The recent interest shown in the inward-listings exchange-control circular is welcome. The underlying issues are complex, and as with many financial sector policies there are trade-offs, and often winners and losers.
There are several reasons for allowing firms, funds and individuals to invest a portion of their savings abroad. First, to benefit from a broad range of investment opportunities in both developed and emerging markets. Second, to cushion against currency risks. Third, to promote confidence, as enabling money to flow out actually encourages inflows and for more money to remain inside the country.
Retirement funds and other institutional savers can at present invest 30% of their funds abroad . They can also buy shares in foreign companies that have an inward listing here in SA. For example, South Africans can invest in foreign companies that have a secondary listing on the JSE as part of the “domestic” or “local” portion of their funds. However, if these companies raise debt through a bond, in rand, retirement funds cannot buy these instruments as part of their domestic allowance.
Yes, ideally policymakers should have foreseen all the possible loopholes or adverse effects, but sometimes it is difficult to identify all possible risks. The lesson for us as policymakers is to extend the public comments process after announcements, as we do with most other policy initiatives.
Source: Financial Digest (financialdigest.net)
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