Staying? How best to insulate yourself from SA’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 - but what if you can’t leave?

Ian Edwards, partner and Africa regional manager of Austen Morris Associates, a 25 year-old global, independent wealth manager 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.”

These are the top 4 suggestions on how to protect yourself and family:

1) 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 for a family of four. Portugal offers a Golden Residence Permit Program offering several routes to citizenship starting at €350 000. Edwards noted however that there was lot of variability in the rules to qualify, as well as divergent rules on estate duty liability, and that deciding on the best country should be done with an advisor.

2) 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 noted. As an indication, for a family of four cover starts from R14 000 per month while for a single person cover starts at R4500 per month.

A secure a second citizenship could also help. Said Edwards: “As soon as you have your residency permit for Portugal for example, you qualify for their health care benefits. In Granada, once you have become a citizen, you are able to access the same health care as the locals.” St Georges University in Granada is recognised as one of the best medical institutions on the world.

3) Invest offshore for better returns, education - In dollar terms South African investors in the JSE would have made zero over the past 15 years, a significant setback in wealth creation. And the outlook remains bleak.

Said Edwards: “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.”

Closely related, he added that many South Africans were also keen on giving 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 a ringfenced, hard currency savings or investment account for children well in advance of when they’ll need it.”

4) Sweat SA 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 added. “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. “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 concluded.