Again only cosmetic changes to exchange control
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 GT24/7.com 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