South Africa’s government said it will relax restrictions on companies doing business in the rest of Africa to encourage trade and investment with a region that’s expected to grow more than 6 percent this year.
“Foreign assets owned by South African firms are an important source of income and reduce our vulnerability to future domestic downturns,” Finance Minister Pravin Gordhan said in his budget speech in Cape Town this week. The government is taking steps to create “a simplified tax and foreign exchange framework for companies that trade with Africa.”
South Africa invests about 36 billion rand ($3.4 billion) a year into the rest of the continent, which accounted for 29 percent of its exports in 2013, government data shows. Africa accounted for 12 percent of dividend inflows into South Africa in 2012, up from 2 percent a decade earlier.
A concession announced last year that enables companies listed on the Johannesburg stock exchange to create a holding company to house their African and offshore operations will be extended to other firms. Limits on the amounts that listed companies can invest in Africa without prior approval will be increased to 2 billion rand, from 750 million rand, or 25 percent of their market value, said Ismail Momoniat, deputy director general in the National Treasury.
The government also proposed foreign member funds to simplify foreign exposure rules.
“These funds will support South Africa as a hub for African fund management,” the Treasury said in a statement. “In addition, these funds will provide a new domestically regulated channel for domestic investors to obtain foreign exposure,” offering them protection that is lacking when they invest directly offshore.
The Treasury said unlisted technology, media, telecommunications and other research and development companies will be allowed to list offshore, provided they remain incorporated, managed and controlled from South Africa. The companies will be required to have a secondary listing in South Africa within two years of listing offshore.
Other concessions to foreign exchange controls include allowing authorized dealers to participate in foreign syndicated loans, and enabling companies that buy foreign currency on the spot market or for hedging purposes to retain and use the cash within 30 days.