Leaders who create the right conditions to keep millionaires find that all of their residents – not just the wealthy ones – are richer for it
Writing about the super-rich in South Africa is hardly the formula to win plaudits from the politically correct or the army of virtue-signalling trolls who inhabit the Twittersphere and blogosphere which is laughingly mislabelled “social media”. Antisocial media, given the outpourings of bile and hate often spewed on these platforms, might be a more accurate label.
However, Ruchir Sharma – author of the excellent study The Rise and Fall of Nations: Forces of Change in the Post-Crisis World – hardly fears the denizens of democratic outrage. Perhaps his day job as global strategist at Morgan Stanley Investment Management inoculates him from such concern; but his expertise and research is more focused on developing than mature markets.
This past weekend, in the pages of the New York Times, Sharma penned an interesting article headlined: “The Millionaires are Fleeing. Maybe You Should, Too”.
He notes: “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.”
Of some interest, the article is based on research by a Johannesburg-headquartered company, New World Wealth, which these past six years has been tracking “millionaire migrations” and some 100,000 out of 15 million global US dollar millionaires changed their country of residence in the past year.
The current report, he notes, awarded the top place to Turkey as a country from which the super-rich have fled, followed closely by failed state Venezuela. Some 12% of Turkey’s millionaires left the country and, as Sharmir notes, “As if on cue, the Turkish lira is now in freefall.”
The report did not cite the figures for South Africa. But a 2016 survey by the same outfit noted that in 2015 South Africa lost 950 millionaires to emigration – and given the annus horribilis of the final year of Jacob Zuma’s misrule and our cratering currency, 2017 was probably even worse.
Portugal, which in exchange for €500,000 property investment there offers its so-called “golden visa” applicants rights of residency, now records that just behind Brazilians, South Africans constitute the second highest number of applicants.
The head of research at New World Wealth, Andrew Amoils, said the previous decline in numbers was mainly due to “poor economic conditions”, followed by “the inability (presumably of leavers) to deal with changing social dynamics”; “concerns over their children’s future”; crime; and BEE requirements etc.
So much for the factors pushing the rich out. What brings them in or attracts wealth creators? According to the survey by New World Wealth, topping the list are: “strong ownership rights”; “strong economic growth”; a well-developed banking system; “free and independent media”; “low levels of government intervention and taxation”; and “ease of investment”.
Other than the boisterous media space here, it is easy to see how we have slid ever further down the totem pole of attractive places to be for the well-heeled, the very demographic who have the ease of mobility not given so easily to less wealthy citizens. Since the report, further tax hikes have been given to the top bracket of payers, the debate on expropriation without compensation has been cranked up to fever pitch, and government intervention has increased.
And in the same period the growth percentage has been outpaced by population increase. Of course the arrival of Cyril Rampahosa has changed the negative optics somewhat. But as a mergers and acquisition lawyer at Norton Rose Fulbright, Kevin Cron, told the Sunday Times, “investor interest is still quite cautious”.
Beyond the movement of multimillionaires and the moolah, we have the data published by the World Bank and the International Finance Corporation. South Africa’s ranking for “ease of doing business” has dropped from a respectable 28th position out of 178 countries surveyed in 2006 to a lowly 74th out of 190 countries on the 2017 list.
Hot on its heels were the remarks of Investec’s global head of private banking, Ciaran Whelan. His clients are disproportionately from the ranks of the super-wealthy. He told a video conference why some of the bank’s clients view SA as high risk: “South Africa is deemed to be a high risk jurisdiction in terms of the compliance, and the amount of paperwork and the number of questions you have to answer is extremely high.”
No doubt a lot of the local chattering class will say “good riddance”. But then there is the news from Eskom which spotlights the truth of many in the current millionaire class. The number of people on the public sector payroll has expanded massively over recent decades from 1.45 million in 1993 to 2.04 million last year (at a cost of R387-billion to taxpayers each year), according to John Kane-Berman of the Institute of Race Relations. And there is no shortage of millionaires at the top end of state-owned companies, where salaries outpace the private sector by around 30%. Yet, in the case of tottering Eskom, its chairperson recently revealed that it was around one third overstaffed, and its total workforce had increased a whopping 50% in just 10 years. But all the while its productivity has declined, its revenue stream has shrunk, and its outstanding debt now tops R3,867-billion, just a shade under 10% of the total economic produce in the country.
But the millionaires who are moving out are not unproductive – they are the skilled, the entrepreneurs and often the wealth and job creators.
These days the most uncomfortable discussion –around race and identity – actually requires no move out of the comfort zone, least of all for those who claim any slight or unsuccessful promotion is attributable to the unalterable condition of racial classification.
But a pressing matter is also keeping local millionaires at home. Otherwise how will the overextended fiscus preserve its tax base, disproportionately dependent on high-income earners?
With such high levels of inequality in SA and with only around 40,000 of them in the country, they are neither a matter for much sympathy and only collectively account for one seat in parliament, hardly a vote-winning constituency.
But as Ruchir Sharma observes: “There aren’t a lot of them, but they can tell us a great deal about what is going wrong – and right – in a country’s economic and political ecosystems. Leaders who create the right conditions to keep millionaires home will find that all of their residents – not just the wealthy ones – are richer for it.”
One wonders whether a member of this elite, President Cyril Ramaphosa, has added this consideration to his inbox?
- Leon (@TonyLeonSA), a former leader of the opposition, now chairs Resolve Communications and is a senior adviser to K2 Intelligence of London
- Featured in Times Select, Business Day