Cross-border trade and financial flows to be easier, Treasury says

The Treasury has announced the simplification of cross-border trade and financial flows, which it says will reduce the burdensome approval processes of the past.

An annexure to the Budget Review released on Wednesday said that over the next 12 months, a new capital flow management system will be put in place.

“All foreign currency transactions will be allowed except for a risk-based list of capital flow measures. This change will increase transparency, reduce burdensome and unnecessary administrative approvals and promote certainty,” the Treasury said.

The detailed list of remaining capital flow measures will be published on the SA Reserve Bank website, but this will include the prohibition on SA corporates from shifting their primary domicile except under exceptional circumstances and with the approval of the minister of finance. Cross-border foreign-exchange activities will continue to be conducted through dealers authorised and regulated by the Reserve Bank.

The Treasury noted that since 1933, SA has operated a “negative list” system in terms of which by default all foreign currency transactions are prohibited except for those listed in the currency and exchanges manual.

“As a result even small individual transactions — such as for travel — require onerous approval processes. This regime constrains trade and cross-border flows, particularly in relation to fast-growing African economies.”

The budget noted that with the development of an African free-trade area African countries have agreed to cut tariffs to zero on 90% of goods, which alongside other trade-facilitating measures is expected by the UN Economic Commission for Africa to increase intracontinental commerce by more than 50% over four years.

“The free-trade area presents an opportunity to speed up development on the continent and represents a potentially large market for SA goods and services,” the Treasury said.

Intellidex head of capital markets research Peter Attard-Montalto welcomed the change which, he said marked a major shift in exchange-control philosophy, namely “a liberalisation from prescription of everything you can and cannot do to a more risk-controlled framework”. 

“Part of this pivot is to deal with capital account issues more through tax than controls. We view this as a very positive move that especially can start to facilitate the development of more cross-border fintech, will likely make international capital and particularly cross-border credit flows easier (through local branches of banks) and allow greater offshore business by SA banking entities.

“The key here is less the specifics and more the dismantling of the regulatory mindset.”

ensorl@businesslive.co.za