Measures outlined in the government’s 2014 budget, delivered to parliament by Gordhan yesterday, included proposed new 'foreign member funds', which the minister said would “simplify foreign exposure rules”.
Gordhan said that creating an investor-friendly climate would help boost the South African economy, which he forecast would grow by 2.7% this year and reach 3.5% by 2016.
Gordhan, whose budget was the last before parliamentary elections in May, announced measures to support South Africa as a hub for African fund management and “provide a domestically-regulated channel for investors to obtain foreign exposure”.
Foreign member funds must be based and managed in South Africa and be tax-compliant locally, Gordhan said. They must also be registered with the national Financial Services Board and the SA Reserve Bank. The funds would have “no foreign exposure limit” and could source funds from non-residents and domestic institutional investors.
Gordhan said: "Investment into Africa has reached 36 billion rand (ZAR) [$3.4 billion] a year and in a range of industries South Africa is the second largest developing country investor on the continent. Foreign assets owned by South African firms are an important source of income, and reduce our vulnerability to future domestic downturns."
In 2013, 29% of exports were destined for Africa. In addition, 18 large African firms now have debt and equity listings on the Johannesburg Stock Exchange (JSE).
To bolster long-term growth prospects on the continent, Gordhan announced proposals for unlisted companies to also take advantage of a regime that allows firms creating a holding company (HoldCo) for their African and other offshore operations to be free of foreign exchange restrictions.
For companies listed on the JSE, the size allowed for transfers into a HoldCo would be increased. Transfers of up to ZAR 2 billion ($186 milliion) in and out of HoldCo’s would be allowed, provided such transfers were “reported on regularly and are not undertaken to avoid tax”. Additional amounts up to 25% of the listed companies' market value would be considered on application to the SA Reserve Bank, provided there was “a demonstrated benefit” to South Africa.
Listing of the HoldCo and joint ventures would be considered on a case-by-case basis, but HoldCo’s must continue to be South African taxpayers and be “incorporated and effectively managed and controlled in South Africa”.
Gordhan also announced plans to help South African-based technology, media and telecommunications companies raise capital to increase their expansion across the continent and other emerging markets.
The measures would allow unlisted technology, media, telecommunications, exploration and other research and development companies to “freely list offshore to raise capital for their operations”, subject to conditions – such as remaining incorporated in South Africa and being “effectively controlled and managed locally”.
Such companies would, within two years of their offshore listing, be required to have a secondary listing on the JSE, Gordhan added.
On infrastructure, Gordhan said spending in South Africa amounted to ZAR 1 trillion ($93bn) over the past five years and is projected to be ZAR 847bn ($79bn) over the next three years. In 2014-15, a total of ZAR 40 billion ($3.7bn) in infrastructure grants would be transferred to local governments for their water, sanitation, energy and environmental functions.
Gordhan also noted the “increasing contribution” of the private sector to infrastructure investment. Contracts for 47 renewable energy projects were concluded in 2012 and 2013, many of which are already under construction, he said. These are projected to add 2,460 megawatts of power generating capacity, and realise investment of ZAR 70 billion ($6.5bn). A further ZAR 45 billion ($4.2bn) in investment would be contracted this year.
Looking ahead, South Africa's finance ministry said the country’s economic prospects had become “increasingly intertwined with those of the rest of the African continent” – which is forecast to remain the second-fastest growing region. The ministry said the economy of sub-Saharan Africa is forecast to grow by 6.1% in 2014 and 5.8% in 2015.
Despite slower economic growth, South Africa’s 2013-14 budget deficit is projected to be 4% of gross domestic product (GDP), lower than projected in October 2013. The deficit will narrow to 2.8% of GDP over the medium term, and net debt will stabilise at about 45% of GDP in 2016/17, the ministry confirmed.