Why global executives give SA a miss

FIGURES released this week show just how cheap it is to live in South Africa. No, we’ve not taken any illicit substances — it is cheap.

Provided you are an expatriate with a fat corporate salary in hard currency behind you.

An offshore trust fund is also useful.

For most of us, the cost of living in South Africa is perilously high and rising at an alarming rate. The Reserve Bank’s decision to raise rates by a significant 25 basis points this week — making it 5% more expensive to borrow — shows its concern about the rate at which prices are rising.

While locals are feeling the pinch, advisory group Mercer, whose research is relied on by governments and multinationals when placing expatriates, says Johannesburg and Cape Town are among the least expensive major cities in which to live in dollar terms. And that’s by a long shot.

Mercer measures the cost of about 200 items in each city: everything from housing, transport, food, clothing to household goods and entertainment. While

Despite a cheaper cost of living, labour and political unrest blot SA’s copybook

the priciest cities for expats, Luanda in Angola and N’Djamena in Chad are African, Johannesburg and Cape Town are bottom of the list in positions 203 and 205 respectively.

The primary reason for this is, of course, the rand.

The collapse in the value of the rand in recent years has meant that in dollar terms South Africa is dirt cheap.

The currency has depreciated more than 30% against major global currencies over the past 18 months, making the rand, in terms of purchasing power parity (PPP), one of the most undervalued in the world.

The Economist Big Mac index introduced in 1986 as a lighthearted attempt at establishing PPP by comparing what a Big Mac costs across the globe, suggests the rand is 50% undervalued vs the US dollar.

Ironically, what makes the country cheap for foreigners makes it increasingly expensive for locals.

The weak rand is a primary driver of inflation because so much of what we consume — from oil to high-end technology, capital equipment and luxury goods — is imported.

This means South Africans have to be increasingly innovative in finding ways to make ends meet. On the other hand, well-heeled foreigners on assignment tend to do rather well. That should make South Africa an exceedingly attractive place to work.

Why then has there been a big fall in the number of high-powered executives scouting the country for jobs?

Up to the end of 2012, there was no shortage of enquiries for top jobs in South Africa.

When board nomination committees gave the instruction to head-hunters to find a new boss for a company seeking fresh ideas, they cast the net far and wide, and were able to interview global talent.

The slump in interest began towards the end of last year, but had its genesis around the time of the Marikana shootings and their aftermath.

Since then, confidence in South Africa’s growth prospects diminished gradually. The Reserve Bank’s optimistic 2.8% January target has been revised down twice — most recently to 1.7%.

The rise of trade union Amcu, the split in Cosatu with Numsa becoming increasingly militant and the emergence of a potentially powerful far left in South African politics, which may stymie the centre of the ANC to drive much-needed policy reform, have been amplified by ratings downgrades and the drop in the value of the currency.

There was a time when a large proportion of new CEO appointments on the JSE was foreign — particularly in the aftermath of the financial crisis when jobs dried up elsewhere.

The retail sector has been the biggest employer of foreign CEOs such as David Kneale at Clicks, Ian Moir at Woolworths and Steve Ross at Edcon.

The change might also have something to do with the fact that boards seeking to transfer talent to SA are looking at costof-living indices and noting that the country’s two main cities are among the cheapest in dollar terms worldwide, and have adjusted pay scales accordingly.

No potential CEO wants to deal with the considerable challenges of the SA environment and take an effective pay cut — not when other emerging markets offer more stability alongside the stimulation of running a big business in faster-growth environments.

Right now, South Africa is just not ticking enough boxes.