Skilled people in their 30s and 40s are leaving South Africa

 ·10 Feb 2021

Rand Merchant Bank chief executive James Formby has warned that the country’s post-lockdown economy is likely to be set back by a brain drain of skills leaving the country.

In an interview with BusinessDay newspaper, Formby said that the country is losing qualified and experienced people in their thirties and forties to positions overseas.

This is especially the case for skills in the infrastructure and development sectors, which have been highlighted by president Cyril Ramaphosa as key to the country’s recovery.

Formby added that it was extremely difficult to bring skilled people into the country which has led to an erosion in the country’s skill base – a serious issue flagged by RMB.

Other experts have warned that the country’s brain drain could come at a more direct cost: a shrinking tax base.

This can be seen in a recent study by the University of Cape Town’s Liberty Institute of Strategic Marketing which used the National Income Dynamics Survey to detail the number of adults living in households by income band.

Looking at the income bands defined as ‘middle-class’ and above, the survey shows that between 2017 and June 2020, this segment of the adult population declined from 6,100,000 to 2,700,000 individuals, translating to a 55.73% reduction.

On the other end of the spectrum, the number of ultra-poor individuals, earning below minimum wage, increased by 6.6 million individuals (54%).

Jean du Toit, Head of tax technical at Tax Consulting SA, said that the reasons for the decline are manifold and that many would attribute it to the brain drain of South Africans leaving the country which has been exacerbated by the lockdown.

He said that there are only a handful of South Africans who actually contribute to the personal income tax pool.

“In terms of the 2020 Budget Review, roughly 90% of the income tax payable by individuals are paid by the middle-class and above – as defined in terms of the survey.

“This puts the result of the survey into perspective; in a three-year period, our personal income tax base appears to have more or less halved, and it is likely that a large chunk of that reduction occurred after February 2020.”

Watch: Business Talk – In conversation with James Formby

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