Glacier Quarterly 1 - 2018

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QUARTERLY
MARCH 2018 QUARTER 01 | NEWS, VIEWS AND INVESTOR INSIGHTS | WWW.GLACIER.CO.ZA
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CE’S NOTE
As I write this, there’s a renewed sense of optimism in and around
our country – an almost surreal feeling that finally things will
change for the better.
We’re seeing things happen that only a few months ago were
hard to imagine. Cyril Ramaphosa being appointed as President
of our country, the board changes at Eskom, and the nuclear deal
being taken off the table are all steps in the right direction.
During his State of the Nation Address, President Ramaphosa
quoted from one of the late Hugh Masekela’s songs, ‘Thuma Mina’
– a song of new beginnings. He added: ‘We are at a moment in the
history of our nation when the people, through their determination,
have started to turn the country around. We can envisage the
triumph over poverty; we can see the end of the battle against Aids.
Now is the time to lend a hand. Now is the time for each of us to
say, “send me”.’
In our industry especially, there’s much still to be done to educate
and to help grow the wealth of all South Africans. Each of us can
also say ‘send me’ in some small way.
In our first issue of the Glacier Quarterly for 2018, we take a look
at the year ahead from an economic, investment and political point
of view. Political commentator Justice Malala considers whether the
‘Ramaphosa rally’ can be sustained – believing the year ahead will
not be a ‘straight line’. Institute of Race Relations CEO Frans Cronje
feels that within six months to a year we’ll know whether we’ll enter
the ‘Rise of the Rainbow’ scenario – one in which a reformed ruling
party will introduce reforms to restore the rule of law and position
us as a leading investment destination.
Before his sudden passing shortly before Glacier Quarterly went
to print, Professor Matthew Lester unpacked the latest Budget
Speech and what it means for investors – especially those wanting
to leave a legacy. We also share some of the findings from the latest
Household Wealth report by the Bureau for Market Research. This
shows some of the social and economic issues that need to be
addressed, specifically unemployment and education.
Alwyn van der Merwe, Director of Investments at Sanlam Private
Wealth, highlights the benefits of diversifying offshore, while
cautioning investors not to give up on SA, which still offers unique
investment opportunities.
Lastly, Cornel Basson of Glacier discusses the merits of
guaranteed investment products in the current environment,
particularly for the more cautious investor.
The common thread from all the commentators is that although
there’s a long way to go, we’re finally on the right road.
I hope you enjoy the read.
Khanyi Nzukuma
Chief Executive:
Glacier by Sanlam
#SendMe

POLITICS
CAN THE
RAMAPHOSA
RALLY BE
SUSTAINED?
South Africa’s political year began with optimism and hope following Cyril
Ramaphosa’s victory in the ANC’s leadership race. Can the Ramaphosa
rally be sustained? Justice Malala assesses the bumps ahead.
Late on the evening of Monday 26
February 2018, President Cyril Ramaphosa
addressed the nation. Everything about
the press conference was at odds with
the man’s character and form. First,
he was uncharacteristically late – the
announcement of a new Cabinet was
supposed to be at 20:30 but only came
at around 22:00. This was unheard of for
a man who had announced on January
13 that a new way of doing things was
afoot, starting with proper timekeeping by
leaders.
Second, Ramaphosa sounded dispirited
and tired.
It was the first time in two months that
the man who had spoken of a new dawn
for South Africa seemed so disheartened.
For two months he had ridden the crest of
the wave. His election had seen business
confidence shoot up, the rand strengthen
and a new mood of optimism sweep the
country.
In his State of the Nation speech,
Ramaphosa had evoked the spirit of Nelson
Mandela and promised a new direction for
the country.
‘We should put behind us the era of
diminishing trust in public institutions
and weakened confidence in leaders.
We should put all the negativity that has
dogged our country behind us because a
new dawn is upon us. It is a new dawn that
is inspired by our collective memory of
Nelson Mandela and the changes that are
unfolding,’ he said.
The speech was the culmination of
two months of positive political news.
After his election Ramaphosa had wowed
domestic markets and business with his
8 January speech, had travelled to Davos
in Switzerland and been hailed by global
business leaders at the World Economic
Forum, and had returned home to edge
out former President Jacob Zuma. Yet
his Cabinet announcement showed the
possibilities and limits of Ramaphosa’s
power – and that a complicated, though
not negative, future lies ahead for South
Africa.
For all of us this lays out a challenge: the
political year ahead will not be a straight
line. Although the trend will continue to be
positive, and Ramaphosa will continue to
score some crucial victories, there will also
be defeats.
The Cabinet announced by Ramaphosa
on that late night at the end of February
illustrated this forwards and backwards
theme. He appointed investor favourites
such as former finance ministers Nhlanhla
Nene and Pravin Gordhan to key economic
management roles in a Cabinet reshuffle
that saw solid, principled leaders such as
Gwede Mantashe ascend to the top table.
This is a huge positive. But the Cabinet
was also a mess. In a welcome move, he
fired ministers such as Lynne Brown‚ Faith
Muthambi‚ Des van Rooyen and Mosebenzi
Zwane – all implicated in allegations of
state capture.
Yet Ramaphosa retained others who
have been at the heart of the same
allegations. He returned Malusi Gigaba,
deeply implicated in the state capture
scandals, to Home Affairs despite ongoing
allegations about his actions in that
ministry.

POLITICS
Why did Ramaphosa appoint such amazing individuals to the top
jobs in the economic portfolios yet retain some seriously questionable
individuals in others? The fact is that the ANC is still a divided house.
Ramaphosa’s reformist agenda will continue to be pushed back by
some within his own party because he is not totally in charge.
With his slim majority at the ANC conference in December, plus a
deeply divided ANC top six, concessions had to be made to the losing
side. Thus elements that had been discredited and yet were key to the
Nkosazana Dlamini-Zuma ticket were accommodated in the Cabinet
reshuffle. It doesn’t mean they are there to stay. Ramaphosa himself
has said that this is a transitional arrangement, meaning that once he
has amassed enough power and sway within the National Executive
Committee of the ANC, further change will come. Our expectation
is that a slimmer Cabinet, with fewer than 30 members, will be
announced after the 2019 elections. Then the dead wood will go.
There will be many other bumps on the political road ahead.
The first point of uncertainty is land expropriation without
compensation. Just a day after Ramaphosa’s Cabinet announcement
the National Assembly adopted a motion to investigate and review the
feasibility of land expropriation without compensation. It was an EFF
motion amended by the ANC.
This is a challenge for the Ramaphosa administration. Until clarity
and certainty about the road ahead can be brought to bear on the
issue, many will worry about what this means for the meaning and
upholding of property rights in South Africa. Ramaphosa, a former
businessman who is as affected by these issues as many investors
fretting about them, must surely be seized with the fact that such
uncertainty means a potential freeze on investment. Will he act swiftly,
slowly or play the long game?
The first point of
uncertainty is land
expropriation without
compensation
This is therefore the trend we find ourselves in for the next year:
the Ramaphosa rally will continue, but it will be muted by events such
as unclear policies (such as that over land and the National Health
Insurance scheme) and the reality of having poor ministers in place in
some portfolios.
South Africa’s political life through the ages has never been a
straight line. It’s full of progress and setbacks. This year promises to be
the same. Fortunately, with Ramaphosa at the helm of the ANC, we still
see more positives than negatives.
Justice Malala
Political commentator,
newspaper columnist, public
speaker and bestselling author

ECONOMY
This article was first
published in the
Sunday Tribune on
11 February 2018.
ECONOMIC RESURGENCE
STILL FACES GREAT OBSTACLES
South Africa’s newfound optimism at the ascendancy of Cyril
Ramaphosa must be judged in the only arena that really matters – the
economy, writes Frans Cronje, CEO of the Institute of Race Relations.
American politician Stephen Bloom
is credited with the keenly insightful
observation that ‘economics is to politics
what gravity is to jumping’.
In South Africa today, Bloom’s maxim is
dauntingly relevant.
Determining whether South Africa is
now on a reformist trajectory must be
measured against two sets of markers:
one relates to the rule of law, corruption
and accountable government, which is
getting the bulk of analyst attention. But
the second set is even more important
and relates to policy reform in areas of
empowerment, the labour market, property
rights and education.
Our thesis is that the initial post-1994
economic recovery, born in equal measures
of good fortune and some sensible policy,
made possible a far greater improvement
in living standards than is commonly
understood.
That trajectory was broken in the
aftermath of the 2007 Polokwane
conference and later the global financial
crisis. Public frustration (measured in
polling and voting data) born of now
unmet expectations frightened ruling party
politicians, who tried to counter the trend
with equal measures of ideological dogma
and populist policy.
The response was wholly
counterproductive and that stalled South
Africa’s post-crisis recovery, even as other
emerging markets grew out of the crisis.
The ensuing weak economic performance
triggered a significant loss of confidence
in the ruling party, which in turn triggered
deepening populism – and hence the slow
turning of a dangerous negative spiral was
set in motion. This is essentially where
South Africa came to stand in November
last year.
Whether what has happened over the
past six weeks indicates that the ruling
party might reform to survive, and set the
country on the path to growth and stability,
hinges on how the new administration
addresses two fundamental questions:
• Restoring the rule of law: The signs
are promising but the test will be if
these early actions translate into a
raft of successful prosecutions, an
important catharsis and a sign that
the paradigm has indeed shifted.
• Economic policy reform: Here, the
obstacles are indeed great. Three in
particular must be overcome, and
failure in any one of them will see the
reformation stall, even if Ramaphosa
manages to deal effectively with
corruption and malfeasance, and reestablish
the rule of law.

ECONOMY
The first is the budget deficit. Both
government revenue and expenditure as
a share of GDP have continued to rise
sharply – financed in part through the
borrowing that doubled the debt-to-GDP
ratio and through placing a now nearintolerable
burden on individual incometax
payers.
As a result, Ramaphosa’s new
administration may not immediately have
the money to develop the infrastructure
to support an economic recovery while
meeting the welfare and service delivery
demands of several million households.
The antidote is growth, but our forecasts
are that this year growth rates will
underperform emerging market averages
by around 70%. An economic growth rate
of up to 2%, as policymakers are predicting,
is nowhere near the watershed level for
breaking the structural unemployment
crisis – the second major obstacle that
government faces.
The third hurdle is education. To take
just one indicator, over half of the Grade 10
class of 2014 progressed to matric in 2016,
and, of these, less than 3% passed matric
maths with a grade of 60% or higher – a
qualification that offers a young person
the reasonable prospect of ascending
to the middle classes within a decade.
Without doubling the number of matric
maths passes every five years it will be
very difficult for government to deliver on
demands for middle-class access.
For the past several years, the country
has matched the third of our most recent
scenarios – the break-up of South Africa.
In this scenario an out-of-touch and
corrupt government would grow ever
more distant from South Africa’s people.
Counterproductive policy would undermine
investment and entrepreneurship. The fiscal
deficit would deepen and service delivery,
public education and healthcare would
suffer as state coffers run dry. Repelled
by their politicians, South Africans would
withdraw into enclaves – some prosperous
and others urban slums and rural
backwaters. South Africa would continue
to underperform compared to emerging
markets on almost every measure.
But now South Africa has an opportunity
to realise the fourth scenario – the Rise of
the Rainbow – in which a reformed ruling
party will introduce changes to restore
the rule of law and position South Africa
as a competitive investment destination.
Economic growth would exceed 5% by
2029 and the unemployment rate would
be halved. South Africa would turn from
the brink of disaster to become one of the
world’s most exciting emerging markets.
There is not enough evidence to make
the call yet, but within six months to a year
we ought to have enough to say whether
we are likely to continue in the Breakup
or whether South Africa will change
paradigms and enter the era of the Rise of
the Rainbow.
However, to be clear, to upgrade the
scenario will require the right markers
going up on two broad fronts:
• The first front is populated by those
markers that deal with accountable
governance, parastatal reform, state
capture, the rule of law and business
and popular confidence – and they
look a lot better than they did a year
ago.
• But the second front is populated
by those that deal with policy
reform in areas of the labour market,
empowerment policy, property rights
and education – the odds of which
hinge almost entirely on the balance
of forces in the battle of ideas.
If we make the upgrade, it means we’ll
be confident that economic growth rates
will rise to about 4% by 2024 and to over
5% by 2029. The unemployment rate will
fall to below 15% over the same period.
South Africa will quadruple the number
of young people passing maths in matric.
There will be no doubt about property
rights or the rule of law.
Frans Cronje
Scenario planner and
CEO of the SA Institute of
Race Relations (IRR)

TAX LANDSCAPE
Observations
Despite the euphoria surrounding the
appointment of President Cyril Ramaphosa,
SA faces an uphill fiscal battle in years
to come for reasons based on facts and
predictions that are almost certain.
• South Africa has a population growth
rate above its economic growth rate –
and that is potentially disastrous in all
the official languages. The population
will grow to 65 million by 2030, six
million more than projected in the
National Development Plan (NDP).
National Treasury studies project that
SA has to create nine million good
new jobs in the next 50 years or run
the risk of social chaos.
• The NDP assumes economic growth
rates will exceed 5% over 20 years.
Over the period 2011 to 2016, SA has
only achieved 1,6% on average. The
2018 growth rate is predicted at 1%
for 2018, rising to only 2,1% by 2020.
The NDP is therefore in tatters.
Figure 1 Gross debt-to-GDP outlook
Source: National Treasury
Substantial fiscal austerity measures,
primarily curbing State expenditure, are
unlikely to happen in SA. The electorate
will never stand for it. So reducing national
debt will take years to achieve.
SA’s long-term national debt trajectory
reached a fiscal cliff by the October 2017
Medium Term Budget Policy Statement.
The tax hikes announced in the 2018
National Budget Speech may marginally
reduce levels if SARS can achieve the
revenue collection target. But National
Treasury has had to increase VAT to 15% to
achieve even that.
Conclusion 1
Two uncomfortable conclusions are
easy to predict in the context of long-term
investment strategy:
• SA tax rates will increase across the
board in years to come
• If SA’s inflation rates are added in to
the equation, the rand will continue to
fade against other currencies.
This is not a question of ‘if’, but rather
‘when’.
It doesn’t take a genius to be a
65
60
57.0
58.2
59.7
61.6
60.8
62.4
62.8
63.3
FUTURIST!
The further you look into the future, the more evident
things become – particularly regarding money matters
in South Africa. So let’s apply this proposition in
the context of the 2018/19 National Budget Speech
presented to Parliament on 21 February 2018.
Percentage of GDP
55
50
45
40
56.0 56.2 56.2 56.1
54.2 55.1
55.7
53.3
52.3 52.9 52.4 52.2 51.9
50.7
51.3
50.5
49.0
49.2
46.5
43.8
2017 Budget 2017 MTBPS 2018 Budget
41.5
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2017/2018
2018/2019
2019/2020
2020/2021
2021/2022
2022/2023
2023/2024
2024/2025
55.3
2025/2026

TAX LANDSCAPE
Who will pay the tax?
Observations
The 2018/19 National Budget
demonstrates that increasing individual tax
rates (PIT) can no longer sustain SA, as it
has for the past 10 years. Hence there was
no option but to increase VAT to 15%.
Future increases in VAT will have to be
reserved to fund the promise of National
Health Insurance (NHI). This means
Treasury will inevitably have to seek
alternative forms of taxation to fund the
deficit.
SA’s corporate tax rate is already too
high by international and even African
standards. The corporate tax contribution
to the total revenue streams will continue
to fade, in line with the international trend.
The first immediate measure, announced
in Budget 2018/19, is the implementation of
carbon tax from 1 January 2019. But there
are many flaws inherent to the carbon tax
model that must still be addressed prior to
implementation.
Conclusion 2
There is no solution in the current tax
base to solve SA’s problems without drastic
increases in transaction taxes that will have
the heaviest impact on the poor. Treasury
will have to look for other tax solutions.
French economist Thomas Piketty
has gained traction among the world’s
politicians with his book Capital In The 21st
Century (2014). And his solution is wealth
taxation.
So when the world’s politicians
descended on Davos in January 2018,
the likes of International Monetary Fund
managing director Christine Lagarde
started advocating wealth taxes. And that
resonated with the SA delegation.
Conclusion 3
Forms of wealth taxation will almost
inevitably be implemented in the medium
to long term. And wealth taxation will have
a profound impact on financial planning
strategy in SA.
However, more than R3 trillion of SA’s
current wealth is held by retirement funds.
And more than 70% of the retirement fund
membership is the middle working class of
SA, earning below R180 000 per annum.
They are well represented by SA’s unions,
to the extent that attempts so far to
implement annuitisation of provident funds
have failed.
Conclusion 4
Retirement funds are the people’s funds.
It’s far easier for politicians to justify the
implementation of forms of wealth taxation
than to propose the use of retirement
funds as any form of tax base.
Retirement funds are the only
investment platform in SA that guarantees
a tax deduction on contribution plus a
total tax exemption on investment growth.
Yes, there is partial taxation on exit, but
the effect of that can be minimised. And
finally comes the cherry on the top, the
exemption of retirement fund benefits from
SA’s current wealth tax, estate duty.
Conclusion 5
South African retirement funds have
received fantastic concessions over the
past 10 years and have in many ways taken
over the role previously played by trusts.
SA faces an
uphill fiscal
battle in years
to come
Today many people under-utilise their
retirement fund when designing a financial
plan. This is a pity, as optimisation of
retirement fund strategy takes many years
to achieve.
‘Mind-blowing’ legacy
It’s human nature to want to leave
a legacy for our families – so much so
that we lose sight of the fact that with
increased life expectancy, our children
are today far more likely to inherit broke
parents than any money when they die.
Life expectancy for privileged South
Africans is approaching 80. Thus, most
surviving children will be over 50 before
they inherit a cent. By then they’ll be
facing their own problem of 30 years in
retirement.
So the ‘gift to last’ in estate planning
and wealth creation is no longer the
family mansion or the funding of the
grandchildren’s private education, but
rather a deposit on the retirement fund
requirements of the next generation.
What we’re actually looking for are
intergenerational retirement funds. Isn’t
that enough to blow the mind?
Glacier is saddened to hear of the sudden passing
of Professor Matthew Lester earlier in March, and
expresses condolences to his family. Matthew was
a regular contributor to Glacier’s publications and
shared his knowledge – with a touch of humour –
with our business partners at numerous events and
roadshows. His contribution will be sorely missed.
Matthew Lester
Rhodes Business School
professor and member of the
Davis Tax Committee

OFFSHORE INVESTING
Diversify
offshore,
but don’t
give up on
SA
South African investors have been
bombarded with negative economic
and political news flow for the past
few years. Despite more positive
investor sentiment after the election of
Cyril Ramaphosa as our country’s new
president, allegations of corruption
in government and extreme pressure
on institutions have led investors to
question South Africa as an investment
destination. The answer is not as
clear cut as one would imagine –
before rushing offshore, investors
need to take a step back and explore
the reasons why they should be
diversifying geographically. In our
view, South Africa does still offer
unique investment opportunities and it
would be short sighted to ship out an
entire portfolio.
Investment portfolios should be
diversified across different geographic
regions to achieve these objectives:
• Protect investments against sovereign
risks. Investors need protection
against the risk that a government
could default on its sovereign debt or
other obligations.
• Protect investments against currency
risks. A structurally higher inflation
rate relative to trading partners is
likely to weigh on the currency over
time. Also, if investors perceive that
the sovereign risks of a country are
high, the currency is likely to reflect
this risk by weakening against cross
currencies. If investors are exposed
to this currency, it simply means their
investments – all things being equal –
will lose value in international terms.
• Participate in investment
opportunities outside the borders
of investors’ country of residence,
in this case, South Africa. These
opportunities include:
taking advantage of global
demographic trends
sharing in emerging industries not
listed locally
investing in undervalued markets
diversifying company-specific risk
better risk-adjusted portfolio
composition.
Hedging against the risks
For these reasons we’ve advocated that
our clients should migrate a portion of
their assets from South Africa to offshore
investment opportunities. Where our
clients have given us discretion in an equity
mandate to invest money offshore, we’ve
proposed a direct offshore exposure of
38% with the remainder invested in South
African equities.
When we consider the source of
earnings of the South African equity
component, however, our analysis
suggests that of the 62% South African
exposure, around 75% of these earnings
are generated outside our country’s
borders. Investors who follow this mandate
therefore effectively have an 85% exposure
to offshore economies and economic
trends. We can thus safely argue that we’ve
already hedged our clients’ portfolios
against the above-mentioned risks, and
at Sanlam Private Wealth, we’re already
participating in the global opportunity set.

OFFSHORE INVESTING
Shipping it all out?
The question remains: if an investor
isn’t currently in the fortunate position to
have significant offshore exposure, is now
the time to invest a material proportion
of an investment portfolio abroad? Also,
given the current uncertain political and
economic landscape, should South Africans
consider investing their entire portfolio
abroad?
One should never, of course, ask
questions about timing when emotions
are running high. From an investment
perspective, this is easy to explain. When
the environment is obviously toxic and
herd instinct takes over, the news is
normally already reflected in the price of
assets.
If an investor is incorrectly positioned
at the time, it implies that to correct the
position, they’ll need to sell the unpopular
asset, which in all likelihood will be cheap,
and buy the popular asset, which will
likely be expensive – hardly a trade that
will serve the investor’s interests over the
longer term.
This scenario was evident in 2001, when
South Africans panicked after the rand
rapidly lost ground against cross currencies
at a time when the popular view was that
South Africa was simply another Zimbabwe
in the making. Not only did South African
investors who followed that popular
argument sell a cheap currency (the rand),
they also bought expensive currencies
(US dollars or British pounds). It took the
currency 14 years to get back to those
levels, as can be seen on this graph:
SA Rand versus US Dollar
16
14
12
10
9
8
7
6
5
1999
2000
2001
2002
2003
Even worse, cheap South African shares
were sold to buy expensive offshore
shares. And if this was the only investment
decision made over this period, these
investors will to this day not have caught
up with what their position would have
been had they remained invested in South
Africa, as the next graph shows:
SA Rand versus US Dollar
500
400
300
200
150
100
80
60
50
2001
2002
2003
2004
Is it different this time?
2004
2005
2005
2006
2006
2007
2007
2008
SA ZAR / US$ (11.9141)
So is it different this time, or are
investors who follow the herd instinct
likely to make the same mistake they
did in 2001? Focusing only on the two
most crucial prices, we don’t believe the
situation is entirely the same. First, the
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
2014
2015
2016
2017
2018
World Equities Dollars (168.49)
SA Equities US$ (383.136)
2014
2015
2016
2017
2018
Source: I-NET
Source: I-NET
rand is now not as cheap against the cross
currencies compared to 2001. In fact, the
rand is more or less fairly priced against
the euro and the British pound at current
levels. Second, while we believe the South
African equity market is cheaper than its
international peers – and we’re therefore
reluctant sellers – the price ‘gap’ isn’t as
wide as it was in 2001.
If a portfolio is very biased towards
South African assets, we’ll therefore still
consider migrating money offshore given
the current exchange rate and prices of our
equities. However, we’ll certainly not argue
for a complete disinvestment from South
Africa. Ignoring the jurisdiction where the
liabilities vest (that is, future spending and
income requirements), South Africa still
offers unique investment opportunities at
prices that offer a justifiable future reward
for those prepared to invest in these
opportunities.
In a nutshell
At Sanlam Private Wealth, we manage
our clients’ portfolios actively. Our
investment philosophy rests on the
belief that the level of prices, rather than
investment sentiment, should dictate
investment decisions. While we certainly
don’t ignore the perspective of the
investment environment, we’re wary of
taking radical investment decisions when
emotions have already driven prices
away from their fair values. Against this
background, we’re of the opinion that
it would be inappropriate for a South
African investor to invest an entire portfolio
abroad. However, if an investor’s portfolio
does not have material offshore exposure
currently, we’d consider it prudent at the
current exchange rate of approximately
R12 to the dollar to migrate a portion of
assets offshore.
There are different ways of accessing
the global market – at Sanlam Private
Wealth we provide the full range of options,
with a customised offshore solution to
complement your individual investment.
Alwyn van der Merwe
Director of Investments at
Sanlam Private Wealth

MARKET RESEARCH
BMR
Report:
the perfect frame
for President
Ramaphosa’s key
performance areas
On 9 February 2018, the Bureau for
Market Research (BMR) presented its
latest report, titled Household Wealth,
which gives some insight into various aspects
of wealth – and the financial health
– of individuals and households in South
Africa. Granted, the report was released
before Cyril Ramaphosa was sworn in as
the new President of South Africa, but it
provides a chilling picture of the social
and economic status of South Africans. It
certainly frames the work agenda for the
newly-elected president.
Ramaphosa seems to have the political
will to accept and tackle the challenges
that we face in South Africa head-on. He
has lifted the morale and energised most
South Africans to pitch in and do what
they can. He has the gravitas, the skill
and evidently with reference to his 2018
State of the Nation Address (SONA)
an acute understanding of the size and
depth of our challenges, which is crucial
if we are to progress towards a better,
prosperous future.
Broadly, the report examines household
income and expenditure, taking into
account age groups, education levels,
employment, and income levels. The
information was used to examine total
and cash-flow incomes, spending, and
credit management issues, and infers
the personal financial circumstances of
South Africans as at 2017. The important
takeout from the workshop must be that
these facts and figures cannot be viewed
in isolation of the broader socio-political
and economic landscape, locally and
globally.
The numbers aren’t pretty
‘These numbers cannot be separated
from their socio-economic context,’ says
Jean Dommisse, head of client and market
insights at Sanlam. For him, one of the key
eye-openers is that the depth and scale of
poverty have increased significantly since
the last BMR Report (2017).
Thabo Mofokeng, market insights
specialist for Sanlam Life, concurs. He’s
also struck by the real unemployment
percentage that is estimated to be above
30% (and not 27% as reported in the
media) while the real population number
in South Africa is estimated to be above
65 million, and not 57 million as has been
officially published.
Unemployment, poverty and low
growth – SA’s triple whammy
Household income is a key indicator
in the BMR report. It points to numerous
aspects of people’s personal financial
status – their source of income, their
spending power, their sense of wellbeing
and happiness, their feeling of
empowerment and having the ability to
move forward, socially and economically.
According to the report, almost 30 million
South Africans between 15 and 65 years
old have a household income of R1 000
or less per month. In Thabo’s view, it’s
not a complicated equation. Poverty
has deepened as a result of increased
unemployment over the past 12 months.
Jean agrees and emphasises the urgent
and critical need to increase the number of
income-earning people who are in active,
productive employment.
‘We need more of the population
emerging from seemingly hopeless
circumstances to provide for themselves
and their families, other than from a grant.
The burden on the state to provide the
very basic elements for the survival of our
people has become an unbearable load.
Reducing unemployment is one of the
key drivers in moving the South African
economy forward,’ Jean says.
‘What the numbers reveal is that there
are just 6 million taxpayers in South Africa,
of a population of 57 million people, and
out of an economically active (15 to 65
years) group of just over 40.5 million,’
Thabo explains.
Jean echoes Ramaphosa’s SONA
sentiments on 16 February 2018, when he
expressed the urgency for a job summit
in the first quarter of 2018, and the critical
need to support SMMEs and entrepreneurs
as they represent a sizeable potential
employer in South Africa.
Back to basics
Related to decreasing unemployment
is the dire situation regarding education.
More specifically, there’s an urgent need
to increase the number of young people
who finish 12 years of schooling and have
received some kind of tertiary education,
or more specifically, vocational training.
The BMR report estimates that of the
40.5 million economically active South
Africans, 17.8 million had not finished high
school. Many of them are unemployed.
Most are unemployable.
In January 2006, 1 185 198 children
were enrolled in Grade 1 in South Africa.
At the end of 2017, the year they were
all supposed to have matriculated,
the number of matriculants who were
registered and who sat for the National
Senior Certificate matric finals totalled
an astonishing 651 707 learners, which

MARKET RESEARCH
equates to approximately 54%. Only
401 307 learners actually passed this
matric examination at the end of 2017.
‘The statistics that relate to the success
rates of those learners undertaking
the National Senior Certificate final
examination point to serious systemic flaws
in education in South Africa, and unless
these are tackled with urgency, the poverty
numbers will not improve significantly in
future,’ Jean cautions.
A key systemic question that plagues
researchers, and that will need to be
tackled with urgency, is: What are the
reasons for the huge drop-off of learners
during their 12-year primary and secondary
education period? Answering this question
effectively will mean addressing the
broader socio-political and economic
context within which an already ailing
education system simply worsens. Issues
to address include training and upskilling
educators; school management; the
barriers to access; curriculum strategy
that supports a productive workforce of
tomorrow; the costs of basic education;
food security; language policy; early
school-leaving to find employment to
support households; teenage fertility,
gender violence in schools; substance
abuse; gang and criminal activity in schools
and communities; HIV/Aids prevention and
management; child-headed households –
the list is long.
The silver lining?
‘There are very few positives to focus on
in the 2018 BMR Report. The silver lining is
that the priority list for Ramaphosa is not
actually very long,’ Jean says. ‘The two or
three items on the president’s to-do list
are immense and intricate, but if they’re
tackled effectively, they can completely
change the social and economic landscape
in South Africa.’
Jean and Thabo agree that an
encouraging factor is that the morale of
most people in South Africa has been lifted
since Ramaphosa’s inauguration. Hope
and positivity are vital in nation-building.
Now, our collective energy needs to be
harnessed to get the national job done.
Jean Dommisse
Head of Client and Market
Insights at Sanlam
Thabo Mofokeng
Market Insights Specialist
for Sanlam Life

INVESTMENT INSIGHTS
Playing
it safe
Getting to grips with guaranteed
investment products
The world of investments and global
markets can sometimes feel like a
roller-coaster ride. You can never quite
anticipate the dips and inclines. No
wonder ordinary South African consumers
– some of whom are among the most
anxious, risk-averse investors – struggle
with being fully at the mercy of market
returns and prefer something a bit more
certain.
Enlisting the services of a reputable
financial adviser is the only way to ensure
a successful outcome, but the merits of
good financial advice and planning is a
discussion for another day. The crux of
the matter for most investors in these
turbulent economic times is: when I
invest, what products will guarantee that
I won’t lose my money (at the very least),
and at best, grow my investment beyond
expectation?
Getting out what you put in
‘Certain clients want to get out at least
what they put in,’ explains Cornel Basson,
product manager at Glacier by Sanlam.
‘Cautious investors, who make up a large
percentage of the investor population in
South Africa, want to feel their money is
completely secure. Moderate-cautious
investors are satisfied to invest with a
lower, but yet some sort of guarantee.
They have low to zero tolerance for
losses.’
A considerable portion of discretionary
funds (a lump sum of money that you
wish to invest) in South Africa is sourced
from the permitted third of a pension
fund withdrawn tax-free on retirement or
retrenchment. The need for security on
these funds is high as they are often hard
earned.

INVESTMENT INSIGHTS
Ask the right questions
Cornel suggests a checklist of five key
questions to consider when choosing a
guaranteed or fixed-return investment
product:
1. What level of guarantee is offered
within the investment? Does it
provide full capital protection after
all fees, or does it only offer a certain
level of protection?
2. Are the investment returns calculated
in rand or another currency? You’d be
surprised by the difference this makes
in your pocket. If it isn’t calculated
in rand, you could be exposed to
currency exchange movements.
3. Does the guarantee stay level
throughout the term of the product
or will it increase over time? The
guarantee offered on our Sanlam
Escalating funds increases over time
if there’s any growth within the fund.
4. How accessible is your money before
the investment’s maturity date? What
are the chances you will need the
funds before the product’s term has
expired? Most guaranteed investment
products are five-year products.
While we acknowledge that life
happens, it’s best to stay invested
for the full period to realise the full
benefits of the product.
5. Who is providing the guarantee?
Young financial services and product
providers often offer high guarantees
in an attempt to attract and grow
their client base. What is your level
of comfort with a young company?
How does it compare to one that’s
established with a track record of, say,
50 years or more? Where guarantees
are concerned, established brands
count.
Guarantees come with risks
The Glacier Research team concurs with
Cornel. In a global context of low returns,
high volatility and uncertainty, guarantees
have become critical and attractive, they
say. But they caution against the inherent
risks in guaranteed funds, summing them
up as follows:
• Single counterparty risk – the risk
of the underlying entity for the
guarantee becoming insolvent. This
may be a low-probability event but
the risk does exist.
• Opportunities lost – while an investor
is guaranteed to earn a fixed return
over the predetermined period,
they’re also guaranteed not to earn
anything above the predetermined
amount. This removes the
opportunity to participate in markets
where there are substantial returns, as
experienced in the past.
• No access to your money – they
agree that ‘locking funds’ is a good
thing for a long-term savings plan but
intermediaries and their clients need
to make provision for emergency
funds to reduce this risk.
It all comes back to the plan
The most critical question is always: as
an ordinary consumer, are you qualified
to make an informed decision about
any investments? A reputable financial
adviser is qualified, has experience and
has exposure to the product offerings of
numerous financial services companies.
Such an adviser is best placed to help
you make the best choices as part of
your carefully constructed, diversified
financial plan.
Glacier offers you a suite of
guaranteed solutions to choose from:
1. Glacier Capital Enhancer offers
full capital protection, enhanced
returns, uncapped upside and taxefficiency.
If you’re nervous about
entering the market, you can get
exposure to the growth potential
of equities – without the volatility.
2. Sanlam Fixed Return Policy
reduces the anxiety you may
have about portfolio fluctuations
over time and the potential of
not meeting your investment
objective due to market volatility.
3. Sanlam Fixed Investment Product
offers capital protection in the
form of a fixed return, combined
with a regular income throughout
the investment term.
4. Sanlam Escalating funds –
although not a product, but rather
a fund selection within a wide
product range at Glacier, these
funds provide exposure to the
market, with built-in protection
and guaranteed minimum returns.
Cornel Basson
Product Manager
at Glacier by Sanlam

The information in this document is provided for information
purposes only and should not be construed as the rendering of
advice to clients. Although we have taken reasonable steps to
ensure the accuracy of the information, neither Sanlam nor any
of its subsidiaries accept any liability whatsoever for any direct,
indirect or consequential loss arising from the use of, or reliance in
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Tel: +27 21 917 9002 / 0860 452 364
Email: client.services@glacier.co.za
Website: www.glacier.co.za
Postal Address: Private Bag X5, Tyger Valley, 7536
GLACIER FINANCIAL SOLUTIONS (PTY) LTD AND SANLAM LIFE INSURANCE LTD
ARE LICENSED FINANCIAL SERVICES PROVIDERS