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Vuka Mzansi, the power is you

Dec 30 2018 15:21
Sipho Ndlovu

Currently South Africa has a debt-to-GDP ratio that is well above 50%. This means that for every R1.00 we make, we must pay at least 50 cents to the entities we owe.

What makes matters worse is that, like a normal loan, the interest we are paying on our foreign debt is increasing as the United States Central Bank has been increasing interest rates. It is not just true that the government is in a debt spiral, but also the population at large.

With a not-so-prosperous economy and youth unemployment at 38.2%, it not surprising that the population is just as indebted.

Depending on which perspective you choose, some might blame the ANC government for a lack of proper governance and deeply concerning corruption. After all, government's sole purpose is to look out for its people, and many argue that the ANC has failed to do so.

President Cyril Ramaphosa, who has marked the end of a rather eventful era under former president Jacob Zuma, may signal a bright light at the end of the tunnel. This light has been marked by a more positive attitude by foreign investors, and perhaps Mr 'Thuma Mina' – and a revived ANC – will be able to turn around the economy.

But this will likely take several years, especially as SA is being haunted by, among many other things, poor economic growth, a sky-high crime rate, sickening corruption, a devastating unemployment rate, an unclear land redistribution plan, uncertainty among emerging markets, and further political uncertainty.

While influencing how the government chooses to spend taxpayers' money is ultimately not within the nation's control, our personal lives are.

Two decades into democracy, economic inequality still falls starkly along racial lines. But there are steps we can all take – but particularly black people affected by the above – to empower ourselves and transform our lives for a better tomorrow, without waiting for government.    

Avoid unnecessary debt

To understand this, perhaps we should take a step back and recall the 2007/2008 financial crisis.

In a nutshell, large banks in the United States granted home loans (mortgages) to people who could barely afford such loans. The banks, knowing such practises were risky, moved the risk of their books through a process called securitisation – essentially insurance.

In this case the banks would pay a small premium and have another financial entity take care of the risk. The problem is not securitisation. Insurance is one of man’s greatest inventions. The problem was the way it was orchestrated. Basically, each financial institution would pass the product to another financial institution. This ever-risky product bounced around US entities and ended up being injected into other financial markets like Europe, Asia, etc.

All the entities knew the product was toxic, but since they made huge profits, they proceeded, deceiving the general public.

The gist of the above is that some banks and financial institutions tend to chase profits at the expense of the consumer (some, not all). Rather than trusting the bank to look out for you, it is best to avoid unnecessary debt as far as possible.

While one can debate the merits of taking out a loan to cover your child’s school fees or renovate your house, it is irrational at all levels to, say, buy alcohol on borrowed money.

One of the primary reasons we end up engaging in irrational debt is that many human beings suffer from something South African people call abantu bazothini.

This disease comes in two forms: when you want people to "feel your success" or you are worried about what people think of you. In essence, you succumb to the pressure of trying to please people.

Whether you are a teenager demanding brand name clothes, or an adult buying a house, car or clothes they can't afford, abantu bazothini unveils the curtain of debt unnecessarily. But debt weighs more than what others think of you – especially those who will not help you when you are trying to pay it off!

Invest whatever you have

In days gone by, our finances largely functioned on a barter system. Today, it's somewhat different, but investments remain foreign to a large percentage of SA's population.

One reason for this is that many South Africans are poor. Being poor means you are likely to live from pay cheque to pay cheque, with nothing to spare – and you are unlikely to educate yourself on the universe of investments at your disposal.

But being poor does not stop you from learning investments. Though you might be on a tight budget, a relatively small amount with a reputable firm can deliver worthwhile results.

Suppose you save for your child's education for 20 years. You start investing R1 000 monthly in the first year (this amount is simply an example – what you invest would depend on you) but increase your monthly savings by 5% every year. This means you are adding R50 monthly in the second year, R52.5 monthly in the third year, etc. This is important because R1 000 today will have less purchasing power later due to inflation.

You find a firm that gives you a return of 22% per annum (this is not a random figure – the Allan Gray Equity Fund managed this over a 20-year period). In 20 years, your child's investment would be worth approximately R3.92m.

But had you invested only R1 000 monthly for the full period, your investment would have been worth around R3.13m – about 20% less. That small annual increase made a major difference.

Get whatever education you can

Draconian apartheid laws lasted for decades. For those disadvantaged by these laws to get on par with a white minority will likely take a couple of decades.

More than 20 years into democracy we have barely scratched the surface in terms of levelling the playing field. According to Bloomberg, white farmers still own almost three-quarters of South Africa's agricultural land. In 2017, Stats SA data revealed that, on average, whites earned five times more than blacks. Pit toilets, squatter camps, the horrifying list goes on.

There is a debate among philosophers whether education delivers wealth or not, but regardless, we cannot undermine the benefits of education. We have all heard stories of a child who grew up in poverty but with great determination, found their way to university and became a teacher, doctor or engineer. Such an individual not only polishes the living standards of his or her family, but also sparks hope within their community.

We must be aware of a bias here, given that youth unemployment is so high, and such stories cannot occur for everyone. There will be many who are highly educated but cannot find a job in their field, or worse, any job at all. So is it worth being educated? one may ask. If one is only to end up unemployed, just like the candidate who never finished school?

The answer is yes. Firstly, "educated" doesn't necessarily mean tertiary education. It may simply mean completing matric – which is a basic requirement of many positions. Secondly, given two individuals with otherwise similar circumstances, an education can be a key differentiator. When it comes to the crunch, it can help you put food on the table.

And thirdly, perhaps most importantly, an education – even if you do not manage to complete your tertiary education – means you can pay it forward. Putting food on the table may not have been your biggest dream, but it can help the young ones who depend on you with their dreams.

And when they, or a younger sibling, or your neighbours' children are struggling with their homework, you can help them, laying a foundation for them. In this way, you are helping in the long term to rectify what the evil apartheid system did. Sometimes one's dream can also be to help others achieve their dreams.

Moving forward

We do not have to wait for the "system" to look out for us. The three points above are not exhaustive, but are a good place to start. They should not be seen in isolation, but as part of a system.

We cannot change the injustices of the past or the circumstances that life – often unfairly – throws at us, but we can adopt practises that will give us a better probability of succeeding, or will help us shape a better platform for future generations.

Sipho Ndlovu is a Support Analyst in Institutional IT and Operations at Allan Gray. He studied Mathematical Statistics and Financial Engineering at the University of Pretoria. Views expressed are his own.

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