Many South Africans who plan to move abroad in 2018 and those who plan to use their annual foreign investment allowance are delighted at the recent strengthening of the rand against major global currencies like the US dollar and the pound. According to a report by Bloomberg, investors are backing the rand on the prospects that Cyril Ramaphosa, the new leader of the African National Congress (ANC) will soon become South Africa’s leader. Rising commodity prices are also helping the upward trajectory of South Africa’s volatile currency.
Rand responds to Ramaphosa
The rand has rallied more than 6% since Ramaphosa promised to revive South Africa’s economy and stamp out corruption. His election as leader of the ruling ANC party was internationally received as an extremely positive move for South Africa’s future and Bloomberg said that investors will be closely watching February’s budget. The general feeling is that this budget will indicate whether Ramaphosa has been able to assert his authority over Jacob Zuma’s administration and in doing so prevent more credit-rating downgrades.
Investors are also watching to see whether Ramaphosa will encourage Zuma, whose term runs until 2019, to step down early. An early step down will be viewed as an economically positive move for South Africa and could lead to further strengthening of the rand.
Rand reaches its strongest level in two years
On the 24th of January 2018, the rand traded below R12 per dollar for the first time since May 2015 bringing gains in the past three months to 15%, the most out of 31 major currencies tracked by Bloomberg. The Bloomberg Commodity Index is also at a 10- month high helping to boost the rand as raw materials like coal, iron ore and precious and industrial metals, which account for more than half of South Africa’s export earnings, are also trading at a high.
An ideal time for offshore investment
As the rand strengthens, many South Africans are planning to take advantage of the strengthening currency by using the allowances available to South African residents in terms of exchange control regulations:
Every resident above the age of 18 has two allowances that they can use to transfer funds from SA to safer more secure economies abroad:
1. Single Discretionary Allowance
As a resident, you may transfer a total of R1 000 000 from SA every calendar year. Please note that all card transactions while you are abroad are included under this allowance.
2. Foreign Investment Allowance
As a resident, you may also use this R10 000 000 allowance per calendar year. A tax clearance is required from SARS. This tax clearance is associated with the Foreign Investment Allowance and differs from a normal ‘good standing’ tax clearance. You may also transfer funds abroad in excess of these allowances.
This means that cumulatively between spouses, you are allowed to remit R22 million offshore on an annual basis! You can even transfer larger amounts offshore, however it can take up to six months to obtain approvals from SARS and SARB.