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We all got poorer over the past year

Middle class getting crushed by Zumanomics.

Jacob Zuma will be remembered for many things but, by most people, certainly not fondly.

In fact, I think history will deal with him harshly.

Much of the (seemingly declining) support for the president is based on unquestionable support for the African National Congress as a liberation party rather than its current leader.

The list of controversies Zuma has been involved in is long and varied, ranging from being accused of rape and impregnating a friend’s daughter, to Waterkloof-gate, Nkandla-gate, Gupta-gate, Spytape-gate, Nene-gate … you name it. Many of the past decade’s political controversies have had one man at their centre: Zuma.

It’s hard to find a modern country where one individual has caused so much controversy and damage recently. I wish I could describe him as a ‘one-man wrecking ball’ but my old friend Max du Preez used that expression first.

Thus far Zuma’s term in office has been one characterised by corruption, cronyism and scandals. I’m quite sure what the public is aware of is just the proverbial tip of the iceberg. More is bound to tumble out of the cupboard when Zuma vacates his office – either as a result of being pushed or his having an attack of conscience. Just joking….

Please step down sir

Over the weekend many voices were added to a growing chorus of calls for Zuma to step down, including that of struggle veteran Ahmed Kathrada, SA Council of Churches and even the New York Times.

I don’t think this is going to happen soon. Zuma will fight this fight for as long as he can. He strikes me as someone who will pull down the whole edifice and then find someone else to blame.

There are better-qualified commentators on the consequences of last week’s Constitutional Court judgment, which found he was in breach of the Constitution and needs to repay a portion of Nkandla’s construction costs.

What a delicious irony that finance minister Pravin Gordhan is now in charge of the process to calculate how much Zuma must repay the State in this regard. Prior to his move back into the finance ministry in December, he was probably planning his political retirement, having been unceremoniously moved from his position as finance minister into a ‘political backwater’ department.

Bad economic policies

In my view, Zuma will also be remembered for something with far more destructive, serious, longer-term consequences: bad economic policies.

Currency, bond and stock markets react immediately, as we’ve recently seen. Economic policies, good or bad, take longer to take effect. Economic growth is built on a virtuous circle of confidence, capital invested, rising employment, rising profits, rising tax receipts and so on.

Over Zuma’s rule, we’ve progressively witnessed the opposite.

Confidence, both consumer and business, is at 15-year lows and capital is not being invested – if it is, it’s elsewhere in the world where it’s more welcome. Unemployment is at record levels. Economic growth is set to be below 1% this year and could even turn negative quite soon. Then there is a looming downgrade….

Zuma has been so consumed by one scandal after the other, that he’s not had much time to try to find innovative ideas to grow the economy. How does one explain that Zuma allowed Home Affairs minister Malusi Gigaba to continue with destructive visa regulations?

When he does make reference to the economy in public speeches, it’s usually a re-hash of accelerating its ‘radical restructuring’ along the lines of what’s stated in the Freedom Charter. These pronouncements are usually met with a further bout of anguish by local and foreign investors, their fingers hovering over the ‘sell’ buttons.

Inflation catching up to investment returns

For a while local investors had some personal protection against economically-destructive policies. Stock market investments by and large were, until recently, beating the inflation rate quite handsomely, while residential property sort of kept pace with inflation – depending on whose statistics you used.

But at some stage financial returns have to come back to reality.

One cannot expect investment returns to operate in an orbit of their own. The laws of gravity have not been repealed. Companies operate in a certain socio-political environment and shareholder profits ultimately reflect that environment. It’s the same with listed and residential property and even bonds.

The inflation-adjusted returns of all local investments have over the past 12 months been negative versus the inflation rate. With inflation set to increase massively over the next few months – as a result of petrol, electricity and food price increases – expect to become poorer this year, perhaps dramatically so.

Let’s have a look at major local asset class returns over the past three years compared with the inflation rate:

  • Listed equities

– Over the past three years the cumulative returns of a JSE-listed investment with dividends reinvested to March 31 2016 was 44% (CPI 16%);
– Over two years 15.8%(CPI 9.8%)
– Over one year a mere 3.5% (CPI 5.5% ).

  • Listed property

– Over three years the cumulative return was 47% (CPI 16%),
– Two years 43.8% (CPI 9.8%)
– One year 4.2% (CPI 5.5%).

  • Money market funds

– Over three years the cumulative return was 16.9% (CPI 16%),
– Two years 10.9% (CPI 9.8%)
– One year 5.5% (CPI 5.5%).

  • Multi-asset high equity (pension and provident funds)

– Over three years the cumulative return was 34% (CPI 16%),
– Two years 16.3% (CPI 9.8%)
– One year 4.4% (CPI 5.5%).

Residential property

There is not one trusted statistic for the residential property market. Various companies (banks, estate agents, property analytics companies, etc) use different samples and techniques to measure the performance of the residential property market.

Whichever method is used it still reflects a depressed residential property market, with average prices in real terms still 20% below peak-prices in 2008, with an increase in nominal terms on average not more than 5% to 6%.

If one strips out prices in the Western Cape (+12%), one gets property prices increasing by not much more than 2% to 3% per year over the past year in other areas.

In certain areas in SA, as I’ve written before, the traditional residential property market has ceased to exist. If you enter a town where the estate agency has been replaced by a Chinese goods store, you know the banks are not granting bonds anymore.

Statistics aren’t telling the true story

Matters could be even worse than what the oft-touted statistics portray. This is the view of property economist Neville Berkowitz who, after a lengthy sojourn offshore, returned to SA and created low commission estate agency HomeBid.

His figures suggest (national) residential property prices rose by less than 1% in 2015 – definitely not the 5% to 6% the market tries to project.

Berkowitz says the discrepancy lies in the limited sales and transfer samples used by the aforementioned companies. He looks at every house bought and sold in SA based on South African Property Transfer Guide figures.

For instance, in 2014 there were 2 642 transfers of homes valued over R10 million (less than 1% of the market). The bulk of transfers (about 27%) were in the R500 000 to R1 million segment. Prices, on average, rose by only 0.3% during 2014 – way off the inflation rate.

Middle class being crushed

In summary, the SA middle-class is currently being crushed by a combination of sharply-rising inflation – especially food – and under-performing investment assets. The proverbial kitty is empty and it’s unlikely that salaries and wages will keep pace with inflation this year, especially in the private sector.

This year’s wage and salary negotiations could be the most volatile and acrimonious in many years.

This trend is creating a dangerous cocktail of which investors should be aware. Car sales are dropping sharply, houses are getting smaller and debt levels are rising. Even Edgars recently announced that it’s discontinuing several imported clothing lines due to declining sales. This is just the beginning: the rand’s 25% drop in 2015 is putting the cost of imported goods beyond the average consumer’s reach.  

But this all pales into insignificance compared with the poor who spend most of their money on food, transport and clothing.

Talk of social unrest as a result of food prices and shortages cannot be idly dismissed anymore. SA has to spend about R30 billion in the next year to import maize and other foodstuffs due to the drought.

Even the-so called rich feel the pinch. In fact, South Africa is far less rich than our politicians tend to think. In a country with more than 55 million people, there are only slightly more than 100 000 taxpayers earning over R1 million per year, contributing 26% of all personal income taxes. You could get them all into FNB stadium.

We need policies to create growth and prosperity, fast.

It would be churlish to blame the current situation all on one man. There are extraneous factors, such as the drought and the commodity cycle collapse. But a president more focused on national interest – especially considering the current dire economic situation – rather than his own survival, would have made a massive difference to the national mood.

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

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I bought physical gold and silver to protect myself against the stupidity and greed of politicians and bankers.

Nothing new but a certainty to blow up as there are no solutions to the global monetary problems other than that our financial and political Mandarins will come after our savings.

So, I am fine, thank you and I would suggest you do the same as time is running out. Good luck!

Troy Ounce, how did you go about it? I have some gold in ETfs, but I would like to go physical.

Phone 5-6 reputable gold coin dealers in your area. Some of them might have deals. Krugerrand would be your best bet. Junk silver is also a good option. Store at home in a safe or in a commercial vault (NOT a bank). Insure via home insurance.
Good luck!

quite so – I have been noting an increase in the number of up market constantia “palaces” going up for sale. a number are being described as “reduced” or even “asking price” – the suggestion being “what are you prepared to offer”. and I note that interest rates need to be increased yet again to reduce inflation. I have suggested before that there is no good news story to tell here – altho’ people like john Robbie always believes there is. and of course “junk” status looming

I wonder about your comments about how South Africa will remember Zuma and his legacy. I for one would like to remember him wearing a Correctional Services Uniform for a long time after being frog marched out of his office following impeachment and rearrest for charges against him that have been reinstated. I would like to remember him in prison with lots of company. Especially those who were his prop up men while he was pulling the strings.

Perhaps it is NOW an appropriate time for Shabir Shaik to come clean and speak out on some of the dirt he has on Zuma. I bet he is itching to do that after being dropped like a hot potato when he took the fall a few years ago after being set up by Zuma. He will never get what was secretly promised so he may just as well spill the beans and get some satisfaction before his supposed medical condition that got him early parole snuffs him out.

Lets also hear what the two ex career Air force people have to say for taking the Waterkloof fall and those involved in the building of the kraal that have either not been paid or silenced. Maybe Mr. Sullivan needs to start singing too, but he could well also be removed……

You forgot to mention that most poor people spend money on cell phone airtime BEFORE they buy food. Great article again.

They also first buy a lottery (daylight robbery) ticket before they buy food.

And in Grandwest Casino. People who clearly can’t afford to gamble do so.

Lottery is a tax on people who can not do math. (like most SAn people)

I am very confused when Poverty is mentioned lately . One needs to live in Durban to witness the ” new Poverty ” . Once the crowds leave there are many empty Amstel/ Vodka Bottles left behind . The latest model vehicles line-up in the Parking Areas/Beachfront . Huge amounts of meat being braaied . Latest Cell phones taking selfies everywhere . Empty KFC Buckets everywhere . Maybe I am getting old but the Poverty I see around is very different to the Poverty I experienced in my younger days .

You are right there, in the past all the new expensive frills were blamed on apartheid. In the bad old days they were so suppressed that when they got more money the lifestyle that apartheid forced on them carried on, ie frugal home living but the extra money went on toys, phones booze and cloths. I now wonder how much of all the stuff flouted now is paid for. I suspect that these guys have a string of debit orders on their accounts and by the 3rd of the month they are broke. Hard times coming especially when the advice for volatile times is to reduce debt and have an emergency fund handy. So the real poverty is still to come.

If economists can’t talk honestly without being fired at least you are able to speak for them. You comments are accurate but don’t forget the informal economies and those people who do not pay tax. Many of them also fall in to the earning a million category. I am retired and your comments are of grave concern to the retired communities.

Everyone seems to be forgetting that the so called Top 6 and the rest of the ANC have stood by him. We should rather be asking why Business SA has been in bed with the Top 6 and others, playing political games and playing financial games with the money of their investors, the poor and the tax payers. Once again we see that the poor are escape goats to the rich and are going to be paying for the mistakes and games played by the Rich.
My last comment is that we forget that Zuma was busy with his trickery when Nelson Mandela was still alive! Why did he not say something to make us feel that he still cared for the citizen of the Rainbow nation? Is this not a true reflection of what has been happening for a long time and only Zuma was wise enough to see the gaps and take them?

I am reminded of a saying that goes something like this,’ all it takes for evil to succeed is for good men to do nothing’. One of the headlines today is that SARS has beaten its tax collection projections which means there is even more money now for the Gupta’s, the Zuma family and ANC cadres to grab for themselves.
This is a big incentive for Zuma to stay on and be encouraged to stay on as president, after all the presidency is all about grabbing the money. Maybe we should alter the statement above and say’ all it takes for corruption and greed to succeed is for taxpayers to do nothing”. A tax revolt led by the top 40 companies in SA withholding VAT payments and PAYE payments would be instantly followed by all other taxpayers which would leave Zuma and his cronies with an empty pot. Lets see how the ANC copes in that environment.

So we will see whether there are any good men or women left within the ANC MP’s

Remember Zuma once told an Australian journalist ‘ There are no more Mandelas ‘ meaning there are no honest men with integrity left within the ANC.

Getting poorer is called the ANC tax.

The actions are making all South African’s poorer.

Most of what we are dealing with is a result of this govt’s inept policies, let’s face it. Just take one thing, the amount of money wasted on SOEs. If you work out that total (remembering that PetroSA blew through R14 billion in ONE year with nothing to show for it) your hair will turn white. Now sit back and spend half an hour dreaming of what that money COULD have been spent on. New infrastructure (wind and solar power installations, repairing roads, bridges, etc), hospitals, clinics, schools, scholarships, the list goes on and on… That’s not to consider the impact of their bonehead visa rules, which DIRECTLY affected the one shining star in this country, our tourism industry. Now consider all that and then factor in the massive damage done to our economy when Zuma PERSONALLY decided to fire the Finance Minister. Those are just THREE examples. A govt is supposed to HELP its people, this govt’s inner circle of elites does the opposite. It helps ITSELF and the people can get stuffed.

Now what would happen if Pravin Gordhan has the courage to stand up and say what all of the ANC should be saying; “Fire Zuma”.

Yes, misplaced loyalty and trust should be side-lined. The ANC should stop being a “struggle” organisation, and understand that the country now needs proper democratic solutions to all our problems. Zuma personifies all that is wrong in SA. I also wish PG and a few others would undertake a palace revolution and kick the man out. Give him indemnity from prosecution for Nkandla and all his former actions if one must, but he has to go, now.

Phone 5-6 reputable gold coin dealers in your area. Some of them might have deals. Krugerrand would be your best bet. Junk silver is also a good option. Store at home in a safe or in a commercial vault (NOT a bank). Insure via home insurance.
Good luck!

Magnus – – you of all people will know that one can prove anything with statistics and data.

what you can not measure is the quality of living in SA – something I miss every time I need to stay abroad for long periods.

Without conducting a survey on this topic- just see how many top people decide to remain in SA – although we can move very easily to a destination of our choice.

Perhaps its time to focus on the good stuff – read Cees Bruggemans (?) article published today.

Only bad news sell. Please do you homework around residential growth as jou should add my R 84 000.00 RENTAL I am getting per house per annum. Please wake up.

I didn’t get poorer in the last year. My NAV went up about 10%, which is not great, but it did give me some opportunities to buy relatively low.

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