South Africa: will the Rugby World Cup stem retiree departures?
As someone who grew up in South Africa, I watched with anticipation and some sense of pride as the Springboks or the “Bokke”, pulled off a great victory to take the trophy home. But the naturally ebullient and optimistic feeling after a victory of such proportions was short-lived. The victory would, knowing the way the South African population react emotively to such events, convince many people that “everything was going to be ok”.
The rugby win would pull the country together, help it tackle its issues such as the constant power cuts, the consistent under-investment in education, the rampant corruption, the continuing HIV-AIDS epidemic which is a plight on the nation, the cycles of violence which cannot seem to be broken. Of course it would…not.
What we learn if we have lived in South Africa is that, no matter how much we admire the country, its people and its magnificent scenery, economically the situation has deteriorated consistently over several decades. There is no greater indication of this erosion of purchasing power than the demise of the national currency, the Rand, which has made the cost of living, although still competitive by international standards, hugely costly for the local population. Indeed, even for visitors, certain items are very expensive and one wonders how the local population afford these items. The answer, of course, is they do not and go without.
In the 1960s the Rand was worth almost $1.39, dropping to $1.15 in 1974 when it was delinked from the USD. I recall times in the 1970s when the Rand was around $1.12 to the Rand – we took a holiday to Disneyworld and it was very affordable. But the Rand has been on a downward trend since the early 1980s. By 2001, the USD was worth over R12, and today that level sits at R18. This represents a depreciation of over 2400% over a period of approximately 50 years, or around 40% per annum. Put another way, R1,000 deposited in USD would have become, when converted back, more than R1.1 million in 20 years, simply based on the average devaluation of the currency over time.
Even for the most ardent and passionately loyal South Africans, those who under no circumstances see themselves leaving the country, it would seem to make sense to hedge by having some form of investment or holding in a foreign currency, to protect against the devaluation of the Rand.
The challenge with South Africans or those who have lived in South Africa is that they justify the risks in the country – physical, economic – with the “quality of life” and “lifestyle” which they believe is not attainable or replicable anywhere else in the world. Until one extricates oneself from this environment and has the opportunity to observe the country from afar, and to compare it to other places, it is an almost impossible task to convince a South African resident to look objectively at the situation in the country. No other country is likely to compare, and using logic is often counter-productive when discussing a hugely emotive subject.
The result of this “insular” perspective, not helped by the fact that it is far and expensive to travel to other first world locations, is that many residents become unwitting economic prisoners of their own circumstances. The term may seem emotive and even extreme, but the cases of retired South Africans who, through lack of planning brought on by their South-African-centric view of the world, have found themselves suddenly unable to do anything but live out their lives where they are, with no ability to, for example, join children who have emigrated or to be able to do some international travel, is all too frequent. This is not to say that suddenly all South Africans or residents will want to leave the country, but to many it is complete taboo to even discuss a life outside South Africa. This is a pity because these decisions will affect multiple generations of families, and essentially a lack of planning and action has left many South Africans without a choice.
After the World Cup win, we saw an obviously elated Bryan Habana appeal to the emotive side of the nation, and to vocalise what many hope, namely that the event would be a catalyst for change in the nation. While sport has historically had huge transformational potential in the country, most South Africans considering their financial situation, are increasingly detaching their emotions towards the country from the reality of fiscal prudence and creating financial security for themselves and their families.
And with the changes foreseen to be implemented by the South African Revenue Services (SARS), the usual 183-day rule will now be replaced with a ZAR1 million threshold rule, which will have an immediate and substantial effect on the tax position of high earners. The “expat tax” will be a big factor for wealthy South Africans in terms of deciding whether they commit, fiscally, to South Africa or look for a permanent alternative.
I note that the raising of the foreign remuneration exemption limit reminds me of a distracting tactic designed to take away attention from the fact that the average historical annual devaluation of the Rand against the USD has been substantially higher, and even in a period of greater stability, a portion of the increase in the exemption level is eroded by currency devaluation.
There is talk of South Africans now coming under the remit of worldwide taxation under the new regime, but it should be noted that a country like Portugal applies exactly the same rule in terms of its residents, namely the taxation of worldwide income. So the decision to emigrate fiscally from a country such as South Africa to Portugal cannot be based solely on taxation but on a combination of factors such as inheritance after naturalisation, tax exemptions under programmes such as the Non Habitual Residence scheme, and lifestyle and safety factors. In an African spirit, the generation making the decision must see this as “African” in the sense of the decision being the first step in a multi-generational decision. A decision to move from Africa to Europe involves so much more, emotively, socially, culturally, linguistically, than simply moving one’s tax position, that anyone considering it must look at it from a multi-generational impact perspective.
South Africans have historically felt comfortable with emigration to English-speaking countries in the Southern hemisphere such as Australia and New Zealand. Notwithstanding the obvious benefits of being the same hemisphere so the seasons being the same, and of English being the first language, Europe offers a huge array of options, especially for a younger, professional generation. If, after consideration, South Africans consider Portugal a good choice (and both Portugal and Spain offer excellent lifestyle options although Portugal, linguistically, makes for easier integration because of the level of English spoken), then it cannot be overstated how important choosing your residence is.
Selecting a location and a property in which to live with your family will be a key step in the decision to move. And with so many South Africans being sold overpriced villas in Cascais, for example, it is important that South Africans moving to Portugal ensure that they do not undermine their financial planning strategy by overpaying for real estate. If necessary, consider a rental for an initial, even indefinite period. You will still be eligible for residency under programs such as the income-based D7 visa. Importantly, don’t be convinced that you must invest in a Golden Visa when other options might be equally available for your situation. And don’t be persuaded by agents who have sold to many South Africans in the “same location” and now argue that that buying in the same areas are the only sure-fire way to quickly integrate into the South African community in Portugal.
South Africans, like all nationalities, are often comforted by proximity and contact with other South Africans. So are the French, and the Finnish and the Swedish. and the Brits. But with few exceptions all these nationalities eventually form a multinational circle of friends based on their interests. So if you are accustomed to space, want affordable real estate yet proximity to an international expat community, don’t hope to find the former in Lisbon or the latter in the Silver Coast. If you like the opera and ballet every week, don’t expect to have that option in the Algarve without travelling up to the capital or to Seville.
Any country move is a process. What starts as a multi-faceted decision involving emotions, aspirations, finances and much more, quickly becomes a practical search for housing, schooling and even investment such as a local business.
With so much changing in South Africa and in Portugal (both Golden Visa and NHR programmes will change), timing and speed is crucial. If you are seriously thinking of Europe, and specifically Portugal or Spain as your destination, getting in touch with a local expert who has experience in navigating this process themselves, is an absolute must in ensuring as smooth a journey as possible.