JOHANNESBURG - Dr Conrad Beyers, Barclays Africa Chair in Actuarial Science at the University of Pretoria, said that public advice by prominent economist, Mr Dawie Roodt, urging South Africans to take their money out of the country, should be taken with caution.
He noted that "physically taking money out of the country" is not the only way to protect savings against a weakening South African economy.
According to Beyers, the advice by Roodt appears to be a hysterical reaction to recent events. He cautioned that people should be aware of the risks that accompany hasty decisions to take savings out of the country.
Interest rates are typically very low in developed countries and exchange rate fluctuations can have a significant influence on the value of overseas savings. For example, typical interest on savings instruments in developed countries are much lower than in South Africa - in Australia it is around 1%. A weakening of the foreign currency can also severely damage the savings of South African residents. There are other considerations such as taxation and possible significant costs involved with transferring funds overseas.
According to Beyers, there is no doubt that there are significant risks for the South African economy. South Africans should strive not to put "all their eggs in one basket" - the key is to be careful and consider all possible risks that accompany major financial decisions. Exposure to international markets can indeed be very healthy.
Beyers noted however that there exist many alternatives to physically moving funds out of the country. Investment in JSE listed companies or unit trusts with significant international exposure is one way to hedge savings against a weakening South African economy. As an example, investment in many prominent JSE shares with international exposure would give South Africans a very healthy return over the past five years.
Often, these vehicles are comparatively cheap to invest in. Another important consideration is the availability (liquidity) of savings. Savings invested overseas may often not be readily available to investors to withdraw. Investments such as JSE shares or other vehicles are typically highly liquid and can easily be available to investors.
Beyers noted that it is understandable that Roodt is negative about the South African economy. Roodt should however be careful not to draw many South Africans into making hasty and irresponsible decisions that could potentially put their savings at risk.
Moving money out of the country is indeed a valid possible investment option among many alternatives - investors should however make sure that they are aware of all the implications and risks surrounding such decisions.
The University of Pretoria hosts the Barclays Africa Chair in Actuarial Science – the views expressed by the holder of the Chair do not aim to represent any stance or viewpoint of Barclays Africa.
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