Emigration and foreign relocation numbers have been increasingly greatly during the final years of the Zuma reign, and will continue to increase over the next few years, as the Ramaphosa bubble deflates and gives way to some harsh realities. Even the stock market buble following Ramaphosa's election has deflated and shares on the JSE today are almost back to where they were at the end of Zuma's reign as ANC President in December 2017 - see the graph below:
Let's look at the reasons:
1. Contrary to the popular belief and despite countless ‘selfies’ with fellow joggers, Ramaphosa may not necessarily be South Africa’s new saviour, at least not in the sense of a Nelson Mandela in 1994.
Ramaphosa may have good intentions, is a capable politician and businessman and already has made major strides forward, but he was elected as ANC president only by the smallest of margins and has to deal with a deeply divided party with 49% supporting the continuation of a Zuma-family kleptocracy. Ramaphosa is already hamstrung by having to keep several Zuma appointed-, Gupta-tainted-, ministers in the cabinet in addition to many compromised bureaucrats (only Tom Moyane and Arthur Fraser have paid a price). As a result, Ramaphosa has little choice but to support a radical economic transformation agenda such as land expropriation without compensation, nationalization of the Reserve Bank and free university education for all.
2. The ANC is being influenced by the populism of the Economic Freedom Fighters. This is a party whose extreme racist and populist Marxist ideology has the potential to cause a civil war and is forcing the ANC to move away from three decades of centrist pragmatism. The EFF has the potential to create havoc should the party merge with the ANC or become part of a governing coalition in 2019 (following an open invitation by David Mabusa and Ramaphosa). The EFF’s dangerous and overt racism present an existential threat to the white population and its hate speech is laced with genocidal intentions such as “We are not calling for the slaughtering of white people, at least for now”.
3. The largest push factor right now is the term ‘expropriation without compensation’. According to Julius Malema, who introduced the bill in Parliament, this means the expropriation of all land, which means that no private ownership of land will be allowed and that land owners will only have a 99-year leasehold on land. This, of course, is unbridled Marxism, derived straight from the writings of Karl Marx, and implemented so disastrously by Lenin, Stalin, Mao, Castro, and Mugabe.
While the ANC, who supported Malema’s bill, may not envisage expropriation in quite such radical terms, should the bill be implemented as Malema has suggested, the consequences will be disastrous. Private land technically will have no financial value to its current owners, neither to be sold or inherited. Not only will it lead to a massive destruction of wealth in South Africa, but commercial banks will most likely go bankrupt and foreign investment will come to an almost complete and abrupt end. In fact, foreign investment will collapse long before the bill is even finished being debated, as is evident right now.
To make matters worse, uncontrolled land invasions and illegal land occupation such as in Hermanus and many other towns, are going to become the norm, with the government unable or unwilling to effectively counter it.
4. South Africa remains one of the most unequal societies on earth, with the ANC, in true socialist mode, seemingly hell-bent on dragging everyone down to the lowest common denominator through extreme wealth and estate taxes, land expropriation and more. This kind of invective can only end badly for the middle-upper income classes, as they see their wealth being expropriated legally through increasingly heavier tax burdens and constitutionally-sanctioned wealth grabs. The ANC government increasingly is focusing on radically increasing taxes on income, inheritance, wealth and trusts, as is evident in the increase in tax on family trusts at a rate of 45% for any income earned and an effective 36% capital gains tax.
5. South Africa is one of the most violent and corrupt societies in the world. It has the 19th highest murder rate in the world, with 31 murders per 100,000 people. Also, the massive corruption and state capture have not ended with the departure of Jacob Zuma, a few cabinet ministers and the Guptas. Corruption is endemic, from the remaining ‘Zupta’ loyalists, to Provincial governments, parastatals, and city and town councils. It is estimated that corruption costs the SA gross domestic product (GDP) at least R27bn annually and about R700 billion in state funds since 1994.
6. Foreign exchange controls could soon become stricter. Currently, citizens have a discretionary allowance of R1 million per adult per year and can invest up to R10 million per year offshore with approval from SARS, if they can show a statement of assets, liabilities and proof of the source of capital. SARS has been making this more difficult since June 2017, with required information going back three years, including disclosing all investments, loan accounts and distributions from local and foreign companies and trusts. With the Rand much stronger in 2018 that most of the past three years, greatly increased capital outflows may tempt SARS to introduce tougher exchange controls in the near future.
7. This is a great time for emigrants and those who wish to diversify offshore, to take out as much currency as they can, even if not emigrating. The currency has strengthened by more than 20% compared to six months ago. This means that taking funds out of the country has become 20% cheaper and an investment abroad of R10 million will now translate into U$850,000 compared to U$690,000 (U$160,000 more).
8. Apart from the obvious push factors discussed above, what are the benefits of emigrating or at least acquiring a 2nd passport? Whether you choose residency or citizenship, in most cases you can settle, work, receive social services and run a business in all host countries - in some cases you may have to wait to get citizenship to receive all benefits, but citizenship could be available within six months in certain cases.
The 2nd Passport option will give you visa free travel to between 120 and 150 countries. This is a huge benefit for those longing to have more powerful passports than that of South Africa, with access to only 96 countries without visa restrictions – say goodbye to the exorbitant fees and hours-long line-ups at Schengen consular offices.
9. In most cases, taxes are much lower than in South Africa. In most Caribbean islands, tax rates are very low or zero on personal income and almost non-existent in the form of wealth or inheritance taxes. And in those countries with higher tax rates such as Australia, Canada, the UK and in the Schengen zone, you will get back substantial benefits such as free, high quality education, medical services, welfare and a functional civil service.
10. Even if you do not want to leave SA now (perhaps you want to give Ramaphosa a chance), a second passport is the ultimate 21st century insurance in case things go the way of Zimbabwe or Malema gets his way.
You can use just half of your 2018 foreign allowance to easily obtain foreign residency or even a 2nd passport in more than 20 top countries, or to live very well in one of the many global retirement destinations. You can buy a holiday home in Portugal, Greece and Cyprus from Euro350,000 (R5,1million) for permanent residency, or get an instant Schengen-friendly passport by donating U$100,000-plus to Grenada’s Economic Diversification Fund or a bit more to the governments of St Lucia, Dominica and St Kitts. Or otherwise simply provide proof of an income of about U$2,000 (R24,000) per month to obtain permanent residency in Uruguay, Panama, Costa Rica, Belize and Thailand.
Published by Johann van Rooyen on behalf of the Citizenship by Investment Research Consultancy CIRC. He is also the author of Residency and Citizenship for Investors 2018 - Investment Migration Options for Emigrants, Expatriates and Global Citizens.