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Exchange Control announcements – Budget 2013/14

Following two years in which very little was said in the Budget Speech about the relaxation of exchange controls, the Minister of Finance made some significant announcements on these issues in his 2013/14 speech. 

It is expected that further details will become available in the next couple of days once banks receive their notifications on the various matters from the Financial Surveillance Department of the South African Reserve Bank. 

Some of the key exchange control issues mentioned in the 2013/14 Budget Speech were as follows: 

  1. The Minister announced that a number of measures are proposed to relax cross-border regulations on companies, banks and other financial institutions to invest and operate in other countries.

    This all forms part of the ‘Gateway to Africa’ reforms and the main proposals are:
    • A special type of South African holding company which JSE-listed entities will be able to establish for holding African and offshore operations without it being subject to exchange control restrictions. Each JSE-listed entity will be entitled to establish one such subsidiary. 
    • The aforementioned entity will also be able to operate as a cash management centre for the South African multinational; and cash pooling will be allowed without restrictions.
    • Such holding companies will also be able to raise and deploy capital offshore provided it is without South African guarantees
    • Transfers from the parent company to the holding company will be allowed within a R750 million per annum limit.
    • ncome generated from cash management will be freely transferable
    • Holding companies may choose their functional currency or currencies and operate both foreign currency and Rand-denominated accounts for operational purposes.
  2. Further refinements to the International Headquarter company rules have also been announced
  3. Banks will be permitted an additional 5 percentage points on their macro prudential limits for further expansion into Africa.
  4. The requirement that collateral for securities lending transactions are by way of cash cover in Rand or the pledge of unencumbered non-resident owned local assets, have been lifted and Authorised Dealers will now be able to accept non-Rand based collateral.
  5. Debt and equity instruments issued by entities in the Common Monetary Area will be classified as domestic assets.
  6. The JSE will be permitted to offer African agricultural commodity derivative contracts in foreign currency, subject to certain requirements.
  7. The ability to operate Gold and other commodity exchange traded funds will be opened to a wider range of financial institutions and these funds will be classified as domestic assets for prudential purposes.
  8. A review will be undertaken of the current stance that intellectual property is deemed to be capital for exchange control purposes.

Comment 

It is clear from the announcements made that the majority of changes are focused on creating an environment where it will be easier for South African companies and institutions to do business in Africa.

Although the proposed special type of holding company will be limited to JSE-listed entities, this development is nevertheless welcome and it represents a significant step forward in the liberalisation of South African exchange controls.

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