Exchange controls ‘to be relaxed gradually’

The National Treasury is unlikely to deviate from the path it has pursued since 1995, one of gradually dismantling exchange controls in a phased and responsible manner, despite speculation that the government may opt for a “big bang” approach to lifting remaining exchange-control regulations, Brait economist Colen Garrow said on Friday.

“While an environment in which the rand remains strong is always appropriate for something more creative, the National Treasury is unlikely to deviate from its consistent path of removing exchange controls gradually,” Garrow said.

The gradual process of removing the regulations, which govern the mobility of capital in South Africa, began in 1995 with the removal of the two-tier rand system.

This consisted of a financial rand, which dealt with flows of a capital nature, and a commercial rand, which handled trade-related demand for foreign currency.

Restrictions on investment outflows by domestic companies have been lifted, with the proviso, however, that these need to be approved by the South African Reserve Bank.

“Another issue which is expected to attract scrutiny is the ceiling on private foreign-currency accounts. The argument is that the amnesty process may be concluded, but that it still allows South Africans who took funds illegally offshore, in contravention of tax and foreign-exchange regulations, to hold such funds in exchange for payment of prescribed levies,” he said.

“In such instances, funds held offshore may potentially exceed the R750 000 ceiling, which limits the amount of funds which may be taken offshore via the vehicle of private foreign-currency accounts. The situation, as it is, is thus inequitable and will have to be addressed by government at some stage,” Garrow said.

Finally, Garrow said it is unlikely that the 180-day period during which exporters must convert their foreign-currency earnings into local currency will be scrapped.

Exporters may hold their export receipts in foreign-currency denominated accounts called F178 accounts. The maximum period they may hold their export receipts has varied from seven days under the apartheid regime from 1985 to 1995, to 30 days from 1995 to March 1998. It is currently 180 days.

In 2001, exporters correctly anticipated the weakness in the rand in the fourth quarter after the events of September 11 2001 caused a slowdown in global growth and thereby reduced commodity prices. Then they doubled their remittance period from 60 days in October 2001 to 120 days in November 2001 and this reached a record 147 days in March 2002, but exporters helped the rand’s recovery in April 2002, when they almost halved their remittance period to 79 days.

In a manner similar to the bond market, it is impossible to say what the cause is and what the effect is. What is visible is that as the rand weakens, so exporters generally speaking lengthen their remittance period. The reverse holds true as well, and current estimates are that the remittance period is less than 45 days. — I-Net Bridge

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Related stories

Mandela steals Zuma’s coronation

Nelson Mandela on Sunday proved he is still the giant of African politics when he made a surprise appearance at the ANC's final campaign rally.

SA February PPI seen steady at 5,5% y/y

South Africa's February 2005 producer price index (PPI) is expected to remain at January's 5,5% year-on-year (y/y) increase. According to an I-Net Bridge survey of economists, the range is from 4,9% y/y to 5,9% y/y. The optimists expect the stronger rand to have kept factory gate prices subdued, while the pessimists believe rising oil and other commodity prices will lead to higher producer prices.

SA nuclear firm awards design contract

The Pebble Bed Modular Reactor's (PBMR) fuel division announced on Wednesday that it had awarded a design contract worth R10,5-million to a South African design house, Thermtron Projects, in a crucial second step in the PBMR fuel manufacturing technology, to prove sustainability on an industrial scale.

Petrol price: Good news may be in store

The Department of Minerals and Energy could implement a retail petrol price cut of about 15 cents per litre (c/l) on March 1, given recent trends in both the rand exchange rate and oil prices, reversing the 14c/l increase implemented this month. The retail petrol price is adjusted monthly on the first Wednesday of the month.

Manuel tables conservative Budget

South African Finance Minister Trevor Manuel on Wednesday tabled a conservative Budget, eschewing corporate and individual income tax rate cuts, even though the revenue over-run in the 2005/06 fiscal year is projected at R41-billion. Compared with last year's Budget, when the fiscal deficit to gross domestic product ratio was forecast to remain near 3% over the medium term, Manuel this year reduced that to the 1,5% level.

Petrol price could drop by 12 cents a litre

The Department of Minerals and Energy could implement a retail petrol-price cut of about 12 cents per litre (c/l) on March 1, given recent trends in both the rand exchange rate and oil prices. The retail petrol price is adjusted monthly on the first Wednesday of the month in accordance with the previous averaging period's over- or under-recovery.

Subscribers only

Toxic power struggle hits public works

With infighting and allegations of corruption and poor planning, the department’s top management looks like a scene from ‘Survivor’

Free State branches gun for Ace

Parts of the provincial ANC will target their former premier, Magashule, and the Free State PEC in a rolling mass action campaign

More top stories

Mboweni plans to freeze public sector wage increases for the...

The mid-term budget policy statement delivered by the finance minister proposes cutting all non-interest spending by R300-billion.

SAA to receive R10.5-billion government bailout after all

Several struggling state-owned entities received extra funds after the medium term budget policy speech

Malawi court judges win global prize

Members of the small African country’s judiciary took a stand for democracy to international approval

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday