10 major risks faced by South Africa’s wealthy
New World Wealth has identified a number of risks facing high net worth individuals living in South Africa.
These risks, the wealth advisory firm said, are particularly relevant after Standard & Poor’s downgraded the country’s credit grade to junk status.
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.
“It is likely that the South African government will continue to push Black Economic Empowerment (BEE) policies until previously disadvantaged groups make up at least 80% of the country’s HWNIs,” the 2016 report said.
“We expect this to happen by 2030.”
As part of its latest report, the advisory firm examined major risks facing the country over the next decade.
Major risks include:
- Rising government debt, which stands at US$161 billion in 2016 (51% of GDP), up from US$76 billion (28% of GDP) in 2006. That’s a US$85 billion increase in 10 years. This rise is mainly due to Eskom borrowing large amounts of money.
- A rising level of government regulation in the local business sector, which makes it unnecessarily complicated to start and run businesses in the country.
- Student protests – most students in SA expect free tertiary education which seems unrealistic considering that only a few countries worldwide have this and the ones that do are very wealthy on a per capita basis (example Sweden).
- Poorly run government parastatals such as Eskom, SAA, the Post Office and Telkom (semi-private), which are susceptible to corruption and inefficiency. These corporations are also heavily in debt and a drain on taxpayer funding. Some would even go so far as to describe them as a slush fund for people with government connections.
- Re-distribution of wealth agenda – being pushed by the EFF and by sections of the ANC. These policies could undermine ownership rights. Ownership rights are a critical component of successful wealth creation.
- A high crime rate. Rape, hijacking and armed robbery are the main problem areas.
- High tax rates, which deter business formation.
- A rising number of strikes and labor action over the past few years, which has impacted heavily on certain parts of economy, most notably the mining and utilities sectors.
- The unemployment rate in South Africa, which exceeds 27%. This is well above the emerging market average and the highest among the top 40 economies worldwide. This is partly due to a relatively high degree of labor market rigidity in South Africa with trade unions having a strong presence in the country.
- Poorly run municipal services – water, electricity, rubbish collection and sewage. Over-billing has also become a problem over the past year as municipalities seek to get out of debt.
- Deteriorating transport infrastructure and increased traffic congestion – traffic lights are often broken.
Read: How many South Africans have more than R125 million in their bank account
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