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How can we help you 'get back to basics'?

According to the Chinese zodiac, when the Chinese New Year began on 5 February this year we entered the Year of the Pig. By all accounts this promises to be a period of success in all spheres of life. I've been told it's a great year to make money and to invest. So, without further ado, welcome to the Year of the Pig and to a year in which all those good behaviours and sound financial choices you've made over the years should hopefully come full circle.

Because 2019 brings with it all the potential for success, here at FNB Private Wealth we see the next 12 months as a 'back to basics' time - after all, the most auspicious events are always accompanied by good luck, astute planning and skilled guidance. For us, 2019 is a year of insights and information, 'how tos' and then, to top it off, decisive action in line with your specific goals, needs and wants.

Getting this right requires that we work hard to understand your needs and ambitions, so we can work together to find the right answers to your specific questions. This view is embodied in FNB Private Wealth's Solutionist Thinking approach, a philosophy that looks beyond bottom lines and account balances and delves deeper to unlock value and grow wealth in meaningful and tangible ways.

Over the year we'll return to this theme and provide you with articles that talk to issues facing our clients, themes of a global and local nature, and ideas and concepts shaping the world of wealth management as we know it. Just recently we witnessed two important local developments with the delivery of the State of the Nation Address by President Cyril Ramaphosa and the 2019 Budget by Finance Minister Tito Mboweni. Central to both was the Eskom conundrum, with Ramaphosa confirming the state-owned entity would be split into three parts, namely generation, transmission and distribution. Mboweni added meat to the Eskom turnaround plan, allocating R23 billion a year in financial support to the power utility without taking on Eskom's debt. He also confirmed Ramaphosa's statement that Eskom would be split into three independent components.

While wealthy individuals appeared to come of relatively lightly in Mboweni's 2019 Budget, with no increase in tax on investments, wealth taxes, capital gains or estate duty, tax brackets have not been adjusted for inflation, bringing bracket creep into play. Added to this is the broader impact of an economy that remains under pressure and debt levels that are expected to breach the 60% level for the first time in 2023-24.

These developments, along with global trends, highlight the need for a return to fundamentals; which is exactly our approach. Therefore, in this first newsletter of the year, we get down to business by focusing on the importance of service by outlining the place, scope and influence a family office has in the world of the ultrawealthy and the role FNB Private Wealth can play in this bespoke world. Then, having observed a trend towards offshore property purchases in recent years, we take a closer look at this development and highlight ways in which we can help you navigate this crossborder process.

We also examine the impactfulness of philanthropy, another driving force for many of our clients, and offer insights and invaluable tips. And, finally, we take a glimpse at FNB Connect and some of the exciting new offers on the horizon.

Certainly the Year of the Pig has started with a huge amount of noise, from load shedding at home, to Brexit abroad, the crisis in Venezuela to the shutdown in the United States. There will, undoubtedly, be challenges as this year unfolds and as we head towards elections in South Africa on 8 May, but a back-to-basics approach will provide the comfort and succour we all need to ride out the rigours of the year to come and emerge victorious in 2020.

Create lasting change through impactful giving

Giving is a deeply personal choice, one which motivates individuals to donate to causes that are close to their hearts. Given the intimate nature of giving, the act of philanthropy touches both the giver and the receiver. As Maya Angelou, the acclaimed author and poet, once observed: "I have found that among its other benefits, giving liberates the soul of the giver."

Just as the choice of cause is deeply personal, so too are the ways in which those fortunate enough to give choose to do so. One-off and even periodic donations have prompted FNB Wealth and Investments' philanthropy arm to think differently about the concept of impactful giving and the flexibility required by our clients. This extends to how we work with clients to plot their philanthropy journey and determine upfront the positive impact they hope to have on South Africa's social landscape.

"Conversations around philanthropy have intensified in recent years as individuals are increasingly looking for ways to influence and donate towards causes that creating lasting change," says Prince Siluma, Head of Philanthropy at FNB Wealth and Investments.

While Siluma is quick to note that there are no rules around donating, he points out that a central unifying intention remains the desire to create meaning through giving. "While donations to charitable causes create immediate relief from social issues; philanthropic giving ensures long lasting and positive change," he explains. "Being mindful of your choice of giving will ensure that the organisation that receives the funding will benefit and be sustainable in the longer term."

Social impact is based on addressing pressing social challenges and impacting personal behaviour; the outcome of which has the ability to address challenges being felt across society. There are several ways to achieve social impact, but the starting point lies in understanding the process of giving.

Siluma suggests applying a five-step framework to your philanthropic thinking to help guide you on this journey and ensure that you achieve the desired impact.

  1. Setting objectives: Your objectives will help you establish and understand what your philanthropic vision and goals are. It will also help you unpack what impact you want to achieve through your giving.
  2. Develop a giving strategy: Your giving strategy should be your blueprint to achieving your objectives. It will help guide you in terms of how to approach, implement and review your social giving objectives. It helps, for example, to focus on specific areas of giving, such as education, women and bursaries, to name but a few potential avenues. You also need to give careful thought to the best legal structure that enables your giving strategy, and seek expert advice if need be to ensure that the right structure is in place.
  3. Giving tax effectively: You can maximise your donations by taking advantage of the allowable tax deductions and the different methods of taxefficient giving. Again, enlisting the assistance of philanthropy experts can help you navigate the best way forward.
  4. Selecting the right causes: With so many deserving causes out there, deciding who you give to and how much is the most difficult part. Begin by ensuring that you identify non-profit organisations (NPO) based on your interests and objectives. Make sure they have a good track record of implementing social projects that are aligned to your objectives and that good governance structures are in place.
  5. Assessing impact: Understanding the impact of your giving includes knowing how your funds are channeled through your chosen NPO by requesting feedback on what has been implemented and how this has impacted your cause.

Finally, positively changing the lives of others remains the key determinant of successful giving.

"Ensuring that there has been a positive change to the social challenge is key to giving effect to your impact giving," concludes Siluma.

Investing in property abroad

Reasons for going this route include wealth diversification, creating a base for children to study abroad, generating foreign currency via rental income, establishing a holiday home, or seeking foreign residency status.

However, acquiring an offshore home for holiday purposes is a priority for only a small number of South African buyers, notes Chris Immelman, Head of Pam Golding International. While these holiday homes are typically being bought in Mauritius or Seychelles, Immelman notes that "most people buy for more practical reasons, such as externalising funds or generating foreign currency"

Apart from the Indian Ocean islands, popular destinations for buyers include Portugal, Cyprus and Malta (all Europe) and Grenada in the Caribbean. The United States also attracts interest. Portugal, says Immelman, is by far the most attractive destination right now. South Africans like the fact that Portugal forms part of mainland Europe, he says, noting that proximity to major European cities is also appealing.

Immelman points out that Lisbon and Porto, Portugal's two leading cities, are both transforming themselves and "attracting young talent from all over the world as new developments and upgrades take place. The country still offers amazing value and quality of life."

Residency rights

Portugal's popularity is due, in part, to its Golden Visa programme, which provides an opportunity to qualify for residency for a minimum real estate investment of between €350 000 and €500 000 (about R5.5 million to R7.9 million). The country has relatively low tax rates of about 20% and no wealth or inheritance tax, or tax on overseas pensions.

Similar to Portugal, part of the appeal of the Mediterranean island of Cyprus is that a property investment can lead to residency rights and ultimately European Union citizenship, albeit at a heftier price tag of €2 million upwards (roughly R31.5 million and above).

There's the opportunity to disinvest after three years by selling your property, but with the requirement that you reinvest €500 000 (R7.9 million). According to Immelman, few of Pam Golding's South African clients who invest in a home in these countries are pursuing emigration in the short term, but they do see it as a good investment opportunity to diversify their asset portfolio.

Guiding you through the process

For RMB Private Bank clients interested in taking the offshore property plunge, there are a range of services which they can leverage to make their investment journey a smooth one, notes Chantal Robertson, Head: Global Wealth Solutions.

"When considering the purchase of property offshore, it is key that you have a bank account in the related currency. For this purpose, you can choose to have a Global Account with RMB Private Bank, or alternatively open an account with our Channel Islands branch. You can fund these using your Single Discretionary Allowance of R1 million* or your annual Foreign Investment Allowance of R10 million*, which is subject to tax clearance, as per the Reserve Bank requirement. It may be feasible to have both, as the Global Account is a simple mechanism for short-term saving, whilst the Channel Islands offering is a transactional account in a foreign jurisdiction that also offers an offshore savings solution.

Depending on your timelines, it may be worthwhile to have a discussion with a Wealth Manager regarding the various investment options available offshore," Robertson explains.

For those wishing to put their offshore property into a trust, FirstRand's Guernsey-based international trust company can facilitate this.

"We bring the best of the FirstRand Group's offerings into play to provide end-to-end cross-border solutions," explains Robertson.

The pitfalls

Of course, there are potential pitfalls to buying a home abroad. First and foremost, Immelman advises against going it alone, saying buyers should rather seek advice from a South Africa-based expert. "Your biggest challenge is to find someone on the ground who is trustworthy and has local knowledge of the property sector, otherwise you are going to end up either overpaying or buying in the wrong area," cautions Immelman.

"An area like the Algarve in Portugal looks like a great investment in mid-summer when it is full of visitors. But for much of the year it is dead. And if you want to attract a long-term local tenant for your property, it's pointless buying in an area far away from schools or with poor transport links. As an outsider, you probably wouldn't know these things." Potential buyers should first look at the full picture and be clear about their immediate property goals: Do they want to rent out the property?

If so, what is the expected return and how easy is it likely to be to find a tenant? Who is going to manage the property in the owner's absence? Who will collect the rent and pay the property taxes? Another consideration is whether there is a double taxation agreement between the country and South Africa.

In closing, Robertson reiterates the importance of getting the right advice on how to move funds offshore, and how to manage them once they get there.

*SA resident individuals who are registered taxpayers, and over the age of 18 can make use of their Single Discretionary Allowance or Foreign Investment Allowance.

What are family offices? And do I need one?

For ultra-high-net-worth families with complex business and financial structures, the family office has long been a way to manage their affairs. Among the oldest is the family office founded by famous American oil baron John D Rockefeller in 1882 to administer his family's businesses and philanthropic initiatives. Other high-profile wealthy families who have embraced the concept include the Rothschild dynasty (the family business is now being run by a seventh- generation member) and the Fleming family, whose best-known member was James Bond author Ian Fleming.

In South Africa, family offices have also long been used by the affluent. Eric Enslin, Head of Private Banking at FNB Private Wealth, says there's no precise definition of who should have a family office, what size it should be, or what package of services it should provide. Similarly, there is no yardstick of wealth that dictates the use of a family office.

High complexity

"An office tends to come into play when there is a high level of complexity; when substantial wealth has been created that begins to span generations, and the family is involved in multiple cross-border business, investment and philanthropic activities," explains Enslin.

"Then you need a governance structure, a framework that will hold everything together. There is a saying that the first generation builds the wealth, the second generation establishes and looks after it, and the third generation spends it. A well-run office will ensure continuity, proper governance and ensure that the wealth endures across the generations," he says.

A high level of sophisticated administrative expertise is required when running family offices, explains Enslin. "Some families will have trusts, companies, investments and art collections. I know of one family that has an extensive art collection spanning the world. So just to manage the process of moving an expensive painting from Switzerland to Johannesburg, for example, requires a substantial amount of high-level administration and organisation."

Another important role fulfilled by such an office is to help resolve family disputes. The larger and more crossgenerational the family becomes, the more likely it is that there will be disagreements that have the potential to cause major disruption and lasting financial damage. Similarly, if a prominent family member gets divorced, the granting of a substantial divorce settlement to the departing spouse could have a wider financial implication for the entire family unless it is properly managed.

In South Africa, where ultra-wealthy families have greater concerns about political and economic stability than their counterparts in Europe or North America, for example, family offices may have greater responsibilities when it comes to offshore investing, spreading financial risk or pursuing foreign residency options. The office may also be called upon to assist younger family members to study at suitable international universities

Two forms

Family offices come in two forms: a multi-family office that is typically an independent service provider with several families as clients of the business; or a single family office that operates for the benefit of only one family and where all operating costs are paid for by the family.

Enslin says the advantage of going the former route is lower cost. There are economies of scale to consider since the cost of the staff and infrastructure is spread across multiple families. "Another benefit is that these advisors will bring to the table learnings from their work with other families," he adds. "Such offices will typically also have excellent infrastructure, administration and support, plus a wider pool of expertise to draw on."

The single family office is typically the option of choice for larger and wealthier families. They will appoint their own office head, who will then employ key staff based on the skills set required by that particular family - be it accountants, investment advisors, lawyers or philanthropy experts.

"The benefit is that the family has direct control, which means they set their own policies and procedures and avoid the extra layer of regulation that multi-family offices may have. The family gets 100% of the staff's time and focus. Many prominent families also feel it guarantees them more privacy. Ultra-high-net-worth South Africans often prefer this option because they get long-term continuity from people who share their deepest secrets," he explains.

The FNB Private Wealth offering

While FNB Private Wealth doesn't provide a family office service, it does work with many such offices to supplement their skills and expertise. "Especially if the family office is small, we will support them with services such as investment or philanthropy advice and help with strategic planning," notes Enslin. "We obviously provide private banking and may also be an independent corporate trustee."

Where an ultra-wealthy individual doesn't have a family office facility available, FNB Private Wealth can help by bringing to bear an assortment of FirstRand Group services ranging from succession planning to tax optimisation. "We don't offer bookkeeping or accounting services, which is not something that South African banks typically do. But we can provide 90% of the services that an ultra-wealthy client will need," he concludes.

2020 in lockdown

On 13 February 2020 the biggest concerns facing South Africans were Eskom and SAA, the inevitable Moody's sovereign rating downgrade and a severely stretched fiscus. A month later, on 15 March, President Cyril Ramaphosa declared a national disaster. The arrival of Covid-19 in South Africa has changed everything.

These rising numbers, and country lockdowns around the world, have fundamentally changed the direction of 2020.

Facing down a health threat of staggering magnitude and virulence, business, labour and South Africans from all walks of life are being called to come together to put past differences aside, to support one another, come up with innovative ways to support small and medium-sized business and to help corporates to keep their doors open. The focus has swung to ensuring that workers have the necessary social and financial support to survive, as individuals and the economy battle to deal with the speed at which the virus has shuttered offices, restaurants and malls, in the process seemingly changing the face of the world forever.

While Covid-19 dominates news headlines currently, there remain issues of global importance which still require our attention. Trade issues like the phase one trade deal agreement between the US and China and, subsequently, a war of words around China telecom equipment maker Huawei and its 5G network.

Brexit is still not yet fully resolved. While the 31 January exit was much publicised, the United Kingdom remains in the European single market and customs union until 31 December; so uncertainty is likely to persist. What that means for South African investors is the subject of just one of the articles we've put together for this edition. We also included a mega-trend focus on the impact of urbanisation and explore the intrinsic value of establishing an offshore trust as a means of ensuring the inter-generational transfer of wealth.

During uncertain times such as these, during which world markets have been shaken to their core, we have taken the opportunity to get back to basics by outlining our asset management approach and wealth and investment philosophy. Even during these difficult times, it is important to remember that for short periods of time markets may over-reflect short-term economic realities instead of the longer-term picture. The world will normalise over time and markets will reprice to reflect a more realistic future.

Lean on our digital channels

In heightened times like these, we would like you to be more aware of possible fraud and theft which, unfortunately, are a sad reality.

In many of these cases, fraudsters find it more effective to exploit human behaviour. We urge you to safeguard your credentials and personal information; particularly when it comes to banking.

We want to assure you that we are prioritising an uninterrupted service to you. We urge you to make use of our 24/7 digital solutions. If you have not yet downloaded the FNB App, please do so today. On the App, you can easily undertake your day-to-day transactions from home.

I sincerely hope that you, your family and friends remain safe and healthy.

Eric Enslin, CEO FNB Private Wealth

Moody's Downgrade

Amid unprecedented volatility in global and local financial markets, Moody's (one of the three major credit ratings agencies) downgraded South Africa's sovereign credit rating to sub-investment grade while maintaining a negative outlook. The downgrade had been foreseen for some time as Fitch and S&P (the other two major agencies) both downgraded South Africa to sub-investment grade in 2017.

Moody's highlighted the following primary drivers in coming to their decision:
-  Structural economic bottlenecks that limit GDP growth potential and employment creation. -  Deteriorating public finances and unfavourable debt dynamics. -  The acute financial stress state-owned enterprises (SOEs) are under, particularly Eskom. -  Uncertainty around structural reforms and implementation risk.

While the downgrade had largely been priced in by financial markets, the timing thereof could not have been worse; it came amid a wave of global risk aversion, further currency weakness and higher bond yields.


The yields on SA bonds reflect the rate at which the government can borrow money. Generally speaking, a downgrade would be associated with a higher risk profile and result in a higher yield and consequently more expensive borrowing for the sovereign.

Additionally, the rules for certain passive indices and institutional mandates stipulate that only investment-grade debt may be held and there may be some forced selling as a result of this change in rating for South Africa.

Given the current market turmoil related to Covid-19, markets have been inherently more volatile and liquidity has been constrained. This event could exacerbate this issue in the local bond market.

Mitigating factors

In financial markets the news itself is often overshadowed by the extent to which the event was expected and consequently priced in already (the local bond market is down ~12% year-to-date).

The current yields on SA Bonds already compare with those of other sub-investment grade countries around the world, and as such this event does seem to be largely reflected by current prices.

Given recent market turmoil the usual quarterly rebalancing of passive indices has been delayed by a month, which should alleviate any immediate selling pressure on SA Bonds. The current level of SA Bond yields is very attractive given the low rate environment globally and yields a significant margin over inflation (approximately SA CPI + 7% for 10-year bonds). While the downgrade is negative, there may be investors who still find appeal in the relatively high-yielding SA debt.

Portfolio impact

The portfolio construct and strategies we run are inherently long term in nature, and consequently short-term market events do not usually have a notable impact on our portfolio positioning and strategy.

This particular event is uncommon, and also comes at a time of heightened volatility. As such the team will pay close attention to the market impact and look for opportunities amid these movements.

Presently, SA Bonds are an attractively valued asset class notwithstanding the downgrade and its implications. Any further sell-off in the bond market could be used, where appropriate, to opportunistically increase exposure. Additionally, we will pay attention to the impact on the rand and take advantage of repatriating assets at oversold levels and increasing exposure during strength.

In summary, the downgrade has certainly added to the flurry of recent negative news. However, the event itself is unlikely to surprise the market - and there are many mitigating factors that may result in the downgrade being met with mixed reactions from market participants.

The focus now shifts to government's ability to effectively manage its debt profile and implement structural reforms. Clients do not need to be concerned as their portfolios remain well diversified and appropriately positioned for the current environment. The investment team continues to work throughout the current turmoil, making use of technology to meet more frequently than in normal circumstances; thereby ensuring that our fiduciary duty as stewards of client capital is discharged with diligence and due consideration.

Wealth and investment with you, for you

Few would argue that the foundation of successful investing hinges on a deep understanding of the global macroeconomic environment. But that's not all. It also necessitates a quality approach, one which considers investing in robust assets - companies of substance that can hold firm during economic cycles and which are best equipped to generate long-term sustainable revenues. And it requires a focused approach built around the concept of diversification.

That's the investment philosophy which has long underpinned the approach shared by FirstRand experts across the FNB, Ashburton and RMB brands. But now, under new Wealth & Investments and Ashburton Investments CEO Sizwe Nxedlana, this asset management position is being streamlined, better coordinated and geared towards client-centricity and ease of use. It's the same core philosophy in action, but with a maturation of processes, platforms and tools.

Our approach to asset management

In a nutshell, explains Nxedlana: "Our approach is about quality, at a reasonable value. It is macro-cognisant and we are long-term investors."

In the past, FirstRand's asset management communication approach focused heavily on the macro-economic aspects of sound investing, but this has never been the full and complete story of what goes on behind the scenes. "Now we have become a little more explicit about what we do and we are elaborating on our entire investment process and what this has to deliver to our clients," explains Nxedlana.

In practice, this means a greater emphasis on the environmental, social and governance (ESG) factors which are used to measure sustainability and the social impact of an investment. "We are about quality and when we invest your money we want to make sure we are investing in quality companies that are socially conscious, are governed appropriately and which take cognizance of environmental factors; because we think those are businesses that will be sustainable," says Nxedlana.

A great deal of attention is paid to quality screening across this investment process, to determine a viable universe of both onshore and offshore investment options. The next step is to undertake a detailed valuation effort to get into the nitty-gritty of the company in question to determine its quality and if it is valued appropriately.

Says Nxedlana: "We are doing a lot of work to make sure our valuation models are in place and are modernised." Drawing on the group's macro-economic expertise is certainly a critical consideration within these valuation models, allowing for long-term investments which, when made, can form part of a portfolio for as long as possible in order to reap the utmost benefit. With all these elements in place, there should ideally be no need for chopping nd changing of portfolios.

So what's new?

While this philosophy has long underpinned the FirstRand investment process, advanced plans are afoot within the broader group to bring all the strands of investment expertise together to streamline processes and create a highly client-centric experience.

Nxedlana took on the role of Ashburton Investments CEO in October 2019, alongside his existing role of CEO of Wealth and Investments. This move exemplifies the group-wide approach to leveraging it's platform capabilities in order to deliver the right investment solutions and to better meet client needs.

Explaining the dual role in more depth, alongside his focus on integrating FirstRand's investment capabilities through a single investment process and unified digital platform, Nxedlana explains that the current approach is being directed at getting the most out of the strong capabilities within the group and finding more efficient and effective ways to execute investment management more tightly.

"We have capability, which sits in a variety of places, and we are now really focused on understanding what the client's investment problem or investment need is across all the segments we have; that's across retail, commercial, corporate and institutional. Within that I also include intermediaries like independent financial advisors and direct fund managers," he says. The aim is to build on an existing culture of solving for client needs but doing so in a more deliberate and more co-ordinated manner.

What sparked this shift?

From the days when Laurie Dippenaar, GT Ferreira and Pat Gross founded a small financial structuring house in Johannesburg back in 1977, the FirstRand legacy has evolved into one of innovation and entrepreneurship. This has been evident in the growth and development of the various business units operating under the FirstRand banner. But organisations mature and, when they do, their systems and processes must do the same.

Nxedlana explains: "Now the organisation is being tilted on the side to emphasise client first, after all we potentially have clients who bank with us, lend, invest and take out insurance. The starting point for this new way the group is operating gives us the chance to pull together more. In the past we certainly collaborated, but we are now enhancing the coordination between the various business units that have grown up and been built within the group."

While some capabilities were born in different areas of the group for specific reasons, the idea now is to create an easier, more efficient and more effective offering for clients.

"As we have matured in terms of our focus on investment in the retail world, we've actually found that there is a lot of capability that sits within FirstRand in the likes of Ashburton and RMB and which, if we coordinated this better, would ensure a more efficient way to package solutions and also to distribute more efficiently, seamlessly and cost-effectively to clients," says Nxedlana. "Ultimately, we are building the business through understanding client needs, across segments and not just within certain business units.

Putting it simply: "We are trying to solve investment needs."

Bright lights, big city, new opportunities

A staggering 80% of global GDP is now generated in cities around the world. These hubs of innovation and wealth creation are not only a notable global shift, but they also boast investment opportunities, open doors to business and industry and make social and service delivery faster and more effective.

Based on World Bank figures, this surge in urbanisation is a global phenomenon. While the United States already saw 40% of its population living in cities in 1900, by 2016 this was estimated at 82%. Western Europe, similarly, was at 41% urbanisation in 1900 and stood at around 80% in 2016, versus Japan's 12% rising to a staggering 92% just five years ago.

Estimates from both the World Bank and the United Nations point to the fact that 55% of the world's population currently lives in cities, a number that is expected to rise to 68% by 2050. This means that in 30 years an additional 2.5 billion people will be living in cities than do so today.

High-growth populations like China, India and Nigeria are expected to be the major countries for urban population growth up to 2050, with 90% of urban growth expected to come from Asia and Africa. This huge shift is stretching many emerging market economies, requiring a dramatic change in how countries design, engineer and service these sprawling mega urban areas.

At a local level, explains Chantal Marx, FNB Wealth and Investments, South Africa is sitting on an urbanisation rate of about 65%, compared with the likes of Brazil and Argentina, which already have more than 80% urbanisation. "The Northern Cape adult population is about 600 000 people, about the same size as the Ekurhuleni metropole in Gauteng. So Boksburg and Benoni and surrounds have as many people living there as the entire Northern Cape province; which gives you an idea of just how urbanised we are in Gauteng," she says.

Rapid migration

"To give a sense of the movement, two new people move to Johannesburg every day, versus 79 to Delhi, 18 people to Sao Paulo and 22 a day to Mexico City, 10 to New York, nine to London," says Marx. Lagos in Nigeria is said to add 77 people per hour, according to the World Economic Forum; a staggering number of people for any government to accommodate and service.

In fact, McKinsey Global predicts that by 2025 there will be 100 African cities with more than a million inhabitants, many of them the young and unemployed in search of scarce opportunities.

While the rate is slightly slower in South Africa than other parts of the world, it is expected that the country will have an urbanisation rate of close to 80% by 2050, in line with global trends. While this has potential to make service delivery easier, given the centrality of people and the concentration of services in certain areas, the problem currently is the pace of this movement into cities ill-equipped to deal with the numbers.

Pros and cons

"There are a lot of issues around urbanisation, but ultimately no country has actually achieved middle-income status without a significant move of the population to cities, as this is where economic activity is centred. So, generally, it's quite positive in the longer term," says Marx.

"Things that become important include infrastructure, homes, buildings, energy, safety and mobility. Disruptive tech also plays a big role, such as broadband capabilities, 5G, the Internet of Things, big data, the cloud and artificial intelligence," says Marx, she adds that while there is undoubtedly an economic value to rapid urbanisation, the challenge facing cities and administrators is keeping up with the rising numbers.

Key strategic planning

Planning, therefore, must be fast and effective but also realistic, she says. "You don't, for example, want a situation like you have in China where they've planned for certain urban spatial issues and you end up with ghost cities."

Similarly, 19 countries around the world are facing a converse planning situation, where their urban populations are declining into 2050; these include the likes of Japan, Belarus, Bulgaria, Estonia, Germany, Serbia, Ukraine, Bermuda, Cuba, Greenland and Puerta Rico. "Often this is due to aging populations where older people don't necessary want to live in cities. So your urbanisation rates will be very high in Africa and Asia, which have higher youth populations, and a little lower in other [more mature] areas," explains Marx.

Shifting economic power

From an investment perspective, rapid urbanisation also creates opportunities for industries such as online shopping channels and logistics, which benefit from the closer markets and greater demand. "A high urban concentration just makes it a lot easier for those industries to thrive," explains Marx. "Similarly, ecommerce will thrive in a society where urbanisation is quite high and where it continues to grow. For example the likes of your Takealot and Faithful to Nature online stores."

Because urban populations tend to be more educated, sectors such as private education and tertiary institutions also tend to flourish, which in turn leads to better productivity, since competition is higher and skills are more readily available.

Because urban populations tend to be more educated, sectors such as private education and tertiary institutions also tend to flourish, which in turn leads to better productivity, since competition is higher and skills are more readily available.

"Similarly, Indluplace Properties deals with rentals of residential property, concentrated in Gauteng and the Western Cape, and they should also benefit from this mega-trend," says Marx. This sector, in turn, provides an uplift for infrastructure companies dealing with road construction, bridge building and rolling out the backbone elements of any city, from sewerage to broadband fibre.

Make no mistake, urbanisation is a key mega-trend to watch, and one which creates opportunities for individuals, businesses and investors.

The intrinsic value of an offshore trust

The world of offshore investing opens the door to a variety of interesting and sometimes intriguing considerations. For example, should investments be held directly by an investor or should an offshore estate planning structure be used? In many aspects, offshore investment decisions clear the path to diversification and provide opportunities and triggers on how the investments should be housed for the inter-generational transfer of wealth.

In 2018 alone, South African investors were estimated to have sent in the region of R68.5 billion offshore, according to United States research firm Real Capital Analytics. With economic concerns on the home front these outflows are likely to maintain a similar momentum in 2019, going into 2020.

Planning opportunities arise when investing offshore, for example it is important to address questions of how and where investments are to be housed and how the associated offshore investment portfolio is being managed. Ensuring a robust approach, which is both tax efficient and protects the wealth for future generations, must also be investigated.

Without expert estate planning and administration services, and the existence of a valid offshore Will, investors could find themselves with offshore exposure without the optimum structures in place to house these assets. Working with our FNB Global Solutions and FNB International Trustees, situated in Guernsey, can ensure that all the necessary paperwork is in place, advice is fit for purpose and that portfolios are well structured.

In many cases, this involves the establishment of an offshore trust.

When to consider an offshore trust?

Trusts remain effective tools for wealth preservation and, although the local and international trust industry has experienced a variety of changes in recent years, there is still value in using the correct structure. Offshore trusts have a role to play when considering the impact on one's wealth and also for ensuring that the wealth preservation plan is not limited to the wealth creator alone.

Chanel Kempff, FNB's Head of Fiduciary Advice, explains that the advantages of generational wealth preservation are intrinsic to trusts. A trust ensures that you do not have to transfer assets from generation to generation and incur unnecessary costs and taxes while attempting to keep the assets in the family. A trust is normally fluid and any shift in family dynamics can be dealt with to maximise the impact where there is change in circumstances. "It's a more seamless succession plan," she explains.

"Furthermore, if assets are owned by a trust, then your Will is not required to deal with such assets, since the trust will continue after your passing," explains Kempff. "The assets are protected, and can be administered by a trusted partner within the FirstRand Group".

"Before you establish an offshore trust, it is important to seek expert advice on key considerations such as how you fund the structure, the exchange control limitations and the tax implications", says Kempff. FNB Global Solutions can work with you on the funding mechanisms and lead you through the process.

She adds: "Our offshore trusts are administered in Guernsey and the trusts obtain full exposure to the laws of Guernsey".

Global outlook, local office

FNB assists clients with the seamless process of establishing an offshore trust. "Ultimately the integrity of the structure is key," explains Kempff.

Local and international expertise are always on hand through the FNB Global Solutions specialists, consisting of a team of experts, including a Fiduciary Specialist, Wealth Manager, exchange control expert and Private Banker.

Drafting an offshore Will

While a trust does, theoretically, reduce the need for an offshore Will, it is always advisable to consider an offshore Will the moment you take funds out of the country or acquire an asset abroad. "Clients go to great lengths to structure their South African assets, however, you are generally speaking unable to hold your offshore share portfolio or offshore accounts in your local structures and this has an impact on your personal worldwide balance sheet," explains Kempff.

While it is not impossible to deal with international assets in your South African Will, it is important to note that your offshore assets can mostly not be dealt with by your local executor; for that you need assistance in the offshore jurisdiction/s in question, which can delay the process of wrapping up your estate should the Will have to do a trip around the world. "It is partly for this reason," says Kempff, "that it is our house view that you consider the impact of having a local Will, a Will for a specific jurisdiction or a worldwide Will." The Fiduciary Specialists will guide you through the process ensuring that the preparation of multiple Wills does not unintentionally revoke your local or any other Will.

FNB International Trustees can assist South African individuals holding assets in the United Kingdom, Northern Ireland or Jersey, Guernsey and the Isle of Man to draft offshore Wills specifically dealing with these jurisdictions. We work with an international network of professionals to find suitable support when dealing with assets situated in different jurisdictions.

While offshore investing is a crucial part of any diversified portfolio, ensuring the correct structure and long-term approach to the management and preservation of your offshore assets is equally important.

Brexit. What now for SA and 'Little England'?

Three years and seven months after 52% of Britons voted to leave the European Union (EU), the United Kingdom (UK) ceremonially cut ties with the EU on the evening of 31 January 2020. Like all protracted divorces there are still negotiations to be had, and while those take place the UK will remain in both the EU customs union and single market for a transition period ending on 31 December 2020. But the die has been cast.

The question for South African investors is: How will this affect me?

Sizwe Nxedlana, CEO of FNB Wealth and Investments, believes that "if Great Britain wants to become Little England, the economic impact on SA will be negligible.".

Fundamentally, explains Nxedlana, the South African economy is driven by three main things: domestic macroeconomic reform (such as action on state-owned enterprises, labour flexibility and the ease of doing business), the state of the Chinese economy (since we need them to hoover up our commodity exports) and foreign investment inflows (which make the actions of the United States Federal Reserve all important).

"So, the Goldilocks scenario for South Africa is that if China does well, a reform agenda that is gaining traction domestically and if United States (US) interest rates are low, then the South African economy will fly. What happens in the UK, quite frankly from a South Africa macro-perspective, is not that important. However, for an investor who wants specific UK exposure then it does become more important," he admits.

The uncertainty factor

Two big issues dominate the concerns around Brexit currently, explains Chantal Marx, from Wealth and Investments: An UK-EU trade deal and the issue of financial equivalence.

Both will likely be on the table until 31 December, says Marx. "And it's probably going to be a last-minute signature or an extension at the end of it. And that will mean further uncertainty in the markets, which does add an element of risk around the UK and Europe, which are still among the largest economies in the world. Even if they aren't growing as fast as a China or in line with the US, they still have a meaningful impact on sentiment which could influence the direction of global markets and by extension, the JSE."

A contentious trade deal

All indications are that the EU plans to play hard ball in the trade deal negotiations, says Marx. "The UK said it did not want a bespoke deal, rather something similar to that of Canada, South Korea and Japan. But the EU is being very sticky and they want to negotiate from scratch, because the UK isn't quite like Canada, South Korea and Japan due to its proximity to Europe and the fact that it manufactures many of the same goods [as Europe]. So Britain is a much bigger competitor to EU products than the other three."

For the UK, which imports about 30% of its food from the EU, according to a 2018 paper published by the House of Lords, issues such as tariffs and customs barriers could potentially impact food security. But the leverage is not all one sided. "That's quite a substantial number and it would also indicate that it would be important for the EU to maintain that relationship from a trade balance perspective, so they wouldn't want to sever those kinds of ties, either" she says.

Both sides have much to gain - or lose - from this process, but currently both are playing political games, adds Marx. So its brinkmanship that's catching the headlines.

Financial equivalence

In mid-February the EU's chief negotiator in Brussels, Michel Barnier, said the UK should not kid itself that it would achieve a general, open-ended and ongoing equivalence in financial services. "We will keep control of these tools, and we will retain the free hand to take our own decisions," he said.

What makes this such a critical point?

Marx explains that in order to do business with the EU, countries require special permission and certain requirements in place for money to flow freely across borders. "This mostly relates to norms and standards on issues like, anti-money laundering and anti-corruption. The UK wants financial equivalence to the point where the EU accepts that their financial system works more or less in the same way and that their norms, standards and controls are at the same level as that of the EU," she says. "The problem is, if they don't get this financial equivalence, they will be subject to other conditions for money to flow freely between Britain and the EU and this would impact quite a lot of business, not only from a transactional perspective but an investment perspective."

Japan, the US and Singapore have been granted close to financial equivalence by the EU.

In addition, the UK also appears to want the power to grant financial equivalence to other countries; hence Barnier's sticking point. "I don't see the EU going for that," says Marx, "so they'll probably arrive at a point where the EU grants the UK close to financial equivalence, but they are unlikely to give them the right to grant financial equivalence themselves."

Are the clouds lifting?

While the game playing continues between London and Brussels, there are signs that both business and consumer confidence have improved slightly since the decisive election of Boris Johnson in December 2019 and the exit from the EU at the end of January.

The recent Bank of England-backed Decision Maker Panel survey by Nottingham and Stanford universities "showed an uptick in investment expectations", according to the Financial Times. "In the three months to January, the surveyed businesses [3 000 in total] said they expected investment in the year ahead to grow 4.6% in financial terms, up from 2.4% in the previous three months," reported the newspaper.

Marx adds: "This is quite a big survey and they've said that investment expectations of businesses in the UK have increased - 4.6% is quite significant for an economy as mature as the UK."

Consumer confidence also improved in January, although it's still negative at -9%. "But that could change as things start normalising in the UK economy and once business investment starts coming in," she notes.

Investment implications for South Africa?

First and foremost, says Nxedlana, it's important for any South African client looking for global, offshore exposure to appreciate that FNB Private Wealth's approach is to "position ourselves in such a way that we diversify from any regional or national idiosyncrasies. So we'll give exposure to the US, to the UK, to continental Europe and Asia Pacific. Which means that the way we do things means that our clients don't have to worry too much about Brexitspecific issues."

While it's interesting to read the Financial Times and understand the reach of these British issues, "from our perspective and for South African investors seeking offshore exposure there is one word: diversify".

Marx agrees that sticking to your diversification strategy is essential. "And if that strategy includes offshore investment, and if you have an allocation to the UK, then there is no need to change that now as you will already have taken the pain. But you might not necessarily want to up your exposure yet, due to lingering uncertainties."

Over and above keeping a close eye on how the relationship between Britain and the EU plays out, Marx believes South African investors should be mindful of the exposure South Africa has, from a markets' perspective, to the UK economy.

"Some companies won't see an impact, because they are just dual listed, but a company like Quilter, which specialises in personal finance and investments in the UK market, will be heavily impacted if things deteriorate further. Conversely, it will also be positive for them when things start going better," says Marx. "South Africa also have a lot of retail exposure to the UK. Brait, for example, owns New Look and Iceland Foods, Foschini Group has Phase Eight and Truworths has Office where exposure is almost purely to the UK."

Finally, South Africa has notable exposure on the JSE to the UK property market, making an improvement in confidence critical.

While these are telling issues for South African investors with UK exposure, fundamentally Nxedlana believes that - relatively speaking - "there are much bigger elephants in the room, for us, than Brexit".

Life and Times

2020 in lockdown

On 13 February 2020 the biggest concerns facing South Africans were Eskom and SAA, the inevitable Moody's sovereign rating downgrade and a severely stretched fiscus. A month later, on 15 March, President Cyril Ramaphosa declared a national disaster. The arrival of Covid-19 in South Africa has changed everything.


Moody's Downgrade

Amid unprecedented volatility in global and local financial markets, Moody's (one of the three major credit ratings agencies) downgraded South Africa's sovereign credit rating to sub-investment grade while maintaining a negative outlook. The downgrade had been foreseen for some time as Fitch and S&P (the other two major agencies) both downgraded South Africa to sub-investment grade in 2017.


Wealth and investment with you, for you

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A staggering 80% of global GDP is now generated in cities around the world.


The intrinsic value of an offshore trust

The world of offshore investing opens the door to a variety of interesting and sometimes intriguing considerations. For example, should investments be held directly by an investor or should an offshore estate planning structure be used?


Brexit. What now for SA and 'Little England'?

Three years and seven months after 52% of Britons voted to leave the European Union (EU), the United Kingdom (UK) ceremonially cut ties with the EU on the evening of 31 January 2020.


How can we help you 'get back to basics'?

According to the Chinese zodiac, when the Chinese New Year began on 5 February this year we entered the Year of the Pig. By all accounts this promises to be a period of success in all spheres of life.


On generosity, investing and family matters

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Giving is a deeply personal choice, one which motivates individuals to donate to causes that are close to their hearts. Given the intimate nature of giving, the act of philanthropy touches both the giver and the receiver.


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For many wealthy South Africans buying a home abroad is becoming an increasingly popular way to invest for the future.


What are family offices? And do I need one?

For ultra-high-net-worth families with complex business and fnancial structures, the family offce has long been a way to manage their affairs. Among the oldest is the family offce founded by famous American oil baron John D Rockefeller in 1882 to administer his family's businesses and philanthropic initiatives.