4 ways to insulate yourself from South Africa’s economic and political woes

Extra taxes for NHI, the strong possibility of having part of your pension forced into funding failing state-owned enterprises (SEOs) like Eskom, and the JSE having returned zero in dollar terms over 15 years are a powerful catalyst for emigration.

This is according to Ian Edwards, a partner at wealth manager Austen Morris Associates, who said that while increasing numbers of South Africa’s are emigrating, many can’t, or won’t, leave.

“As easy as it is to say, the high financial and emotional costs, make the reality of emigrating much harder when people start to run the numbers. Many people also don’t want to leave their homeland and have adopted a ‘come what may’ approach.

“But there are steps you can take to insulate yourself from worries such as severe wealth erosion and what will likely be a failed nationalised health care system.”

Below he outlined some of the options available to South Africans other than emigration.


Secure a second citizenship

“This can be expensive but it’s important for South Africans to be globally relevant,” said Edwards.

Many countries offer Second Citizenship programs that allow you and your family to settle, work and move freely. And even pass down the new citizenship to future generations.

Once secured for the family, these can be put in the back pocket and used when needed. Edwards advised to look at cheaper options such as Grenada at a typical cost of $200,000 (R2.9 million) for a family of four.

Portugal offers a Golden Residence Permit Program offering several routes to citizenship starting at €350,000 (R5.7 million).

Edwards pointed out the variability in the rules to qualify, as well as divergent rules on estate duty liability. He said that deciding on the best country should be done with an advisor.

Buy global private healthcare 

While no one knows what the final NHI plan will look like it is safe to say it will increase personal taxes and severely degrade the quality of local healthcare.

“Pricey as it is, consider something like Global Private Medical Care insurance, typically offered by companies in Europe and the US.

“It allows you preferential access to private healthcare anywhere in the world,” Edwards said.

As an indication, for a family of four cover starts from R14,000 per month while for a single person cover starts at R4,500 per month.

Invest offshore for better returns and education

In dollar terms, South African investors in the JSE would have made very little in recent years, a significant setback in wealth creation. And the outlook remains bleak.

“Investors need consistent offshore, CPI beating hard currency investments for the long term, ignoring trying to time the rand correctly. We think investors should consider the likely better prospects of investing in listed quality global equities,” said Edwards.

Closely related, he added that many South Africans were also keen to give their children an overseas education.

“Few appreciate just how pricey it is because it’s not just tuition costs you have to consider.

“For example in the UK tuition would cost around a minimum £10k (R182 000) per year for a decent university but you can add another £20k (R364 000) a year for living expenses.”

People assume this can be funded out of monthly salaries income, but without hard currency assets producing a good return it’s extremely difficult – especially if the rand continues to weaken.

“Therefore we suggest starting ringfenced, hard currency savings or investment account for children well in advance of when they’ll need it.”

Sweat South African assets

Despite continuing poor SA asset returns, namely JSE shares and residential property, people do need to keep funds in the country for expenses and liabilities.

“Investors, therefore, need to adopt better, smarter strategies to get the most out of their local money,” Edwards said.

“For High Net Worth individuals, there are sophisticated solutions, such as gearing, that allow the investor to maximise their balance sheets and hedge the downside with more sophisticated products.”

Regular investors, however, can no longer invest in balanced funds or a top 40 ETF and expect to even match inflation, he said.

“Dynamic, active fund management with low fees, will provide the active decision making analytics to get those extra few percent of return.

“For example blending of managers’ styles or selecting a Top 50 over a Top 40 ETF is a decision that can deliver better returns by limiting high exposure to a single stock like Naspers thereby creating a more diversified portfolio,” Edwards said.


Read: This scary graph shows how many South Africans are emigrating to New Zealand

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4 ways to insulate yourself from South Africa’s economic and political woes