A sum that is forecast to grow by 30% over the next 10 years.
Sounds amazing, right?
Admittedly, the report was written for the wealth sector, but scratch below the surface and you can see that the reality is quite different.
Taking a long, hard look
“The report paints quite a rosy picture of South Africa, which I don’t think is completely accurate,” Bronson Friedman, wealth strategist at Capta Financial Services, told International Adviser.
When taken on a per capita basis, South Africans hold $11,500 each – placing the country behind Mauritius in terms of highest average wealth across the continent.
“We may be second in Africa; but, if you look on a global scale, we actually rank 64th.”
For Friedman, the only way to get a true measure of how South Africa is performing, globally, is to look at its Gini coefficient.
“It’s a value between zero and one, with zero being a perfectly equal society and one being where all of the wealth, effectively, goes to a single person.”
The latest OECD figures give South Africa a score of 0.62. To put that into context, the United States has a Gini coefficient of 0.39, while the UK is at 0.35.
“Ours is one of the highest in the world,” Friedman said. “The difference between the poorest and wealthiest person is difficult to even fathom.”
On one hand, South Africa has a massive population of people who are unable (while some are unwilling) to pay tax.
And on the other hand, there is only so much that its wealthy base will tolerate when it comes to accepting that it has to shoulder the financial burden.
“There are about 57 million people in South Africa,” said Samantha Bowen, executive director of Carrick Wealth.
“Of which, only 3.5 million are registered to pay tax. And of those people, 1.5 million pay 97% of the income tax in the country.”
The economy has been so dependent on such a small pool of taxpayers for so long, that the only other source of potentially reliable revenue it has been able to identify is South African expats.
From March 2020, the country will become one of the few in the world to tax its people using a citizenship-based taxation system – rather than a residency-based one.
According to the New World Wealth report, South Africa is currently home to five US dollar billionaires.
Worldwide, there are an additional nine billionaires who are from South Africa, suggesting that they have found more favourable countries in which to live and hold their wealth.
Bowen admitted that she was surprised by the 30% growth forecast.
Between 2008 and 2018, the Johannesburg Stock Exchange returned 42% in US dollar terms. This compares with a more than 120% return by the MSCI world index.
“Factor into that rand depreciation, which has been, on average, 5% per annum since 1971. So, when you take into account inflation, tax and depreciation – your money is eroding. It is just rotting away.”
When she first moved to South Africa over 11 years ago, local residents were steadfastly committed to keeping the bulk of their wealth in the country.
“It used to be that people had, at most, 7-7.5% of their net worth outside of South Africa. Now, they are taking between 30-40%. It has never been like that before,” she told IA.
What offshore investors are primarily looking for, she says, is hard currency in a safe jurisdiction that has access to global markets.
“If you look at our current wealth distribution,” Friedman added, “you have got 10% of the population that owns 50% of the household income, which is massive.
“You have then got the poorest 40% of the population, which accounts for less than 7% of household income. And the poorest 20% now account for less than 1.5% of the income.”
He said: “Unemployment in South Africa, between 2008 and 2016, increased from 22.5% to 27.5%. While on the other end of the spectrum the ultra-high net worths continue to earn, continue to do well, and the gap just gets bigger and bigger.”
One scheme that could have supported job creation while giving investors a tax break is the Section 12J scheme.
“What Treasury was trying to do was promote small business growth where you could invest in a private equity-type vehicle and get a tax break. It was working relatively well and gained quite a bit of traction,” Friedman said.
But a rule change by the South Africa Revenue Service (Sars) has seen the attractiveness of the scheme diminish.
“Certain corporates were putting these schemes in place to take advantage of the tax break and have, sort of, ruined it for everyone,” Friedman said.
Other small programmes are being launched, but not to the scale of the Section 12J scheme.
Education is key
The gulf between the richest and the poorest in the country looks, arguably, insurmountable.
For those unable to put aside ZAR100 (£5.63, $7.05, €6.28) a month, there is no easy route out of poverty.
“I think it’s close to impossible,” Friedman said. “People are earning ZAR4,000-5,000 a month. They have to pay rent, electricity, food, transport and other expenses. Where does someone in that situation find ZAR100-200 to put into a savings account?”
The spiralling cost of petrol across South Africa was one example flagged up by Bowen as to how tax increases are felt far more acutely by those living below the poverty line.
Friedman and Bowen both firmly believe that education is the only way to improve the situation in the long term.
“I don’t believe anything will substantially change if the education doesn’t,” Bowen said.
One strategy she is developing is a Carrick Academy, which will see her going into local schools to speak directly to students about the world of finance.
“It’s about educating them, explaining why you should save, what impact starting off with just ZAR100 a month could have. It gets people into the mindset of saving.”
While the process is still being finalised, it will likely involve setting the students up with dummy trading accounts, talking them through the investment world and helping them to contextualise what financial advisers do and where they sit in the ecosystem.
The programme will initially target one or two schools, but she hopes to expand to others in future.
Never too late
And it’s not just school-aged people that could benefit from learning more about money and investing.
“I would say that probably 90% of the population doesn’t know what to do when it comes to their finances,” Friedman said.
This prompted him to put pen to paper and write a book with his colleague Donavan Maree, called Rands and Common Cents.
“If more information was available it would empower people to make decisions about their money.”
Split into eight chapters, the book takes readers from financial security to financial independence.
It opens with the phrase: “You don’t need more money, you need a better strategy.”
For those unable to put aside any money each month, it is unfathomably difficult to see a way out of their paycheque-to-paycheque lives.
Wealth reports that fail to dig below the surface and highlight the prevailing inequality do little to help.
But South Africa is still a very young country, with a young population – meaning that it can turn around.
“I still believe there is so much potential in Africa and in South Africa,” Bowen said. “But we have to work together more.”