In an interview with BizNews, Magnus Heystek urges South Africa to embrace bold economic reforms, suggesting radical tax breaks as a key strategy to rejuvenate the struggling economy. Heystek argues that by adopting innovative policies, such as offering flat-rate taxes to attract high-net-worth individuals and businesses, South Africa could significantly boost its financial stability and growth prospects. Highlighting recent shifts in the political landscape and emerging optimism among investors, Heystek calls for a departure from traditional approaches and advocates for dynamic solutions to stimulate economic activity and counteract the country’s persistent challenges.
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Highlights from the interview
In a recent interview conducted by Alec Hogg, Magnus Heystek, founder and chief investment strategist at Brenthurst Wealth, shared his insights on South Africa’s economic policies and the need for innovative thinking. Heystek highlighted Magda Wierzycka’s suggestion for the government to attract wealthy expatriates by offering a flat tax rate, arguing that such a strategy could stimulate the economy, citing Mauritius as a successful example.
Heystek emphasized the necessity of abandoning outdated ideologies and adopting pragmatic approaches to economic growth. He mentioned a critical observation by Kuben Naidoo, former deputy governor of the Reserve Bank, about South Africa’s near financial collapse at the end of 2022, which prompted the inception of Operation Vulindlela. Heystek expressed hope that the government would continue to implement radical free-market ideas to sustain economic growth, warning that failure to do so would lead to a repeat of past disappointments.
Alec Hogg concurred, noting the potential benefits of making South Africa an attractive destination for wealthy immigrants, especially in light of tightening immigration policies worldwide. The discussion underscored a shift towards realism and pragmatic solutions in South African politics, with Heystek advocating for measures that could drive economic recovery and stability.
Edited transcript of the interview ___STEADY_PAYWALL___
00:00:07:16 – 00:00:33:08
Alec Hogg:
Magnus Heystek, who’s the founder and chief investment strategist at Brenthurst Wealth, has been around the block a few times. He’s also been, I guess you could say, the most realistic of the investment advisors in South Africa for at least the last decade and a half. But he’s starting to change his view. It wasn’t long ago that I asked Magnus what he would do, or what it would take for him to believe that South Africa was investable again.
00:00:33:10 – 00:00:53:12
Alec Hogg:
But two weeks ago, he spoke to my colleague Chris Steyn and said to her, he’s feeling a little more upbeat. We’ll find out why in a bit more detail and look ahead to September the 12th, when Magnus is going to be at the first investment conference.
00:00:53:13 – 00:01:14:11
Alec Hogg:
Why? It’s good to be talking with you, Magnus. Well, that BNC number one in Hermanus on the 12th of September is turning out to be quite an event. We’ll have there the chairman of Eskom, we’ll have the chairman of Kinetco Energy, which is a listed company in Australia. But he is, Don Ncube, who you would recall.
00:01:14:13 – 00:01:31:09
Alec Hogg:
And Kinetco has its major asset as gas finds in Mpumalanga, which is apparently crawling with the stuff. So, we’ll have that as well. And we’ll have Magnus Heystek saying I’m not feeling so negative anymore. Is that the message you’re going to be telling our tribe?
00:01:31:11 – 00:01:51:13
Magnus Heystek:
Yes. Good afternoon, Alec, and it’s really nice to be trying to convey that message. I’m feeling better. I’m feeling more positive, but it’s important to understand why. For that reason, one has to go back 10 or 11 years ago when I started warning about the South African market versus the rest of the world.
00:01:51:19 – 00:02:18:10
Magnus Heystek:
I think it was Peter Lynch. You probably know who he was. He ran the Magellan Fund for Fidelity, hugely successful. Amongst all his nuggets of wisdom, the one thing I remember from either an article or a webcast is, he said, the most important question when it comes to dealing with future forecasts or prospects of a market is a very simple one.
00:02:18:10 – 00:02:45:16
Magnus Heystek:
Are things getting better or are they getting worse? From there on, he would do his analysis. Now, 10-11 years ago, in my mind, there was no doubt things in South Africa were getting worse. We had the downgrades, we had the Gupta years, we had the Zuma years, we had state capture, we had the weakening currency, etc.
00:02:45:16 – 00:03:07:14
Magnus Heystek:
So whenever I had to make a call or an opinion about the stock market, I said, guys, things are not getting better. They’re actually getting worse. From there on, I got it. I started commanding offshore investments. Fast forward ten years later, that was the correction by a very, very wide margin and quite dramatically so.
00:03:07:16 – 00:03:36:08
Magnus Heystek:
But for the last year, year and a half, I’ve started looking at things and all the economic indicators that I do look at. I started telling myself, guys, it feels like we’ve hit the bottom. I think it can’t get worse than it is now. There’s been some subtle shifts in government policy. There was a subtle shift in the overseas approach to South Africa, nothing dramatic.
00:03:36:10 – 00:03:55:17
Magnus Heystek:
In the last six months or so, we started seeing a turnaround starting to happen. Money is starting to flow back into the country, or at least it has stopped flowing out of the country at the enormous rate that it had been. So that was one issue that I looked at. I looked at Eskom.
00:03:55:17 – 00:04:23:18
Magnus Heystek:
We’ve had 120 days without load-shedding. If you or I had chatted about this six months ago, we would have said, that’s impossible. Eskom is going to collapse. Thirdly, there’s been a change in the way certain individuals are appearing in court on fraud charges. SA is moving against many high-profile individuals closely connected to the ANC.
00:04:23:18 – 00:04:53:07
Magnus Heystek:
I would not have thought this possible a year or two ago. I think when you look at the interest rate cycle we’ve been having, we were forced to have very high interest rates for a long time. The feeling is now that we’ve reached the upper limits and interest rates can start coming down. Lastly, I just get a feeling amongst people that I talk to, businesspeople, clients, fund managers.
00:04:53:09 – 00:05:20:04
Magnus Heystek:
There’s been a subtle shift in the mood after the election. We didn’t have the worst-case scenario of an MK/EFF/ANC alliance, so that’s moved away for the foreseeable future. And, you know, just a couple of those things, and suddenly the confidence starts coming back. So you start looking at the behavior of some of our financial indicators.
00:05:20:06 – 00:05:45:22
Magnus Heystek:
The rand has been slightly stronger, been moving sideways for about three years now, and there seems to be a bit of support around the 18, 18.20 level. Two sectors on the stock market have quietly started delivering very good returns. Listed property, which was a terrible investment up to about two and a half years ago.
00:05:46:00 – 00:06:15:12
Magnus Heystek:
Suddenly there’s money flowing quietly into that sector. And in the last couple of weeks, into the financial sector. So what I’m saying is that the sort of bold forecasts to stay away from the JSE are now changing. From a strategic positioning, there could be some nice profits coming your way if you buy at the right time, the right sector, and the right fund manager who’s reading the market as we are doing.
Read more: Magnus Heystek: Why I am investing in South Africa again
00:06:15:12 – 00:06:38:09
Magnus Heystek:
And I’m already seeing that in the last 2 to 3 years, listed property has given us a 12% return, whereas for the previous eight years it gave you zero. So that’s a very nice uplift. And so, there are these couple of green shoots that I see. Nothing major, no bullishness that we’re going to outperform the world kind of stuff—that’s not going to happen.
00:06:38:11 – 00:07:05:17
Magnus Heystek:
But there are some very nice positions to be taken in our local market. If the GNU holds and they continue on the very nice path that they’ve moved on. We’ve seen some new ministers come in and start shaking the tree, which is very, very pleasant to see. One gets the feeling that there’s a new energy in government and among these coalition partners.
00:07:05:18 – 00:07:34:06
Alec Hogg:
Yeah, the whole competitive politics, which has brought pragmatism, has really, really made a change. It’s almost like Cyril Ramaphosa was made for this moment. He’s more of a consensus leader. And now we’re seeing him perhaps at his best advantage, in that he is bringing everybody together. But being specific now, Magnus, you’ve mentioned property. And as we know, property is all about long-term confidence.
00:07:34:08 – 00:07:58:10
Alec Hogg:
I like the point you made about Peter Lynch. And of course, his famous book “Beating the Market” is almost prescribed reading for anyone, saying that you should be investing when things are going in the correct direction. In other words, upwards. But is property on your list now? And I’m talking here about individual property. Because remember, for most South Africans, the biggest asset by far that they hold is their house.
00:07:58:12 – 00:08:24:00
Magnus Heystek:
The residential property market as we know it, for the last ten to twelve years, has not been a great place to be. It hasn’t produced above-inflation returns. In fact, there are some reports that I think we commented on with Chris Steyn, that anybody who bought a residential property in the last ten years outside of the Western Cape and is selling now is selling at a loss—not even an inflation-adjusted loss.
00:08:24:00 – 00:08:58:11
Magnus Heystek:
So that’s a big smack, if I can call it that, for middle-class wealth. Let’s say there have been very, very poor returns on the multi-asset, balanced funds that most people’s pension funds are in. I can send you the returns of some of our top names. I’m not going to embarrass them, but large insurance companies and banks—some of their funds have close to 30% in inflation-adjusted losses in the last ten years.
00:08:58:11 – 00:09:22:22
Magnus Heystek:
It’s quite shocking. So, having said that, again, the cycles do come and go, and there’s a little bit of renewed optimism. Some of the leading economic indicators are showing an uplift. If the Reserve Bank drops the interest rates 1 or 2%, suddenly people can start to afford a little bit more in property. The Western Cape is a special case.
00:09:22:22 – 00:09:44:04
Magnus Heystek:
You know, it’s a different market with different dynamics. And that’s been very strong and remains very strong. I have publicly said I’ve bought some more property in the Cape, for very selfish reasons, because I think that’s where I will make the best returns going forward. But I think middle-class South Africa needs a bit of a break.
00:09:44:04 – 00:10:11:15
Magnus Heystek:
Their finances have been shattered. There’s no balance sheet. There’s very little equity in their houses or personal savings. So South Africa needs a bit of a break and we need growth. We need a slim government. If we have some consistency in government going forward and hopefully not a breakup between the ANC and the DA or the ANC splintering, which are other risk factors that one needs to look at.
00:10:11:17 – 00:10:33:15
Magnus Heystek:
I think the next five years can be much better than the past or the previous five years. And I think everybody would love to experience a bit of good times, because most South Africans, excluding the very rich who externalized most of their assets a long time ago, have had a drop in their standard of living. They cannot afford the lifestyle they would like to.
00:10:33:15 – 00:10:45:18
Magnus Heystek:
They cannot afford overseas trips anymore. Imported goods are too expensive. So let’s hope for some better news in the next 3 to 5 years. And I think it can get better. I think it’s looking a bit better.
00:10:45:20 – 00:11:16:22
Alec Hogg:
Magnus, when you talk to your clients and also to movers and shakers in the economy, business people, people who control lots of money, how are they viewing the results of the election, given that it’s only a month ago, the end of May? Sorry, two months ago, we are now getting to the end of July. There have been big changes; the ANC went from 57% in the previous national election down to 40%.
00:11:17:00 – 00:11:37:15
Alec Hogg:
This seems to be a far different political environment, which is critically important in any developing country. But how are they viewing this? Are they viewing it with circumspection? Are they saying it’s too soon to make a call? Or do you have some brave souls out there who, like you, are saying, well, maybe we were on a downward trajectory, now it might be time to reassess?
00:11:37:15 – 00:11:41:04
Alec Hogg:
Now it might be time to reassess.
00:11:41:06 – 00:12:02:21
Magnus Heystek:
I think it’s a good question, and I’ve been talking to a lot of my clients, especially some of my very large clients. There seems to be an improvement in the mood. In fact, I had dinner with one last night, an extremely wealthy person with business interests outside of South Africa. He was quietly confident that it’s getting better.
00:12:02:21 – 00:12:23:03
Magnus Heystek:
He spoke about expanding his production facilities. He’s in the food industry, and he said they’re going to be spending a lot of money. They also see a little bit of an upturn. You must remember, these people are very well-informed. They rely on sources of information from various professional and non-professional sources.
00:12:23:03 – 00:12:46:20
Magnus Heystek:
And the mood has been that things are looking better. The election results, the way they panned out, are actually not too bad. There’s better stability in government. We don’t have the screaming and the shocking in the market like we had to understand. There’s a feeling that the threat from the EFF is kind of done and dusted.
00:12:47:02 – 00:13:07:19
Magnus Heystek:
If the EFF is on its way out, it’s not drawing in 20 to 30% of radical voters who want to kick the whites out of the country. It’s kind of calmed down a little bit. The mood is getting better. I really mean it. I just speak what I hear and see. I reckon the mood is getting better.
00:13:07:19 – 00:13:31:17
Magnus Heystek:
I’m personally feeling better. The discussions we’re having with clients are much more optimistic. It doesn’t change the overall investment strategy for a client, which is still driven by externalization and globalization. But it’s a tactical move to maybe increase your exposure if the facts warrant it. And that’s what’s exactly happening within our company.
00:13:31:19 – 00:14:06:00
Alec Hogg:
And then if we go bargain-seeking. I had a fascinating conversation again with a well-informed person yesterday who says that estate agents are telling him that much of the same migration that occurred in the last few years, with people moving from Gauteng down to, in particular, Cape Town, is starting to reverse. And the reason for that is the property prices in Johannesburg, particularly Johannesburg and Pretoria, are so, so much lower and you can get so much more for your money than you can now get in Cape Town.
00:14:06:00 – 00:14:30:06
Alec Hogg:
So why live in a poky little apartment in Cape Town, when you can get quite a spread for the same money in Johannesburg? Are you seeing any of that or would you give any credence to that? This guy says that there have definitely been more sales by Gautengers of recent arrivals than purchases.
00:14:30:08 – 00:14:49:07
Magnus Heystek:
He is absolutely right. You know, within our family, I’ve got three of my adult kids who have moved down to the Cape and I look at what they’re paying for property, and I chuckle. I tell them, “Guys, you’re buying in the wrong place. You can get double the size house in the north and in the Knysna area.”
Read more: Magnus Heystek: First light of dawn? SA moving away from the abyss
00:14:49:09 – 00:15:09:10
Magnus Heystek:
So you’re quite right. That’s a financial reality. The property prices in Johannesburg are so low at this moment. You are buying property at 10,000 to 15,000 rand a square meter. Whereas if you go down to the Cape, you’re paying 40,000 to 60,000 a square meter. A lot of people are going down there.
00:15:09:12 – 00:15:30:04
Magnus Heystek:
Then they live in a very tight apartment. They actually say that they can have a very big house on the Golf Coast with all the bells and whistles. So that’s one thing that I’ve noticed. Another is a couple of my clients who have been returning from the UK and from Jersey or wherever they retired to, saying, basically, “Guys, we can’t afford to live in the UK anymore.
00:15:30:04 – 00:15:53:04
Magnus Heystek:
We’re coming back to South Africa. The cost of living, the cost of accommodation is so cheap.” It is playing a role and all you need to do is continue with the journey. You get crime and law and order under control, and you will see potentially a lot of people moving back to South Africa and even to Gauteng.
00:15:53:06 – 00:16:17:22
Magnus Heystek:
But you know, I must just comment on this issue. Magda Wierzycka from Sygnia made a call last week saying, why doesn’t the government think out of the box for a change and open up the doors of South Africa to these extremely wealthy expats, the non-doms from London and other countries, looking for a tax-free haven to come and set up these structures?
00:16:18:00 – 00:16:43:17
Magnus Heystek:
Forget about this worldwide taxation on income. Let these wealthy billionaires buy a flat rate of tax in South Africa and then set up structures. That’s the kind of innovative thinking that we need in government. And hopefully, somebody is listening. We’ve seen it in Mauritius where, since they started to offer immigration or property immigration-related plans, they have attracted 6,000 people from abroad.
00:16:43:17 – 00:17:12:01
Magnus Heystek:
For a small country like Mauritius, it’s a big number because 6,000 properties times 4 or 5, you get 20 to 30,000 people with money who spend money, employ people, and spend it in restaurants, golf courses, etcetera. That stimulates the economy. The Mauritian government has seen that maybe the government was. We need some innovative thinking. We need to create jobs.
00:17:12:05 – 00:17:21:15
Magnus Heystek:
What about opening up the doors to these rich people and saying, come on, settle in South Africa. We will treat you differently. Now, that’s something that maybe we’ll see in the near future.
00:17:21:17 – 00:17:46:10
Alec Hogg:
It is an interesting point. If you consider how much you have to pay to get into the United States or into Europe, or even the UK, through the particular investment allowances in Australia, or cutting back as well. Yeah, all over the world immigration is tightening. This could be seen as an opportunity. I guess in the past it was never something that would even be on the agenda.
00:17:46:10 – 00:18:05:07
Alec Hogg:
But so much has changed. Yesterday, I spoke with Herman Mashaba, who says he is going to support the ANC in government in Johannesburg. And the reason he’s going to do that is because the place is just falling apart, in his opinion. So he was a man who avowed, he said he would never, ever support the ANC. They’re all a bunch of crooks.
00:18:05:13 – 00:18:20:14
Alec Hogg:
It’s almost like we’re seeing pragmatism, realism, the reality rather than the dogmatic approach of ideologies that have dominated this country’s politics for some time. Maybe. Maybe we’re growing up at last, Magnus.
00:18:20:19 – 00:18:40:05
Magnus Heystek:
Well, I hope so. I think this ideology that the ANC has been fighting for the last 20 to 30 years, it’s just not working. I think there was quite a telling comment that Kuben Naidoo, the former deputy governor of the Reserve Bank, made. Now, he’s at Investec.
00:18:40:06 – 00:19:14:01
Magnus Heystek:
He said, at the end of 2022, South Africa was peering over the abyss. We were just about to implode financially. And I think that’s where the seeds for Operation Vulindlela were formed. I think the government has realized, guys, we messed up. Our policy is not working. We need to do something. Let’s hope that it continues and the government comes with starkly radical free-market-related ideas to keep the economy going. Because that’s where my more positive scenario will fall flat.
00:19:14:03 – 00:19:38:09
Magnus Heystek:
If we don’t get economic growth going, all of the projections and all of the revisions will fall flat. It’ll just be a repeat of Ramaphosa all over again. Short-lived upturn, rand strengthens, money flows in. But there has to be economic growth because, with all levels of unemployment and poverty, you cannot have a prosperous country.
00:19:38:11 – 00:20:08:14
Alec Hogg:
But it certainly does look like we are on a different path. It’s always difficult to say in a country like South Africa that this time it’s different and we are going in the right direction. But, well, if you’re a betting man, you’ve got to see the messages on the wind. And, the final point I guess one should make about this is that South African long-term government debt has gone from over 11% before the election to under 10% afterward, and that takes a lot of money to move. Magnus Heystek is the founder and chief investment strategist at Brenthurst Wealth, and I’m Alec Hogg from BizNews.com.
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