SA’s massive investment boycott

The trust relationship between the state and the private sector has deteriorated rapidly over the last five years.
President Zuma's term in office has wreaked havoc on the SA economy. Picture: Reuters/Rogan Ward

The notion of a tax boycott seems to creep into many casual conversations among taxpayers.

Recent revelations of the extent of corruption and flows of billions to Dubai, do not sit well with those funding state coffers, and rightly so.

Ignoring the merits and possible consequences of such a revolt, the practical prospects of a wide scale tax boycott are limited. But many South Africans may be oblivious to a massive investment boycott by the private sector that is on the go.

This boycott began when President Jacob Zuma took office and has steadily gained momentum over the last five years as the trust relationship between the state and private sector deteriorated.

In fact, the distrust – or trust deficit in the language of politicians – is accelerating. The reasons are quite intuitive: Corruption that is out of control, state capture and new populist policies that are akin to government hitting the self-destruct button.

The latest example is mineral resources minister Mosebenzi Zwane’s efforts to destroy the mining industry through a combination of incompetence and malevolence. Even though finance minister Malusi Gigaba – who is also under a cloud – seems to try and change perceptions about government’s intent, Zwane’s actions alone will have a profound impact on many other sectors.

It is therefore not a surprise that private enterprises only invest the bare minimum.

Gross Fixed Capital Formation

The extent of the investment boycott is evident in various economic indicators, most notably in the recent trends of South Africa’s Gross Fixed Capital Formation (GFCF). It measures the investment in productive assets such as factories, machinery, equipment and other employment generating industries, and is a leading indicator of future economic growth. According to the latest Reserve Bank Quarterly Bulletin, the private sector’s contribution to total GFCF in the local economy dropped from 70% in 2008 to 60% in 2016, which resulted in the total GFCF as a percentage of GDP falling from 23.5% to 19.6%.

To put this in perspective, the target of the National Development Plan is 30%.

Other indicators show this too. A recent survey by the University of Johannesburg’s Centre for Competition, Regulation and Economic Development suggests there is up to R1.4 trillion (cash) just on the balance sheets of the 50 largest companies on the JSE.

This is 35% of SA’s GDP, sitting idle! There are 350 other listed companies and many other large unlisted enterprises who are also desperately clinging onto cash, which could easily match the R1.4 trillion.

Risk is not worth it

The reason for the boycott is quite simple. The private sector, as resilient and innovative as it can be, is very predictable. Private enterprises will only invest if the potential rewards of new ventures justify the risk, especially if payback terms are north of ten years – as is the case in the mining and manufacturing industries.

And current risk/reward prospects are dismal.

Economic data from Stats SA shows the average return on assets for a South African firm is less than 6%. This is near an all-time low and prospects of earning 7.5% virtually risk free in a bank account makes the decision to hold onto cash a no-brainer.

Business confidence

This all leads back to the snowballing distrust or “trust deficit” between government and private business. The graph below shows how this is negatively affecting GFCF. Unfortunately, although there remains less than two years of Zuma’s presidency, this downward trend will ensure that the local economy remains under immense pressure, or even experience an extended recession.


Unfortunately, there isn’t a short-term solution to fix this. Maybe if Zuma resigns, but that is unlikely.

The key would be for the private sector and government to rebuild the trust relationship, a process that may take years. It is impossible in the current political climate, and will take even longer if another Zuma takes office in the Union Buildings come 2019.

It is critical that government appreciates the control it has over the private sector, or so-called private capital. It just needs to manage it more efficiently and competently.

The private sector may not always be an ethical and moral beacon of society, but it is much more efficient than government’s commercial efforts.

The private sector is copiously aware that structural reforms are necessary in the economy to allow more people to benefit from economic growth, the main reform being the aggressive reduction of unemployment.

This will only happen once the trust relationship is repaired and private sector investment in the economy increases.

Unfortunately, this is not set to happen anytime soon.

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Why is anyone surprised that an investment boycott is firmly in place until there is evidence presented by others than the President, his Ministers and his ANC party that corruption has been stemmed and that investing in Corporate SA is considered safe with International ratings agencies endorsement of positive sentiment. This will only happen AFTER Zuma has gone and AFTER the next general election, but ONLY if foreign investors can expect and see some positive and political stability. Otherwise – goodbye investors.

As far as a tax boycott is concerned, that is much more difficult, and would have to be handled bye more than words in a journalists article.

Regrettably, we are in a position where the Trust of the investors, the workers and the population no longer favors anything the government have a finger in. Anything they say or do is now considered suspect or at the very least untrustworthy of being the truth.

I can’t see any positive influence on investor sentiment if Zuma is gone. ANC policies and the Freedom Charter is to blame for the imploding economy. Socialist policies such as BEE, AA, cronyism and cadre deployment spreads the symptoms of socialism throughout the economy. Corruption, incompetence, negligent behavior, a captured criminal justice system, and plunder are all symptoms of a total disregard for private property. This legal plunder happens, and is escalating, after more than 20 years of ANC rule. The time for “restitution” is long gone, we are now living in the times of plunder.

Now why would capital enter such a cesspool when it could go to jurisdictions where private property is respected, protected and compensated? The trend is clear for those who wish to notice. A trend is a powerful thing as it describes the factors that drives it. The trend is in the direction of an IMF bailout. The IMF will eventually determine political policy and enforce responsible management in South Africa. The DA is basically irrelevant, their own BEE policy is more fuel on the fire. A DA government will merely slow the decline. We need a free-market system with respect for property put above all. Only then will we create jobs and empower people. Employment opportunities is the way to empowerment, current policies of legal plunder is they way to famine.

Capital will seek safer havens until the IMF takes control.

This is exactly what RW Johnson predicts in his book “Will SA Survive?”.

We can either have a modern economy or the ANC, we cannot have both.

@Africa Pragmatist.
Agree. Have read this (scary) book myself in 2015…many of the things mentioned playing itself out (sadly) as clear as day.
“ can either have a Western modern economy OR an ANC Govt”…and that coming from an ex-ANC member and anti-Apartheid activist back in the day.

BEE/BBBEE also one of the 4 main items that needs to go (incl. militarist unions; restoring rule of law, certainly of property rights, etc) before SA have a turn-around….which the IMF will demand in any case later-on. BEE is economically unsustainable where there is a “disconnect” between merit and earnings…which flies in the face of simple economics.

BEE will fail like Apartheid…unsustainable social system. The realisation will come when there’s hardly any businesses left in SA…and we all work for the State. (Yes, there’s inequalities which must be addressed, but a forced way will just force the wealth out of SA and the means to uplift everyone. To give the poor the educational tools to earn income, has been neglected by the Govt…the current regime and the past one)

I Agree 100% Sensei (a 5th Dan for you sir! 😉

As mentioned by RJ Johnson in his famed book, as soon the “unstoppable” ANC-govt hits the “immovable object” (i.e. economic reality) where the choice will be to either implement (unpopular) economic policies forced upon the IMF, I think SA will try to loan rather from China first (as a BRICS member)..but that will be limited until the Chinese just give small loans as a token.
In return for SA not being able to repay China, the Chinese will force all kids of (unfavorable for SA) trade deals where cheap goods are imported, and local industries suffering/closing. Example is the motor-manuf industry…I wonder if the ANC will “sell out SA” by giving in the later Chinese demand to being new vehicles to SA without import duty. Then I’ll rather buy a a new, luxury (and reliable) Chinese car for R100K-odd, like most of economics makes sense. This may kill the local car-manuf industry (like in Aus, but for other reasons).

In the end, without local industry, and owning billions to China, SA will turn to the IMF…and the ANC will lose power…(they will have a wonderful choice of either implementing unpopular “Western” economic policies forced upon by the IMF, or, tell their trillions of supporters “we don’t have money to pay social grants and pensions”…and please don’t blame the ANC…blame “WMC” 😉

The ANC-elite will run (with their loot) and leave the country’s problems for the DA to fix…which will be better without all the corruption, but doubt if SA will return to it former glory in the mid-90’s. The DA will (also) be forced to reduce state expenditure, like grants and pensions (austerity) to the masses…and it wont also be popular with the uneducated masses, and the DA may struggle to maintain power with sufficient votes.

Sorry to say, the only way the uneducated masses (be it black or white and any inbetween) will “learn” from the mistakes made by an ANC Govt (so that most don’t vote again for ANC) is for austerity be imposed by an ANC Govt on it’s own people. The “ANC caused it to us” message. Methinks the ANC-govt will vacate office and run, instead of facing their own people’s suffering. And will leave all the shyte for the next regime to sort…

(Apartheid did not fail economically because of the armed struggle, according to RW Johnson. It was the withdrawal of international capital & sanctions, that caused the SADF to pull out of Angola facing 50,000 Cubans. If there was for example, financial and military support to the Apartheid-regime from the international arena…how absurd that may sound…the SADF would’ve still run amok today, and wipe out everything in its’ path. The Angola War is simply a “component” of huge state expenses, while the state’s funding dried up, and the NP-Govt..sensibly…stopped the war and unbanned the ANC, free elections, etc.)
Interesting to see how the ANC-Govt is going to face their “angola war”. Their “cost of war” war will be from money lost/wasted through corruption, state looting, wrong economic policies (..everything we know today)…will the ANC-Govt face their “cubans” or will they throw in the country’s towel. The IMF is watching…

On a more philosophic level – the colonization of Africa during the early 1900’s was forced upon locals with the use of the military. The aim was to exploit Africa financially. Now Africans enslave themselves voluntarily to colonial powers (who exploit them financially) through the implementation of short-sighted socialist policies.

The only explanation for this phenomena can be the fact that people with a slave mentality are constantly striving to enslave themselves.

“A slave mentality is when a person (definition is not bound by race): … An Entitlement Mentality is (also not bound by race): A state of mind in which the prevailing mentality of a society is that of entitlement to receive from the government or state what is apparently due to them or owed” –

When does the IMF take control in Zimbabwe?

The IMF walked away. They demanded sound policies from Mugabe, who in turn showed them the middle finger. Now South Africa provides them with free electricity and maize and China provides them with currency to pay the soldiers who protect the diamond mines. The total economy of Zim is about the size of that of Durban.

The IMF won’t “take” control here either. They will only dirty themselves here if the ruling party at the time, is willing to implement the tough political measures demanded by the IMF. If the ANC is still in control by that time, they will first try debasing the currency and confiscating all private property before they go to the IMF as a last resort to prevent mass starvation. Hyperinflation is the most effective way of looting pension funds by the way.

I think somebody should look at the other side of the investment boycott. What would happen to the interest rates if companies would start to use their cash to invest? At the moment the large amount of cash deposited in the banks keep the interest rates down, but if it was withdrawn to invest where would the banks get the cash to buy government bonds? The government requires large borrowings because it runs a deficit. Currently this deficit is financed by issuing government bonds, but if the cash would disappear who would be able to buy these bonds? I know that increase investment would increase tax receipts, but it takes years before a new investment starts generating profit and thus tax. Also, the new jobs created could be small, looking at some of the recent investments which created new jobs, it looks that around one million is required to create one job.

The next thing you will see is tax revolt. Argument is why must we pay tax under difficult circumstances and the plundering and looting continues openly.
Furthermore, millions come into the country from highly skilled South Africans who work abroad and now they want to tax those earnings, mostly white males who left due to BBEEE. They are treated as second class citizens and not good to work here, but they want to tax them on their foreign earnings. Not going to happen!! You will see emigration on a large scale. This is a further disinvestment. Problem is the ANC does not care, just another African country for the history books.

…that’s what’s worries me: a fully fledged Tax Revolt. The Govt of the day will cease to exist…

(and how would Govt officials like the police/courts continue with a day’s work to arrest all the tax-transgressors without their previous month’s pay-cheque? Like most Govt officials we know, they’ll surely work without pay for the ethical, noble cause for it…)

And of course the “investment boycott” will be interpreted by the government as sabotage by monopoly capital, when in reality it is merely a desperate quest for survival.

The calculation that the private sector is doing is not the 6% return on assets v the 7,5% interest earned in the bank.

The real calculation is the 7,5% interest v having 100% of one’s invested capital stolen – as is now threatened daily by both the ZuptANC and the EFF.

Note that the fourth iteration of Expropriation Bill 4 of 2015 is going through the National Assembly as we speak. Protests by Constitutional lawyers who point to the unconstitutionality, as well as protests by foreign investors who point to the unilateral abrogation of international treaties (signed by then president Nelson Mandela) have not only fallen on deaf ears, but have been laughed off the table. That “He-he-he-he” has been clearly heard in every corporate boardroom in the country.

Soon coming to a theatre near you: “The Motherlode – expropriation without compensation, on a massive scale”.

Do you even know what the word boycott means? Here is one definition.

“ combine in abstaining from, or preventing dealings with, as a means of intimidation or coercion:”

The article is incendiary and essentially inaccurate. It plays into the hands of the white monopoly capital liars and is shocking.

The reason for low investment is that there are no or declining investment opportunities that meet capital investment hurdle rates.

Exactly. There is no boycott just good old fashioned business sense. Capital, like water, never flows uphill. The marginal productivity of capital in SA is so high that it makes more financial sense to park cash in bonds than investing in capital goods (which employ people). The marginal productivity of capital is effectively the interest rate ceiling. When interest rates rise industrial capital is sold off and idled and the proceeds invested in bonds. Astute investors know when to move money in and out of bonds and in and out of industrial capital. The ANC have a lot to answer for.

I fail to understand why companies continue to take up government bonds under the present regime. If government failed to auction their bonds they would be in deep poo. Business needs to negotiate with government on the basis that they need to adopt more business related approaches to SOE’s and sell off parts of these entities to generate much needed finances. There are many ways to skin a cat business needs to find the appropriate method and it must include the removal of Zuma and the institution of criminal charges against him to the point of sabotage

Graham you are hitting the nail on the head. Financial realities caused the end of the National Party, and it will cause the end of a more unjust and even criminal organization – the ANC.

Futurewealth and Magda Wierzycka from Sygnia are the shining stars who guide the rest of the financial industry to do the right thing and demand accountability before they finance SOE’s.

We also need to find a way of diverting our taxes from SARS to an alternative body in a legal manner.

I suspect something of a tax boycott may be underway anyway, albeit limited. One or two of the high nett wealth individuals I know (not me, sadly) are looking ever harder at reducing their tax payments; as well as shifting cash offshore at the highest possible speeds. One has said SA’s time is limited – get what you can out now. He must have Magnus as an adviser, not that I disagree.

I disagree. yes the financial realities did cause the end of NP. But it will not happen to the ANC. They (ANC) simply don’t care if the citizens starve to death. I’d rather look at Zimbabwe and how they destroyed the economy but in the end , nothing happened. They even plan to take the remaining white farms this year. What would be interesting is the effect a collapsed SA will have on all its neighbors.

Graham- The government bonds will almost always have a buyer at an auction. The scenario of no buyers is unrealistic. The real issue is the price that buyers are prepared to pay which, of course, is the “risk free” interest rate. Even when Greece was tanking, there were buyers for their Eurobonds paying a 30% return which is simply an indication of the risk one undertakes holding this security.

Actually if we think about this carefully we find the following: It is again the poor man in the street who has been buying the products from “big businesses” at loaded pricing who are keeping this cash instead of investing back into the economy via jobs. The cash is then lent to Government who squander it leaving the returns minimal and risky. This leads to less money within the economy, thus raising the taxes collected from the few who are luckily( or unluckily) to have job and need to borrow from the banks, who are funded by the Corporates who are in agreement with Government who keep the cycle going to make profits to be taxes and to keep supporting Government in their actions. This keep the cycle complete and the poor just pay more ! Government keep Exchange controls in place ensuring that money does not exit the cycle and the game carries on!

I am going to make a prediction. At the mid term budget, Maulsi Gagupta, the questionable Finance Minister, he will increase VAT from 14% to a sizable increase to about 17 or 18% or even up to 20%, which will give the exchequer a sizable increase in cash income. This will also fill the trough where the snouts of the ruling ANC are feeding from. They will blame its on WMC as Gupta has been doing recently too.

Interesting Sweetpea – he might but it will be only to bring tax revenues back up to predicted levels. When Tom Tom finally gets round to counting what has come in from tax revenues (less payments to the Gupta’s) and in this flagging economy i think we will be in for an unpleasant shock in the form of all sorts of tax increases and shenanigans.

Exactly. Hope their measures are enough to get the voters to kick them out at the next elections.

Increasing VAT will not happen – it would immediately cause riots by the tens of millions of poor – who just so happen to be ANC voters.
It is much more likely that other forms of tax will be increased – specifically those that target business and the middle class.
Simple really – we will soon be discriminated out of any type of formal employment and then finally be taxed into penury.

The problem will not end when jz783 is gone.
some fools think ramaphosa will be the knight in shining armour,
his company still has a R5 billion plus debt with Lonmin due to his bbeee shareholding and he continues to publicly say he will not pay this. lonmin are continually trying to raise capital suspiciously close to the sum of this debt.
the business brains trust of SA and the world are watching this and other forms of corporate theft by the anc cabal and want nothing of it.

..and now something POSITIVE for the day:

I think SA has among the best entrepreneurs/business people on the planet, for the simple fact that they all survive (or strive to survive) in the face of a national govt that sees the private sector as their enemies (…not on paper, but how Govt acts with over-regulation, interference with business, tax-regime, compliance/red tape, etc)

Same can be said for our commercial farmers: they feed 40-50 million people, and operate profitably, without any real state subsidies (unlike as in the US & Europe), in a region that has a well below-average global rainfall; also considered the enemy of the state (with Dept of Agriculture more focused on the well-being of farm workers, as opposed to benefit the farming community itself); talk of land-grabs without compensation.
Yet the masses complain about the farmer with their mouth full.

In such adversarial business environment, South Africans are among the world’s toughest! (..and that count from Sipho’s spaza shop, to Mohammed’s fabrics store, to Gatiep’s tyre & exhaust outlet, to Piet’s buthery, to Pedro’s chicken restaurant, to Graham’s IT business, to Goldstein’s jewellery store, and further up the corporate ladder.)
South Africans we salute you!

Well said! You paint the true picture. South Africa is the place where the pioneering spirit collides with the slave mentality. I have no doubt that the pioneering spirit will find a way to profit from this collision.

Well done. 100% in agreement!

Time for that tax-revolt !

End of comments.





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