This article was first published by BBrief in April/May 2025 Issue
It is a startling fact that even with the advent of the Government of National Unity (GNU), South Africa still stubbornly maintains Apartheid-era foreign exchange controls.
They can and should be revoked at the stroke of a pen. There is absolutely no rationale or justification for their existence in the statute books. The country is faced with a myriad of socioeconomic challenges that are a direct consequence of dirigiste government policies. It is therefore incumbent on the GNU, as a matter of urgency, that legislation and regulations that send out negative signals to investors should be immediately and effectively expunged. From the perspective of existing and potential investors, the existence of man-made exchange controls is to be avoided. Experience shows that they can be highly capricious and erratic in controlling the flow of financial capital into and out of a country. Their mere existence indicates a state of affairs where something serious is amiss.
Faced with this state of affairs, the control freaks in Parliament, Treasury, and the Reserve Bank are grossly mistaken to believe that persisting with exchange controls is the antidote to economic problems of any nature.
These controls are perhaps the most important of several factors deterring investment in our country, especially Foreign Direct Investment (FDI). Policy makers should be cognisant of the immutable fact that FDI has the flexibility of exploring a whole range of investor-friendly markets on the global canvas. This means that there is no consideration of sentiments or historical background/motivation. Investment decisions are simply made based on a market that will generate safe, competitive or best returns. Our artificial interventions in this market turn investors away, with the growth and jobs that would have come with them.
The case for the abrogation of exchange controls is justified on the basis inter alia of the following facts:
- In 1995, Finance Minister Trevor Manuel announced a five-year “phasing-out process” because as he said, “the rand is not under our control …”.
- South Africa has had Nazi-type apartheid-era exchange controls since just after the Sharpeville incident of 1960.
- In 1996, President Nelson Mandela declared during his opening of Parliament speech that “…for us, it is not a matter of whether, but when, these (foreign exchange) controls will be phased out”.
- In 2005, Reserve Bank Governor Tito Mboweni said, “For all intents and purposes exchange controls have become purposeless … the cost of exchange control administration and the inconvenience that goes with managing (it) might not be worth the exercise”.
- The United Kingdom removed the last restrictions on exchange controls in 1979; France followed suit by abolishing exchange controls in 1989; Spain in the 1970’s; Finland in 1990; Taiwan in 1987, Singapore in 1978.
- Kenya removed exchange controls in 1993; Rwanda, Egypt, Uganda, Mauritius do not have foreign exchange controls. Our neighbour, Botswana, does not have exchange controls.
In any event, whose money is it that is being controlled by government bureaucrats?
The rand is grossly undervalued today. It will remain so until the last vestige of these pernicious regulations has gone.
