Prominent academic Dr Conrad Beyers has cautioned against the advice by prominent economist Dawie Roodt, who urged South Africans to take their money out of the country.
Beyers is the Barclays Africa Chair in Actuarial Science at the University of Pretoria, who was commenting in his personal capacity about Roodt’s advice.
Beyers 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, adding that people should be aware of the risks that accompany hasty decisions to take savings out of the country.
Notably, 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 also other considerations, such as taxation and potentially large costs involved with transferring funds overseas.
“There is no doubt that there are significant risks for the South African economy,” said Beyers.
“South Africans should indeed 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,” he said.
He added that exposure to international markets can indeed be very healthy, but highlighted 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,” said Beyers.
“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.”
Another important consideration is the availability – i.e. 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 negativety persists around 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,” said Beyers.