What we get right – and very wrong – in creating wealth in South Africa
Global wealth advisory group, New World Wealth, has scored South Africa when it comes to what it believes are the main factors that encourage wealth growth in a country.
According to NWW’s South Africa 2017 Wealth Report, the country has a total of 40,400 dollar millionaires, and has many as 2,130 individuals with more than R125 million in their account.
Prior data showed that at the end of 2015, there were 38,500 millionaires in South Africa – down 18% from 46,800 recorded at the end of 2014.
NWW’s data suggested that up until the end of 2015, as many as 19,000 of the country’s wealthiest individuals – predominantly white – had bailed on the country over the past 15 years.
The report cited turmoil in South Africa, security concerns and optimizing education of children as the primary reasons for the mass exodus.
NWW highlighted the top factors that encourage wealth growth in a country include:
- Strong ownership rights
- Strong economic growth
- A well-developed banking system and stock market
- Free and independent media
- A low level of government intervention
- Low income tax and company tax rates
- Ease of investment
- A low level of trade union involvement
- Safety & security
New World Wealth scored (out of 10) South Africa on each of the above factors:
Strong ownership rights – 6/10
This is the most critical component of successful wealth creation globally, the advisory firm said. “Ownership rights are relatively strong in South Africa. However, they are becoming a contentious issue – many feel that white-owned land and businesses should be distributed back to the African majority.”
It said that neighboring Zimbabwe offers a case in point as to what happens when ownership rights are stripped – once assets are taken away they tend to lose value as no one is willing to buy anything.
Strong economic growth – 4/10
South Africa scores moderately here, with GDP growth of 0.5% in 2016. Moderate growth of 1.2% forecast for 2017, NWW said.
A well-developed banking system and stock market – 9/10
South Africa has the most well-developed banking system in Africa and a well-developed stock exchange, the research firm said. “This encourages people to invest their money within the country and grow their wealth locally. It also ensures that any economic growth filters through to wealth creation.”
Free and independent media – 9/10
South Africa has a well-developed free media. This prevents government from getting away with wrong doing. It also sets South Africa apart from most other African countries, NWW said.
Low level of government intervention – 2/10
This is arguably the largest problem in South Africa, NWW said, as the ANC government increasingly tampers with the local business sector.
Low income tax and company tax rates – 3/10
NWW said that South Africa has high tax rates when compared to other emerging markets in Africa and abroad. “This deters business formation and expansion of businesses. Dubai and Singapore are examples of the power that tax rates can have in encouraging business formation – both have very low tax rates.”
Ease of investment – 5/10
South African exchange controls are a legacy of the Apartheid government, the wealth group said. “They make it difficult and complicated for foreign companies to invest in South Africa. They also discourage local companies and individuals from doing business abroad.
“Perhaps of most concern, they show that the local currency cannot be maintained without interference,” it said.
Low level of trade union involvement – 3/10
New World Wealth cautioned that South Africa’s unions have become increasingly active over the past five years, which has driven up wages and hence pushed up unemployment and inflation.
“It has also resulted in the closure of several mines and discouraged new business formation. The recent postal and platinum mine strikes lasted almost five months.”
Safety & security – 4/10
Safety is a particularly important driver for wealth growth, NWW said. South Africa features moderately in this regard with problems with rape, hijacking and armed robbery.
“However, it should be noted that South Africa is considerably safer than most other African countries. Neighboring Nigeria offers a case in point – Nigerian wealth growth over the past few years has been severely hampered by growing religious violence and woman safety concerns.”
Overall score – 6/10
Read: How many South Africans have more than R125 million in their bank account
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