South African companies that do business in the rest of Africa reduce the country’s vulnerability to domestic economic downturns, and the South African government says it is easing their tax and foreign-exchange burdens, BusinessDayLive reports.
South African Finance Minister Pravin Gordhan said Wednesday in a 2014 budget speech, he plans to create a simplifiedign exchange framework for companies trading on the continent.
South Africa’s advanced financial, tax and regulatory resources as well as its “connection to major cities on the continent and internationally,” will help bolster long-term growth
prospects in Africa, Gordhan said, according to BusinessDayLive.
South Africa’s investment in Africa reached 36 billion rand ($3.34 billion), making it the second-largest developing-country investor on the continent, according to the South African treasury.
Holding company restrictions for African offshore operations will be extended to include unlisted companies, the report said. Limits for listed companies will 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 case-by-case, according to the treasury.
More investment in Africa by South African companies is good for the companies, good for South Africa and good for Africa, said Peter Draper, senior research fellow at the South African Institute of International Affairs.
It appears that the South African government is relaxing more, meaning “South African companies can invest more in the Africa rising story,” Draper said.
Other tax changes include allowing intellectual property generated in South Africa to be
assigned offshore subject to appropriate tax treatment, and allowing secondary listing and
deposit receipt programs for listed companies to help expansion.
Gordhan said these measures will strengthen South Africa as a hub for African fund
management and provide a domestically regulated channel for investors to get foreign
exposure.
Sub-Saharan Africa’s gross domestic product is expected to grow 6.1 percent in 2014 and 5.8 percent in 2015, according to South Africa’s department of finance.
In 2013, 29 percent of South African exports were destined for Africa. In 2012, 12 percent of its dividends came from Africa. In 2002, that portion of GDP was just 2 percent, Gordhan said.
Analysts said the measures should be implemented soon, BusinessDayLive reports.
“One needs to look at the details but this is a continuation of previous measures and is
positive,” Draper said.
Jennifer Roeleveld of the University of Cape Town welcomed the call to ease restrictions but said the first step was to remove exchange controls.
“We … are not encouraging enough investment,” she said. “We need to make it easier than it is to invest in the continent. Requirements for cross-border transactions need to become less restrictive.”
Among other measures, companies will be able to hedge and buy foreign currency on the spot market, while authorized dealers will be allowed to take part in foreign syndicated loans, BusinessDayLive reports.
Eighteen large companies have debt and equity listings on the Johannesburg Stock Exchange, Gordhan said. Unlisted companies in industries including media and telecommunications will be able to list offshore so long as they remain controlled in South Africa, according to the treasury.
Gordham cited key companies investing in Africa, including telecommunications giant MTN and South African financial services group Sanlam.
While sub-Saharan Africa’s economy is expected to grow consistently in the next few years, South Africa’s economy slowed for the third consecutive year in 2013, averaging 2.6-percent growth, according to the report.
