Dawie Roodt’s tips
How to beat the economic challenges of 2016
The writing is on the wall – 2016 is going to be one of the most challenging years for every South African. Everyone – even the super rich – is affected by weak economic growth, a weakening rand, higher interest rates and inflation, as well as the current drought.
Inge Strydom spoke to independent economist Dawie Roodt about how individuals can alleviate the impact of those challenges on themselves and their families. He also puts the challenges into perspective and dispels numerous misconceptions about the country’s economy.
Higher taxes (especially the proposed increase in VAT)
Roodt says the impact of increased taxes could be countered by paying as little tax as possible, within the limits of the law, of course. For example, this means that taxpayers should indicate all the relevant tax deductions they are entitled to in their annual tax return. Roodt is of the opinion that the public, especially members of the lower income group, would strongly resist an increase in value added tax (VAT), and for this reason, government will probably not follow through with it.
Rising interest rates
According to Roodt, interest rates will remain stable for a long time before an increase. “When it eventually increases it is important to bear in mind that higher interest rates have advantages and disadvantages. The advantage is that one will earn more interest on savings and certain investments. The downside, of course, is that instalments in respect of existing debt will increase. It is therefore a good idea to as soon as possible get rid of debt that does not generate income,” Roodt said.
Sharp rise in inflation
Roodt contends that speculation that the inflation rate will rise by more than 10% this year is most unlikely. However, he says a drastic increase in food inflation due to the current drought will make a hole in consumers’ pockets. “Consumers should rather not try to keep their own vegetable gardens or livestock as the associated costs would probably be higher than buying those items at a supermarket,” Roodt cautioned. He advises consumers to rather adjust their eating habits and to restrict their shopping lists.
Weak economic growth
Roodt recommends South African families to implement a “family plan”. Such a plan should contain various subdivisions, including a monthly budget, retirement planning and provision for the children’s tertiary education. The plan must be adjusted constantly to adapt to the weakening economy. It is therefore important for families to save costs where possible and to cut back on expenses.
Roodt is of the opinion members of the higher and middle income group can hedge themselves against the weakening rand by diversifying their investments and to increasingly move them abroad.