Davos – How significant is it to South Africa?

The 45th World Economic Forum held is an annual event where the “Who’s Who” of the Political and Business elites of the Globe descend on a small city in the Alps called Davos.

It is an opportunity to meet rich and famous key decision makers and exchange ideas and business cards to attract attention towards investment opportunities across the globe as well as align towards global issues in an attempt to make the world a better place.

I wonder how much of what is debated and discussed actually translates into anything. I also get a strong notion that there is a definite rank of importance placed on certain countries and global issues. So what might be important to one country may not be very important to another.

Let’s look at it this way….

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If an alien came to earth for the first time with a spaceship full of cash to invest and he hovered over the globe looking at the various continents and countries, “Where do you think he would tend to go?”
In terms of global GDP:
USA produces 30%
Europe 28%
China and Australia around 10%
When he hovers over Africa he will see our country nestled at the bottom of the continent producing about 0,4% of world GDP. Not very enticing…in spite of our sunny climate and scenic destinations.

So, to convince him that South Africa would be a choice investment destination would be very hard sell. There are opportunities but at the same time our image is tarnished in key areas of politics, strikes, crime,corruption,unemployment and electricity.

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So I get the idea that the delegations from South Africa have to work very hard in Davos to even get heard. Then once they bend an ear its uphill all the way to try and convince why one should readily invest here for the long term. There are reasons but in todays global economic distress investors are looking for solid structures to minimise the current risks.

Perhaps the real benefit in attending is learning how different countries are dealing with their problems and bring back practical working ideas that we could use here. We also will realise how we can align ourselves to world issues which are currently, world terrorism and global inequality.

We have many things to get right in our economy and Davos is a place where I suppose we have to be seen in the hope of getting noticed by someone who would consider South Africa as an investment destination.

Convert petrol price savings into a 22% guaranteed return!!!

The recent drop in the oil price creates opportunity for all South Africans and we should take full advantage whilst the price of petrol is low.
We as a country import 95% of of oil needs and therefore are totally dependent on
exchange rate as oil is bought in Dollars with Rands and the weaker our rand the more expensive oil becomes. However, the price of oil has dropped by half in a very short space of time resulting in a notable drop in the petrol price.

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The pump price this year has fallen by R1,27 and indications are that the next review of our petrol price will drop by another 50 cents.

So what should we do about it?

Take control of what we can while petrol is cheaper as indications are that the price will increase again. Some pundits seem to think that we have a window period of around a year or two. Who knows? Already we are seeing oil producing countries starting to struggle with job lay offs and widening deficits on their balance sheets. It points to the fact the current price cannot sustain certain economies whilst it is benefiting others.

So what is the current saving?

Unleaded 95 on the reef peaked at R14,33 in August 2014. The current price is R11,01 providing a saving of R3,32 per litre.

If your average usage per month is R100 litres then you are R332 better off.
If you divert the savings into your high interest bearing debts you squeeze out even more savings as you effectively earn the same rate of interest of the debt. So, if your credit card balance is costing you 22% per annum then you effectively save this on interest over a year. Where else can you currently get a 22% guaranteed return on an investment.

Don’t forget the emergency fund.

If you don’t have debt then you should allocate the savings to your emergency fund so that you can tackle unforeseen expenses into the future. This fund is an essential provision in your financial plan and should be saved in cash and enough to provide between 3 to 6 months of your monthly expenses. Why? Well, if you have any unforeseen expenses then you have immediate access to funds and don’t have to borrow.

There are more savings to come.The current drop in the fuel price should start to translate into lower prices in goods and services which depend on fuel to transport their products.This should improve your cost of living for the year providing more relief on the family budget.

Take advantage while prices are low. Enjoy this economic gift horse whilst you can.

Your Personal Balance Sheet…

The beginning of a new year is a great time to update your personal balance sheet.
The excercise is invaluable in your personal financial planning as it creates a snapshot of your actual worth in relation to what you own and what you owe. Your so called “Net Worth”.
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OWN – OWE = NET WORTH

All it takes is a sheet of paper with two columns listing the current value of all your assets on one side and your liabilities ( the outstanding loans) on the other side. Subtracting the total liabilities from your total assets leaves you with a current value of what you are actually worth. This net worth provides you with a realistic view of how well to you are doing with your financial planning. If the figure is growing year on year then you are on the way to improving your wealth. If it is not growing you are effectively getting poorer.

Bear in mind that your net worth needs to improve above the inflation rate to keep its value. So if inflation is running at 6% then your net worth should being improving above this rate year on year to keep your net worth value real.

Ways to improve your net worth are found in:

Reducing your liabilities.
Targeting your loans and getting rid of them sooner. Interest on debt is often higher than the returns found on investments. Especially, when one considers the risk needed to achieve the return.

Acquiring high growth assets.
Investments that grow consistently over time should be targeted. Especially, those which compound your growth. In other words, investments which produce returns which you reinvest, effectively buying up more. Compound interest is a magical phenomenon in the financial world and needs consistent positive returns over the longest possible time to make its magic.