The biggest warning that things are about to get bad – when rich people flee

At its peak, the average wealth per person* in Zimbabwe was at $1,600 – but by the end of 2016, that figure sat at under $200, thanks to the turbulent and tumultuous regime run by president Robert Mugabe.

All eyes have been on Zimbabwe this week as an apparent military coup unfolded (and continues to unfold) in the country.

While reports around the events in South Africa’s northern neighbours are cloudy, it has been confirmed that the country’s military personnel have seized control of several state institutions, and have detained leaders, including Mugabe and his family.

Mugabe has been ruling Zimbabwe since 1980, and has been blamed for effectively destroying the country’s economy by driving out businesses and skills, and using political force to stay in power.

Wealth researchers at New World Wealth have published a timeline of events in the country, showing how wealth has shifted in the country since Mugabe’s rise to power, from his debut in 1980, to the country’s peak in 1990, and its subsequent fall.

According to NWW, average wealth per capita in Zimbabwe started at $800 when Mugabe came to power, and doubled to $1,600 in the next decade (1990). However, as political conflicts rose in the country over the next decade and a half, this wealth was broken down to just $200 by the end of 2016.

However, one of the biggest warning signs that trouble was on the horizon came between 1996 and 2000, when there was a marked increase in the number of wealthy individuals fleeing the country, NWW said.

“This is notable as wealthy people tend to leave a country before the big trouble starts. Wealthy people leaving a country is therefore normally seen as a ‘big warning sign’,” the group said.

What followed were the widely reported land grabs and farm invasions, as well as a slew of political battles where Mugabe retained power despite each election coming into question.

What about South Africa?

Prominent economist Dawie Roodt recently warned that South Africa could be on the same path as failed states like Zimbabwe and Somalia, if something wasn’t done to correct course right now.

While it’s difficult to say exactly where South Africa is on the overall map to failure, Roodt warned that a general process was typically followed, which echo the warnings from NWW – namely that to fix funding and revenue issues, the state puts pressure on taxpayers and savers, eventually causing them to flee.

Once a country has hit that point, the state could either try and fix things, or go from bad to worse.

“The economic consequences of all these approaches fluctuates between bad and horrible,” Roodt said.

According to NWW, for a country to thrive economically, it needs to meet certain requirements:

  • Strong safety & security – women and child safety is particularly important.
  • Strong ownership rights – 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 – economic growth is usually linked to wealth growth.
  • A well-developed banking system and stock market – ensures that people invest and grow their wealth locally. Also ensures that GDP growth leads to wealth growth.
  • Free and independent media – allows for the dissemination of accurate information to investors.
  • Low level of government intervention – government tampering in the business sector creates large inefficiencies within an economy. Government owned enterprises and parastatals are also a problem.
  • Low income tax and company tax rates – 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 – barriers such as exchange controls inhibit wealth growth.
  • Low level of trade union involvement – large trade unions deter businesses from hiring workers.
  • Wealth migration – the migration of wealthy people (HNWIs) to the country.

In Zimbabwe’s case, it has failed on pretty much all of these things, NWW said.

A broad analysis of where South Africa stands should reveal a worrying trend.

* NWW defines average wealth as the total wealth of a private individual. It includes all their assets (property, cash, equities, business interests) less any liabilities. The group excluded government funds from its figures, so wealth held by government officials is excluded.

Read: South Africa is on the path to Zimbabwe if we don’t act now: economist

Must Read

Partner Content

Show comments

Trending Now

Follow Us

The biggest warning that things are about to get bad – when rich people flee