South Africa moves to relax exchange controls to promote investment

South African Finance Minister Tito Mboweni announced, in his Medium Term Budget Policy Statement (MTBPS) speech on 28 October, proposals to make cross-border business easier, including relaxing rules around inward listings, loop structures and foreign corporate borrowings.

The National Treasury also announced that it was exploring the listing of foreign-denominated assets on local exchanges. The move follows the announcement in February that SA’s current exchange control regulations will be replaced with a new, less stringent, capital flow management system.

“Work is well advanced to modernise the cross-border flows management regime to support South Africa’s growth as an investment and financial hub for Africa,” Mboweni said.
In respect of inward listings, he announced that all remaining foreign classified debt and derivative instruments, as well as exchange traded funds referencing foreign assets, that are inward listed on a South African exchange, traded and settled in Rand, are to be reclassified as domestic rather than foreign.

The South African Reserve Bank (SARB) released Exchange Control Circular Number 15/2020 on 29 October 2020, which advised that the following entities could now invest in inward-listed instruments without restriction: South African institutional investors (which include retirement funds, retirement annuity (RA) funds and preservation funds); authorised dealers; South African companies, trusts, partnerships and private individuals; emigrants, subject to defined emigration policy; and bona fide non-residents.

The restrictions formerly placed on loop structures will be removed to encourage inward investment into South Africa, subject to reporting to the Financial Surveillance Department of the South African Reserve Bank (FinSurv). A loop structure arises when a South African exchange control resident holds an interest in a foreign structure which also directly or indirectly owns assets in the Common Monetary Area (being South Africa, Eswatini, Lesotho and Namibia). This reform will be effective from 1 January 2021 for companies, including private equity funds, subject to the requirement that the entity is a tax resident in South Africa.

South African corporates will be permitted to borrow offshore by way of bond and/or note issuances with recourse to South Africa, without the prior approval from the FinSurv. This is to be subject to reporting conditions determined by the Reserve Bank.

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