat of a prolonged strike, a wage increase of 7% (3% in real terms) to government workers that will cost about R66 billion per year. Where is that money going to come from?

We know from where: from the approximately 5 million taxpayers who are funding this circus. The centre cannot hold for much longer.

Retail sales, new motor sales and even gambling revenues are busy plunging.

On my way out of OR Tambo I also grabbed RW Johnson’s new book, called How Long Can South Africa Survive? (Jonathan Ball Publications).

Johnson, a long-time political and economic commentator for various British newspapers, gives SA about two years before the economy goes into a terminal decline as well as a collapsing rand. We will run out of money by then and will have to apply to the IMF for an emergency loan. Read it for yourself and make up your own mind.

In short: we have blown the proceeds of the previous commodities boom and there is very little to show for it. It has been spent on wages and salaries, a bloated government sector and various vanity projects.

It should have been spent on infrastructure (Eskom et al), education and creating jobs, even low-paying and menial ones. The threat of widespread unrest is rising all the time.

*Magnus Heystek is the investment strategist at Brenthurst Wealth. He can be reached for ideas and suggestions at magnus@heystek.co.za.

 

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Singapore is a police state. South Africa might want to emulate the can do attitude and putting in some work, but certainly not any of their social policies, including that execrable gum law.

By that I mean their social oppression policies.

Examples please

If you don’t break the gun laws you need have no fear of them.

Tell me which state in not regulated and yes…policed.

You obviously spat your gum on the pavement on Orchard road and received a well earned fine.

Sorry, I thought you said guN law not guM. Their gun laws are also pretty onerous.

Agree Magnus. The 5 million tax payers is probably technically less since a good 1.5 million works for government.

That is the African paradigm – Government is the father who must take care of all the children and therefore it wants to control everything from electricity production to SA Airways. But the problem in SA is that the children never grow up and start to contribute to the household. Instead they run around at Cosatu House calling each other “Comrade” and think that countries like Venezuela and Cuba and are places to admire and to emulate.

Those who should read these comments and articles, never do read them! I always ask, “who has invented, built, maintained and expanded” whatever the subject matter is? Its is either build or break!

Agree. It’s like farting against thunder.

Thank you, Magnus, for a most insightful article – couldn’t “we” arrange a fact finding trip for messers Zuma and Ramaphosa to Singapore, Japan and China (instead if Russia), all expenses paid upfront (with a pre-emptive press release to that effect!)…… We send a 100 bright young SAfricans with them and hold them to a quarterly policy progress meeting with this group….. Will you arrange it with messers Rupert, Mouton, Motsepu and Wiese (or should I?) You and I could run the country in their absence…. or maybe rather leave it leaderless in order not to upset the status quo.

Its spelt Motsepe. Good point nonetheless

Thank you for the article. I heeded your previous article and have started the exodus of funds from the country. I think there is good value to be found on the international markets. As for South Africa, it isn’t about positive or negative. The current view and policy direction of the government is clear and given all empiric data, the economy is declining and will continue to decline until drastic policy measures are elicited. I do what the leading companies in South Africa do, they have moved their operations out of South Africa. I challenge that you do the same.

Hi FPS. Any tips to give on how/what to do to get the funds out of SA?

There was a couple of pointers here on moneyweb in response to the article Magnus wrote, you can search for it on the site. I have opened a trading account that gives me access to international stocks, commodities, forex, CFDs, ETFs, ETNs and the like.

Convert your rands to dollars, since the rand is most likely to continue falling and invest in those international markets.

So essentially you should win on the international stocks and the decline of the rand.

investing off shore – what a great idea – why didn’t I think of that. there are 10,000 shares listed on the nyse – where do I start and in what sector. people lose money on shares. in aus our richest lady has lost $6billion on her iron ore holdings (she is still very very rich tho’). then maybe the question of how do I get to live off shore to enjoy these moneys that I have been able to get off-shore. perhaps a property or two – its not going to happen!

Yes, I also see this train coming but as a property owner I am chained to the tracks!

There is a potent weapon in the hands of minorities that is not being used to good effect.

Currently posted on PW is an idiotic article by the SACP in which they voice their uninformed views on the funding of Escom in the context of their opposition to any form of privatisation.

The SACP talk about funding through the use of bonds without any regard for the credit standing of Escom. They simply ignore the fact that Escom is no longer a good credit risk and that informed investors will stay away. Enter the much reviled “white capital” much of which has its origins in the hands of individual (Retail) white South Africans.

All of us should monitor how our funds are being invested and if we do not like what Money / Unit Trust Fund Managers/ Banks / Insurance Companies / Pension Fund Managers are doing with OUR money we should voice our disapproval in the strongest possible terms. If they refuse to listen then we should move our cash to Management Companies that will isten.

When the flow of funds to State Owned Enterprises starts to dry up then maybe the ANC will start to take us all a bit more seriously

Spread the word

Re your final paragraph: Or, like the EFF simpletons, they will just go to the mint and print lots of lovely money.

You could do well to stop comparing.
There is never a positive outlook from your statements. For someone who profits within South Africa maybe you could try share some positive sentiment towards an economic and social system that has afforded you your current position.
Maybe you should move to Singapore or Japan or possibly even China, acquaint yourself with some chopsticks and go look for the faults in their economies and way of life.

Gavin,
Magnus is a financial advisor; and writes as he sees it for his constituents. If you do’t like the way he writes; then don’t read his articles. A simple way to sway him is to post positives yourself in these forums. No use criticising with backing up your argument.

Basically we all want food, education and a roof over our head. Now if any of these a threatned then we start moaning.
1) Food. Some government employee wants to limit farm to a certain size. This will cause chaos with supply. is there a good news farming story to tell?
2) Education. Personally the poor still are struggling to gain a decent education. Yes, progress has been made.
3) Roof over our head. Great strides has been made regarding housing for the poor; but jobs are scarce which is leaning to a welfare state. We are losing the security battle. The cops just cannot cope . The ratio between cops and public is too large.

Personally I would have loved to see the newspapers front page to be the 2 SA winners at comrades and the comradrie amongst the runners and public. There are pockets of good news stories that need to be told. If you Mangus to say a good news story; then bring it to his attention and ours.

Gavin, you and generally the ANC supporters can not handle any criticism. If a white person points out any problem the standard reply is “why don’t you leave SA”. Have you ever looked at how difficult it is to emigrate to a different country, specially Japan or Singapore as you recommend? I do not know if Magnus has or is entitled to a non-SA passport, but just look at some countries immigration requirements. Basically, if you are over 40 nobody wants you. Most whites are stuck in SA whether they like it or not. If you read online papers from any country there are writers everywhere who make a reasonable living from pointing out stupid rules and regulations, government blunders and so on. Why is it that only in SA is this elicit a response telling the writer to leave the country or shut up?

‘Play the game, not the man’ as the infamous saying goes, but I just can’t resist having a go at Magnus. A quick browse over any of his articles, and one would assume he resides in hell, given his constant negative and miserable sentiments and outlook on all things S.A, including the air he breathes.
*deep sigh and a shrug of the shoulders* The Fear of Missing out unfortunately exists in all of us, so I will continue to read your articles, Magnus.

One can heed his opinion or ignore it.

In essence his advice is better to look into the goldfish bowl that inside it looking out.

Mark Shuttleworth…..did the right thing…he moved his currency quickly out of SA…..wise man Magnus probably said.

Only one argument Magnus. Singapore’s major asset is its people and their work ethic, not their port.

The JSE is “the best-regulated exchange in the world” and our banking system is the most sound among western nations. We have got a state-of-the art financial system but we sit with a socialist/communist government that is inwardly focused. This is like having a monkey behind the wheel of a Maserati.

Just one point about your article Magnus – Singapore’s greatest asset is their people and their work ethic, not their port.

I have a huge respect for the Japanese. Did anyone notice that with their nuclear disaster there was no riot or people running into shops steeling things? I heard about a Japanese shop owner who, when his shop was overwhelmed with customers buying food and drinks in panic, put a 50% DISCOUNT on everything to help his fellow Japanese. Another person who made a living from having a vending machine, opened it up so everyone could help themselves to cold drinks as they were thirsty.

Mathew 7:16 “You will know them by their fruits” – The Japanese follow a “religion” of respect and compassion. These teachings of the Buddha are the psychological foundation of the great Samurai and is evident in the actions of modern day Japanese people. Quite similar to the unselfish work of Gift of the Givers of the SA Muslim community and many actions of compassion by the local Christian communities. We also see compassion in the concept of Ubuntu by the African communities. The sad part is – we find hooligans everywhere.

Yes, more “ubuntu” in Japan than has ever existed in SA.

True. Travelling offshore to developed areas such as Europe and UK one can only marvel at how absolutely useless so many of our so-called citizens are. Retail facing business to customer interface is particularly bad. Even in the much maligned Spain, their retail facing employees are infinitely better than those in SA. Our equivalents in SA would struggle to get a job as street sweepers in Barcelona. We spend so much time on race, AA and BBEEE that there is just not enough time over to look at REAL business issues. Witness the farce at UCT and Stellenbosch recently on the statue and sms. So we fall further and further behind. All aided and abetted by publications such as the Cape Times that has fallen into an abyss of journalistic yuk over the last 15 months. The pressure on those ever decreasing numbers of competent people then mounts and mounts to the extent that they too fall behind in excellence. I for one hoped that Cyril R. of anc would help to at least stop the rot. To no avail it seems.

Methinks Gavin Taylor takes selfies of himself in his new car that he bought 100% on credit. Methinks there will be many, many repossessed cars coming up for sale at auctions in the next two to three years.

He could take his new car to Singapore in the comfort of knowing it will be crushed within the next 10 years!!!!!

Dear Magnus,

Thank you for sharing your insights in terms of what other countries are doing to enhance economic growth and most importantly remain competitive.

What is happening in this country is depressing. No sense of urgency,lack of direction, the expanding public sector as you mentioned ….. we can go on and on.

Hard lessons lie ahead for our country. As citizens of this country, we are going to pay the highest price for the circus. It is a country led by a government that says one thing but does not really mean what it says. Entrepreneuership is encouraged day by day but when one tables ideas, you are told about co-operatives in order to obtain funding. What co-operative when I spent money on research and developing a business plan?

Not forgetting the lack of innovation from leaders. We have the land reform programme that has proven beyond reseanable doubt to be a disaster.

Painful economic lessons ahead! I can see them coming!

Kind Regards,
Sibusiso

If I, as a normal man in the street said the place is imploding I would be accused of being negative or a plonker as one Keyboard Commando called me two years back.
But if Magnus financial-planner Hesteck says it then he’s a hero.
Odd that, it really is.

Just the statistic of 5 million taxpayers (declining) supporting 18 million (growing)social security dependents is clear to anyone that its an unsustainable formula. As some have said before me South Africa’s biggest export over the past twenty years have been taxpayers who now contribute to the building of the adopted nations.

yes magnus is someone I read as being the ONLY commentator who says things as they are. while other pontificate abt privatising Eskom and how the “new” da is going to save the country at the next election – he talks about the real situation . however he is not without fault – I have previously said to him that while it is all very well “exporting” your wealth – what about “exporting” your family at the same time. surely they are much more important than one’s ill gotten wealth (esp in sa). also he does not comment on Johnson’s view that once the imf move in there will be a change of govt – capitalism will remain supreme and everyone will be happy – a load of rubbish if ever I heard one. if you are concerned abt the future then come to AUSTRALIA – US5 million will get you a “golden visa” for you and your family

End of comments.

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