FINANCE Minister Pravin Gordhan plans to further ease tax and foreign exchange frameworks for companies investing in the rest of the African continent, enabling these businesses to capitalise on the African growth story.
Mr Gordhan said in his speech on Wednesday the measures would create a simplified tax and foreign exchange framework for companies trading on the continent, adding that foreign assets owned by South African companies reduced South Africa’s future vulnerability to domestic downturns.
The measures are also part of South Africa’s efforts to bolster the long-term growth prospects of the continent, using South Africa’s advanced financial, tax and regulatory resources as well as its "connection to major cities on the continent and internationally".
According to the Treasury, South Africa’s investment in Africa reached R36bn, making it the "second-largest developing country investor" on the continent.
Mr Gordhan said the holding company regime for African offshore operations would be extended to unlisted companies and limits for listed companies would be increased, allowing for a simplified tax and foreign exchange framework. While a holding company must remain a South African taxpayer, held and controlled in South Africa, holding companies and joint ventures will be considered on a case-by-case basis, according to the Treasury.Other measures include allowing intellectual property generated in South Africa to be assigned offshore, subject to appropriate tax treatment, and allowing secondary listing and depository receipt programmes for listed companies to facilitate expansion.
Mr Gordhan said these measures would support South Africa as a hub for African fund management and provide a domestically regulated channel for investors to obtain foreign exposure.
According to the department of finance, sub-Saharan Africa’s GDP is expected to grow 6.1% and this year and 5.8% next year.
"In 2013, 29% of our exports were destined for Africa. In 2012, 12% of our dividends came from Africa, up from 2% a decade earlier," Mr Gordhan said.
The measures outlined in the budget speech were roundly praised by analysts, who also urged that they should be implemented soon in order for South Africa to continue its role in the growth of sub-Saharan Africa.
Senior research fellow at the South African Institute of International Affairs Peter Draper said it appeared as if government was relaxing more, meaning "South African companies can invest more in the Africa rising story".
"One needs to look at the details but this is a continuation of previous measures and is positive," Mr Draper said. "It implies more investment in Africa by South African companies, which is good for the companies, for South Africa and for Africa."
Jennifer Roeleveld of the University of Cape Town welcomed the call to ease restrictive frameworks but said the first step to making progress was the removal of exchange controls.
"We really need to do something about that because at this point we are not encouraging enough investment. We need to make it easier than it is to invest in the continent. Requirements for cross-border transactions need to become less restrictive," Ms Roeleveld said.
Among other factors, companies will be enabled to hedge and buy foreign currency on the spot market, while authorised dealers will be allowed to take part in foreign syndicated loans.
Mr Gordhan said 18 large firms had debt and equity listings on the JSE. According to Treasury, unlisted companies in sectors including media and telecommunications could list offshore so long as they remained controlled in South Africa.
Companies investing in the African continent in the key sectors mentioned by Mr Gordhan include telecommunications giant MTN and South African financial services group Sanlam.
While sub-Saharan Africa is expected to grow consistently in the next few years, South Africa’s economy slowed down for the third consecutive year last year, during which time it has grown at an average rate of 2.6%. The National Development Plan envisages annual growth of 5.4%, which is needed to address the "triple challenges" of unemployment, poverty and inequality.
