Capital flight isn’t a growth strategy for SA
I believe Stuart Theobald is conflating cause and effect (“SA’s investment challenge is about opportunity, not capital”, May 27).
I have never argued that South Africa does not require deep structural reform. It clearly does. Weak growth, policy uncertainty, infrastructure decay, energy instability and governance failures all matter profoundly. But the existence of those problems does not justify accelerating the withdrawal of domestic capital from an already capital-starved economy. A patient with compromised lungs is not cured by reducing oxygen further.
My concern is that we have normalised the idea that capital flight is merely prudent diversification, without properly considering the cumulative consequences for market depth, valuations, liquidity, infrastructure funding and economic confidence. Markets are ecosystems.
Once sufficient liquidity and participation leave, the deterioration becomes self-reinforcing: lower liquidity produces lower valuations, which produce delistings, which reduce investor participation further, which weakens new issuance and capital formation again. That is precisely what has happened to the JSE over the past two decades.
The debate also cannot be confined to the headline “45%” offshore limit because, in practice, that figure is largely fictitious. Due to a series of unintended structural consequences, inward-listed shares and globally exposed rand hedge structures allow managers to achieve something approaching full offshore economic exposure while remaining technically compliant with Regulation 28.
A retirement fund manager can therefore de facto extract close to 100% of portfolio economic exposure from the domestic economy while still appearing domestically allocated on paper. That distinction matters enormously.
The result is that South Africa increasingly retains the regulatory shell of a domestic savings system while losing the economic substance of one. The tax incentives embedded in retirement structures were not intended to subsidise the wholesale externalisation of national savings.
Nor am I suggesting capital controls or financial isolation. Every serious economy permits diversification. The issue is proportionality in the context of a shrinking emerging market with collapsing public market depth and insufficient domestic investment formation.
To say that capital should remain free to leave until every structural problem is solved is to misunderstand how recoveries occur. Investment itself is one of the mechanisms through which countries repair infrastructure, fund expansion, create employment, deepen markets and restore confidence. Starving the system of capital while waiting for perfect conditions simply entrenches stagnation.
South Africa’s challenge is therefore not merely one of reform. It is simultaneously one of capital retention, capital formation and capital allocation. Without those, reform alone has no transmission mechanism into growth. That is the central point.
Duarte da Silva
Via email
Blaming capitalists misreads Mozambique crisis
I don’t agree with the implied suggestion in the review of the book Blood Will Flow that all extractive industries are run by uncaring capitalists with no regard for workers’ lives (“‘Blood Will Flow’: Mozambique massacre and the cost of human life”, May 28).
The world’s economy and its standard of living depend on extracted minerals. The industry employs thousands of workers, most of whom work willingly and are well paid. We in South Africa are well aware of the dangers inherent in the job, but also the investment needed to minimise risk.
When al-Shabaab, a subsidiary of Islamic State in Tanzania, attacked Cabo Delgado in 2021 wreaking havoc and killing civilians, it was a classic terrorist assault. To suggest that it was the responsibility of TotalEnergies, owners of the nearby gas installation, to anticipate and protect everyone for miles around is a bit far-fetched.
To suggest, too, that the Mozambique army should have been ready and waiting implies a deep ignorance of how corrupt the government is and how they have neglected the north of their country for decades.
Bernard Benson
Parklands
Active management fees are a big drag on returns
Brian Kantor and Carig Evans’ column refers (“Active investing and the risks in index tracking”, May 28).
Active management incurs very high fees, particularly in South Africa, which are a big drag on returns. Empirical research consistently shows that active management underperforms the index, yet the authors didn’t even mention fees, which is misleading.
The cost of high fees for active management over a decade or more significantly reduces returns, and there are well-known index-tracking approaches to avoiding concentration risk. Equal weight indices are just one example.
Unless you want to contribute to the wellbeing of your (very friendly) active manager, just a little bit of research or advice from a good financial adviser can allow you to invest your money intelligently.
Bruce Young
Via Business Day online
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