October 26, 2004

Exchange controls on South African firms abolished

Government has abolished exchange controls for South African firms who want to make huge investment overseas, such as buying shares in foreign listed firms or property. Previously, South African companies willing to invest out of Africa were allowed to take only R1 billion of capital out of the country, and R2 billion when investing in the continent. However, exchange controls for individuals to invest offshore are still in place, which still limits individuals to invest only R750 000 offshore. The abolishment of Exchange Control Limits gives South Africa's companies enough room to make Foreign Direct Investment (FDI) particularly in Africa, where they are still the number one investor in terms of FDIs in the continent. Finance Minister Trevor Manuel made the announcement during his Medium Term Budget Policy Statement in Parliament. However, firms still have to submit their applications to the South African Reserve Bank Exchange Control Department to monitor companies' objectives and for approval in terms of FDI criteria.
Olano Makhubela, Deputy Director of International Finance at the Treasury said the central bank had reserved the right to "stagger capital outflows" relating to very large foreign investment. He said staggering capital flows would ensure that if a company wanted to make a FDI of about R100 billion, the money was not transferred offshore all at once. But the money is transferred in batches to manage any potential impact on the foreign exchange market.
The process of abolishing Exchange Controls was a gradual process, which started in 1995. However, because of the Rand's volatility in 2001, the controls could not be eliminated, as it would have had an adverse shock on the South African market. With the exchange controls abolished, foreign companies, government and institutions may now list on the South African bond and securities exchanges. According to Minister Manuel, this would promote foreign investment into South Africa and to support the positioning of the country as a regional financial centre better able to cater for the capital raising needs of the continent. "To further support these aims, South African private individuals will now be able to invest, without any restriction, in inward listed instruments on South African exchanges," said the Medium Term Budget Policy Statement. (Business Day, Johannesburg)

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