SA Treasury’s shock Exchange Control tightening – Magnus Heystek on why, and how citizens will react

SA Treasury has reacted to the flood of private capital legally leaving the country with a sneaky regulation change announced immediately before the May long weekend. Restrictive new compliance criteria for financial emigration and the R10m per taxpayer that can be invested offshore annually takes these options off the table. In future, South Africans wanting to invest offshore will essentially be restricted to the R1m a year no-questions-asked allowance. In this interview, Brenthurst Wealth founder Magnus Heystek explains how he picked up the shock changes and how, among other consequences, this is likely to accelerate the exporting of well-educated young South Africans – sent abroad on the urging of their families before they become registered taxpayers. He spoke to Alec Hogg of Biznews.

Relevant timestamps from the interview:

  • 01:12 – Magnus Heystek on SA Treasury’s new exchange control regulations
  • 05:56 – On the consequences of forex control rules on foreign investment
  • 09:30 – On the local repercussions of the new regulations
  • 11:56 – On the ANC’s overestimation of SA’s stature in the global economy
  • 14:33 – On how South Africans may navigate the new forex control regulations either legally or illegally
  • 18:09 – On cryptocurrency as an option for South Africans to externalise their assets

Read more: Exchange Control shock: SA Treasury in “silent but violent” move – just as Heystek warned

Magnus Heystek on the dwindling South African Stock Exchange

When you do speak to the large fund managers or wealthy individuals, strict foreign exchange controls are an issue that that they’re not comfortable with and that pushes them to invest their money elsewhere. I was reading an article [in the] Financial Mail about the new listings on the Australian Stock Exchange in the last 20 years or so, I think there are a couple of hundred new companies listed on the Australian Stock Exchange, whereas in South Africa our number has declined from about 700 to about 303. And it was a particular reference to mining companies, mining development companies, resource companies. They’ve just disappeared from the South African Stock Exchange, whereas [there has been] a booming elsewhere in the world: Canada, Australia, Chile and those countries. So we are paying the price, no question about it. You know, liberal economists have actually just stopped talking about it because it’s such a built-in factor in the decline of the currency [that] it goes without saying. 

Read more: Magnus Heystek: Rand at R18.40 to $ may still prove bargain for offshore investors – think Blackouts; De Ruyter; ANC; Despondency; Capital Flight; etc

On the ANC trying to exert control on the economy

If you come back to the whole question of of foreign exchange controls, whether a first level thinking or third level thinking: the purists would tell you [that] if there is an incident that affects the currency let it happen, let the Rand crash. Because it will go to a level where it becomes very attractive for new people to enter the market and the market will stabilise. Now I tend to agree that’s the way we should do it but [the SA Treasury] seems to think [that they] can control these things. But by trying to exert control [they] are actually interfering in the marketplace and the big players do not like that in today’s age. And the more you interfere and try and control by means of diktat and rules and regulations, the more you scare people away. So we do not understand the forex controls. We don’t like it. We don’t know what’s coming our way. We would rather go somewhere else where our money is more appreciated. And I think we find ourselves in that situation.

Read more: BNC#5: Brutally honest Magnus Heystek: Fresh reasons why you MUST move your money away from South Africa

On the younger generation leaving South Africa en masse

The worrying thing that I have picked up in our practice, and because it’s a countrywide practice we’ve seen a lot of this over the last couple of years, we see a lot of the children of our clients moving out of South Africa before they start building up any assets. So before they even register as a taxpayer in South Africa, the children are already gone. So they’ve broken that link from day one. They don’t want to have links with South Africa. That to me is the most worrying feature of what we’re picking up. And this is encouraged by the parents. The parents say, “Jannie and Sonny GO! Go with my blessing and I will send you money to set up your company. Whether it is in the UK or Holland [or] Australia or Mauritius, but do not have a link to South Africa.”

By that exporting our intellectual capital, we are exporting our intellectual youth and all those small start-ups that might or could have been started in South Africa are being started somewhere else. Now that is not evident overnight, but over the years we will realise that we have exported a whole generation of people. And one of the reasons – I am not saying this is all of the reasons – is the tax regime or the fear of being taxed on your worldwide assets and income for the rest of your life, whether you immigrate or not emigrate. So that’s the fear that we pick up that people say don’t have any links to South Africa, start somewhere else. And those numbers are there. The young people are leaving.