Expectations relating to exchange controls in 2012 budget

During his budget speech in 1995, the then minister of Finance, Trevor Manuel, announced that exchange controls will be abolished by following a gradual phasing-out process. While he did not put a specific time limit on this, it was hinted and generally accepted that the process would take approximately five years.

As a result, many experts were of the opinion that South Africa would be free of exchange controls come the new millennium. We are now almost 17 years down the line and exchange controls are still with us, says Paul Verhoef, Associate Director and exchange control expert at Deloitte.

Over the aforementioned period there has been speculation as to when the final abolishment will take place. While initially, economists and others focused sharply on anticipated exchange control changes at budget times, this has tapered off to the extent that in the recent past, it hardly gets a mention when questions are asked about budget expectations.

The past 17 years also provided sufficient scope to abolish them and there were rumours saying the right time was shortly after the first amnesty period in 2003, while the country was experiencing a growth phase. Others believe that the recent recession provided the ideal environment for the abolishment thereof. It has to be said that since 1995 to the present, major reforms have taken place, and current exchange controls are far less cumbersome and restrictive and the administration process far more streamlined.

What then can be expected come budget time 2012? Will this year present us with a leap forward that will bring us closer to the end of exchange controls, or indeed bring us total abolishment? Rumours, as always, abound, with some experts noting that now would be an ideal time for abolishment, pointing out that countries which in the past eliminated their exchange controls, did so shortly after an amnesty period. The recent Voluntary Disclosure Programme, which ended in October 2011, is seen as an indication that the time has finally come to bring an end to exchange controls.

Personally, I believe the abolishment of exchange controls will be a political rather than a financial decision, and politically, now is perhaps not a good time. Therefore, we should still have exchange controls in place after the budget, but it may bring some major relaxations, specifically with regard to individuals/natural persons. It is widely anticipated that exchange controls over natural persons will, for all practical purposes, be abolished.

Further clarification of the announcement in the 2011 interim budget pertaining to the improving of access and competition in cross-border money remittances may also be expected, as well as some further streamlining of the administrative process, which will see further powers delegated to the authorised dealers (banks).