• Bruce Cameron

South Africa – The 1% country

A recent presentation by a top financial planner highlights that if you’re concentrating on South Africa’s markets, you’re going to lose out on investment returns and global growth.

Wouter Fourie, a top-flight financial planner, recently delivered a presentation on offshore investment at the first Global Matters virtual engagement online conference, sponsored by Momentum Investments. He demonstrated that most people who invested offshore, using their assets in their investment-linked living annuities (living annuities or illas), had made gains – it didn’t matter about Covid-19 or the Jacob Zuma kleptocracy regime.

This is what the data now looks like:

In his presentation, Fourie referred to South Africa as the “1% country” – not in a nasty way, but in a realistic way.

His reasons are:

  • The gross domestic product of South Africa is about 0.5% of the world GDP,

  • The JSE stock exchange accounts for about 1% of global investment opportunities, and

  • The rand accounts for less than 1% of world currency markets.

We are actually quite a small economy, only equalling one of the US’s smaller states.

Fourie says if you are going to concentrate on South Africa’s markets, you are going to lose out on investment returns for the following reasons. You will not:

  • Participate in global growth, and

  • You lose out on the compounding growth on the investments you have not made,

  • You will not receive the diversification and the reduction in risk by spreading your risk to more types of industries and services. This means you will not receive the benefits of an income stream that will flow from these sources. This is particularly important for pensioners,

  • You will not benefit from receiving guidance from world-class financial investment professionals, or from world-class international financial centres, and

  • Finally, you will not have the peace of mind that those who did invest offshore have. The political risks of all our local crises are an add-on benefit.

Fourie says that in investing offshore, you have two main choices, namely:

  • Investing through a local or offshore endowment policy, which opens the way to more underlying investments, or

  • Through a direct share portfolio or more traditional Financial Sector Conduct Authority (FSCA) category 3 investment, namely a unit trust fund. This is the option used more usually by living annuity pensioners. This avenue is also open to pre-retirement annuity funds, pension funds, provident funds and preservation members. Investment in retirement funds, retirement annuity funds, provident and preservation funds are governed by Regulation 28 of the Pension Funds Act that only allows 30% to be invested offshore. Regulation 28 is a prudential investment regulation that limits how much you may invest