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The Benchmark
Absa Wealth Management April, 2018
Wealth
It’s a Feeling.
Special Features
Monetary Policy:
Curiouser and curiouser
South AfricaThe Most
Unequal Country In The
World
Wealth Trends
The 2018 Knight Frank
Wealth Report
Contents
Winston’s Word 2
House View 3
Monetary Policy: Curiouser and curiouser 10
South AfricaThe Most Unequal Country In The 12
World
Fiduciary Focus 14
Focus on Philanthropy 16
Wealth Trends 18
News Roundup 20
What did The Economist Say 21
Fund Performance 24
Smarty Boxes 26
Disclaimer 30
Winston’s Word
We catch up on the events currently shaping the global economy, at a
challenging time.
There is more evidence that South Africa The economy grew by 1.3% in 2017
is on an improved growth path. Hot on compared with a revised 0.6% in 2016, as
the heels of Moody’s’ decision to keep the reported by Statistics South Africa
sovereign credit rating unchanged at one (StatsSA) on 06 March 2018.
notch above junk, fellow ratings agency
Standard & Poor’s (S&P) raised its gross What these numbers demonstrate is an
domestic product (GDP) growth forecast economy on the mend. Even the official
for South Africa to 2% for 2018, from 1% unemployment rate has eased,
previously. It also revised its forecast for decreasing to 26.7% in the fourth quarter
2019 up to 2.1%, from 1.7% before. of 2017 from 27.7% in the previous
period. In spite of this however, the
Both these decisions are due to improved country remains highly unequal as the
investor sentiment following the positive World Bank recently reported – read more
political changes that led to the swearing on its findings’ in the “South Africa, The
in of Cyril Ramaphosa as the country’s Most Unequal Country in the World”
new president. A more favorable inflation feature. We also feature the “2018 Knight Winston Monale
outlook has also given the South African Frank Wealth Report” which sees South Managing Executive, Wealth
Reserve Bank (SARB) room to ease Africa’s ultra-wealthy (people with US$50 Management: Africa
monetary policy, and that is exactly what million or more in net assets) growing by
the Monetary Policy Committee 20% over the next five years following a
(MPC) did, cutting the repo rate by 25 14% rise in 2017.
basis points to 6.5% and the prime
lending rate to 10%. The last time the All of this and more in this month’s
central bank cut the repo rate was in July edition of The Benchmark. Enjoy.
2017 in a surprise move that left the rand
on the back foot. Back then, SARB
Governor, Lesetja Kganyago stated that
inflation remained a risk amid a
deteriorating economic growth outlook.
Since then, the domestic economy has
recovered some ground, growing by 3.1%
between October and December 2017,
the highest rate since the second quarter
of 2016, after expanding by a revised
2.3% in the third quarter.
House View
Local Economic and Market Outlook
Local Macroeconomic Outlook Local Market Outlook
GDP Outlook Bonds
South Africa’s real gross domestic In recent months, rand denominated
product (GDP) surprised on the upside in bonds have enjoyed good support from a
the fourth quarter of 2017, registering an resilient rand and renewed optimism
economic growth figure of 1.3% year-on- regarding the growth outlook of the
year, which is 0.4% points higher than South African economy. Fiscal
consensus estimates. consolidation measures and the decision
by rating agency Moody’s to leave the
Recent growth drivers have reflected local credit rating unchanged at one notch
more of a cyclical recovery than a lasting above investment grade with a stable
uptrend. The notable growth in the outlook momentarily lowered the risk
Keorapetse Leballo
agricultural sector mainly from subsiding premium attached to these securities.
Investment Strategist, GI&S
draught effects is expected to moderate
as the shock becomes fully absorbed in Looking ahead, we envisage limited room
forthcoming GDP prints. for further yield compression on the back
of: twin deficits from the fiscal and
The recent rally of the rand is also current balances; a negative output gap;
forecast to weaken mining industry and low corporate profitability levels that
production levels and anchor trade will likely induce benign capital spending
deficits over the next few quarters to and higher costs of servicing debt. Our
come. Fiscal consolidation measures weaker outlook for the rand and a pick-up
announced in the previous budget in inflation rates from current levels also
statement infer subdued government suggests a tactical overweight in inflation-
spending that is likely to reduce the linked bonds over the next 12 months.
recent GDP growth momentum.
Listed Property
We look towards improved business and We have marginally reduced our exposure
consumer confidence figures, to local property in an attempt to take Ricardo Smith
expansionary Purchasing Manager’s some currency risk off the table. This Investment Strategist, GI&S
Indices and an up-tick in global economic asset class is rapidly increasing its
activity to bolster local economic activity offshore earnings exposure, thereby
over the next two years. To this end, we inducing multiple layers of rand-hedge
have marginally revised our previous GDP attributes which we are already obtaining
forecasts from 1.4 percent to 1.6 percent from our offshore equity and local high
in 2018 and from 1.7 percent to 1.8 cap equity allocations.
percent in 2019. Considering that this asset class has
recently dipped, we still hold some
Inflation Outlook allocation that will allow us to participate
On the 28th of March 2018, the South on the upside in the event that prices of
African Reserve Bank’s (SARB) Monetary these counters re-rate at higher levels.
Policy Committee (MPC) announced their Interest rate geared earnings and
decision to cut the repo rate by 25 basis- currency-hedged growth continues to
points. The MPC’s decision comes on the justify a cautious yet long SA REIT
back of: an improved inflation outlook; an position within the asset allocation
over-valued currency; and low demand portfolios.
pull inflationary threats stemming from
decreasing household credit extensions.
House View
Global Economic Outlook
Equities to declare a breakout in employee
Valuations in the equity market appear compensation. Furthermore, historic
stretched in the absence of a strong trends reveal that transition from higher
earnings catalyst in maintaining the 2017 employee compensation into actual
rally of the All Share index. Lofty price economy-wide inflation is itself a slow and
earnings multiples are expected to non-linear process.
continue exerting downward pressure on
dividend growth rates, while the volatility Any reduction in the unemployment rate
of the rand remains set to threaten below the current 4 percent is likely to
foreign earnings on rand-hedged counters translate in hyper-inflationary threats that
in the short term. would force the Federal Open Market
Committee (FOMC) to raise interest rates
Increasing global inflationary pressures sharply. Nonetheless, inflationary
conversely point toward renewed tailwinds should slowly gather in the
weaknesses in the value of the rand coming years, amidst increasing
which is expected to bode well for economic activity.
counters with foreign earnings exposure
over the next 12 to 18 months. Euro area
Furthermore, improved global economic The Eurozone economy enjoyed a broad-
prospects are also expected to contribute based recovery last year, with
positively to the medium term return consumption boosted by rising Increasing global
outlook of this asset class. employment. Some of this growth has inflationary pressures
eased, as evidenced by the latest conversely point toward
We recommend shorting financials in Eurozone PMI Composite and renewed weaknesses in
favour of consumer staples on the back of Manufacturing indices. the value of the rand
increasing risk premiums and low which is expected to
household credit extensions. Given rising However, in-spite of the recent short- bode well for counters
inflationary headwinds and moderating term decline in these indices, they remain with foreign earnings
dividend growth rates, we are currently at historically elevated levels, and they
exposure over the next
pricing in a real return outlook that is continue to signal robust growth ahead
12 to 18 months.
much softer than that of the previous for the Eurozone. We forecast the Euro
year. area’s economy to expand by 2.2% year-
on-year and 2.0% year-on-year in 2018
Global Economic Outlook and 2019 respectively.
United States Asia
The latest US wage data surprised With cyclical indicators continuing to
economists to the upside triggering a trend upwards, prospects for the
bout of inflation optimism amongst Japanese economy remain positive. A
market participants. However, the upside more favourable domestic and external
came mainly from a minority subset of economic backdrop has made us more
the sampled workforce, supervisory positive about the trajectory of Japanese
employees, whose wage growth tends to corporate profits. Dividend payout ratios
be volatile. Excluding this group, gains are also on a steady upward trend – a
were more muted, in line with previous nascent sign that government reforms to
trends. alter corporate behaviour and improve
shareholder returns may be starting to
Wage gains would need to broaden bear fruit.
materially over the coming months for us
4House View
Global Market Outlook
While Japan has managed to pull itself out portfolios. This ultimately means that an
of sustained deflation, core inflation still investor looking to grow assets above
remains well below the Bank of Japan’s 2 inflation will have to accept an investment
percent target. We therefore see no portfolio that will be reasonably correlated
change to the Bank of Japan’s to equity markets over time.
accommodative stance as we move into
2018. We also expect Japanese fiscal
policy to continue to support economic
growth.
Global Market Outlook
The bond market, which until six months
ago seemed vulnerable to the threat of
deflation, now looks better equipped to
handle the reality of more rate hikes.
Yields across all maturities likely have
further to rise still; an era of low yields
seems to be coming to an end.
Furthermore the period of calm enjoyed
As with all such
by markets since last year was finally moments, investors can
shattered in February, with global stock take a while to find their
markets experiencing a sharp pullback. feet as perceived norms
The health of the global economy and the are inverted.
resulting corporate profitability, however,
remain positive for global stock markets.
As with all such moments, investors can
take a while to find their feet as perceived
norms are inverted. However, with the
prospects for economic growth still
looking firm, and signs of overheating still
substantially absent, equities continue to
offer the most attractive returns.
Valuations are high in the US stock
market, but more normal elsewhere. Even
assuming some medium-term headwind
from valuations, the excess returns
available from stocks look attractive in a
strategic context relative to high-quality
bonds. Equity still offers attractive long-
term, risk-adjusted returns.
Although equity markets are not the only
source of investor returns, it is stocks that
are going to provide the bulk of the long-
term returns and volatility to investmentHouse View
Economic Summaries
Local Global
Growth The economy of South Africa is likely to Prospects for the world economy seem a bit
expand at less than full potential over the brighter over the next two years, as evidenced
next two years. Sub-investment ratings, a by a pickup in leading economic indicators
volatile currency and poor corporate across major world economies. However,
profitability levels, are expected to increase fiscal policy uncertainties and low household
the cost of servicing debt, where companies consumption rates continue to threaten the
will be forced to either cut capital spending, medium term global economic outlook. Global
undergo debt stress or reduce labour force. economic activity is now forecast to expand
We therefore expect unemployment rates to by 4.0% and 3.8% over the next two years
remain stubbornly above 25% over the respectively.
foreseeable future.
Inflation Challenges to CPI moderation or even a low Notwithstanding historically low
and stable inflation print continue to linger. unemployment rates, policy makers continue
These challenges stem from stubbornly high to remain concerned by weak demand
meat price inflation, increasing administered pressures which are forecast to anchor global
costs and pass through inflationary core inflation rates well below target.
headwinds from oil price normalisation. We Conversely, low US unemployment rates, a
therefore expect inflation to remain weak US dollar and renewed growth
uncomfortably range bound over the medium optimism and above target inflation rates
term, with strong upside limitations from currently infer restrictive Fed interest rate
benign consumption propensities. policy intervention over the short to medium
term.
Exchange Although the rand is still undervalued against A gradual removal of excess monetary supply
rates the dollar from a purchasing power parity and resilient economic conditions are set to
perspective, faltering growth and a high benefit G10 currencies relative to their
inflation differential with our trading partners, emerging market counterparts. Restrictive
make it unlikely for the currency to Fed policy is set to correct any short-term
strengthen above the ZAR10 level again. We devaluation of the US dollar, while an
are currently pricing in a rand depreciation increasing current account surplus in the euro
that is broadly in line with inflation area suggests a renewed appreciation in the
differentials between SA and G10 economies. euro against most G10 and emerging market
currencies.
6House View
House View Matrix
House view matrix
Asset Class View Rationale
SA Equities Neutral The absence of a strong earnings catalyst with a number of counters already
trading above fair value currently mutes short-term appetite. We favour rand
hedged stocks on the back of a correction in G10 currencies to improve the
medium term return outlook.
SA Property Bearish Interest rate geared earnings and currency-hedged growth continues to justify
a cautious yet long SA REIT position within the asset allocation portfolios. The
recent dip in performance and limited room in yield compression has led to the
marginal reduction in exposure to this asset class.
SA Bonds Neutral Weak economic activity and increasing inflation expectations favour a duration
neutral strategy. High budget deficits and growing threats a weaker rand
outlook is conversely prone to bid yields high in the medium term.
SA Cash Bullish The risk-reward profile of cash and short-term maturity bonds appears
fundamentally strong relative to other asset classes. We expect short-term
yields to appreciate slower than long term yields in response to currency and
macroeconomic risks.
Commodities Bearish US monetary policy normalisation and shifts from industrialisation to
consumption led economic policies in China are set to keep the commodity risk
premium unattractive for extended time periods. Increased exposure towards
energy commodities may be justified by planned production cuts.
DM Equities Neutral A strengthening dollar is expected to undermine US equity earnings while the
ongoing pick up in global inflation should lead to better pricing power and
attractive nominal returns for developed market equities. Long developed
market equities relative to emerging market counterparts.
DM Bonds Bearish Valuations indicate that these securities are currently trading at a significant
premium, where real returns appear to be particularly stretched on the back of
increasing inflation expectations.
DM Property Bearish Due to low diversification benefits, this asset class remains a tactical call as it
carries a high level of systematic risk relative to the DM equity index. Limited
room for yield compression anchors yet another reason we remain reluctant to
hold offshore REITS over the medium term.
Source: GI&S Africa, March 2018House View
Key Macroeconomic Projections
Economic Forecasts
Real GDP (%) Consumer prices (%)
2017E 2018F 2019F 2017E 2018F 2019F
Global 3.9 4.0 3.8 2.1 2.3 2.3
Advanced 2.1 2.1 1.8 1.8 1.8 1.8
Emerging 5.2 5.3 5.2 2.6 2.9 2.9
United States 2.2 2.3 1.9 2.1 2.2 2.0
Euro area 2.3 2.2 2.0 1.5 1.5 1.6
Japan 1.5 1.6 1.2 0.5 0.6 1.1
United Kingdom 1.5 1.3 1.3 2.7 2.4 2.2
China 6.8 6.4 6.2 1.6 2.2 2.0
Brazil 1.0 2.4 2.3 3.5 4.0 4.5
India 6.3 7.6 7.6 3.1 4.6 4.5
Russia 2.0 1.8 1.5 3.7 4.1 4.3
South Africa 1.3 1.6 1.8 4.7 5.2 5.3
Source: Barclays, GI&S Africa, Bloomberg March 2018
Currency Forecasts
Time USDZAR EURZAR GBPZAR
Spot 11.83 14.58 16.63
1 month 11.88 14.67 16.72
3 months 12.00 14.88 16.93
6 months 12.17 15.19 17.22
1 year 12.51 15.84 17.81
2 years 12.90 16.84 18.65
3 years 13.52 18.16 19.86
Source: GI&S Africa, Bloomberg, March 2018
8House View
Market Forecasts
Market Forecasts
2015 2016 2017 2018F 3 Yr. Ann F
South Africa – ZAR denominated
Equities – JSE All Share 5.1 2.6 21.0 8.2 10.4
Bonds – Beassa ALBI -3.9 15.4 10.2 7.4 6.2
Property – JSE SA Listed Property 8.0 10.2 17.2 6.2 8.3
Cash – STeFI Composite 6.5 7.4 7.6 6.3 6.9
Commodities – Bloomberg commodity 0.9 -1.4 -7.9 -2.1 0.3
Alternatives- ASISA SA MA Low Equity 7.6 3.6 8.4 7.3 6.5
Global market – Base currency
United States – S&P 500 1.4 12.0 21.8 8.7 9.1
United Kingdom – FTSE 100 -1.3 19.1 12.0 10.6 8.0
Europe – Euro Stoxx 50 7.3 4.7 10.1 6.9 9.0
Property – S&P Developed Property 0.9 5.4 13.2 3.1 4.6
Source: GI&S Africa, March 2018
Strategic Asset Allocation
High Medium Low
Local Equities 33.95% 26.25% 19.95%
Offshore Equities 24.25% 18.75% 14.25%
Local Property 8.87% 6.86% 5.21%
Offshore Property 0.00% 0.00% 0.00%
Local Bonds 11.73% 9.07% 6.89%
Offshore Bonds 0.00% 0.00% 0.00%
Commodities 0.00% 0.00% 0.00%
Alternatives 18.20% 14.07% 10.69%
Cash 3.00% 25.00% 43.00%
Source: GI&S Africa, March 2018Monetary Policy
Curiouser and curiouser
The decision of the Monetary Policy Committee (MPC) of the South African
Reserve Bank (SARB) to cut the repo rate by 25 basis points (bp) from
6.75% to 6.50% came as no surprise to the market.
Although the local interest rate market 2019 and 5,1% in 2020 with core
had almost fully priced in the rate cut and inflation (which excludes food, fuel and
consensus in the polls of information electricity) of 4,6% in 2018 and 4,9% in
providers such as Bloomberg and both 2019 and 2020.
Thomson Reuters were for lower rates,
the MPC outcome was never a foregone Very positively, inflation expectations
conclusion. The fact that four of the moderated in the first quarter of the year
committee’s seven members voted for and the SARB has always stressed the
more relaxed policy while three voted to importance of well-anchored inflation
retain the status quo, leads one to believe expectations. If inflation is expected to
that there was much to ponder and move higher then price setting behaviour Craig B Pheiffer
debate around the MPC table. Indeed if (on goods and labour) is self-fulfilling and Chief Investment Strategist,
Alice in Wonderland was in town and pushes inflation higher. While the SARB Absa Stockbrokers and Portfolio
peered at that table through her looking has a preference for inflation expectations Management
glass, she would not have been surprised to be anchored at the midpoint of the
by the final result but she may have cried target range at 4,5%, the improvement in
“curiouser and curiouser” at one or two of average expectations for 2018 of 5,2%
the assumptions and forecasts of the from 5,7% and for 2019 of 5,3% from
committee. 5,9% was welcomed. Average
expectations for inflation in 2020 were
The MPC’s revised inflation outlook was introduced at 5,4% while five-year
always going to take centre stage, as it inflation expectations reached their
should for an inflation-targeting central lowest point in the eight year history of
bank, but of particular interest was how the survey at 5,3%. The overall When all of the numbers
the SARB was going to assess the impact assessment of the MPC was that the risks had been crunched, the
of the VAT rate hike and the continued to the inflation forecast were more or less inflation outlook had
strength of the rand on the future path of evenly balanced. The rand was considered improved moderately
inflation. When all of the numbers had to be moderately overvalued but to pose although the MPC
been crunched, the inflation outlook had a lesser risk to the inflation outlook. admitted that the low
improved moderately although the MPC point in the inflation cycle
admitted that the low point in the As the King in “The King and I” might say,
had been reached in Q1
inflation cycle had been reached in Q1 none of this so far could be considered a
2018 at a forecast rate of
2018 at a forecast rate of 4,1%. This “puzzlement”. What is a bit “curiouser”
though is the link between the output of
4,1%.
implies that the 4,0% y/y increase
recorded in February was very likely the the SARB’s primary policy forecasting tool,
nadir for consumer price inflation. From the Quarterly Projection Model (“QPM”)
that low point, the SARB expects the next and actual policy. There is clearly a
peak in inflation to come in Q1 2019 at qualitative input to policy decisions that
5,5% and then soften again as the VAT the seven committee members provide
rate hike falls out of the base. The and the governor has been at pains to
increase in VAT is expected to add 0,6 explain that the MPC will not necessarily
percentage points to the inflation rate for slavishly or mechanistically follow the
the year following the rate hike to 15%. model’s directive. At recent meetings the
Overall, the SARB expects the headline QPM has been pointing to monetary
CPI to average 4,9% in 2018, 5,2% in policy tightening of between 50bp and
10Monetary Policy
Curiouser and curiouser
The SARB’s fan chart forecast of the repo rate (%) from the QPM
Source: SARB Interest Rate Forecast accompanying the MPC Statement of 28 March 2018
75bp by end-2019 and at the last Given the improving picture painted by possible. The SARB pegs its decisions on
meeting the policy path implied by the the SARB, the “stumble” in GDP growth in the latest available data and its two year
model was 25bp of tightening by end- 2019 is a little at odds with that positive outlook and oft times this is open to a
2019 and 50bp of tightening in 2020. The outlook. While the MPC acknowledged different interpretation by the market and
model does target the mid-point of the that risks to the growth forecasts were opens the door for some uncertainty
inflation target range but even so, the moderately to the upside, they did when the governor steps up to the
MPC policy outcome is in the opposite reiterate that sustained levels of higher podium to pronounce on policy.
direction to the model outcome. The growth would be dependent on sustained Nevertheless, South Africa is blessed with
SARB’s fan chart of the probable outcome levels of confidence, higher levels of an independent central bank that is
investment and real structural reforms by
of the repo rate reflects a rising trend over transparent and constantly evolving to be
the next few years yet the MPC saw fit to government. During the National Budget, even more open. Today we are privileged
reduce the repo rate in light of its the Finance Minister forecast annual GDP to have the SARB publish the economic
improved inflation outlook and the growth rates of 1,5%, 1,8% and 2,1% for assumptions that drive their thinking and
general reduction in inflation the next three respective years. This talks we also get to know how the MPC voting
expectations. to a little more of an even-paced recovery went down – all things we didn’t have
than the version envisaged by the SARB. before. Now we just have to figure out
Another bit of “puzzlement” is the SARB’s Time will tell who is right but at these how the QPM fits into it all.
forecast growth rates for the next few rates of growth South Africa won’t be
years. Factoring in greater confidence and able to make any dent into its hefty
a growing global economy, the SARB unemployment rate.
upped its domestic growth outlook for
2018 from 1,4% to 1,7% but cut its Most times the central bank would like
forecast for 2019 from 1,6% to 1,5%. For the market not to be surprised by its
2020 the central bank pencilled in growth policy decisions but with input variables
of 2,0%. changing by the minute, that’s not alwaysSouth AfricaThe Most Unequal Country In The
World
Since the dawn of democracy in 1994, Consumption growth
consumption inequality in South Africa South Africa also lags its peers on the
has been on the rise making the country inclusiveness of consumption growth.
one of the most unequal in the world, Inclusiveness in this case is examined by
according to the World Bank’s findings comparing the rate of consumption
detailed below. growth for the bottom 40% of the
population to that of comparator
Analysis of the distribution of countries as well as Sub-Saharan Africa
consumption expenditure per capita in and the world. The result: the bottom
the recent Living Conditions Survey 40% had consumption growth of 3.5%
2014/15 found that the country had a between 2006 and 2011, with a
Gini coefficient of 0.63 in 2015, the deceleration of 1.4% for the period
highest in the world and an increase since between 2011 and 2015. This does not
1994. Further analysis of consumption compare well with the median for the
expenditure trends provides evidence that world (3.9%) or, in the later period, with
Zukelwa Solomon
the very poor (those in the bottom 10%) Sub-Saharan Africa. South Africa’s BRICS
Collateral Writer, GI&S
grew at a slower pace than the rest of the partners (Brazil, Russia, and China) fare
population between 2006. better than South Africa in terms of
inclusiveness of growth.
12South AfricaThe Most Unequal Country In The
World
Wealth inequality The wages between the two extremes are opportunity in South Africa is high relative
Wealth inequality is also high and has highly unequal - those with highly paid to its comparators. This is further
been growing over time. The net wealth jobs earn nearly five times the average compounded by low intergenerational
inequality is even higher than wage in low skilled jobs, yet they mobility, which is an obstacle to
consumption inequality in South Africa, constitute less than a fifth of the total inequality reduction. Intergenerational
although there is strong correlation working population. Thus, while a mobility in South Africa is low in
between levels of inequality in segment of the population enjoys wages comparison to other countries indicating
consumption and wealth, with wealth that are on average equal to workers an enduring link between life outcomes
remaining an important source of long- living in developed economies, the wages for a given generation versus those of the
run inequality. Analysis of wealth of those at the lower end of the previous generation.
inequality based on data from four rounds distribution are comparable to those seen
of wealth surveys carried out by the among the poorest countries. The In summary, though overall, poverty
University of South Africa (UNISA) persistence of high wage gaps is levels in South Africa are lower today
between 2008 and 2015 suggests that associated with the skills premiums and compared to 1994, the World Bank says
the top percentile of households had differences between unskilled, semi- the country’s efforts to reduce poverty by
70.9% of the wealth and the bottom 60% skilled, and high-skilled workers. With 2030 will depend on gross domestic
had 7% - richer households are almost 10 wages rising for skilled workers, the product (GDP) growth and the reduction
times wealthier than poor households. stagnation of wages for semiskilled of income inequalities, the former being
workers fuels the increase in wage affected by access of the poorest groups
Financial inclusion inequality. In fact, workers in the middle to economic opportunities, and fiscal
Ownership of financial assets features of the distribution have witnessed an redistribution. South Africa has slow
prominently among the factors that erosion in the growth of their wages over growth to poverty elasticity (that is how
influence wealth inequality. For the poor, time, relative to the rest of the workforce much poverty falls for each percentage
financial assets represent 36% of total in the labour market. This is related to the point in economic growth) due to the
assets compared to 75% for the rich. shrinkage of semi-skilled employment and extremely high level of income inequality.
Moreover, those with lower incomes and their returns which points to the Projected sluggish growth, coupled with
young to middle age groups have high existence of a “missing middle” in the recorded improvements in access of the
rates of indebtedness. This prevents labour market. poor to education (and eventually, skilled
many segments of the population from jobs) is likely to somewhat reduce
participating in asset accumulation and Unequal opportunities: inequality and poverty in the coming
wealth building. Race and human capital Inequality of opportunity, measured by years (baseline scenario). Poverty rates
(education) have very high returns for the influence of race, parents’ education, (at the lower bound national poverty line)
wealth generation, even higher than in parents’ occupation, place of birth, and are projected to decrease from 40% of
the case of income or consumption gender influence opportunities, is high. In the population in 2016 to 33% in 2030
inequality. a society where there is equality of despite slow growth, as inequality would
opportunity, these factors should not be fall, with a Gini coefficient dropping from
Labour market relevant to reaching one’s full potential: 62.8 in 2017 to 59.5 in 2030.
The labour market is effectively split into ideally, only a person’s effort, innate
two extreme job types. At one extreme is talent, and choices in life would be the
a small number of people with highly paid influencing forces. Analysis of the
jobs in largely formal sectors and larger proportion of children with access to a
enterprises, at the other extreme is most basic service, adjusted by how equitably
of the population, who work in jobs that the service is distributed among groups
are often informal and pay less well. The differentiated by circumstances (via a
highly paid jobs are highly sticky: once Human Opportunity Index), shows that
people find these jobs they are unlikely to opportunities among children in South
give them up. The less well-paying jobs Africa vary widely depending on the types
are more fluid, more likely to employ new of service. An estimation of the inequality
entrants into the labour market, and more of opportunity index and its ratio to
likely to witness exits from employment. overall inequality found that inequality ofFiduciary Focus
Section12J Investments
History How does section 12j work?
The 2008 South African Budget Review Sec 12J of the ITA allows an investor
found that one of the main challenges to (individuals, companies and Trusts) a
the economic growth of small and 100% tax deduction in respect of any
medium-sized businesses was access to investment into a VCC subject to certain
equity finance. Through Section 12J, the conditions. The full amount invested in a
South African Government aims to VCC is 100% deductible from taxable
stimulate the economy and promote income in the year in which the
investment in South African private investment is made. This benefit is
companies, whilst providing tax benefits received when tax returns are filed. If the
to investors. Section 12J is designed to investment is held for a minimum period
encourage individual and corporate of 5 years, the tax benefit received at the
Ajanta Mayku
investors to invest in a range of smaller, date of investment will become
Team Leader: Advisory
higher-risk trading companies by permanent.
Specialists, Wealth and
investing through the Venture Capital
Investment Management
Companies (VCC). The VCC regime is subject to a 12 year
sunset clause and ends on 30 June 2021.
Section 12J was introduced into the Government will then review the efficacy
Income Tax Act (ITA) on 1 July 2009. – It of the regime and decide if it should be
didn’t really gain traction because the tax continued.
deduction by the investor was recouped
when the investor sold the shares. The Example: A typical client/investor, a
qualifying investment was initially R20M. natural person pays tax at 45%. The
In 2014, legislation was adjusted to make investor invests R100 into a 12J company
the tax deduction permanent if the shares and will receive a “refund” from SARS of
were held for 5 years. The investment R45. If the investor holds the investment
threshold increased to R50M. for 5 years, this benefit becomes
permanent.
Section 12J in a nutshell
CGT will be payable at the end of 5 years
There are three parties. upon exiting the investment. The base
• Qualifying Investors will invest in an cost will be zero. SARS is of the view that
approved VCC in exchange for the if 100% is claimed against taxable income
issue of venture capital shares and initially, you can’t then receive the benefit
investor certificates. of “double deducting”.
• The approved VCC will, in turn, invest
in qualifying investee companies in
exchange for qualifying shares.
Section 12J in a Nutshell
14Fiduciary Focus
Section12J Investments
Who qualifies to be an investor? consulting, auditing, or accounting. party administrators?
(professional industries); • Larger VCC companies, such as
Any taxpayer qualifies to invest in an • Operating casinos or other gambling Westbrook try to reduce investor risk
approved VCC. The approved VCC must related activities including any other and usually approach SARS with a
games of chance; template transaction in order to ensure
issue investor certificates to its investors,
• Manufacturing, buying or selling liquor, that they get a binding ruling on the
which will provide SARS with the proof
tobacco products or arms or investment strategy.
when the investor claims the relevant tax ammunition; or
deduction. No deduction will be allowed • Any trade carried on mainly outside the Legislative changes and no track record
where the taxpayer is a connected person Republic. of actual returns in most cases.
to the VCC at or immediately after the
acquisition of any venture capital share in There are no special tax rules for investee What happens in 2021?
that VCC. There is no minimum companies. The general tax rules will
investment amount in terms of apply. Treasury will assess the efficacy of the
legislation, however many companies section 12J regime. No investor will be
stipulate a minimum – usually R500 000. Risks of sec 12j granted a deduction after this date. Up till
There is no limit on the amount which can Feb 2021, an investor will receive the
be invested. Within the Section 12J asset managers, deduction and the fund will run for
there are those that are involved in high another 5 years.
Who qualifies to be an investee? risk, startup companies. However, clients
don’t have to take that type of high risk to It will need to be demonstrated to SARS
Investee must be a resident company and enjoy the tax benefits of a Section 12J that section 12J is promoting investment
must not be a controlled group company investment. Many of the top asset into SMEs in SA so that the regime is
in relation to a group of companies. The managers have capital protection as a key extended.
company’s tax affairs must be in order (a focus. Some of the potential risks are:
tax clearance certificate must be After 5 years, an Investor does not
requested from SARS to support this Investment risk necessarily have to exit. It depends on the
requirement). The company must be an • Consider the underlying investment exit mechanism of the asset manager and
unlisted company (section 41 of the Act) and associated risk. their commitment to liquidity after a
or a junior mining company. A junior • Consider the track record of the asset
term.
mining company may be listed on the managers – most VCC’s have an
Alternative Exchange Division (AltX) of investment committee.
the JSE. • VCC’s are often young companies with
no proven track record. Risk is
mitigated by the income tax relief since
During any year of assessment, the sum the capital invested is only a % of the
of the “investment income” derived by face value of the investment.
the company must not exceed 20% of its
gross income for that year of assessment. Liquidity risk
• Consider how liquidity will be created
The company must not carry on any of at the end of term.
the following impermissible trades: Any • Top asset managers will have a proper
industry except: exit strategy/mechanism.
• Any trade carried on in respect of
immoveable property, except trade as Compliance risk
a hotel keeper (includes bed and • The investment manager must
breakfast establishments); maintain the section 12J status for
• Financial services activities such as investors to ensure that they retain
banking, insurance, money-lending and their tax deduction. Consider the due
hire-purchase financing; diligence process.
• Provision of financial or advisory • Consider the compliance measures
services, including legal, tax advisory, which are in place. Example: Board of
stock broking, management Directors – are they independent or 3rdFocus on Philanthropy
World’s Richest Man, Amazon’s Jeff Bezos Gives More to Charity
It was back in October last year when Jeff Amazon engages in the retail sale of
Bezos’ wealth surpassed the $100 billion consumer products and subscriptions in
mark. At the time of writing this article, it North America and internationally. It
was sitting at a cool $112 billion - operates through the North America,
according to Forbes annual rich list (06 International, and Amazon Web Services
March 2018). This makes the founder (AWS) segments. The company sells
and CEO of Amazon the world’s richest merchandise and content purchased for
man, a position he has held many-a-time resale from vendors, as well as those
before. offered by third-party sellers through
retail Websites. It also manufactures and
Much like the other members of the sells electronic devices, including kindle e-
global rich-list, Bezos is no stranger to the readers, fire tablets, fire TVs, and echo. In
world of philanthropy. Earlier in January, addition, it also provide Kindle Direct
he and his wife, MacKenzie Bezos donated Publishing, an online service that lets
$33 million to a scholarship fund independent authors and publishers
Zukelwa Solomon
(TheDream.US) for young choose a royalty option and make their
Collateral Writer, GI&S
“Dreamers." The grant is the largest in the books available in the Kindle Store, along
organisation’s history and will give 1,000 with its own publishing arm, Amazon
undocumented immigrant graduates of Publishing. It also offers programs that
US high schools with Deferred Action for allow authors, musicians, filmmakers,
Childhood Arrivals (DACA) status the application developers and others to
opportunity to go to college. publish and sell content.
DACA provides a level of amnesty to Amazon’s success as a business has been
certain undocumented immigrants, many nothing short of amazing. At the end of
of whom came to the US as children - January, the company was rated as the
with a six-month delay for recipients. The world's most valuable brand, knocking At the end of January, the
program was formed through executive Google from the top spot down to third company was rated as
order by former US President Barack while Apple maintained a tentative hold the world's most valuable
Obama in 2012 and allowed certain on second place. This is according to the brand, knocking Google
people who came to the US illegally as Brand Finance Global 500 report. It placed from the top spot down
minors to be protected from immediate a value on the Amazon brand at $150.8 to third while Apple
deportation. Recipients were able to billion, a 42% jump from last year's maintained a tentative
request “consideration of deferred action” report. Apple received a brand valuation hold on second place.
for a period of two years, which was of $146.3 billion, up 37%, with the
subject to renewal. The Donald Trump Google brand owned by Alphabet at
administration however is phasing out the $120.9 billion, up 10% for a year earlier.
DACA program but Congress has been at
odds over what should happen to It has not always been a rosy picture for
“Dreamers” set to lose their deportation Amazon, however. Amazon was founded
protection status. in 1994, first traded publicly in 1997, and
didn’t turn a profit until 2001. Further,
The issue of immigration is a subject very over the past five years, Amazon’s
close to Bezos. His adoptive father, average profit margins have languished at
Miguel Bezos fled to the US from Cuba about 1%.
alone when he was 16 years old as part of As Bloomberg puts it however, Bezos has
Operation Pedro Pan. As a result, Bezos been sacrificing profit for growth and has
says his $33 million donation is in his successfully persuaded Wall Street that
honor. Jeff Bezos himself was born in Amazon is best served pouring money
Albuquerque, in the US state of New into the logistical nuts and bolts that have
16Focus on Philanthropy
World’s Richest Man, Amazon’s Jeff Bezos Gives More to Charity
turned his company into the Wal-Mart of answers and that they also do not accept
the web. More recently, however, it as inevitable but rather they share the
investors have found solace in the belief that putting their collective
company’s profitable cloud services resources behind the country’s best talent
business, which has helped offset losses can, in time, check the rise in health costs
in e-commerce. while concurrently enhancing patient In an effort to slow the
satisfaction and outcomes. pace of runaway
Another area where Jeff Bezos has been healthcare costs,
looking for success is healthcare, and he’s The Amazon-Berkshire-JPMorgan tie-up Amazon, Berkshire
giving it a shot. In an effort to slow the will focus on technology solutions to Hathaway and JPMorgan
pace of runaway healthcare costs, provide high-quality and transparent Chase plan to join forces
Amazon, Berkshire Hathaway and health care. Bezos is however not in denial to change how health
JPMorgan Chase plan to join forces to that the healthcare system is complex care is provided to their
change how health care is provided to and much like the DACA donation
combined 1 million US
their combined 1 million US employees. mentioned earlier, the new company will
employees.
The plan is the first big move by Amazon be free from profit-making incentives and
in the healthcare sector after months of constraints. That’s as it tries to find ways
speculation that the internet behemoth to cut costs and boost satisfaction with
might make an entry. the healthcare plan for employees of
Amazon, Berkshire Hathaway and
US healthcare costs continue to rise year JPMorgan Chase.
over year despite efforts to curb them,
and with many experts believing that the
fault lies with too-high prices, Berkshire
Hathaway Chairman and CEO, Warren
Buffett, says increasing healthcare costs
are “a hungry tapeworm on the American
economy.” He adds that their companies
do “not come to this problem withWealth Trends
The 2018 Knight Frank Wealth Report
The latest edition of the annual Knight people with US$50 million or more in net
Frank Wealth Report is out and the mood assets that took the total population to
for South Africa appears to be on the 35,180. A 15% rise in Asia’s ultra-wealthy
mend. cadre took its population to 35,880.
South Africa: Europe:
The country is forecast to see a 20% Europe’s 10% growth in its ultra-wealthy
uplift in its ultra-wealthy population population last year may seem
(people with US$50 million or more in net counterintuitive given the political
assets) over the next five years following challenges facing the region. Yet many
a 14% rise in 2017. In the wake of the European countries saw a marked
election of Cyril Ramaphosa as head of upswing in economic performance last
the governing party, the African National year, with the euro zone outperforming
Congress (ANC), investor and consumer the United Kingdom (UK) and United
confidence in South Africa is expected to States (US) economies in terms of gross
Zukelwa Solomon
improve as a change in political leadership domestic product (GDP) growth. The
Collateral Writer, GI&S
can also affect ultra-wealthy populations. European Central Bank (ECB) also held off
Nevertheless, the report finds that tightening monetary policy, unlike central
wealthy South Africans are still likely to banks in the UK, Canada and the US.
continue moving money abroad and However, as James Roberts, Knight
acquiring dual citizenship, although they Frank’s Chief Economist, explains, the
are now also more likely to stay resident ECB is set to taper its quantitative easing
in the country since they are supportive programme this year.
of the new ANC leader.
South America:
This is a view that also finds support in Latin America and the Caribbean also saw
the fact that Cape Town has taken the a bounce back in ultra-wealthy This is a view that also
second place in the Prime International populations in 2017, with a 20% rise after finds support in the fact
Residential Index (PIRI) 100, recording the 22% decline seen since 2012. The that Cape Town has
almost 20% growth year on year. total number of ultra-wealthy individuals taken the second place in
According to the report, the Atlantic in the region (4,220) is still lower than in the Prime International
Seaboard is attracting buyers from 2012 (5,380), but the figure is expected Residential Index (PIRI)
overseas as well as from elsewhere in to grow by 30% over the next five years. 100, recording almost
South Africa, however both new and Brazil, the biggest wealth hub in the 20% growth year on year.
existing stock are in short supply. region, also saw strong growth last year.
Ian Bremmer, Head of Eurasia Group, a
The global context: leading political risk consultancy, told The
When shifting the focus to the rest of the Wealth Report: “It’s largely an economic
globe, the report has found that although recovery story. The stock and bond
the super-rich populations are on the rise markets have performed extraordinarily
Europe is slipping down the ranks of the well this past year. While the ultra-
world’s wealthiest regions. North America wealthy took a hit in 2016, there was a
remains the world’s largest wealth region clear rebound in 2017. Note that this was
with some 34% of the world’s ultra- happening at the same time as the
wealthy based there. In fact, their ranks Brazilian real was going through an
rose by a further 5% last year, taking the important devaluation. So in dollars, there
total to 44,000. Europe, however, failed to was a real improvement.”
fend off a strong Asian challenge,
narrowly losing its second place spot USA:
despite a 10% rise in the number of In the US, new tax policies aimed at
18Wealth Trends The 2018 Knight Frank Wealth Report trying to encourage more corporates to impact on ultra-wealthy populations, ignored. It warns that there may well be a move money onshore may have although it can take some time for the point where growth in the ultra-wealthy ramifications for the whole economy and, changes to be felt,” explains Winston populations does not automatically in turn, for ultra-wealthy populations. In Chesterfield, Director of Custom Research continue on its currently upward late 2017, President Donald Trump at Wealth-X. trajectory. announced a raft of tax changes, including an ultra-low 15.5% tax rate for Beyond 2018: This year, the report expects growth to companies bringing their money onshore. Looking ahead, the Knight Frank Wealth strengthen further as the International He also cut corporation tax to 21%, as Report expects ultra-wealthy populations Monetary Fund (IMF) is predicting that well as cutting some income tax rates to continue to grow in the medium term the global economy will expand by 3.7%, and boosting family allowances. Under as there are likely to be an increasing which if correct would be the highest rate current economic forecasts, the US is number of economic and geopolitical of growth since 2011. In this context, expected to see a 38% rise in its ultra- headwinds, not least monetary tightening ultra-wealthy individuals are encouraged wealthy population over the next five across the board. Even when conditions to think of moving away from safe haven years. However, the change to are negative, wealthy populations tend to investments and towards risk-facing corporation tax could have an impact in show signs of resilience, however, there assets, which typically perform strongly in the future, especially if it encourages are societal changes taking place over the cyclical upswings. more investment across the US. “In terms longer-term and the report cautions that of fiscal policy, changes in corporation tax the reaction to wealth inequality is a and capital gains tax have the largest pressure that should not be necessarily
News Roundup
What Happened at Home and Abroad?
SA Avoids Moody’s Credit World Bank Loans Ethiopia Naspers Raises $9.8Bn in
Ratings Downgrade $600Ml for Infrastructure Tencent Share Disposal
In line with expectations, ratings agency, Ethiopia is in line for a $600 million loan Naspers has reduced its investment
Moody’s left South Africa’s (SA’s) credit from the World Bank to fund roads and holdings in China’s Tencent to by 2% to
rating unchanged at ‘Baa3’, the lowest other infrastructure projects in urban 31.2% to strengthen its finances and
rung of investment grade and upwardly areas. This is to help expand sustainable invest over time in its classifieds, online
revised the outlook on the economy to urban infrastructure and services, as well food delivery and fin-tech businesses
Stable from Negative previously. as promote local economic development. globally. It sold 190 million shares in
Tencent via an accelerated book-building
process and raised $9.8 billion.
DRC Q4 Mining Revenue S&P Doubles SA GDP Growth
More Than Doubled Forecast to 2%
Facebook Stock Tanks on
Standard & Poor’s (S&P) Global Ratings
Data Scandal
Democratic Republic of Congo (DRC) says
its 2017 mining sector revenue rose has raised SA’s gross domestic product
35.6% to $822.2 million while revenue (GDP) growth forecast for 2018 from 1% Facebook has announced a series of
from the oil and gas sector jumped by to 2%, but warned it is still not enough to changes to give its users more control
103% to $203.9 million, helped by higher decrease SA's high unemployment over their data. This follows a massive
prices for key exports such as copper and rate. The ratings agency says the scandal where data from 50 million users
cobalt. improved outlook is due partly to was improperly harvested to target US
strengthening domestic and foreign and British voters in close-run elections.
investor sentiment. The news wiped more than $100 billion
Zim Indigenisation Limited to from Facebook’s stock market value.
Diamond, Platinum Son of Angolan Ex-President
Charged with Fraud M&R Board Rejects Buyout
Staying with mining, over in Zimbabwe
Bid from Germany’s ATON
the government has changed its
empowerment law (Indigenisation and José Filomeno dos Santo, the son of
Economic Empowerment Act) to limit Angola's former President, José Eduardo The independent board of engineering
majority ownership by state entities to dos Santos has been formerly charged of and construction company, Murray &
only diamond and platinum mines and fraud following the alleged illegal transfer Roberts (M&R) has rejected a buyout bid
not the entire mining sector as previously of $500 million from the country’s central from Germany’s ATON GmbH. ATON
proposed. bank into a corporate account at HSBC in which already owns a third of M&R had
the United Kingdom (UK). made a cash offer price of 15 rand per
share - a 56% premium to M&R’s closing
Absa Feb PMI Back In Positive price on 22/03/2018.
Territory
SA’s seasonally adjusted Absa Purchasing
Managers’ Index (PMI) which is compiled
by the Bureau for Economic
Research (BER) improved to above the
break-even mark of 50 index points to
50.8 in February from 49.9 points a
month earlier.
20What did The Economist Say?
The Economist offers authoritative insight and opinion on international
news, politics, business, finance, science, technology and the connections
between them. Below are some extracts of the stories that caught our
attention.
What Zuckerberg Should Do: Facebook’s business relies on three
elements: keeping users glued to their
Facebook Faces A screens, collecting data about their
Reputational Meltdown behaviour and convincing advertisers to
This is how it, and the wider industry, pay billions of dollars to reach them with
should respond targeted ads. The firm has an incentive to
promote material that grabs attention
LAST year the idea took hold that Mark and to sell ads to anyone. Its culture
Zuckerberg might run for president in melds a ruthless pursuit of profit with a
2020 and seek to lead the world’s most Panglossian and narcissistic belief in its
powerful country. Today, Facebook’s own virtue. Mr Zuckerberg controls the
founder is fighting to show that he is firm’s voting rights. Clearly, he gets too
capable of leading the world’s eighth- little criticism.
biggest listed company or that any of its
2.1bn users should trust it. In the latest fiasco, it emerged that in
2013 an academic in Britain built a
News that Cambridge Analytica (CA), a questionnaire app for Facebook users,
firm linked to President Donald Trump’s which 270,000 people answered. They in
2016 campaign, got data on 50m turn had 50m Facebook friends. Data on
Facebook users in dubious, possibly all these people then ended up with CA.
illegal, ways has lit a firestorm. Mr (Full disclosure: The Economist once used
Zuckerberg took five days to reply and, CA for a market-research project.)
Today, Facebook’s
when he did, he conceded that Facebook Facebook says that it could not happen
founder is fighting to
had let its users down in the past but again and that the academic and CA
broke its rules; both deny doing anything show that he is capable
seemed not to have grasped that its
wrong. Regulators in Europe and America of leading the world’s
business faces a wider crisis of
confidence. After months of talk about are investigating. Facebook knew of the eighth-biggest listed
propaganda and fake news, politicians in problem in 2015, but it did not alert company or that any of
Europe and, increasingly, America see individual users. Although nobody knows its 2.1bn users should
Facebook as out of control and in denial. how much CA benefited Mr Trump’s trust it.
Congress wants him to testify. Expect a campaign, the fuss has been amplified by
roasting. the left’s disbelief that he could have won
the election fairly.
Since the news, spooked investors have
wiped 9% off Facebook’s shares. [The rest of this article appears in the 24
Consumers are belatedly waking up to February 2018 print edition of The
the dangers of handing over data to tech Economist]
giants that are run like black boxes.
Already, according to the Pew Research Overpriced: Why Africa’s Poor
Centre, a think-tank, a majority of
Americans say they distrust social-media
Pay High Prices
Africa’s economic paradox
firms. Mr Zuckerberg and his industry
need to change, fast.
“WE FEEL so hungry,” says Agatha
Khasiala, a Kenyan housekeeper,
The addiction gameWhat did The Economist Say?
grumbling about the price of meat and mobile phones, GDP almost doubled.
fish. She has recently moved in with her They may also be less pricey than
daughter because “the cost of everything economists reckon, because poor people
is very high”. The data back her up. The buy second-hand clothes or grow their
World Bank publishes rough estimates of own food.
price levels in different countries, showing
how far a dollar would stretch if A more intriguing explanation comes from
converted into local currency. On this food prices. The relative cost of food,
measure, Kenya is more expensive than compared with other goods, is higher in
Poland. poor countries. In Africa, the absolute cost
is sometimes high, too. Nigerians would
This is surprising. The cost of living is save 30% of their income if they bought
generally higher in richer places, a their food at Indian prices, finds a recent
phenomenon best explained by the study by the OECD, a think-tank. Meat
economists Bela Balassa and Paul costs more in Ghana than in America.
Samuelson. They distinguished between
goods that can be traded internationally (The rest of this article appears in the 15
and many services, like hairdressing, that March 2018 print edition of The
cannot. In rich countries, manufacturing Economist)
is highly productive, allowing firms to pay
high wages and still charge internationally The Threat To World Trade:
competitive prices. Those high wages also
drive up pay in services, which must The Rules-Based System Is In
compete for workers. Since productivity is Grave Danger
low in services, high pay translates into Donald Trump’s tariffs on steel and
high prices, pushing up the overall cost of aluminium would be just the start
living.
Among developing
DONALD TRUMP is hardly the first economies, however,
Among developing economies, however, American president to slap unilateral
the relationship between prices and
the relationship between
tariffs on imports. Every inhabitant of the
prosperity is less clear-cut. Prices in Chad, Oval Office since Jimmy Carter has prices and prosperity is
for instance, are comparable to those in less clear-cut.
imposed some kind of protectionist curbs
Malaysia, where incomes are 14 times on trade, often on steel. Nor will Mr
higher. Fadi Hassan of Trinity College Trump’s vow to put 25% tariffs on steel
Dublin finds that in the poorest fifth of and 10% on aluminium by themselves
countries, most of them in Africa, the wreck the economy: they account for 2%
relationship goes into reverse: penniless of last year’s $2.4trn of goods imports, or
places cost more than slightly richer ones. 0.2% of GDP. If this were the extent of Mr
A paper in 2015 from the Centre for Trump’s protectionism, it would simply be
Global Development (CGD), an American an act of senseless self-harm. In fact, it is
think-tank, accounts for various factors a potential disaster—both for America
which could explain differences in prices, and for the world economy.
including state subsidies, geography and
the effects of foreign aid. Even then, As yet it is unclear exactly what Mr
African countries are puzzlingly expensive. Trump will do. But the omens are bad.
One explanation is dodgy statistics. Unlike his predecessors, Mr Trump is a
African countries may be richer than they long-standing sceptic of free trade. He
seem. When Nigeria revised its figures in has sneered at the multilateral trading
2014 to start counting industries such as system, which he sees as a bad deal for
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