Financial rot starts setting in ...
The country has reached the point where it’s time to panic.
Country has reached the point where it’s time to panic, but for many people it’s game over.
For years I’ve warned about a confluence of financial and political undercurrents which, to me, had some sinister potential outcomes. This year, S&P Global Ratings and Fitch have downgraded us to junk, Pravin Gordhan was fired as finance minister, the economy endured two quarters of negative growth, unemployment is at record levels and Bloomberg has described us as the world’s third-most miserable country.
Business confidence is at record-low, 1985 levels. While the industrialised world is having a coordinated global expansion, our industrial capacity is shrinking.
Over R247 billion has left our equity market over 18 months and the JSE has been the worst-performing major stock market against all the world’s major investment regions.
The budget shortfall is expected to be over R50 billion this year and will rise to a total of R200 billion over three years. Where will that money come from?
Almost every day there are more revelations about the extent of the abuse we’ve been taking as law-abiding citizens, e.g. state capture and looting, thieving by the Zuptas and their cronies.
It all started with the ANC cadre deployment many years ago. The circle is now complete. Read the history of any formerly glorious empire, be it the Romans, Greeks, Dutch, Spanish, even the French and British. A society collapses when the money runs out, either through ill-timed wars or simple looting of the fiscus.
And government is surprised that tax morality is slowly imploding? The tax revolt will take many forms, some covert (cheating and avoiding taxes), others via overt means, e.g. reducing living annuity drawdowns to reduce the tax to be paid, or reconsidering buying expensive homes to avoid astronomical transfer fees.
What would this do to government’s revenue collection targets?
The collapse of our society will start in our very small tax base. You cannot have a situation in a country of 55 million people where approximately 60% of all personal taxes are paid by just over one million taxpayers.
The financial rot is permeating almost every corner of society and affecting our traditional asset classes, e.g. property, listed shares, farms, even businesses.
At an investment seminar two weeks ago, some of SA’s top fund managers presented to about 200 financial advisors. It was telling how different speakers answered the question about how much money they’d take offshore if they had complete freedom to do so.
The crux of the seminar was that the ability to have offshore exposure saved the bacon for millions of SA savers, investors and pensioners. No other asset class available to local investors has managed to keep pace with inflation over the last couple of years. Be thankful for the freedom fund managers have had to invest varying degrees of their portfolios into offshore markets.
SA is heading into a financial storm. In the short term we’ll be confronted with the possibility of Moody’s downgrading SA to junk, joining the other two large agencies.
SA’s local debt is currently included in the World Government Bond Index (WGBI). A downgrade means up to R140 billion will have to leave SA. Ignore this at your peril.