South Africans are leaving the country in ‘big numbers’ – here’s why that’s not good

 ·5 Feb 2020

South Africa’s brain drain has gained momentum as skilled workers continue to leave the country with their families, says Desiré Pauw, head of Human Capital at Momentum Investments.

“An interesting observation at Momentum Investments is that employees (have) listed their termination reason as emigration,” she said.

“In most instances, it was that the partner/spouse that actually was employed abroad. Incidentally, the partners were also highly qualified and skilled.”

Citing recent talks with recruitment agencies, Pauw said that South Africans are leaving the country in ‘big numbers’.

“Employees across sectors and of all demographics emigrate. The main reasons according to their research are corruption and crime-related,” Pauw said.

“When highly skilled and paid workers leave the country, it severely impacts the country’s income and ability to develop the country.

“The reality is that the higher your salary, the higher your tax bracket which means more money contributing to developing the South African infrastructure.”

Pauw said it is rarely lower-earning employees that leave and that the loss of skilled, high-earning workers has made a visible impact.

Brain drain

It is no secret that South Africa is losing highly-skilled, tax-paying individuals in record numbers, who are seeking opportunities abroad.

“The loss of these skills can lead to a decline in tax revenues, a skills shortage, a negative impact on sentiment (which can be harmful to growth outcomes), a loss in critical health and education services (which are vital for a country’s short-term and long-term prosperity) and can dent the country’s long-term growth prospects through the erosion of innovative ideas which are lost through brain drain,” said Sanisha Packirisamy, an economist at Momentum Investments.

While the loss of a skilled worker can be damaging, Packirisamy said that this impact is multiplied when an entire family leaves the country.

“The negative impact on the economy can be wider when an entire family leaves as this could cause job losses to those providing services to the emigrating family, such as domestic workers, gardeners and childminders.

“In an already weak growth environment, this could exacerbate job losses in the lower-skilled areas of the economy,” she said.

“Once these individuals are unemployed, there could be a larger strain on the fiscus and a weaker contribution to growth in the economy as their spending ability is reduced.”

Not paying taxes

Momentum Investments also noted that rising emigration poses an additional threat to a shrinking tax base.

“The emigration of skilled workers negatively impacts South Africa’s tax base, given that the country is reliant on a narrow base to support the stretched fiscus,” said Packirisamy.

“The number of assessed taxpayers calculated by the SA Revenue Services for 2018 dropped to 4.917 million from 5.491 million in 2017, while the number of social grant recipients increased to 17.616 million in 2018/2019,” she said.

Packirisamy added that the tax revenue-to-GDP ratio (tax burden) is back to its 2007/2008 peak of 26.4%, suggesting that revenue options are constrained.

“Moreover, the ratio steadied in the last few years despite additional increases to personal income and value-added tax rates.

“This implies that South Africa may be approaching a point on the Laffer curve where additional tax increases become counterproductive and yield less tax revenue for government,” she said.

Read: South Africa is on a path of wealth destruction – but there is a silver lining

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