Talk of Zimbabwe-style property confiscation in South Africa has rattled investors as the government considers scrapping constitutional protection for private land ownership.
The country enjoys the safety of a constitutional guarantee to hold private property. The ruling African National Congress is, however, discussing whether to amend the highest law of the land to allow outright expropriation of property without compensation. Mostly white-owned property will be targeted and transferred to black South Africans.
Both local and international investors have been aware of the subject since it was first broached in December when the ANC voted to re-visit property rights. Most viewed it as simply party politics ahead of elections next year, but recently the land issue has become international news again, largely as a result of contradictory statements from ANC leaders on the topic.
"This is probably the biggest driver of the negative feeling now and will unfortunately remain so until there are definitive rules set for what land expropriation without compensation is," Wayne McCurrie, an equities analyst in Johannesburg told The National.
Meanwhile, South Africa’s sovereign debt is also likely to come under pressure, having risen to 2.5 trillion rand (Dh639.18 billion) or 53 per cent of the gross domestic product. Only around 10 per cent of this debt is offshore, with the bulk being held by South African banks. Because of the lack of dollar exposure, economists have generally been relatively sanguine over the country’s debt level.
However, local institutions are reaching saturation point for government debt, PwC chief economist in Johannesburg Lullu Krugel said.
"Sooner or later the government will have to go overseas to raise money. They will have to compete with other African states.
"And lenders hate uncertainty, which is what all this talk around property confiscation is creating. It will make it so much more difficult to raise finance from international lending institutions.”
The land issue was pushed on to the international stage on Thursday when US president Donald Trump tweeted that he had asked US Secretary of State Mike Pompeo “to closely study the South Africa land and farm seizures and expropriations”.
The news hit the local currency hard, which fell as much as 1.8 per cent after Mr Trump’s tweet before rebounding around 0.5 per cent. On Saturday, it sat at 14.25 to the Dollar.
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Read more:
South Africa’s Land Bank says land expropriation could trigger default
South African opposition party tables law to nationalise the central bank
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The Johannesburg Stock Exchange closed slightly higher on Friday, up 0.1 per cent. More than 70 per cent of its securities are exposed to offshore assets, which benefit from a weaker rand and are also seen as a haven for local investors, Mr McCurrie said.
The JSE is the world's 18th largest exchange with a total value of just over $1tn.
“The Johannesburg stock exchange is not a Johannesburg stock market, that is, not reflective of South Africa. Probably around 70 per cent of the exposure is either global or non-rand exposure,” said Mr McCurrie.
However, offshore exposure has not slowed the anxiety many investors feel. A private equity fund manager with one of South Africa's largest pension managers said he had been inundated with calls from worried clients in recent weeks.
“There has been a lot of concern by local investors, as without property rights, there is no future in this country,” he said, speaking on condition of anonymity. “No one is keen to invest locally and the economy seems to be stagnating.”
Strict exchange control laws limit South Africans to 1 million rand of direct offshore transfer a year; for any higher amounts a special clearance must be obtained through the Reserve Bank.
Company%20profile
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The Way It Was: My Life with Frank Sinatra by Eliot Weisman and Jennifer Valoppi
Hachette Books
Director: Laxman Utekar
Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna
Rating: 1/5
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
THE TWIN BIO
Their favourite city: Dubai
Their favourite food: Khaleeji
Their favourite past-time : walking on the beach
Their favorite quote: ‘we rise by lifting others’ by Robert Ingersoll
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
