How to invest for the possibility of a failed state
Magnus Heystek. Brenthurst Wealth
More and more articles are appearing warning that the SA economy is heading for total implosion.
In some quarters such comments are dismissed as uninformed or misguided and with comments that it is unnecessary to make people so afraid about the future of the country.
I have written many articles about the deterioration of the macroeconomic situation in SA, which some market and political commentators have considered as ill-informed.
However, if such warnings are now raised in the trusted business journal Financial Mail, by award-winning journalist Claire Bisseker, maybe it is time to take note.
A cover page feature she wrote titled SA’s Doomsday Clock sent shockwaves through the investment community, and suddenly the topic was in sharp focus, begging the question – what are ordinary investors to do if that possibility is beginning to look like a certainty?
The Financial Mail article provided a detailed analysis of the underlying economic and financial trends in SA, especially the past 13 years of deterioration since especially 2010.
Several economists were quoted in the feature, but a lot of the statistics included are based on the work of development economist Claude de Baissac, which highlighted concerning developments.
Baissac previously worked for the World Bank and the IMF and his research is largely focused on commodity-producing counties.
In short, Baissac says that SA will enter a debt crisis in 2025 and if the governing party continues with its mismanagement if SA the country will be a failed state by 2030. Similar to Venezuela and the Democratic Republic of the Congo.
Former editor of Business Day and Financial Mail also raised the issue. In a recent column, Bruce said “it is going to get worse before it gets worse”. International media like Bloomberg and The Economist also recently warned that SA is at the edge of a cliff.
What are investors to do if a doomsday scenario unfolds? Especially ordinary people who do not want to or do not have the means to leave SA.
In short: get your assets as far away from the problems in SA as what is practically possible. Sell any assets that can be impacted by current or future strategies and policies.
A list to consider:
1. Sell residential and listed properties, except for properties in the Western Cape. This asset class has been badly affected by the decay. In many small towns, there is no growth in the prices of residential property and in some cases, price trends cannot be established due to low sales volume.
According to the respected Rode Report about SA property house prices and rentals are declining in real terms. Rode already expressed concern in the second quarter of last year about the outlook for property.
2. Consider renting and investing any surplus money in cash, in SA or offshore.
3. Invest your savings in Tax-Free investment options that allow access to it. Do not make further contributions to retirement annuities as you have very little control over what may happen to that capital in the future.
Taxes could be raised or exposure to offshore investing may be reduced. In a doomsday scenario, many pension funds and retirement annuities may lose value.
4. Buy gold. Either in tradeable instruments or physical gold like Krugerrands. Although the gold price fluctuates, gold is still considered a safe option and investors continue to buy gold because of the proven longevity of its value. The precious metal is considered a safe investment that will retain its value even in an economic collapse.
5. Open a bank account in another country and deposit money into it every year, whether in dollar, British Pound or Euro. It is, for instance, easy to open a bank account in Mauritius without having to travel to the island.
6. Use the offshore allowances to invest using an international investment platform.
7. Move discretionary portfolios – whether unit trusts or shares – offshore, even if capital gains tax is payable.
8. Learn a skill or trade that is in demand internationally.
9. Consider investing a small amount in cryptocurrencies as an alternative to mainstream investments.
10. Move international assets to a trust to move it further away from a government that may get desperate for money.
11. Investigate international residency for you and your family, even if you do not plan to use it any time soon.
Magnus Heystek is a director and investment strategist at Brenthurst Wealth, the biggest independent wealth manager in South Africa, with nine offices in SA and an international office in Mauritius.
Brenthurst Wealth was the winner of the Intellidex Top Boutique Wealth Manager Award in 2017 and 2020. Visit the website at www.bwm.co.za or write to [email protected] for more information.