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South Africans urged to take their money out of the country

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Efficient Group’s chief economist, Dawie Roodt started a storm in a teacup this week when he advised South Africans to take their money out of the country. This was irresponsible, according to Dr Conrad Beyers, Barclays Africa Chair in Actuarial Science at the University of Pretoria, who said it was a hysterical reaction to recent events.

Finance Minister Malusi Gigaba admitted that South Africa is effectively running out of money, with no political will to cut back spending, in his recent budget speech. This spurred new fears of a further ratings downgrade, and some people are also predicting a tax revolt after it was announced that expenditure in government departments and state-owned entities officially topped an eye-watering R45bn last year.

The auditor general’s report on the financial health of state-owned entities showed that irregular expenditure in South Africa increased by 55% since 2016 to R45.6 billion. This figure could rise to R65 billion as 25% of those audited acknowledged that they had incurred irregular expenditure, but could not say how much.

“This is the taxpayers’ money that is being misspent. Which means that the state needs to cut back on its expenditure. This country is in dire straits. We have basically reached the end of the line and pushing the economy into recession would be the only option. You have to be cruel to be kind, but politicians don’t think like this. The best advice I give to my clients and will tell to your readers is take your money out of the country,” Roodt told IOL.

However, Beyers says that “physically taking money out of the country” is not the only way to protect savings against a weakening South African economy, cautioning that people should be aware of the risks that accompany hasty decisions to take savings out of the country. He admits that there are “significant risks” for the economy, but says South Africans should be careful and consider all possible risks that accompany major financial decisions.

According to Beyers, investment in JSE listed companies or unit trusts with significant international exposure is one way to hedge savings against a weakening South African economy. As an example, investment in many prominent JSE shares with international exposure would give South Africans a very healthy return over the past five years.

However, Roodt and other economists believe that South Africa is on a downward trajectory, with a rating cut to full junk status an inevitability. In a recent report, analysts at Anchor Capital said that inefficiency and corruption have broken consumer and business confidence, and ratings agencies have taken note. “It is highly unlikely that we will retain our current ratings for the next 12 months and we need to adjust our base case to be that South Africa will be kicked out of the WGBI government bond index,” the report said.

According to the analysts, rates will gravitate towards 10.25% and the Rand towards R15.00 to the Dollar at some point over the next year. After being kicked out of the World Government Bond Index, there will be a forced sell-off of at least R100 billion – with the outlook very negative, considering that the South African government appears content to ignore the growing crisis.

In light of all the doom and gloom, it’s no wonder that Roodt believes taking our money out of the country is the best bet. While this might exacerbate the situation, it will serve to allow South Africans to vote with their money, sending a clear message to government.

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