Magnus Heystek – Uncertainty over land tenure driving some farmers into a “scorched earth” approach

LONDON – Having established the successful financial advisory business Brenthurst Wealth, Magnus Heystek enjoys a freedom of expression that few in South Africa's business sector possess. And in this podcast focusing on the country's burning issue of the moment, he doesn't hold back. Heystek shares feedback from his many clients who are farmers, warning that the ruling ANC's approach of land expropriation without compensation has sent those who provide the nation's food security into a highly defensive state of mind. Some, Heystek says, are adopting a "scorched earth" approach reminiscent of what Napoleon encountered when his troops invaded Russia just over 200 years ago. With the possibility of their land being taken from them, these farmers are abandoning long-term reinvestments in the land and machinery. Although distasteful in a national sense, squeezing the maximum out of the asset is a rational response when there is a threat of that asset being taken away. Heystek offers some logical suggestions of his own. – Alec Hogg.I've known Magnus Heystek from virtually the first day I went into financial journalism as a 20 year old back in 1980. We worked for the same publishing house and although never served the same title simultaneously, had parallel careers for a couple decades before he branched out into the financial advisory field. The owner of a cultivated pen and an ordered mind, Heystek was among the first high profile commentators to recommend that South Africans diversify their assets into the global arena, adding huge value to his client portfolios. From an Afrikaner background, he is also closely connected to this sector, including the farming community. In this fascinating podcast he shares their fears over the pressures of land expropriation, explains how many farmers are reacting and shares what he is suggesting that they should do about the situation. .___STEADY_PAYWALL___.The South African situation is really interesting and we had the Ramaphoria in mid-December, with the Rand rising by 20% from its worst levels. Now, however, there seems almost a sense of nervousness that has come back into the country. What's going on?.Well, as you point out, I think the currency markets (to a certain extent) anticipated the Ramaphosa victory. Close as it might be, I think they were better informed than the average South African investor, so that has been spot on. Yes, anything from the Zuma regime is going to be an improvement and I think markets have applauded that. We have short-lived Ramaphoria and optimism, which is fantastic. However, the mood has been dampened somewhat by the pronouncements by the ANC and Ramaphosa about the concept of expropriation without compensation. The lack of detail, the lack of clarity, and quite bluntly, the lack of sound information about the land statistics is creating a lot of unnecessary uncertainty in the minds of investors. They don't know how to deal with this. President Ramaphosa is trying very hard to placate markets by saying that it won't affect the economic growth and confidence, but I'm not so sure. I don't think that's happening and so far, markets have quietly withdrawn some of that optimism. I often refer to capital as very cowardly. It slinks away in the middle of the night..Do you have any farming clients?.We do have a great number of farming clients and this debate has been ongoing for a long time. A lot of farmers have already, to a certain extent, put some money away elsewhere – whether it's local or offshore – but now it's becoming more pronounced. Now, it's not just political talk. It could become policy very soon, so the farmers are concerned as to what they should be doing. Should they be planting? Should they be raising capital to buy equipment such as tractors etcetera, or should they be holding back? I suspect that it might spill over into other sectors of the economy such as property development/property ownership, so we're a little bit in a turbulence again. South Africa is not a normal, placid country like Sweden and Norway where things never happen. Things happen at great speed in South Africa and it's very difficult to have clarity as to where and how it's going to pan out in terms of asset allocation (where you should put your money)..So, what do you say to clients?.I tell clients to have a clear head. They should be far more flexible in their approach than they would have been in the past and to a large extent, by having some offshore diversification, you have mitigated the risks of having all your money invested in one country where you have a fairly momentous issue coming our way – the question of land, land ownership, and how you're going to unravel this scrambled egg and trying to put it back into an egg with a shell around it. I think it's going to be very difficult and I think investors are just going to sit on the sidelines for a while..It's such a shame, isn't it? We've been through a difficult period in South Africa. Now, it appeared as though (in December) rational economics would come back into play but the rationality, once again, appears to be off the table..One will never know, but there seems to be some kind of a deal in the backrooms of the ANC that this land issue must now be addressed and I think it's being addressed in great haste without a clear-cut plan. I've spent a lot of time reading the pronouncements of a various number of politicians – whether it's Jesse Duarte, Ramaphosa, or the ANC's official [inaudible 0:04:48.6] – and there's a great confusion as to what it means. Does it mean all land? Does it mean only agricultural land? Is it land in tribal trust? Is it land in private ownership? What about foreign-owned land? As an example, this Indian gentleman who spent R1bn in Franschhoek buying up all the wine farms: what do you say to him? We're taking your land. You've invested R1bn in South Africa. Thank you very much. We're now taking it. These are all the things that are in the pot and I think you're going to need great statesmanship from Ramaphosa in how he's going to handle this. The political pressure from the left of the ANC and the demands of local and international investors…international investors would want clarity before they commit money to South Africa..But he keeps saying that he's going to be talking…that he wants to get people together to talk sensibly – that there will be no expropriation without compensation in cases where the land has been productive and that most of the land is going to be state-owned land anyway (that will be passed on) etc. Of course, it doesn't get helped by pronouncements from Australia where some politician just stands up and says, "South African farmers: we will take you." We know that in other parts of Africa, there's been quite a red carpet laid out for South African farmers as well. What are your clients saying – those farmers that are clients of yours? When they hear all of this, they have all this confusion. How do they react to it?.There's a great deal of uncertainty and it's very difficult to advise people with a very strong conviction. You cannot tell them it's going to happen. Alternatively, you cannot tell them it's not going to happen. It can be anywhere in between these two poles..Uncertainty..There's a tremendous amount of uncertainty and you can already see it where the uncertainty has already hit our residential property market; where people are holding back and cancelling transactions. Personally, I cancelled a transaction down in the Cape when I heard this news. My first reaction was to cancel it, which I've done..Why? Tell us that story..I was going to buy an office block for my business and already signed some of the papers. When this pronouncement came, I immediately said, "Hang on. Let me just wag so 'n bietjie." Immediately, the seller came back and said, "I'll drop my price by a substantial margin in order to clinch the deal." So, now I'm holding back. I'm not saying that I've changed my mind. I'm just saying that I cannot commit as I would have committed previously. I need to see what's going to happen..Capital cowardly….Absolutely. I'm a big coward, especially when it comes to my clients. As the one client (a farmer) said, "I'm the last of my generation in farming. My kids are not interested in the farm I'm 63 years old. I'm going to farm the heck out of this farm until they take it away." Now, that might be one individual but there might be other farmers thinking the same way. 'Yes, they're coming for my farm. It might take some time. I can still make some good money out of the farm and then eventually, I'll hand it over and that's the end of the story.' That's not a good story for the country, as a whole..I was talking to a very senior banker who said that the minute one farmer is taken, that's the end of bank finance to the whole agriculture. In his view, if there's no longer security, how can you lend. It's a very complicated and very complex issue. Surely, sanity will prevail in the end..Hopefully, because statistics show you that the banks have an exposure of up to R180bn to the farming community and it's a revolving credit all the time. I extend credit to a farmer. He buys equipment, seeds, and petrol. He plants. He harvests and out of the profit, he pays me back and this is how farming has been operating in this country for many years. Now, if you disturb that mechanism, where is the farmer going to get the finance to plough back into his farm? That would affect farming production..Marcus, on a broader scale: as far as South African markets are concerned, they've had a rough ride for many years and you've very accurately and very sensibly, been telling people to diversify for years. I remember when you were talking of taking your money offshore. I can't remember where the Rand was when you started saying that but there were many of us who thought you were stone mad. You've proven to have been absolutely right. What are you saying today?.Well, the basis of that statement 6/7 years ago was…we were both financial journalists and we knew that the commodity cycle determines what happens in South Africa. If a commodity cycle is positive and rising, we do very well. We make enormous amounts of money for the stuff that we dig out of holes and send somewhere else. We all become very wealthy. The minute the commodity cycle starts turning, you must know the reverse is going to happen so it was mainly driven by the commodity cycle, which I'd seen dropping – and dropping very rapidly. The other part of the advice was that there'd been tremendous and exciting stuff happening in other parts of the world (the Americas, Israel, and Europe) such as technology, the internet, and buyer technology, which we don't have access to in South Africa..The best performing asset class in the past 9 years has been the Fangs, the internets and the buyer technology stuff and South Africans just don't have access to that. If you want to get into those industries, you have to take your money offshore and take it to America. That's been sound advice. People who got in earlier in the internet/buyer technology stocks, trebled their money relative to the South African money. That advice still holds. If you want to get involved in the artificial intelligence and the incredible developments in the internet space, it's not going to happen in South Africa. It's happening offshore..So, you're still overlaying that though, with the Rand, which as improved in the last three months – very strongly. How are you viewing the Rand today?.I always try and tell people, "Once you decide to invest in Dollars, do not convert it back to Rand. It's going to work in your favour sometimes and it's going to work against you at other times." Human beings, being what they are; they will always convert back to Rand. They say, "Oh, well I should have done this" or "I should have done that." Currently, the Rand is just about ready to start weakening again. Not only because of the South African situation but because I think the Dollar has come to the end of its two to three-year downward cycle. The average South African does not realise how dramatically the Dollar has dropped over the last 12 to 15 months. For a big currency like that to drop 15% is an incredibly sharp decline and I think that could be turning around. I think that, plus interest rate increases in the United States, puts pressure on our currency..So, when you're talking to your clients today, they're in South Africa. Today, they're feeling very depressed. Two months ago, they were ecstatic. How are you getting them to approach investing rationally?.You've got to try and paint a big picture story. You're part of a very big world. You're living in a different world now. You've got to be part of that big world, so you have to take some of your money offshore. I quite often ask people, "Where did you buy your Apple or Samsung cellphone? What car do you drive? What medical equipment do you use?" All those things that we use almost daily are priced in Dollars. They're not priced in Rands. They kind of get the message eventually. I also ask them, "What did you pay for your first Apple iPhone five years ago?" And then they ask what it costs them today. Then I ask, "Should you not be investing in that currency to protect the purchasing power of your money?".The nervousness amongst your clients: is that a very real thing?.Of course, it's real when people have not been educated correctly about why they're investing offshore. If you are looking for a stable, predictable income then you invest like the foreigners. You invest in our bonds. You invest in our high-income funds that give you eight or nine percent – fantastic yields – but if you want that 15-20%, which you do need in your portfolio, even though you're retired, you have to take some money offshore and take a bit more risk.

Magnus Heystek – Uncertainty over land tenure driving some farmers into a “scorched earth” approach

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