Money Matters
Issue 48

July 2023

In this edition of our newsletter, we delve into some of the pressing issues that have been making us South Africans uncomfortable, particularly in relation to USA, Russia and South Africa. There is a growing recognition of the need to integrate economics and foreign policy in a manner that will effectively advance the interests of our country. We have included an enlightening article by JP Landman, who addresses the importance of this aspect.

On another note, amidst all the buzz, it appears that our Legislators have been rather busy implementing changes that may affect many of us. From tax clearance applications to the amendments of The Trust Property Control Act, there now seems to be more hoops to jump through. Failure to comply with the updated regulations may result in hefty fines of up to R10 million or imprisonment for up to 5 years, or both. To shed light on this matter, we have included an article by Phia Van der Spuy that explores the implications for Trustees.

We encourage you to engage with us on any insights or questions you may have.

Investors have two fundamental risks that will determine their future outcomes:

1. Longevity risk – the risk of outliving your capital.

2. Inflation risk – the risk that you will increasingly be unable to fund a set of needs with the same amount of money.

The only reliable “economic package” for investors has been exposure to and time in the equity markets. Market exposure has historically provided the growth and inflation beating returns required to manage these two fundamental risks.

The manner in which South African trusts are to be managed has changed overnight. As we have a unique situation in South Africa where many trusts only have family (lay-person) trustees appointed, many trusts are currently non-compliant as these trustees are not even aware of the recent amendments to trust legislation.

The Trust Property Control Act, which is the single most important piece of legislation dealing with the governance of trusts, is an old piece of legislation, which does not deal with clear instructions how trustees are to manage trusts. Historically it also did not contain penalties for non-compliance. Similarly taxation legislation for trusts developed over time and was not particularly well policed in the past. That led to trusts generally being badly administered. However, numerous changes were introduced during the past year, which trustees need to be aware of (and get professional help). Since 1 April 2023, all trustees have to comply with the amended legislation. The amendments apply equally to all trustees and each and every trustee has to cooperate to remain compliant. Non-compliance may lead to a fine not exceeding R 10 million or imprisonment not exceeding 5 years, or both.

‘The ignorance of geopolitical minds about economics is matched only by the economics profession’s ignorance about foreign policy.’ So says the author of a new biography of Zbigniew Brzezinski, Jimmy Carter’s national security adviser, in response to a question about his subject’s view of the international trading system. ‘Alas, like most foreign policy strategists, including Henry Kissinger, George Kennan, Madeleine Albright and so on, Zbig did not engage much with economics.’

It is a very apt description of the current debate in South Africa about United States (US), South Africa and Russia relations. Our foreign affairs establishment, with one or two exceptions, displays an astonishing lack of understanding of the economic consequences of foreign affairs decisions, and most of the economic comments display an equally astonishing lack of understanding of South Africa’s geopolitical considerations. There is a pressing need to integrate economics and foreign policy in a way that will advance the interests of the country.