Lynda Loxton
FINANCE MINISTER Trevor Manuel this week took the bit between his teeth and announced a sweeping relaxation of exchange controls, much to the delight of the markets.
“The changes in the exchange control regime … are profound,” Manuel said in his Budget address on Wednesday.
In a joint statement with Reserve Bank governor Chris Stals, Manuel said that the country’s balance of payments situation and its involvement in the forward market “make it impractical to permit unlimited transfers of capital at this stage.
“To give the economy time to adjust and avoid unnecessary volatility, certain limits will remain but the emphasis will increasingly be on the positive aspects of prudential financial supervision.”
Asked if he did not fear a rush of money out of the country because of the changes, Manuel admitted there was a risk, “but the reality is that there is a heck of a lot of money out there that left when it wanted to”. He did not seem to believe it would all vanish abroad overnight. The concessions made on exchange controls since 1994 had resulted in R18-billion being invested abroad, while asset swap transactions worth R30-billion have been approved, of which about R17-billion have taken place.
The lifting of exchange controls began in 1994, when a final debt rescheduling agreement was reached with foreign creditors, bringing to an end the debt standstill arrangements in place under apartheid.
In March 1995, the financial rand was abolished and the restrictions on the repatriation of non-resident funds were removed. In 1996, some institutional investors were allowed to invest up to 3% of their net inflow of funds abroad as long as these were limited to 10% of their total assets. At the same time, companies were allowed to invest abroad according to certain limits and the regulations covering exchange control generally were eased.
This week, Manuel and Stals indicated that a further relaxation would take place with, for the first time, significant concessions for residents.
The main features of the changes are:
* virtually all remaining limits on current account transactions will be maximum of R80 000 per person (against R6 000 now) of 12 years and older and R25 000 per child under 12 years each year with no daily limit;
* exchange control approval will no longer be needed to buy computer packages on a commercial basis or import newspapers, books, magazines, medicines, stamps and correspondence course material;
* the threshold on foreign shareholdings in companies that face no limits on local borrowing will be increased to 50% from 25%;
* South African companies will be allowed to retain foreign currency earnings for up to 30 days, rather than seven days;
* the amount that South African companies can transfer abroad for approved investments will be increased from R20- million to R30-million, and up to R50- million for approved projects in the Southern African Development Community (SADC) – excluding Botswana, Lesotho and Swaziland, which are part of the South African Customs Union within which money flows freely;
* companies with approved projects abroad will be able to raise offshore loans based on their local balance sheets, which implies recourse to South Africa in the event of a default. They will also be able to invest some of their assets abroad, based on audited balance sheets, for portfolio investments;
* institutions will be able to invest a further 3% of their net inflow of funds abroad this year and an extra 2% of funds may be invested in stock exchanges in SADC countries;
* South African residents “in good standing” older than 18 years will be allowed to invest a limited amount of capital abroad and invest in property in SADC states. Details will be announced before July. They could alternatively hold foreign currency deposits with authorised exchange dealers if they did not want to invest abroad. There will be no controls over how income earned from foreign sources is used, but this did not apply to earnings from exports which had to be returned to the country in 30 days.