South African millionaire numbers down 18% in 2015

This press release was shared by Andrew Amolis, the Head of Research at New World Wealth in South Africa (SA). The report is titled as the “The South Africa 2016 Wealth Report”:

The year 2015 was a particularly poor year for SA millionaires – High Net-worth Individuals (HNWI) volumes declined by 18% during the year (from 46,800 at the end of 2014 to 38,500 at the end of 2015).

This decline was mainly due to poor economic conditions in the country – the Rand depreciated by 25% against the US$ and the Johannesburg Securities Exchange (JSE) was down 22% in US$ terms during the year. A significant number of HNWIs also left the country.

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According to the estimates by the New World Wealth, South Africa lost just over 950 millionaires to emigration in 2015. Of the ones that left: 36% went to UK, 15% to Australia, 11% to USA, 8% to Canada, 5% to Mauritius and 4% to Israel (source: NW-Wealth 2015 migration survey).

In the survey, the top reasons that outgoing HNWIs gave for leaving included:

  • Financial concerns.
  • Inability to deal with changing social dynamics in SA.
  • Concerns for children’s future – schooling and universities.
  • Crime – rape and hijacking concerns highlighted.
  • Black Economic Empowerment (BEE) requirements.
  • Concerns that someone in family may contract HIV / AIDS due to prevalence of virus in SA.

As part of the report, New World Wealth also created a scorecard of the main factors that encourage wealth creation in a country. These factors include:

  • Strong ownership rights.
  • Strong economic growth.
  • A well-developed banking system and stock market.
  • Free and independent media.
  • A low level of government intervention.
  • Low income tax and company tax rates.
  • Ease of investment.
  • A low level of trade union involvement.

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South Africa scores below out of 10.

Strong ownership rights

4/10 – This is the most critical component of successful wealth creation globally. Ownership rights are becoming a contentious issue in South Africa – many feel that white-owned land and businesses should be distributed back to the African majority. Neighboring 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. Compulsory BEE ownership undermines ownership rights.

Strong economic growth

3/10 – South Africa scores moderately here, with GDP growth of 1.4% in 2015. Moderate growth of 1.5% forecast for 2016 (source: EIU Viewswire).

A well-developed banking system and stock market

9/10 – South Africa has the best developed banking system in Africa and a well-developed stock exchange. This encourages people to invest their money within the country and grow their wealth locally. It also ensures that any economic growth filters through to wealth creation.

Free and independent media

8/10 – South Africa has a well-developed free media including major independent publications such as the Beeld, the Sunday Times, the Business Day and the Mail & Guardian. This prevents government from getting away with wrong doing. It also sets South Africa apart from most other African countries.

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Low level of government intervention

2/10 – This is arguably the largest problem in South Africa, as the ANC government increasingly tampers with the business sector. Ongoing issues include: government owned monopolies such as Eskom, BEE ownership and compulsory Affirmative Action hiring requirements enforced by government. All of these factors create large inefficiencies within the economy.

Low income tax and company tax rates

1/10 – South Africa has high tax rates when compared to other emerging markets in Africa and abroad. This deters business formation and expansion of businesses. 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

2/10 – South African exchange controls are a legacy of the Apartheid government. They make it difficult and complicated for foreign companies to invest in South Africa. They also discourage local companies and individuals from doing business abroad. Perhaps of most concern, they show that the local currency cannot be maintained without interference.

Low level of trade union involvement

1/10 – South Africa’s unions have become increasingly active over the past five years, which has driven up wages and hence pushed up unemployment and inflation. It has also resulted in the closure of several mines and discouraged new business formation. The recent postal and platinum strikes lasted almost five months.

Overall score

4/10

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The report also highlighted the following country risks going forward:

  • A rising level of government regulation in the business sector. Aspects of this include exchange controls, high tax rates and BEE hiring requirements. All these factors make it unnecessarily complicated to start and run businesses in the country.
  • 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 HIV epidemic – it is estimated that 22% of the adult population is HIV positive, which equates to over five million people. This places significant strain on South Africa’s long-term prospects, both from a social and economic point of view. It is also a major deterrent to bringing up children in the country.
  • Government corruption and inefficiency, specifically relating to tenders and personal expenses.
  • The unemployment rate in South Africa, which exceeds 24% (source: trading economics). 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. The apartheid government has also created a large pool of poorly educated people, contributing to widespread skill mismatches.
  • A relatively high crime rate, which deters foreign investors and tourists and is a major deterrent to bringing up children in the country.
  • The rising level of emigration of wealthy people out of the country – the same thing occurred in Zimbabwe just before it collapsed.
  • 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).
  • The recent collapse in commodity prices, which places pressure on SA exports and growth prospects.
  • The current electricity crisis. Load shedding began in 2008. The situation appeared to have been contained during the 2009 to 2014 period. However, regular blackouts and load shedding returned in early 2015.

Notes and definitions:

  • “Millionaires” or “HNWIs” or “high net worth individuals” refer to individuals with net assets of US$1 million or more.
  • “Wealth” or “net assets” is defined as the net value of assets (assets less liabilities). The only major asset we exclude from our valuation is primary residences.
  • For the purposes of this report, local HNWIs include all individuals who are living or working in country, including expats.

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