Free flow for forex
10 November 2004
Finance Minister Trevor Manuel has scrapped limits on South African companies investing abroad - a move that is expected to bolster the country's global competitiveness.
Manuel made the announcement – catching many off guard - during his medium-term budget speech in Parliament in October.
He told Parliament that South African corporates will be allowed to retain foreign dividends offshore, and that foreign dividends repatriated to South Africa after 26 October 2004 may be transferred offshore again - at any time and for any purpose.
Individual local investors will now also be able to invest, without restriction, in foreign companies listed on South African bond and security exchanges, Business Day reports.
Prior to the announcement, there was a R2-billion a project limit on offshore investments in Africa, and R1-billion elsewhere in the world.
Analysts say the move could bolster attempts by local business to expand into global markets, strengthen SA companies' international competitiveness, and help position South Africa as the financial nerve centre on the continent.
They also say it could mean the end of further foreign exchange controls, and is likely to fire up the local equity market. Exchange controls have often been criticized as restricting the potential share price of local stocks.
According to Business Day, the current strength of the rand makes it a good time for the changes to exchange controls. The currency is likely to face only mild weakness following the move.
The government, for its part, is taking a "wait and see" approach. South African companies still have to apply to the Reserve Bank for approval of an offshore investment - they need to show that the deal will benefit South Africa economically.
Manuel told Parliament that this would allow authorities to keep watch over developments.
The Reserve Bank also reserves the right to stagger capital outflows relating to very large foreign investments so as to manage any potential impact on the foreign exchange market.
SouthAfrica.info reporter
