Manuel’s Ru­bi­con

Again only cos­metic changes to ex­change con­trol

Finweek English Edition - - Creating wealth - BY VIC DE KLERK vicd@fin­

THE LATEST CON­CES­SIONS made by Fi­nance Min­is­ter Trevor Manuel to the ex­change con­trol reg­u­la­tions are sum­marised very unimag­i­na­tively on the SA Re­serve Bank’s web­site. The note of just more than 200 words has no head­ing, no date and doesn’t re­fer to any­body.

One of the coun­try’s min­ing chiefs with con­sid­er­able in­ter­na­tional in­ter­ests sums it up as an ac­cu­rate re­flec­tion of the Re­serve Bank’s ex­change con­trol di­vi­sion: A lot of grey peo­ple with no imag­i­na­tion who still be­lieve in their divine in­junc­tion to main­tain and pro­tect the in­ter­nal and ex­ter­nal value of the rand. Mean­while the Bank it­self long ago de­scribed its mis­sion as “the achieve­ment and main­te­nance of price sta­bil­ity” – in brief, to watch the in­fla­tion rate and, where pos­si­ble, con­trol it.

Ex­change con­trol is nearly 50 years old. It was in­tro­duced af­ter the Sharpeville up­ris­ing in 1960. It was meant to pre­vent peo­ple tak­ing money out of the coun­try. Over the past nearly half a decade, ex­change con­trol mea­sures, like most other con­trol mea­sures, could not re­ally be ap­plied suc­cess­fully. Over the years, the mea­sures have been cir­cum­vented on a large scale. The ex­tent of this only be­came known about two years ago, when 43 000 peo­ple ap­plied for amnesty for an enor­mous R65bn that they had taken out of the coun­try il­le­gally over the years. And re­mem­ber that in the old days R65bn was a lot of money.

It’s prob­a­bly not un­rea­son­able to guess that as many as half the direc­tors of SA’s listed com­pa­nies were among the 43 000 who were granted amnesty.

My friend, the CEO of an in­ter­na­tional min­ing group, was most sur­prised when I told him re­cently that there are only 170 peo­ple in the for­eign ex­change di­vi­sion – 159 per­ma­nent em­ploy­ees and 11 con­tract work­ers. He couldn’t be­lieve that so few peo­ple could cause so much in­con­ve­nience.

An­other young­ster who’s in­volved in for­eign ex­change on a daily ba­sis, but who doesn’t want his name men­tioned, for “se­cu­rity rea­sons”, won­ders whether the present guardians of the for­eign ex­change reg­u­la­tions, which were in­tro­duced back in 1960, are sim­ply trained like other work­ers, or whether they are spe­cially “bred” for the chal­lenges of ex­change con­trol.

Re­serve Bank Gov­er­nor Tito Mboweni, who’s ul­ti­mately re­spon­si­ble for the for­eign ex­change di­vi­sion, has man­aged SA’s mone­tary af­fairs so ef­fi­ciently over the past eight years that the reg­u­la­tions have long since be­come re­dun­dant. In fact, he has said on more than one oc­ca­sion that it’s ex­pen­sive to ap­ply the reg­u­la­tions and that they aren’t ef­fec­tive in any event. Fin­week isn’t aware of a sin­gle high-profile case con­cern­ing for­eign ex­change dur­ing the past five years.

Un­for­tu­nately, Mboweni only has to ap­ply the reg­u­la­tions. The reg­u­la­tions them­selves be­long to Trevor Manuel. His in­abil­ity to do away with them when ev­ery­body was ask­ing for it will hope­fully one day be de­scribed by the writer of his mem­oirs as the Ru­bi­con that Manuel couldn’t cross.

Why such a long in­tro­duc­tion be­fore the mean­ing of the latest eas­ing/change in the ex­change con­trol reg­u­la­tions is dis­cussed? Sim­ple: the changes are so mean­ing­less that a long in­tro­duc­tion was nec­es­sary. Im­porters and ex­porters can now use their for­eign ex­change ac­count (or for­eign cur­rency) more ef­fi­ciently un­der the su­per­vi­sion of the for­eign ex­change di­vi­sion. Com­pa­nies may now buy an in­ter­est of as lit­tle as 25% in a for­eign com­pany. Pre­vi­ously it was at least 50%. The JSE will also be al­lowed to de­velop a fu­tures con­tract in rand and list it. Only in­di­vid­u­als will be al­lowed to trade in the fu­tures. The con­tract will only be valid for three months each time. And that’s the end of the changes.

Lo­cal res­i­dents have, of course, long been able to trade on­line at GT24/ in so-called CFDs (con­tracts for dif­fer­ence) or fu­tures in the value of ster­ling as against the dol­lar, euro, yen or what­ever you like.

In fact, the prod­ucts avail­able at GT24/7. com on which you can bet al­ready ex­ceed 3 000. Call and put op­tions on the rand, or the other way around, on the dol­lar, have also long been avail­able at all the coun­try’s lead­ing for­eign ex­change deal­ers, and both im­porters and ex­porters have been hedg­ing their bud­gets and ac­tual ex­change rate risks legally for years, by buy­ing and sell­ing th­ese op­tions.

The im­pres­sion grows that Manuel – who re­ally de­serves full marks for the ef­fi­cient way in which he con­verted SA’s pre­vi­ously poor fis­cal man­age­ment into a world model – pos­si­bly doesn’t un­der­stand for­eign ex­change prop­erly. Maybe that’s why he keeps hang­ing on to the ex­ist­ing bur­den of for­eign ex­change reg­u­la­tions. Per­haps he’s not be­ing cor­rectly ad­vised by those peo­ple who are spe­cially bred to ap­ply the for­eign ex­change reg­u­la­tions. For un­der­stand­able rea­sons, of course. If for­eign ex­change is done away with one day, they will find it dif­fi­cult to get em­ploy­ment else­where.¤

Does he prop­erly un­der­stand ex­change con­trols? Trevor Manuel

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