controls lifted
Madeleine Wackernagel
COME July 2, the markets will hopefully breathe a collective sigh of relief and wonder what all the fuss was about. Granted, the rand has taken a bit of a knock but there are no signs of panic as yet.
There has been some speculative dollar buying in anticipation of the exchange control move next month, but nothing untoward, says Syfrets chief economist Sandra Gordon.
“We had expected the currency to weaken by the year-end and that’s exactly what’s happening. The fundamentals haven’t changed; economic policies are beginning to fall into place and we certainly don’t expect a panic run on the rand.”
Both the Reserve Bank governor, Dr Chris Stals, and finance minister Trevor Manuel have hinted that the annual limit will be set at R160 000. Now speculation is growing that if all goes well next month, that ceiling could be raised.
Just how much money is expected to leave in the first few days and weeks is a matter of even greater speculation. There is even a chance of some capital flowing back in, says Gordon. That at least was the experience in Latin America in the early 1990s.
It’s all a matter of confidence. “There are scare stories about the effects of lifting controls, but the pros definitely outweigh the cons. It’s important to boost confidence in a country’s economic policies,” says Rudolf Gouws, chief economist at Rand Merchant Bank.
“And while some countries experienced an over-reaction, we should be buffered. If there is a crash in the short-term, in the long-term fewer controls are a confidence booster for the economy. In most countries, capital has flooded back in as a result.”
But without a good idea of how many people could have significant amounts of spare cash to hand, it’s anybody’s guess what will happen next month.
Says Dennis Dykes, chief economist of Nedcor: “Most people don’t have that kind of money sitting around in current accounts just waiting to buy up dollars; they’re too indebted. And extending credit limits is not that easy either.”
Adds Gordon: “The smart money probably left a long time ago so we don’t expect a mad rush.”
Anecdotal evidence bears this out although some banks report a significant increase in interest in foreign investment from the public. Putting a number on the potential outflow is more difficult, however. Estimates range from R5-billion to R10- billion but with R22-billion in foreign reserves, plus another R15-billion potential credit line, the Reserve Bank can easily accommodate such amounts, says Gordon.
But it probably won’t come to that. Said one banker: “When you haven’t got the freedom you really want it, but now people are a bit nervous of taking it up.”
And with reason. With 32 000 unit trusts to choose from worldwide, for instance, getting the right advice is imperative. Plus, there’s the risk factor. The big stock markets could be in for a major correction and the interest rate differential and risk return rates are currently working in South Africa’s favour.
One option is the “fund-of-funds” route, taken by Syfrets for example, whereby a fund invests in a variety of unit trusts, spreading the risk and maximising returns. Syfrets this week added three funds to its portfolio.