July 22, 2021


Much has been written about the political and social angles of the riots and looting in KwaZulu-Natal and Gauteng in the second week of July 2021. We are neither qualified nor is it appropriate for us to add to the political and social commentary. However, it is important to understand the economic consequences, impact on financial markets and how the riots and looting could impact retirement fund savings.

There is no doubt that the lack of economic growth over the last decade, which has caused the grinding poverty and high unemployment rate in our country to deteriorate further, together with the brutal impact of successive Covid-induced lockdowns on the poor, played a substantial role in enabling the events that occurred in July 2021. Grinding poverty and high unemployment are both long-term phenomena in the South African economy. The immediate steps taken by Government to support poor households during Covid-induced lockdowns brought temporary relief. Any measures taken by Government and/or other stakeholders will not resolve these issues overnight. It is important for those who save for retirement to understand that whilst they can play a role in putting an end to poverty and unemployment through impact investing and other efficient ways of allocating capital to create economic growth, the ultimate responsibility lies with Government.

Those who save for retirement are employed and are better off than many others in South Africa. Their first responsibility is to ensure the safety and growth of their personal retirement fund portfolios, ultimately contributing to a dignified retirement in their old age. A second responsibility is to contribute towards building South Africa’s economy and inclusive growth.

These two objectives are not mutually exclusive, but if put in opposition to each other, the personal aspect of self-preservation and looking after oneself and one’s family is a rational outcome. It is from this vantage point that some investment strategists advise maximum offshore exposure to reduce risk and enhance long-term investment returns.

In isolation, a strategy of maximum offshore exposure is not necessarily wrong, but it fails to take into account the full picture. It is equally important to create a safe, an affordable and a nurturing environment in which to spend one’s retirement years. The nature of one’s post-retirement plans should be matched with one’s investment strategy. Most members will spend their retirement years in South Africa. Only the very rich who retire offshore can afford not to have SA exposure. It is therefore important to contribute towards building the South African economy. Access to roads, bridges, harbours, communication, distribution networks, health facilities, water, electricity and sewerage infrastructure remains important to be able to live in a dignified way (before and after retirement).

Therefore, in addition to diversifying risk through meaningful offshore exposure, it becomes important to invest in growth initiatives such as infrastructure developments. The infrastructure projects in which we invest must contribute towards building the broad economy, diversify investment risk and, crucially, also contribute to investment returns. It remains important to achieve one’s investment return objective over the long term (e.g. 5.5% above inflation after fees).

Retirement funds will remain key to mobilising the nation’s savings in a responsible way to address investment risk through diversification and emphasis on building South Africa’s economy.