A new report by Henley and Partners lists the top factors that encourage wealth growth in a country, and South Africa is performing pitifully on most points.
The 2022 World Citizenship Report found that a growing number of South African high-net-worth individuals (HNWIs) are looking to leave the country.
It found that Africa’s dominant nations – including South Africa – are not meeting the needs of their most affluent citizens.
Data from South Africa’s Treasury confirmed the finding with a drop in the number of top earners in the 2021/2022 fiscal year.
It raises the question of what is needed to create wealth in a country and ensure its wealthy citizens don’t leave.
According to Henley and Partners, seven drivers encourage wealth growth in a country.
- Strong safety and security – The safety levels of a country and the efficiency of the local police are considered the most critical factors in encouraging long-term wealth growth.
- Growth in key sectors – Most industries boost GDP, but very few also boost wealth. Generally, only industries that bring new money into a country help to build its wealth. Notable examples include export sectors such as manufacturing, mining, oil and gas, high technology, and tourism fields such as luxury hotels and lodges.
- Strong competition in essential services – As a case study, electricity utility Eskom in South Africa shows the risks of government-owned monopolies, especially in critical sectors such as power generation.
- A well-developed and neutral news media – It is important that major news outlets in a country are neutral and objective. A well-developed financial media space is especially important as it helps to disseminate information to investors.
- Strong ownership rights – Zimbabwe offers a case in point as to what could happen when ownership rights are stripped. Once assets are taken away, they tend to lose value as it is unlikely that investors would be willing to commit to buying them.
- Highly developed banking system and stock market – When these systems are well-structured, they ensure that individuals invest and grow their wealth locally.
- Low tax rates – Mauritius, Singapore, and the UAE are examples of the power that tax rates can have in encouraging business formation as these countries all boast low tax rates.
South Africa has a well-developed and neutral news media and a good banking system and stock market.
However, this is where the good news ends.
There is not much growth in key sectors like manufacturing and technology, and it has among the highest tax rates in the world.
The country suffers from very high crime rates, and it is toying with the idea of expropriation with compensation which will do tremendous damage to ownership rights.
There is also a tremendous weakness in strong competition in essential services. Eskom and Transnet are monopolies which cause tremendous damage to the country.
The government would be well-advised to take note of Henley and Partners’ report and focus on fixing the areas where it falls short.