Despite the magic of [Nelson] Mandela and the so-called rainbow miracle, 900,000 South Africans left the country from 1990 to 2018. Although this covers all eras from [FW] De Klerk through to [Jacob] Zuma, it gives a flavour of the size of the exodus. And the group with the greatest mobility and the easiest options were SA’s superrich.
In February 2016, the SA Wealth Report, the findings of a 2015 migration survey by New World Wealth, a Johannesburg-based consultancy, revealed that almost 1,000 millionaires left SA in 2015, and the number of dollar millionaires in the country fell from 46,800 in 2014 to 38,500 at the end of 2015, a fall of 18% in one year. By 2018 SA had only about 2,000 multimillionaires (with assets worth $10m or more) and just five genuine billionaires (each with net assets of $1bn).
Over the past few years, as the SA state has made evermore extravagant demands on its hard-pressed taxpayers to fund a dizzying array of government initiatives — personal taxes are the single largest component of state income — it has been sobering to be reminded just how small the tax base in the country actually is. In 2020, there were 14-million people registered as taxpayers but, as financial journalist, Bruce Whitfield indicated, just 4% of them (574,000 people) paid more than half of the R546.8bn in revenue the state collected from individuals in 2019. An even tinier subgroup — 125,000 people, or 0.2% of the country’s population — contributed a whopping R150bn of this total. This small elite was, in Whitfield’s words, “a handful of globally mobile individuals”.
Even in the rarefied stratosphere inhabited by the country’s uberrich there was a sharp division on the country’s prospects, at least as they chose to express it in public. The optimists among the elect were given voice by Adrian Gore, who had, with great determination, high intellect and actuarial wizardry, created the largest medical-insurance company in SA, Discovery.
Acknowledging and listing some of the major crises and unresolved issues confronting the country, he took on the doomsday “declinists” who saw an Armageddon outcome for the beleaguered nation. His world view was founded on what he termed a “vision-based leadership approach” that saw SA’s problems as “real but solvable”.
It wasn’t so much that the country was in bad shape, Gore noted, but that bad attitudes shaped outcomes that tended to be negatively self-fulfilling: “Attitude drives fundamentals, not the other way round”, he cautioned.
But he had become decidedly bearish on the country’s prospects as the 2010s drew to a close and he certainly felt unloved by his own government. “The French gave me the Légion d’honneur; I’ve created job opportunities; I pay my taxes; I give away money. You’d think people would say ‘thank you’, not ‘eff you’. I’m sick and tired … My heart is here, but my body will be overseas. I don’t want to hear day and night about what we, the Rupert family, allegedly did wrong. That’s the main reason [for wanting to leave].”
Doubtless, Rupert also seethed with fury at the recent memory of one of Zuma’s wayward sons, Edward, charging him with “corruption” at a local police station in March 2016, and then later declaring that the Stellenbosch tycoon had the judiciary under his thumb.
I’d come across Ruchir Sharma when I read several of his books, including The Rise and Fall of Nations: Forces of Change in the Post-Crisis World, and had enjoyed his pithy observations from his perch as global strategist at Morgan Stanley Investment Management. There, he used his expertise to focus a lot of attention on emerging markets such as SA.
Back in 2012, when I was reporting to SA and its international relations department from my ambassadorial post in Argentina, I often used to flag, alongside my weekly reports, articles of interest relating to the country. One, penned by Sharma under the headline “SA should forget the Brics era” (Brics being an acronym for developing-world economies Brazil, Russia, India, China and SA), noted the country’s high levels of unemployment, low growth and investment, and overreliance on consumption spending. Sharma observed overall state malfunction on all fronts: “The result is maximum government, minimum governance.”
Five years later Sharma widened his gaze, in June 2018 noting the findings of the same Johannesburg-based research outfit, New World Wealth, that had provided the figures on the paucity of SA-based billionaires. He looked at the global trends used by New World Wealth to pen an article for The New York Times with the arresting headline “The millionaires are fleeing. Maybe you should, too”.
New World Wealth’s global survey didn’t deal with SA per se but its observations and Sharma’s gloss on them could have been etched on a Pierneef canvas. He noted, “When a country begins to fall into economic and political difficulty, wealthy people are often the first to ship their money to safer havens abroad. The rich don’t always emigrate along with their money, but when they do, it is an even more telling sign of trouble.”
Tracking “millionaire migrations”, about 100,000 out of 15-million global US-dollar millionaires had changed their country of residence in the preceding year. The report, Sharma noted, nominated Turkey as the top country from which the superrich flee, followed closely by failed state Venezuela. About 12% of Turkey’s millionaires had left and, Sharma noted, “As if on cue, the Turkish lira is now in a free fall.”
Taking these figures into consideration, if in 2015 SA lost 950 millionaires to emigration, and given our cratering currency and that it was the final year of Zuma’s misrule, it’s probable that 2017 was even worse. In fact, by the start of the third decade of this century, January 2020, the situation had indeed deteriorated considerably. “Three years ago,” a local newspaper reported, “SA had 7,500 taxpayers earning more than R5m annually, but this dropped by 1,000 in 2018. The figure for last year is not yet available.”
Head of research at New World Wealth Andrew Amoils said the decline in numbers was due mainly to “poor economic conditions”, followed by “the inability [presumably of leavers] to deal with changing social dynamics”, “concerns for their children’s future”, crime and BEE requirements, among other issues.
In early 2020 veteran estate agency head Herschel Jawitz advised that “stock levels” (a euphemism for unsold homes on the market) “at the upper end”, as in the tonier suburbs of northern Johannesburg, were “the highest they’ve been in over 35 years” — that is, since 1985, during the apartheid state of emergency, when the country faced a full-blown civil war. He estimated the number of sellers emigrating (presumably if they could flog their homes) was as high as 15% — one in seven sellers. “The numbers are big,” he warned.
Business as usual?
So much for the factors pushing the rich out. What brings them in or attracts wealth creators?
According to the New World Wealth survey, topping the list are strong ownership rights, strong economic growth, a well-developed banking system, a free and independent media, low levels of government intervention and taxation, and ease of investment.
Other than the boisterous media space in SA, it’s easy to see how we’ve slid ever further down the totem pole of attractive places to be for the well-heeled. SA’s ranking for ease of doing business dropped from a respectable 28th position out of 155 countries surveyed in 2006 to a lowly 74th out of 190 countries on the 2017 list. In his state of the nation address in early 2018, President Cyril Ramaphosa promised to raise the country’s standing in the rankings by 25 places, but since he and the government have missed practically every other target range since, from growth in GDP to employment creation, the wish in this case is unlikely to father any dreams.
Another anomaly was the government, even under supposed “business-friendly” Ramaphosa. Beyond the chronic unanswered e-mails and telephones at various ministries, especially those tasked with promoting investment and industrial activity, and even outright hostility from many key quarters in the senior reaches of the ANC, there was often a studied indifference to the views of the country’s wealth creators.
War on wealth creators
In early 2013, at the height of an enervating crime wave, FNB, one of the country’s largest retail banks, ran an innocuous advertising campaign entitled “You can help”. On its website and on other online platforms, the bank featured young South Africans commenting on their hopes for the country. One youngster opined, “Stop voting for the same government in hope for change. Instead, change your hopes to a government that has the same hopes as us.”
In the campaign’s “live broadcast” segment expressing the younger generation’s dissatisfaction with the government’s failure to deliver on quality education and crime control, education minister Angie Motshekga was called “brainless”.
This led to the bank being labelled “treasonous” by the ANC Youth League, and the political party received an unctuous apology from the CEO of the bank’s holding company, Sizwe Nxasana.
In March the following year, Dr Anthea Jeffery of the Institute of Race Relations (IRR) produced research that examined 11 items of legislation in immaculate detail. These ranged from tightened rules for black empowerment and mandatory gender and racial quotas for the boardroom, to controls over mining and offshore gas and oil exploration, to reduced protection for foreign investors and property owners. (Six years later, most had either been written into legislation or were at an advanced stage in the legislative grinder.)
Jeffery’s findings — she’d lectured me in public international law back in 1980 — were headlined “The ANC govt’s war on economic rationality”, an apt and lapidary title. The Economist magazine, something of a bible for scarce foreign investors, pressed home the point: “These … business-bashing bills are part of an ominous trend … a common thread is that ‘they weaken property rights, reduce private-sector autonomy, threaten business with draconian penalties and undermine investor confidence’.”
But far from being deterred by such warning voices, perhaps perversely being emboldened by criticism from “the usual suspects”, the government intensified the pressure on business and the private sector. By 2017, a state entity with a mouthful of a name, the Broad-Based Black Economic Empowerment Commission, announced, “acting on a tip-off ”, that it was investigating a slew of listed companies, including private health group Netcare, cellphone manufacturer Nokia and telecoms company MTN, for alleged non-compliance with empowerment legislation. Fines of up to 10% of annual turnover, a ban on doing business with the state for 10 years and imprisonment of up to 10 years for convicted individuals were among the business-friendly prescripts here.
Then, in 2018, the department of labour brought forth even stricter race percentages. Its Employment Equity Amendment Bill set compulsory targets, with massively increased penalties for non-compliance. Little dissent was heard from large business on this wheeze. And the voices of small business were, as always, ignored.
In the run-up-to the 2019 election the ANC didn’t hide its future intentions under vague bromides. Its election manifesto explicitly called for expropriation of property without compensation, an issue that has been in the public domain and debate since first adopted by the ANC conference in 2017. It also dusted off from the NP siege economics playbook of the apartheid era an equally dangerous idea: prescribed assets. This, simply put, would oblige private pension funds to invest in state companies, the very sites of mismanagement, plunder and insolvency bequeathed from the locust years of Zuma Inc. Even the trade union Cosatu sounded a note of caution on this.
What might have been
SA is the second-largest economy in Africa. The country is rich in natural resources and is a leading producer of platinum, gold, chromium and iron.
The economy recorded its fastest growth rates since the 1960s over the period 2004 to 2007, with real GDP growth averaging 5.2% per annum, although this coincided with both a booming commodities market and strong bull market on the stock exchange.
However, the same government that for the first two decades of democracy practised fiscal restraint and prudence would soon throw out the rule book in funding expenditure beyond the country’s means and imperilling both its hard-won sovereign credit rating and its capital programmes. Bringing debt within levels of sustainability, flagged so warmly in the Goldman Sachs report of 2013, would be disregarded in the hope of buying off a ballooning civil servants’ payroll and an ever-widening pool of social grants recipients.
Successive governments have failed to address structural problems such as the widening gap between rich and poor, a low-skilled labour force, the high unemployment rate, deteriorating infrastructure, and high corruption and crime rates.
As these events have gathered pace, the government’s culture of failure has been explained repeatedly, and to an ever more, often violently, disaffected citizenry, not by self-correction at the top, but by scapegoating racial minorities below. Short-term populist solutions and slogans have been offered in place of the longer-term policies that would realistically address the country’s needs and provide a leg-up to a chronically undereducated and poorly skilled majority. The skilled, educated and more affluent minority have retreated into enclaves of first-world exclusion or simply emigrated.
It’s an incontestable truth that before you can slice the pie, you need to grow it. And this in turn requires sustainable public finances, high levels of investment and business confidence as preconditions for job creation. But each of these was in the deep-red zone as, in 2020, the country tipped into its second recession in two years, the third since 1994.
David Maynier, who’d served as my chief of staff when I was leader of the opposition, was appointed MEC for finance in the Western Cape after the 2019 election. At one of our regular Saturday coffee sessions, he provided a telling statistic: if SA had achieved the 5.4% GDP growth promised but never sighted by the National Development Plan (NDP), a broadly market sensible approach to eliminate poverty and reduce inequality by 2030, then average GDP per capita — generally regarded as a good measurement of a country’s standard of living, illustrating how prosperous each citizen feels — would have doubled in just 13 years. Instead, the wrong policy path chosen had ensured a minuscule GDP growth, and meant it would take over 70 years before the same outcome could be achieved.
Screeching to a halt
It was profoundly ironic that at midnight on the first day of the lockdown, March 27 2020, Moody’s Investors Service announced its downgrade to junk status of SA’s sovereign bonds. This would send the government’s borrowing costs into the stratosphere and discourage most international investors from funding the country’s burgeoning current account deficit except at exorbitant cost, creating a debt trap in which repaying the borrowings of the state subsumes vital spending on core departments, or when the point is reached where the state can no longer meet its debt obligations, and it defaults.
Ramaphosa and the government had spent the three years since April 2017, when two other ratings agencies, Fitch Ratings and Standard & Poor’s (S&P), had downgraded the country to junk status, simply doing nothing to avert economic meltdown. In fact, they actually aggravated the possibility of our final exit from economic normalcy with vastly unaffordable and credit-ruinous gestures. These ranged from padding public servants’ salaries by an estimated 40% above inflation for the past dozen years, to the free-university-fees giveaway at a projected cost of R172.2bn by 2022. And the missteps on the Eskom and energy fronts are as long as they are depressing.
Hobbled and disarmed fiscally in the most important fight of our lives, SA needs to alter course. Yet there is little sign of state shibboleths being changed. In fact, the responses of key ministers indicate that there will, pandemic economics not withstanding, be a doubling down on some mistaken policy choices undertaken before the virus struck.
The economic peril was in plain sight at the early stages of the pandemic: the lengthened lockdown forced the Reserve Bank to slash the interest rate to its lowest point, 3.5%, in the post-apartheid era. This was good news for hard-pressed and retrenched consumers; not so much for pensioners and savers. Speedy action by the Bank was also required to calm turbulent local bond markets, where interest rates on government bonds spiked to more than 13%, representing the price government has to pay to borrow money. The intervention seems to have worked, for now, as markets have settled to a nervous “wait and see” posture.
But the episode was an ominous portent. SA, with its low savings rate, depends on foreign funders. Higher bond rates would usually attract theR96bn of fast money that circles the globe looking for higher yields. Here, though, a becalmed economy, ruinous public finances and escalating political risk have sent foreign investors fleeing. Foreign funders spoke with the quiet but deadly click of the mouse: in the first quarter of 2020, numbers released by the Bank showed an outflow of R96bn in bonds and shares, illustrating a sharp decline in confidence.
Analysts Greg Mills and Ray Hartley of The Brenthurst Foundation highlighted that these figures predated the strangulation of the economy by Covid-19 regulations, indicating that the metrics for the succeeding quarters would be even worse. They offered the elegiac warning, “A lesson from Zimbabwe … is that just when you have seemingly hit rock bottom, things can always get worse. And in SA, things are now about to get much worse.”
The above column that appeared in The Business Day is an extract from Tony Leon’s latest book Future Tense – Reflections On My Troubled Land. It can be purchased here