I SEE A BAD MOON RISING: EXPROPRIATION WITHOUT COMPENSATION A THREAT TO YOUR WEALTH
By Magnus Heystek, Director and Investment Strategist
There’s no doubt any more that the ruling ANC has embarked on a policy
path of radical populism in order to stay in power in the next and possibly
several more national elections. It has stolen most of the radical ideas from
the Economic Freedom Fighters (EFF) leaving its leader Julius Malema with
only pure and unadulterated racism towards all non-blacks as his only source
of political oxygen.
The long-dormant policy of Radical Economic Transformation (RET) has, with
the disappearance of Jacob Zuma from the levers of power in February,
suddenly been resuscitated and injected with a new sense of urgency.
SO FAR WE HAVE HAD:
Promises of free tertiary education for the children of people earning a
certain minimum salary, in effect almost 90% of the population.
The planned expropriation without compensation (EWC) of property.
The introduction of minimum wages.
The wages and salaries of government employees – after a short but
cowardly showdown with the unions – have been increased more than
planned for, leaving an unbudgeted hole of R30 billion in the budget.
Government also caved in to the radical demands of militant labour
unions at Eskom, with minister in charge Pravin Gordhan scrapping
the previously announced zero-increase for the bankrupt monopolist
supplier of electricity, with negotiations now on the table again for
increases around 9%. This in a time when inflation is below 5% and with
wages at Eskom much higher than in the private sector.
The introduction of the long-threatened national health insurance scheme (NHI) which, together
with proposed changes to medical aids, will radically overhaul and possibly destroy one of the few
remaining pockets of excellence we still have left in the country
If there is one thing that fills me with absolute dread,
it’s that the ANC government, with its proud record
of spectacular failures in almost all spheres within
its control, takes full control of the provision of
medical services to the people of this country. Think
Home Affairs on steroids. Think the Life Esidimeni
disaster which led to the deaths of 168 patients –
yet to this day no one has gone to jail or even paid a
fine for this. Think Aarto, think e-tolls. Think our
crumbling municipalities all around the country.
What’s even more terrifying is the quote by health
minister Dr Aaron Motsoaledi on Bloomberg:
“This is the first time in the world that this will be
done. We don’t know how we are going to do it, but
we are going to do it.”
When asked on Moneyweb Radio by journalist Ingé
Lamprecht about mismanagement and corruption,
Motsoaledi glibly batted these questions
away. One would be forgiven for thinking that state
capture, poor governance, fraud and corruption
were just a bad dream, such was his dismissal of
A short look at government’s attempts at running
essential services should serve as a warning that
the NHI has a low level of success:
SAA: A disaster year after year with total losses
over the past seven years now in excess
of R33 billion.
SA EXPRESS: Bankrupt but now grounded as
a result of failing to adhere to internationally
imposed safety and maintenance standards.
TRANSNET: In 2008 Transnet was profitable
with 3.7 million passengers using its services
daily. As the layers of fraud, corruption and
mismanagement are peeled away, the rot is
to be found in every nook and cranny.
Not to mention that only about 1.8 million
passengers use its services today.
ESKOM – considered one of the biggest financial
catastrophes to date, with its total debt
of about R350 billion now guaranteed by
government. Or should I say, taxpayers.
Motsoaledi’s comments about the high levels of
reserves held by the country’s medical aids – R60
billion, which represents a solvency ratio of 33%
against a statutory 25% as described by law – reflect
a poor understanding of the financial discipline
required to operate a medical aid. Medical aid costs
are greatly exposed to the vagaries of the rand.
Any sharp decline in the currency could easily wipe
out these reserves. He also revealed a deep-seated
ignorance of the business world when he indicated
that medical aid brokers will be banned, on the
basis that they earn R2 billion a year. If only he
really knew how little medical aid brokers earn. It is
the first sign, in my view, that government has its
beady eye on these pots of money.
The issue of EWC by itself, if handled poorly, could
pose a possible economic risk to the country, despite
the repeated assurances of president Cyril Ramaphosa
that it will not affect the economy or food
It hasn’t taken long for much of the Ramaphoria to
fade into Ramareality. This can already be seen in
the sharp decline of -2.2% in GDP in the first quarter
(not foreseen by many institutional economists),
a decline in the current account deficit
to 4.8% in the first quarter (ditto) and the drop
in the rand by almost 20% so far this year (ditto
again), while the JSE remains one of the worst performing
stock markets in the world so far this year.
So far this year the JSE has shown no growth in
ZAR terms, while the MSCI Index is up 9.4%, the
S&P 500 up by 12%, even the Emerging Market
index is up 3.7%. What should one make of these
initial, albeit early, signs that investors are not
going to hang around to see what could happen?
In a previous column I pointed out that more than
20 000 farms and plots are currently on the market,
almost all of them marked down, while the latest
figures from FNB reflecting transactions at the
deeds office indicate a decline of almost 8% in the
number of bonded properties being registered
at the deeds office in the first quarter of 2018.
I wonder why?
These numbers indicate to me that the state of the
residential property market has gone from bad to
terrible. Properties now remain on the market for
almost six months, and an increasing number are
being sold for less than the purchase price.
The balance sheet of millions of middle to upper
class property owners are being devastated by this
slowly unfolding financial disaster.
The banks, acutely aware of the true state of
the residential property market, have warned
government that EWC could put the R1.6 trillion
outstanding loan book to the property market
in danger. We are talking solvency here, ladies and
At what stage does the normally secretive Bank for
International Settlements (BIS) – the central bank
of central bankers – issue warnings about the
reserve levels of our banks, which are still a centre
of excellence, but for how long?
RED FLAGS GALORE
It’s been a while since I’ve listened to scenarioplanner
CLEM SUNTER who, with his concept of
warning flags, tries to identify danger areas – flags
– that people and investors in particular need to
look out for. Many are global, such as the rise of
Isis, a possible Korean conflict and so on, but many
are local. Surely by now several red flags must be
flapping furiously in the wind.
I have in several columns in the past written about
one of my own personal red flags, the brain drain
and the capital drain.
ACCORDING TO A RECENT REPORT FROM THE
PEW INSTITUTE, AN AMERICAN THINK TANK,
MORE THAN 900 000 PEOPLE HAVE EMIGRATED
FROM SOUTH AFRICA SINCE 1990. COUNTRIES OF
CHOICE WERE THE UNITED KINGDOM, AUSTRALIA,
CANADA AND NEW ZEALAND.
You can only get into these countries if you have
historical family ties, certain qualifications and/or
money, lots of it.
At the same time, a total of 4 040 000 people have
immigrated to SA, mostly from Mozambique,
Zimbabwe, Malawi, Kenya and the DRC.
The majority of people from these countries have
left their homes and families in search of a better
life. Although there are some wealthy people
settling in SA from other African countries, notably
Angola I am told, would it be fair to say that most
people in this grouping bring only their limited skills
and determination to improve their lives.
The introduction of a national health scheme is just
another tax to be added to the already crushing tax
burden on ordinary South Africans.
Government seems to think the tax base is like a
never-ending font of money. The tax base is
already incredibly small, with only 102 000 taxpayers
paying almost 36% of all personal income taxes.
How much more can this grouping be taxed before
they react negatively? Some two weeks ago the
New York Times published an article on its website
about how Sars officials were so desperate about
their revenue targets for the year ending February
28 2018, that they started cold-calling from a list of
high-earning taxpayers, literally begging them to
pay their taxes on time.
RUSH FOR THE EXIT
The old saying that money is a coward partially
explains the sharp rise in the number of high net
worth individuals (HNWIs) who are leaving the
A research company called New World Wealth
(NWW) published a lot of data about the HNWIs in
SA, which according to NWW totalled 43 800 at the
end of 2017, and conveniently compared this to a
number of 43 600 some 10 years ago.
What it didn’t publish was that at the end of 2014
its own numbers reflected the total number of
HNWIs in SA at 46 800, which means there was a
rush to the exit doors at OR Tambo by people in
this category – 5 000 in total.
This was counterbalanced by an inflow of 1 800
HNWIs from Africa, mostly Angola and Mozambique,
according to Andrew Amoils from NWW.
Any serious attempt to push through land reform –
which will entail the confiscation of commercially
valuable land from persons, companies or trusts –
will have serious effects, notwithstanding Cyril
Ramaphosa’s regular mantra that it will happen
without affecting the economy or food supply.
He needs to spell out how his four emissaries, who
have been tasked with raising $100 billion worth of
foreign investments over the next five years, will
convince foreign investors to overlook this threat
to property rights. With great difficulty, I would
suggest as the western world places great emphasis
on property rights.
You will find very few analysts or commentators
speaking about these rising threat in our media.
There are the exceptions such as Mike Schüssler
(economists.co.za), Dawie Roodt (Efficient Group)
and Frans Cronje from the Institute of Race
Cronje has just returned from delivering a
lecture at the Cato Institute in Washington where
he addressed a grouping of business people and
academics, warning about SA’s slide into a socialist
utopia, along the lines of Venezuela. Having
listened to him a few years ago at the annual SA
Quo Vadis? seminars hosted by Moneyweb and
Brenthurst Wealth, I can state that Cronje’s views
on SA’s future have deteriorated significantly.
The 2018 series of SA Quo Vadis seminars have just
been held countrywide. The focal issue was land reform
and its potential impact on property values, the
rand, the JSE and the state of the country generally.
I have never experienced such sell-out crowds,
where white and black were fearful of the future of
this country. Not one of the attendees in Pretoria,
Johannesburg and Cape Town, would – publicly at
least – get up and say that “Alles sal regkom,
moenie worry nie.”
DENIAL IS NOT AN INVESTMENT
I repeat for the benefit of Brenthurst clients what I
said at all of these seminars:
“If government is prepared to take the populist
route in expropriating your property without
compensation and dismantling your current entitlement
to world-class medical care, how long will
it be before it realises that too much money is
leaving the country (which it is) and cancels your
foreign investment allowance?”