What my R23 000 dinner in London taught me: Magnus Heystek

Key topics:Offshore spending exposes SA currency’s drastic declineTreasury’s R1m allowance now worth far less abroadGlobal equities outperform SA funds over 10 years.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Magnus Heystek* .For various reasons – Covid and then some health issues – I haven’t travelled to Europe for over six years. This year I was fortunate enough to make the trip to attend mainly two things, the Ninety One Global Investment conference in London in June, as well as the graduation of my youngest daughter from the University of Arts in London.My daughter has been sharing a flat with another South African student for the duration of the three year course who also graduated and whose parents also flew across to attend the ceremony.Being in a jovial (and proud mood) I offered to take our total party of seven to a proper steak house in London’s West End, appropriately called STK.We tucked into a range of well-known cuts (rib eye, fillet, Brazilian) plus one vegetarian meal, accompanied by the usual veggies, chips and a range of sauces. Plus, two bottles of sparkling wine (not French) and some cheese-topped focaccias. The meals were all good, served very efficiently by the Ukrainian or Polish server, and as we were all tired after the day’s three hour long presentation by the university, we all skipped dessert and coffee. The steaks were good but not much better than what one would receive at your local Turn ‘n Tender or Hussar’s Grill in South Africa.I was expecting a stiff bill but mentally I was justifying it by thinking I’ve been investing offshore for a long time – so bring it on!But I had to cool down my racing heart when I received the bill: £809.I saw a service charge of 13.5% on the bill so I thought the tip had been taken care of, so I duly presented my Investec credit card to the Polish/Ukrainian server whose smile suddenly ran away from her face.“What about me?”, she lamented, saying the service charge was for the “others”. Not wanting to appear a skinflint in front of my SA guests and daughter, I added £80 to the bill, making it a total of £889. My smile was also ready to run away from my face.It was on the way back to the hotel that I started doing the numbers in my head and realised I had just spent under R23 000 on a steak meal for a party of seven. There was no sushi eaten off half-naked models, or French champagne and caviar in the normal style of SA tenderpreneurs who have just won a big Eskom contract!I knew London was expensive but my golly, this was out of the ballpark expensive!I had just spent 2.3% of my annual offshore allowance in one go! One meal. My 350g rib eye steak with mash, veggies, and sauce (each at £10 a pop) plus the tip came to £90. Which is R2 250!I can’t wait to get to the Hussar Grill in Hermanus during the BizNews Investment Conference next month and order the most expensive steak they have on their menu.I then understood why my daughter, frugal as she was, kept on calling for more funds to pay her expenses while she was studying in London. Even a part-time job looking after rich people’s poodles didn’t help much.Annual allowance shrinking Two things occurred to me: the R1 million annual allowance so generously awarded to SA taxpayers by the ANC government in 2015 is looking less and less generous as time goes by as our currency continues its relentless decline against the USD, British pound, and Euro. While the media in its reporting tends to focus on the ZAR/$ exchange rate, the decline of the rand against the Euro has been even more pronounced.On 1st April 2015 – when the allowance was increased to R1m per person, one would have received $83 000, £58 000, and €78 000, respectively. That was quite generous at the time, but the steady decline in the ZAR since then has eroded much of that financial freedom.At today’s exchange rate the amounts would be $55 000 (-33%), £41 600 (-28%) and €47 600 (-38%).But that is only half of the story. The other half is that one needs to add the domestic European (or British/US) inflation rate to that decline, which combined results in a rand today that can buy squat! The average inflation rate over this period was about 2% per annum, which means a further erosion of about 25% in the purchasing power of a rand when compared to 10 years ago.Even a cup of coffee and sandwich at a Pret-A Manger in London will set you back almost R400!In Spain I paid R550 per head for a buffet breakfast at a small hotel. Eggs, bacon, sausages, and some cold meats. And if you wanted cappuccino that would be another R150 or so! It really has become a “Buy F#kkol” currency…Treasury not budging It’s been 10 years since the Treasury set the annual offshore allowance at R1m. Despite many calls to increase this, the Treasury has shown no sign that this will be increased soon. In reality, the real value of the offshore allowance has crashed by more than 70%. Is this perhaps being done deliberately, as surely the SARB has the same facts that I have?Instead, there have been countless reports of SA citizens getting threatening letters from their banks—on the instruction of the SA Reserve Bank—that they have exceeded their annual allowance and need to rectify the situation at the threat of legal and other actions..Read more:.SA Budget: VAT hike, massive infrastructure spend, and debt peaks.It seems the SARB employs a massive army of people, aided by AI and the free exchange of information between countries, to pick up when this limit has been reached and breached.SARB now also has the means to track the offshore spending of SA citizens using different credit cards and other means of payment, which includes spending on Netflix, Amazon, Temu and even offshore travel costs, such as boats, planes, and trains. Yes, you can apply for more money in terms of the Approved International Transfer (AIT), but this is cumbersome, document- heavy and takes many weeks to complete. And if you don’t forward all the documents required by SARS within the prescribed 21 days, the application has to start again.So where is this article leading to?Simple. If you have any intentions to ever travel overseas one day, or perhaps send your children to study offshore, then you need to rethink your overarching investment strategy.Putting your money in a money market savings account or even a balanced SA investment will not do the trick. You need to save/invest in an aggressive equity linked to the currency you expect to be spending your money in.The no 1 investment to consider as a South AfricanIt’s for this reason that I have been recommending making use of your annual R1m (or part thereof) as the foremost investment you should be making. This should be the No 1 investment option for any South African wanting to build global wealth (or just some protection against the decline in the currency).Don’t expect this advice from your local asset manager/company. They will recommend a Tax-Free investment (a good investment but the amounts are tiny), or even worse, a retirement annuity (RA) for young people. Don’t.RAs are for people who intend to stay for the long term because your money is tied up in a RA for a very long time. You can only touch one third of your money at the age of 55. Getting money from your RA should you emigrate is a nightmare.Get your money offshore and open an investment with one of the international investment platforms (Momentum, Ninety One, Glacier etc.) Get that money out and into an aggressive global equity portfolio. Out of the reach of SARB and into a country/currency where you are treated as an adult with the freedom to do whatever you want with your money.Offshore versus localHave a look at the following table. It shows the 10-year returns for an investment of R1m into (a) the Old Mutual Investors fund (local assets) and (b) the Old Mutual Global Equity fund, run by Janus Henderson, an investment team I met in London on my trip, and they really impressed me.A TALE OF TWO FUNDS The following table illustrates the stark difference in returns between offshore and domestic funds over the past 10 years..By going offshore 10 years ago your money grew by 15% per annum with a current value of R3.2m. The purchasing power of the local fund is a meagre R1.6m, at a real return of 5% per annum, not even beating the local inflation rate or an income fund. What about the next 10 years? Some local asset managers are heavily pushing the JSE as a good place to be over the next ten years. I don’t share the same optimism. While it’s true that our (surviving) companies on the JSE, having weathered 10 years and more of economic mismanagement, seemingly offers good value, this is mainly based on the assumption that things will get better. I think this is unlikely to happen as I don’t think we have reached the bottom yet. The full effects of the ending of the Agoa agreements will only become visible later this year and over the next year or two. The very attractive returns of the JSE over the past year are mainly due to the performance of Naspers/Prosus, gold shares and the dual-listed international stocks. Very few domestic companies moved the dial over the past 12-15 months. But wouldn’t it be nice if the government starts treating SA taxpayers like adults, allowing them greater freedom to do with their money as they please, once they have paid their taxes? Even increasing the annual offshore allowance to provide for declines in the currency will be a good starting point. *Magnus Heystek is a director and investment strategist at Brenthurst Wealth

What my R23 000 dinner in London taught me: Magnus Heystek

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