Wealthy South Africans are heading for the exit

Wealthy South Africans are heading for the exit

Wealthy South Africans are heading for the exit. Cape Town restaurateur Adrian Hochman watched over the years as friends packed up and emigrated, but rationalised that power cuts, the threat of crime and an uncertain future were simply part of doing business in South Africa.

That was before a global pandemic took its toll on the economy. Next year he leaves for Canada. “That definitely broke the camel’s back,” Hochman said in an interview.

The flight of top taxpayers has long been a thorn in the side of national treasury. But the coronavirus crisis could prove to be a tipping point.

With South Africans still calculating the cost of the worst unrest in nearly three decades after violence erupted last month in the midst of a third wave of infections, even more may now be considering where their future lies.

For the first time since the current tax brackets were established six years ago, the economy will see a drop in the number of top earners this fiscal year.

Revenue from the three highest brackets will fall by 8%, or around R22.6-billion, according to previously unreported treasury forecasts. Those are income streams South Africa can ill afford to lose as it stares down a growing mountain of debt.

Safety, corruption

South Africans have long cited safety concerns, corruption and economic stagnation as motives for moving.

Hochman, however, points to the pandemic. Having already borrowed to buy a generator in the face of power cuts, he took out a second loan to pay salaries and avoid laying off staff as the pandemic hit and government-imposed lockdowns shut bars and restaurants. His hopes of a swift rebound soon dimmed, in part due to the slow pace of vaccinations.

“It was in the midst of Covid that we decided to finally move,” he said. “There’s a better life and more opportunity and better management of the entire coronavirus situation.”

A Makro store in Springfield Park in Durban after being ransacked by looters. Image via Twitter user Hein_The_Slayer

According to forecasts, the number of taxpayers earning R1.5-million or more will shrink by 9.6% for the 2021/2022 fiscal year. The R1-million rand to R1.5-million bracket is expected to contract by 13%, and the R750 000 rand to R1-million bracket by 1.1%.

It is difficult to estimate to what extent the decline is due to emigration, experts say. National treasury does not separately track data on emigrating South Africans. “As our estimates are based on continuously updated data sources, the impact of net immigration and emigration is already included in the data – even if we cannot isolate it,” it said.

But immigration consultants, real estate companies and bankers said they are seeing signs of increased flight by the well-heeled. South Africa lost 1 900 high net worth individuals — those with wealth of US$1-million (R15-million) or more — in 2020, bringing the number to its lowest level in 13 years, according New World Wealth, which studies wealth in emerging markets. It pointed to a declining rand and emigration as contributing factors.

Siphamandla Mkhwanazi, an economist at First National Bank, which publishes a survey of real estate agents, noted a recent uptick in home sales linked to emigration at the highest end of the market.

Abigail Stevens, head of UK-based immigration consultants Think Global Recruitment, said inquiries from South Africans picked up in the last year even as applications from other countries fell. “These would be higher net worth individuals.”

Some appear to be taking their businesses with them. Over 9 200 companies voluntarily de-registered last year, up 10% from 2019. Many have simply failed, with applications for bankruptcy protection maintaining 2019’s recession-level highs.

‘Massive spike’

But Nicholas Avramis, who owns Beaver Immigration, which specialises in emigration to Canada, said South African businesses have increasingly looked to switch bases over the past year.

“They (have) applied to buy new businesses in Canada, or they apply through something called the start-up visa programme that is designed to attract entrepreneurs,” he said, adding that the recent spate of unrest led to a “massive” spike in inquiries from businesses looking to emigrate.

South Africa’s sovereign debt already tops 80% of GDP and is expected to rise further. The government spends more to pay interest on that debt than on basic education or health. Former Finance Minister Tito Mboweni, who was replaced on Thursday, said last month that a fifth of tax revenue now goes to servicing debt.

Canada is a favoured destination of South Africans looking to emigrate

Personal income tax accounts for 38% of total tax revenue, far eclipsing corporate tax receipts, and those in the top three brackets represent a third of the total personal income tax base.

For every affluent emigrating person, South Africa loses nearly R1.2-million in income tax, said Bernard Sacks, a tax attorney with law firm Mazars, adding that taxes were only part of the hole departing emigrants leave behind. “We lose that person’s spending, fuel levy spending, the excise duty spending. We lose all of that.”

In Cape Town, Hochman has sold his house and is weighing what to do with his restaurant. But he still has mixed feelings. “I love South Africa. I think South Africa is a beautiful country,” he said. “I just felt that we need to get out.”  — Reported by Promit Mukherjee, (c) 2021 Reuters

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