The number of ultra-high-net-worth individuals (UHNWIs) in South Africa declined by 7% from 603 to 561 over just one year to 2021 – the greatest decline of all the countries ranked in the latest Knight Frank Wealth Report.
This is an indication that, far from creating a pro-growth economic environment, the ideas and policies consistently chosen by the South African government are driving growing numbers of wealthy people out of the country.
The impact of what is effectively a zero-growth, low-investment society is being felt the most today – and will be into the future – by the poor and lower middle classes.
As higher-net-worth people leave, with them go downstream investment, savings, skills, and possible business- and job-creation opportunities.
These individuals could also leave the business(es) in which they have been involved for many years, thus taking their expertise away with them as well. This they could have passed on to the next generation, benefiting the country in other indirect ways.
There will be some who voice their pleasure that wealthier people are leaving South Africa; after all, once they have departed the inequality gap will shrink, and some may think, ‘they probably obtained their wealth through immoral means’, in any case.
But those perspectives serve to judge all wealth- and value-creators as the same, while missing the moral grounding of wealth creation in the first instance. Wealth creators provide a skill, product, service of slice of their time; they earn wealth while they and others benefit from what has been created.
Command-control path
From the government’s perspective, there may be jitters regarding the exodus of wealthy and skilled people (of all races, ages, and backgrounds. But it is unlikely that those politicians and bureaucrats whose very same policies have pressed South Africa into its present weak state, will ever take responsibility for the economic destruction that they have brought about. They are more likely to continue down the command-control path, in the form of legislation such as the Expropriation Bill, Land Court Bill, Employment Equity Amendment Bill (EEB), and protectionist programmes such as Localisation Master Plans.
They may think that diluting economic freedom and property rights just that little bit more will produce prosperity? Of course, asking that question falls into the trap of presuming that those in government want prosperity for the nation in the first place – and not, as is likely the case, that they know well what effects will result from their ideas and policies.
What can we glean from a society from which wealthier people choose to flee? In some cases it may simply be from a desire to experience something different, and they may well choose to continue paying taxes and retaining citizenship of their birth country, and even to return at points later down the line.
But when there is a notable trend, over a properly long period of time (and when the country in question has an over 46% unemployment rate, on the expanded definition), one should look at the policies that have been implemented over years – and the links will become clear.
Pressure on the tax base
As wealthier people leave, so the pressure on the tax base, revenue, and state fiscus ratchets up bit by bit. Much-celebrated welfare plans (at present, more than 46% of South Africans are on some form of grant) will be chipped away, as ever more state attention and funds will need to be directed to paying off interest on government debt – and on maintaining lavish lifestyles for those in positions of power. Indeed, the country’s tax base has been shrinking since 2012.
And people who have created wealth would prefer to invest at least some of that in a country that is growing, where they can see returns on those investments, and then perhaps invest even more later on down the line – a recurring process that can benefit future generations, but which South Africa is discouraging in various ways that will hurt the vast majority of people for many years to come.
The Financial Mail’s Claire Bisseker recently wrote, “White-collar workers fared relatively well during Covid, with most being able to shift to working from home, thus retaining their jobs, and many achieving wealth gains from rising asset prices.” Most importantly, “It is this group that SA relies upon for up to half of all PIT (personal income tax) collections and a significant share of consumer spending. It is also the pool of people most likely to emigrate.” With legislation such as the EEB on the table, the country risks the possibility of making business operations and growth yet more difficult, and thus driving people away.
Proven futile
Rather, pro-economic freedom ideas and reforms could give citizens the space to pursue their individual wealth creation. Enforced dependence on the state is no way to live a dignified life; yet without substantial growth, investment, up-skilling, and job opportunities, that dependence is the present and future for way too many South Africans.
[Image: https://pixabay.com/photos/plane-transportation-airplane-7013023/]
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