Pressly: Safeguarding Mr Harper’s financial future. Starts with an X.

The headwinds South Africans face are clear to see. Impending junk status triggering a possible recession is only the tip of the iceberg. But how does one navigate this minefield, keeping their investments safe? Donwald Pressly looks at the local landscape, and at options one should look at in safeguarding one’s financial future. And he says it all starts with a vote in the municipal elections come August. – Stuart Lowman

By Donwald Pressly*

Donwald Pressly
Donwald Pressly, editor of Cape Messenger

How does Mr John Harper, the man on the MyCiti bus from Table View in Cape Town, cope with the political and economic uncertainty that is South Africa? If the mythical Mr Harper – much like the lady on the (Durban) Umbilo bus – has any savings, what does he do with them? How does he cope with the chilly winds – indeed, the economic wind of change which appears to lie ahead – that are blowing in the country? How does Mr Harper buttress himself from financial rocky times, or, indeed, ruin?

Let’s face it, our country is in a bit of a crisis. Our beloved president is in deep(er) trouble. It appears that the national prosecuting authority (NPA) doesn’t quite know what to do with reopening arms deal corruption charges against Jacob Zuma. So it is bouncing the matter back to a higher court. We all know that the rating agencies are waiting in the wings, poised – at least in the minds of many economists – to downgrade South Africa. Perhaps the fact that the rating agencies will consider the fact that the courts appear still to be independent will save us from junk status. We just don’t know.

George Glynos, chief economist at ETM Analytics, pointed out on Business Day television that even if we are given junk status – it is suggested that this is most likely to happen by the end of the year – and current investors, including pension funds, move out of the market, new investors, with a better appetite for risk, will move in. That is true, but at whose cost and at what cost? One would suggest that it’s the poor and the middle classes who will be hit by the tailwind of junk status.

That is because the state will be paying more for borrowed money. That will take more money out of the fiscus – and away from capital projects  and good national causes – to pay back debt. The debt will be more expensive. Inflation will rise significantly, most likely. That will eat into income of the middle class and poor (the rich will always cope). Fewer people will go out to eat at restaurants, fewer will buy newer vehicles, few will take risks – because the cost of living will rise meteorically. That is if this junk status, does indeed materialise.

Meanwhile, we also have a political logjam. The Economic Freedom Fighters won’t allow the president to address the National Assembly until he pays back the Nkandla money. He – and parliament – say he doesn’t need to pay back any money. So we will see the EFF being kicked out the house repeatedly in the months to come. This logjam may – or may not – have an influence on the rating agencies, but who knows? Nevertheless, the violence and mayhem in the Assembly does not a pretty picture make.

The Mr Harpers of this world need to take stock now. If Mr Harper has any savings, he should put them in foreign based investments – including JSE-listed companies which earn their keep abroad. These can be bought locally, on the JSE, but would provide a “foreign” return. That would hedge the investments against a weakening rand. If Mr Harper wishes to keep his investments in rand, he should put it into property domestically. But that property should be in opposition-ruled municipalities.

Pick a municipality under ANC rule and you will see trouble looming for property owners. Take Buffalo City, for example, which is East London and its environs, in the Eastern Cape. The rates are so high now that middle class people are starting to default on their payments. Go to Kimberley (Sol Plaatje) municipality. This remote city, the capital of the Northern Cape, charges massive rates compared to municipalities in the Western Cape. Ultimately this will have a knock-on effect. If you are living in an ANC ruled area and own property in it… it may, in future, become unsellable because of the massive administered costs.

That is why this municipal election in August is of critical importance. Cities like Johannesburg, Pretoria, Nelson Mandela Bay (Despatch, Port Elizabeth and Uitenhage) need to boot out the ANC fast. Accountability mechanisms will be the strongest if there is a coalition of opposition parties which control a municipality. Countless other municipalities across the land are deeply indebted – over R100 billion is owed to them. They are ruled by the ANC.

So the easy answer as to how to advise Mr Harper on how to protect his financial future in South Africa is: Buy a property in one of the opposition ruled municipalities in the Western Cape. Keep your property in the Western Cape if you already have one. Invest the rest (if there is anything left) in household goods company Steinhoff, the global beer company SABMiller, British American Tobacco, luxury goods company Richemont – although its share hasn’t been performing well just of late –  or the much diversified newspaper and internet group Naspers. That will a happy Mr Harper make, even after a downgrade.

  • Donwald Pressly, Editor Cape Messenger
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