Budget discussion – Proposed new foreign exchange approach

Budget discussion – Proposed new foreign exchange approach


The National Treasury proposes modernising the foreign-exchange system. Since 1933, South Africa has operated a “negative list” system. By default, foreign-currency transactions are prohibited, except for those listed in the Currency and Exchanges Manual. As a result, even small individual transactions – such as for travel – require onerous approval processes. This regime constrains trade and cross-border flows, particularly in relation to fast-growing African economies.

Over the next 12 months, a new capital flow management system will be put in place. All foreign-currency transactions will be allowed, except for a risk-based list of capital flow measures summarised in the list below. This change will increase transparency, reduce burdensome and unnecessary administrative approvals, and promote certainty.

  • South African corporates will not be allowed to shift their primary domicile, except under exceptional circumstances approved by the Minister of Finance.
  • Approval conditions granted by the Minister of Finance for corporates with a primary listing offshore, including dual-listed structures, will be aligned to the current foreign direct investment criteria and/or conditions to level the playing field.
  • Cross-border foreign-exchange activities will continue to be conducted through dealers authorised and regulated by the Reserve Bank.
  • Prudential limits on South African banks and institutional investors will remain, but the limits will be reviewed regularly.
  • Banks’ unhedged foreign-currency exposures will remain limited to 10 per cent of liabilities (known as the net open foreign exchange position) and will remain regulated by the Prudential Authority of the Reserve Bank.
  • The domestic treasury management company policy, which allows South African companies to establish one subsidiary as a holding company for African and offshore operations without being subject to exchange control restrictions, will remain in place, as will the international headquarter company regime.
  • The export of intellectual property for fair value to non-related parties will not be subject to approval.

The current policy of certain loop structures, which relates to the acquisition by private individuals of equity and/or voting rights in a foreign company, will remain until tax amendments are implemented to address the risks.