Steps towards a more equal South Africa
Dr Francois Stofberg
Managing Director: Efficient Private Clients.
For almost three decades, the ruling party in South Africa (SA) has been relying on redistributive policies to build a more economically-just society. In doing so, SA’s inequality, as measured by the Gini coefficient, improved but only marginally. Unfortunately, SA is still the most unequal country in the world. But by using the incorrect policies, we now also have the highest unemployment rate, especially if we consider youth unemployment and that almost half of our population still lives in poverty. Life expectancy, an aggregate measure of success in advancing human life in a country, has remained unchanged. On this front, the ruling party has failed SA fundamentally. On the other end of the spectrum, after about four decades, the Chinese government used wealth-creative policies to significantly improve access to healthcare, education, and other services, while lifting more than 800 million people out of poverty. Life expectancy in China increased from 70 to 78 since 1995. From this perspective, we believe that it is easy to conclude that what the Chinese government achieved is much more “just” or, put differently, equitable.
Social-upliftment policies in SA focus mainly on redistribution, with black economic empowerment (BEE) at its core. Economic-upliftment policies in China, but also those which saw South Korea rise to prominence, focus on wealth creation. Even those social-upliftment policies that China had, for example, the redistribution of land, were tied to economic principles of productivity and surplus. Charity of this kind was to allow for subsistence farming, that is, to redistribute from one class (or race) to another. Even the core of China’s Communist Party policies is linked to market efficiencies. Civil servants and grant recipients are held accountable for their development, that is, they are individually responsible to contribute to society in a meaningful manner. Similarly, companies who receive subsidies are held accountable through export discipline: Lucrative tenders are not awarded to enrich themselves or those closest to them. If any business, or individual, does not produce competitively, first in the local market and then internationally, they are cut off from state support.
South Korea used a similar strategy and three decades later had Kia and Samsung, both industry leaders in their respective fields. By linking redistributive policies to the ruthlessness of market efficiency and export discipline, individuals, companies, and even the government are forced to invest in labour, capital, and technology to remain internationally competitive. The result has been extreme surpluses and extreme amounts of wealth in China and South Korea. It is important to note that, although the Chinese authoritative model will not work in SA, South Korea, among others, was able to achieve similar results with a system that allows for freedom and individual expression.
Wealth-creative policies are, therefore, able to create an environment of participative justice, equal access to private property, and opportunities to engage in productive work. It is important to note equal access, not equal result. Equal result speaks of charity, which is a result of redistributive policies that are unable to create opportunities like wealth-creative policies can. The next stage of our development in SA must, therefore, be wealth creative. All forms of government assistance (grants, subsidies, and even social-upliftment policies like BEE) must be tied to productivity and to producing internationally-competitive employees, products, and services. In this way, recipients and civil servants are forced into accountability, into taking responsibility for their decisions, actions, and, most importantly, their results. Finally, we must invest more in wealth-creative policies like education, healthcare, and infrastructure. But crucially, when we do, these too must be linked to export discipline through accountability
Towards a more equal South Africa
Dr Francois Stofberg
Senior Economist at Efficient Wealth and the Managing Director of Efficient Private Clients.
For almost three decades, the ruling party in South Africa (SA) has been relying on redistributive policies to build a more economically-just society. In doing so, SA’s inequality, as measured by the Gini coefficient, improved but only marginally. Unfortunately, SA is still the most unequal country in the world. But by using the incorrect policies, we now also have the highest unemployment rate, especially if we consider youth unemployment and that almost half of our population still lives in poverty. Life expectancy, an aggregate measure of success in advancing human life in a country, has remained unchanged. On this front, the ruling party has failed SA fundamentally. On the other end of the spectrum, after about four decades, the Chinese government used wealth-creative policies to significantly improve access to healthcare, education, and other services, while lifting more than 800 million people out of poverty. Life expectancy in China increased from 70 to 78 since 1995. From this perspective, we believe that it is easy to conclude that what the Chinese government achieved is much more “just” or, put differently, equitable.
Social-upliftment policies in SA focus mainly on redistribution, with black economic empowerment (BEE) at its core. Economic-upliftment policies in China, but also those which saw South Korea rise to prominence, focus on wealth creation. Even those social-upliftment policies that China had, for example, the redistribution of land, were tied to economic principles of productivity and surplus. Charity of this kind was to allow for subsistence farming, that is, to redistribute from one class (or race) to another. Even the core of China’s Communist Party policies is linked to market efficiencies. Civil servants and grant recipients are held accountable for their development, that is, they are individually responsible to contribute to society in a meaningful manner. Similarly, companies who receive subsidies are held accountable through export discipline: Lucrative tenders are not awarded to enrich themselves or those closest to them. If any business, or individual, does not produce competitively, first in the local market and then internationally, they are cut off from state support.
South Korea used a similar strategy and three decades later had Kia and Samsung, both industry leaders in their respective fields. By linking redistributive policies to the ruthlessness of market efficiency and export discipline, individuals, companies, and even the government are forced to invest in labour, capital, and technology to remain internationally competitive. The result has been extreme surpluses and extreme amounts of wealth in China and South Korea. It is important to note that, although the Chinese authoritative model will not work in SA, South Korea, among others, was able to achieve similar results with a system that allows for freedom and individual expression.
Wealth-creative policies are, therefore, able to create an environment of participative justice, equal access to private property, and opportunities to engage in productive work. It is important to note equal access, not equal result. Equal result speaks of charity, which is a result of redistributive policies that are unable to create opportunities like wealth-creative policies can. The next stage of our development in SA must, therefore, be wealth creative. All forms of government assistance (grants, subsidies, and even social-upliftment policies like BEE) must be tied to productivity and to producing internationally-competitive employees, products, and services. In this way, recipients and civil servants are forced into accountability, into taking responsibility for their decisions, actions, and, most importantly, their results. Finally, we must invest more in wealth-creative policies like education, healthcare, and infrastructure. But crucially, when we do, these too must be linked to export discipline through accountability
20 Years On… And The Efficient Group Is Still Standing Strong
Efficiency can be defined as the ability to achieve an end goal with little to no waste, effort, or energy.
While efficiency is a key part of the Efficient Group’s inherent philosophy and the way that it goes about its business (the name says it all), this definition does not encapsulate the essence of the Group’s 20-year journey. Indeed, it has been an all-out effort from day one. Without endless energy, passion, and enthusiasm, there would be no Efficient Group today.
As much as a 20-year milestone is a cause for celebration for the Group, it is not the end. If you ask co-founders Dawie Roodt and Heiko Weidhase, or any of their ambitious colleagues, they will tell you that the Efficient Group is only just getting started:
“We continue to have a lot of fun and love what we are doing. There is also so much more to do. Helping people attain financial well-being is what it is all about for us, and we have a good understanding of the benefits that financial well-being brings to people, communities, and the country as a whole.”
At an inspiring celebration at Time Square’s SunBet Arena in Pretoria, the Group hosted an unforgettable evening of reflection, projection, and gratitude for all of the key stakeholders in attendance… the co-authors of the Group’s tremendous success story. After all, 20 years in business is no small feat and the Efficient Group had much to celebrate!
For a business that started from humble beginnings, and for a brand that faced many unexpected challenges, the celebratory champagne tasted that much sweeter.
Some of the Group’s most impressive accomplishments over the past two decades include:
- Started with R12 million under management, which grew into a business that has more than R390 billion of assets under management, advice, administration, and consulting.
- Started with 15 clients, which grew into being involved in the financial well-being of more than 100 000 clients.
- Listed on the Johannesburg Stock Exchange to raise capital from the public to build the business.
- Delisted from the Johannesburg Stock Exchange to raise capital from private equity to further build the business.
- Built a well-known industry brand and are now focussed on building a well-known retail brand.
- Created significant value for all of our stakeholders: Our clients, our employees, our shareholders, and the communities that the Group conducts its business in.
In recent years, the Efficient Group has continued to grow for the better. In fact, the business has grown significantly over the past three years, more than doubling in value over this period.
The decision to delist has given the Group much-needed space and freedom, and has positioned it to invest in the business, both by acquiring value-adding businesses and by investing in its existing operations. By having the freedom to think ‘long term’, the business is actively working on becoming the preferred financial services provider company for South Africans from all walks of life.
Diane Radley, Chairperson of the Efficient Group, knows better than anyone that the long-term success of the Group is being written today, every day, by leaders like Chief Executive Officer Heiko Weidhase:
“What stands out for me is Heiko’s deep love for this business. Not many companies have this type of leadership. As we celebrate the 20th birthday of the Efficient Group, we all thank Heiko for his vision, dedication, and support that he has given each one of us so generously over the last 20 years.”
While addressing key stakeholders at the Group’s celebratory event, Diane added:
“We know our people are our main asset. We do not have big machines that produce things. Our advisor workforce is the lifeblood of this organisation and the work they do in ensuring our clients are looked after and protected is central to our existence. I, personally, am a devout believer in the value of advice, and the fact that we give truly independent advice is an asset that many tied-agent networks can never claim. We should never underestimate the power of independent advice. It builds trust with your clients – the best products from the best product providers to meet the needs of our clients in the best way possible. And now at Efficient, following recent acquisitions that we have made in the risk, medical and administration space, we provide an end-to-end offering where clients can get all of their financial needs met in one place.”
With the feeling that this 20-year milestone is only the first chapter of this brand’s story, Diane shared her personal wishes for the Group’s ever-promising future:
“I would like to build a business at the Efficient Group that is representative of all of our current and future clients, transforming the industry and securing our clients’ financial futures.
I would like the Efficient Group to be the brand that everyone admires, respects, and trusts.
I would like us to have fun in doing this, utilising technology to do all the drudge work and to assist us in offering the best independent advice.
I would like us to spend more time with our clients and less time on administration.
I would like us to be a brand that is admired and respected for offering great service and investment outcomes, and delivering on our promises.
I would like us to be a one-stop shop where clients trust us with their holistic financial well-being, from retirement savings to investments and medical to risk, helping them sleep well at night and worry less about the security of their families and futures.
With information at our fingertips and continuity of information bespoke to each client, I know that we will enable every Efficient advisor to be exactly that… efficient.”
Efficient in all that it does, the Group’s name says it all. And its newly adopted positioning tells us why this brand is one to take note of. After all, a name is measured not by what it says, but by what it does… year after year, and decade after decade.
Global uncertainty and some good news for South Africans
Dr Francois Stofberg
Managing Director: Efficient Private Clients.
The global economy is heading towards an evermore uncertain place. Late in 2021, markets anticipated that central banks around the world would start to increase interest rates, and they subsequently did. Now, almost 18 months later, economies are giving mixed signals. Inflation is coming down in key regions, like North America and Europe, but not enough. Some economies, like India, are showing signs of life but others, like China, are really struggling. Yet in others, like the United States (US), one set of statistics shows a vibrant economy while others are more concerning. We do, however, see a lot of value in local equity and bond markets, and pockets of value in global equity markets, especially those companies that can play into emerging market growth without getting stuck in them.
China’s central bank left its lending benchmark rates unchanged last week even as signs of a faltering economic recovery called for more stimulus. Lowering interest rates to support the economy might, however, not be a favoured stimulus tool because it can widen inflation differentials with the US even more, leading to more short-term capital outflows. China’s economy grew at a frail pace of 0.8%, quarter-on-quarter, during the second quarter of 2023, missing analyst expectations by quite a margin. In China, local consumer and investor sentiment is very low, which is restraining demand and leading towards a worrying deflationary environment. Although lower inflation in China is welcome news for their trading partners, like South Africa (SA). The massive real estate sector has struggled to recover, while exports have plunged owing to decreasing global demand. Investors are, therefore, hoping for more supportive measures to ensure Beijing’s growth target of 5% for the year remains on track. A healthy, fast-growing China will also be welcome news for the rest of the world.
South Africans received some welcome news last week. On Wednesday, the unleaded petrol price (95) fell by 17 cents a litre, while 93 was lowered by 24 cents a litre. Over the past month, global oil prices fell slightly, mostly owing to fears about a global economic slowdown but also because large oil-producing countries decided not to cut production at their last meeting. The average rand-dollar exchange rate for the past month was R18.68/$, slightly lower than the R18.98 we had during the previous month. Oil prices seem to be settling in a range between $75 and $85, whilst the rand, at levels below R18.00/$, is showing signs of strength. What this means is that we might even have more petrol price cuts in the upcoming months.
Lower petrol prices are not the end of the good news. With a 3-2 majority vote, the South African Reserve Bank (SARB) kept interest rates unchanged on Thursday. The repo rate thus remains at 8.25%, with the prime rate at 11.75%. Our hardliner governor was, however, quick to add that this does not mean that interest rates have peaked. Fortunately for weary South African consumers, inflation seems to have peaked albeit on quarterly and annual rates. Since the 7.8% high that we saw in July 2022, consumer prices have been on a steady decline, falling from 6.8% in April 2023, to 6.3% in May, before reaching 5.4% in June, nicely within the SARB’s target range of 3% to 6%. Unfortunately, the US Federal Reserve will, most likely, hike interest rates by 0.25% this week, and maybe once more this year. Considering this, the SARB will, most likely, feel obligated to increase rates too, even though there is little evidence to support their conviction that higher interest rates in SA can attract short-term capital towards SA in this environment. If conditions were different, their plan might have worked but not in the current uncertain global environment.
Private healthcare cover – Partner with the professionals
When it comes to the private healthcare cover, the financial sector can be confusing, and you may need guidance through this complex maze. At Efficient Wealth, we understand that your wealth cannot be separated from your health; your physical well-being plays an integral part in your financial welfare. While you might be financially secure and physically fit, prevention is still better than cure.
Unfortunately, we also know that healthcare is not always placed as a priority in many people’s financial portfolios. However, neglecting to address decent medical aid, hospital plans, or dreaded disease cover for you and your family could lead to financial ruin if you are forced to pay from your cash reserves.
Cash Deposit Management and Different Types of Cash-Management Services
Regardless of your investment horizon, investment goals, and risk profile, it is always advisable to have a liquid cash deposit management strategy. It is a wise choice to budget for a space in your investment portfolio for liquidity and physical cash that is available at short notice, or within a specifically acceptable time frame to adjust to your ever-changing needs and circumstances.
With effective cash deposit management, you can earn interest against cash that is otherwise lying dormant in a standard savings account. The returns on this cash will vary significantly over different time frames and depending on where the money is invested. Our skilled professionals at Efficient Wealth place emphasis on this to ensure that the liquid funds invested on your behalf achieve optimal returns.
Why estate planning is so important
The crux of Estate planning is protecting your family and loved ones. Sadly, it seems like many people devote more time to planning a vacation, which is most likely a sign of the level of discomfort they feel around the subject.
Deciding who will inherit your assets after you are gone is usually a difficult topic to broach, but it is one of the most important life decisions you can make. Without estate planning, you cannot select who receives your belongings and assets that you have spent your whole life accumulating.
Information overload is limiting investment returns
Dr. Francois Stofberg
Managing Director: Efficient Private Clients, With Specialist Input From Christiaan Van Wyk
Since the arrival of the internet, talks about the “information age” and its many benefits have taken place continuously. Benefits such as cheap, or even free, access to large volumes of information. But the discussion rarely progresses to the potential negative impacts that might arise from too much information. We believe that the benefits of access to information are real, clear, and well-documented, however, as with anything in life, too much of a good thing is generally bad. Not only has the volume and accessibility of information increased but also its frequency, so much so that real-time data has almost become the norm. This creates a unique problem when the goal is to achieve a long-term target. People, in general, have grown accustomed to speed and efficiency, and get frustrated at the mere thought of having to wait, especially if the immediate environment seems uncertain. This picture is the polar opposite of investing.
Investing, especially in equity markets, requires a long-term mindset, with very little attention being given to the noise surrounding you in the short term. Warren Buffett said it perfectly: “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”. This is generally the approach that most investment managers take when selecting assets to include in their portfolios, and it increases the probability of achieving optimal performance over the long term. Unfortunately, investors are not always as patient, and often impair their investment performance by making short-term decisions based on emotion, or as we will elaborate further, information overload. The average retail investor receives performance reports at least quarterly, with investment fact sheets piling into their inboxes monthly. Then we are not even talking about the myriad of competing investment managers force-feeding their marketing material via e-mails, social media, phone calls, and even airport terminals. No wonder the average investor feels overwhelmed by the investment question and second-guesses their decisions at every corner!
Investment managers are also being forced to adapt to the “information age”, not only in terms of the changing investment landscape but also from a client management perspective. Owing to the frequency with which investors can access investment information, and the vast amounts of alternatives being marketed to them, investment managers are being pressured to make shorter-term investment decisions, limiting their long-term return potential. An example of this problem is the performance differential between retail investments and alternative investments, such as private equity funds. One of the key differences is the investment period. A typical lockup period (the time in which investors cannot withdraw funds) for a private equity fund is at least five to seven years, with infrequent investment information throughout the period. This creates an environment wherein the investment manager can make long-term investment decisions without the pressure of clients withdrawing funds in the short term, which increases the probability of achieving favourable long-term investment performance.
As with most real-world problems, the solutions are, unfortunately, not simple. One approach that can address some of these issues is the bucket approach to financial planning. This approach involves creating different buckets or pockets of investments, each addressing a different investment need with its own investment horizon. This affords the client the much-needed comfort that their unique needs are being addressed, it simplifies how they look at their total investment portfolio, and it increases their chances of sticking to a long-term financial plan. For long-term financial success, we recommend trusting your investment manager, maintaining a long-term mindset, and avoiding getting distracted by short-term noise.