Twenty six years ago I entered the Financial Services industry and started my career and journey as a Financial Advisor. At that point in time the Rand was trading at R4.81 to the US Dollar. Now as of writing we have hit R19.85 to $1. That is a whopping 312% decline!
Back then “local was lekker” and one focused more on where one could generate the highest returns. Over the years much has changed…It’s no longer the quest for yield but increasingly diversification and protection against a fast collapsing country and Rand.
We were once the darling of the world, having successfully transitioned into a democratic country and leading the way on what is possible. We were the Rainbow Nation!
Unfortunately we have lost our shine, and are fast becoming less relevant on the global stage. So what has gone wrong ? A lot !
The ANC’s mismanagement of state owned enterprises and the subsequent collapse of the public sector has dragged SA down over the years. In addition to this we have made friends with the worlds bad boys… By joining BRICS we have befriended autocratic countries and as our alliance with China and Russia in particular grows so we continue to alienate the very countries that we are most dependent on, ie. the West.
Sadly we have grown accustomed to the Rand losing ground against the major currencies, on average anywhere between 5% – 6% per annum, but more recently what has caused this latest sell off making us the worst performing emerging market ?
The weight of several missteps by our government has driven us further into the doldrums. The recent Greylisting, Eskom, neutral stance on Russia’s invasion of Ukraine, military exercises with China and Russia along our shores, US ambassadors accusation of military support for Russia and most recently inviting Russian president Vladimir Putin to the BRICS summit in August with the promise of diplomatic immunity despite him being on the International Criminal Court’s wanted list for war crimes.
All of this is likely to have dire consequences for South Africa. We could lose the AGOA (African Growth and Opportunity Act) benefit which gives us preferential duty-free tariffs and be subjected to various international sanctions. The loss of this trade agreement and sanctions will be devasting for our economy, resulting in job losses and trade which we can ill afford. On the local front our economy is shrinking, Eskom and Transnet is collapsing, government has missed its wage target, unemployment is worsening, BEE continues and crime has increased. The list goes on and on, making SA less desirable as an investment destination.
Very recently our Reserve Bank (one of our few independent and well performing institutions) publicly warned that South Africa’s neutral stance on the Russian – Ukraine conflict could have devastating consequences for the country’s financial stability if secondary sanctions are imposed.
Should this happen, the South African financial system will not be able to function if it is not able to make international payments in USD. Over 90% of SA’s international payments are processed through SWIFT. Exclusion from this will make these payments impossible. This would make it impossible for us to import oil, wheat, electronics etc. stuff we need but don’t produce.
The sad part is that the ANC and our government are leading us down this rabbit hole. Watching local news is both depressing and concerning, especially listening to decision makers who continue to alienate us from the West and simply have no understanding of basic economics, trade and where our bread is buttered.
As our Rand continues to fall, we are increasingly becoming poorer on global terms and excluding the few super rich we will no longer be able to travel and afford life’s luxuries.
We are fast becoming Financial Prisoners in our beautiful country – South Africa.
So, what is one to do? As you know for years now we have being recommending that investors diversify their portfolios and must continue to build up offshore assets.
SA is beautiful, and we still enjoy an incredible standard of living, possibly the best in the world. If you look closely, all countries have their own problems, so as the saying goes “the grass is not always greener on the other side”, but it is prudent that you save and invest offshore, this will help protect you and your family on global terms.
Lastly, for things to change and improve, we need better leadership. General elections are coming in 2024, it is imperative that everyone’s gets out there and votes for change!
