Pretoria - Finance Minister Pravin Gordhan's Medium-Term Budget Policy Statement (MTBPS) on Tuesday unveiled steps to ease exchange controls, which go a long way towards addressing complaints of businesses and individuals that government has been dragging its heels.

The foreign capital allowance for SA resident individuals, last adjusted in 2006, has been doubled from R2m to R4m, and the single discretionary allowance raised from R500 000 to R750 000 (the discretionary allowance refers to matters such as gifts to foreign recipients, and travel).

The lifting of the foreign investment limit to R4m is long overdue. However, many commentators have been agitating for all limits on individuals to be scrapped, because the exchange control amnesty allowed some people to keep more than R4m offshore.

A big step for exporters is the announcement that the so-called 180-day rule is being scrapped. The rule required exporters to repatriate their foreign exchange to SA within 180 days of receiving it.

This rule has been dogged by controversy, with some commentators blaming the 2001 rand crash on the fact that exporters weren't repatriating foreign currency on time. However, though the limit of 180 days is scrapped in the MTBPS, SA companies are still required to repatriate export proceeds to SA eventually.

A further big step was the increase in the limit for applications to the Reserve Bank for companies making investments outside SA. The outward investment limit has been increased from R50m to R500m. Applications below this limit will be processed by authorised foreign exchange dealers (banks), subject to all existing criteria and reporting obligations.

Though this removes a lot of red tape, the existing criteria remain, including the requirement that companies invest offshore "for the benefit of SA" - something which is left up to the authorities' discretion to decide.

The MTBPS exchange control relaxation also aims to promote regional integration, by allowing SA companies to invest in Southern African Development Community (SADC) member states through offshore intermediaries. The relaxation excludes investment in member states that are part of the Common Monetary Area.

Referring to prudential requirements for portfolio investors, the MTBPS said government would take into account appropriate international proposals to strengthen the country's regulatory framework in line with G20 agreements.

According to the MTBPS, government will also improve access to domestic credit in the financing of foreign direct investment.

'Not concerned'

South Africa's National Treasury said it was not concerned about potential capital outflows from South Africa after it was decided to relax exchange controls further in today's MTBPS, according to an I-Net Bridge report.

"We want to promote a two-way market in the rand - there might be potential inflows - who knows," said director-general of the Treasury, Lesetja Kganyago, during a press conference, said I-Net Bridge.

"It is important to undertake a process of reform with a goal in mind - we want to lower the cost of doing business and remove the hassle factor," he said.

"We will see inputs and outflows when it is implemented."

- Fin24.com