• The rand is currently trading at levels against the dollar last seen in January 2020.
• While the SA economy is in a world of trouble, local interest rates are attractive to foreign investors.
• SA has seen more money flowing into its borders than out over the past year.

The rand is currently trading around R14.60/dollar – after strengthening to below R14.52 over the past couple of days.

These are levels last seen in January 2020 – long before South Africa confirmed its first Covid-19 case on March 5th, and the country was downgraded to “junk” in the same month.

By April, the rand blew out to R19.26 amid fears about the impact of South Africa’s hard lockdown - as well as continued concern about the expected exodus of foreign capital after South Africa was stripped of its investment grade rating.  A “junk” rating means many large international investment funds aren’t allowed to buy South African government bonds, making it harder and more expensive for the country to borrow money.

In recent months, ratings agencies cut South Africa even further into junk, voicing concern about the ballooning government debt, with little confidence that the state will make good on its promises to cut spending on civil servant wages.

The economy is still on track to shrink by about 8% this year, unemployment is spiking amid mass retrenchments and South Africa is facing a surge in coronavirus cases – with a record number of almost 15,000 cases in the past day alone.

So why is the rand strengthening against the dollar?

Dollar weakness

The dollar is under pressure as the country looks set to adopt a $2.3 trillion coronavirus aid and government spending package. While US president Donald Trump is demanding changes to the legislation, it is expected to pass this week – and it will mean the US government will have to take on much more debt, which is negative for the dollar in the longer run.

The markets are also betting that the incoming US president, Joe Biden, will stop the American trade war with China and others. This will mean more imports to the US, which could also weigh on the dollar. US importers will have to sell dollars to pay for goods in another currency.

Also, it’s expected that Biden won’t cause as much volatility in global markets as Trump – reducing the demand for the dollar as a safe-haven investment. Trump introduced a large element of uncertainty in markets over the past four years with his shock pronouncements, specifically on trade and international relations. This often unnerved global investors, who then bought dollars, because it is seen as a safe investment – much like gold - in volatile times.  But if Biden proves to be a less erratic leader, there should be less shocks – and hence less demand for dollar.

High interest rates in South Africa

Traders are attracted to currencies which earn higher interest rates, and even though rates have been cut to the lowest levels in half a century in South Africa, a recent Bloomberg survey shows that its real interest rate (3%) is the highest on offer across the seventeen biggest emerging markets.

Many countries now have negative interest rates of below zero percent.

Interest rates are not expected to go lower in SA any time soon – recent inflation has inched higher, which may dissuade the Reserve Bank from relaxing its monetary policy.

Bigger appetite for emerging market currencies

For many months, investors have been fretting about the coronavirus pandemic and its impact on the world economy. They have been very risk averse – choosing to buy “safe” investments like gold, US bonds and the dollar.

But as Covid-19 vaccine programmes are launched in some countries, this has boosted confidence that the worst of the crisis might be over – despite a strong second wave of infections forcing lockdowns across the world. Investors’ risk appetite increased and emerging market currencies are back on the menu.

South Africa's current account is in fantastic shape

If more money flows out of, than into, a country – it’s bad for its currency.

The flows out of a country is measured by the current account, and because South Africa imports most of its oil, and pays huge amounts in interest and dividends to foreigners outside the country, the country has maintained a large current account deficit (of as much as 6% of GDP) for many years.

But in the third quarter, South Africa posted a record current account surplus of R297.5 billion. This is more than four times the size of the previous largest surplus, recorded in the first quarter of 2020, says the Reserve Bank.

This is partly because of strong exports – South Africa’s trade surplus (exports minus imports) hit R454 billion in the third quarter.

South Africa is enjoying a brilliant export year. A record high gold price has helped, as well as bumper agricultural exports. For example, maize exports are exceptionally strong, while South Africa may export almost 10 billion pieces of citrus fruit this year, one of the best seasons on record.  This helped to counteract lower vehicle exports.

The trade surplus was also helped by the much lower oil price, which meant less money had to flow out to pay for the fuel. (In recent weeks, however, oil prices headed higher, and South Africans can expect big fuel price hikes in the first week of January, with diesel currently on track to climb by 53c a litre, and petrol by between 30c and 40c.)

In addition, because of the depressed state of the SA economy, imports have been weak – companies are hesitant to import machinery and other expensive goods.

What also contributed to the current account surplus was a drop in the dividend and interest payments to foreigner investors who hold South African shares and bonds. Because foreigners have been selling off SA shares and bonds for many months, dividend and interest transfers have declined.

Still, the junk rating has - so far - not been as damaging as was expected. While some forecasts predicted large outflows of between R110 billion to R250 billion in response to the downgrade, foreigners were net sellers of R53 billion in South African bonds this year.

The rand is one of the world’s most undervalued currencies

The most recent The Economist’s Big Mac Index, released in July, showed that the rand is a whopping 67% cheaper than it theoretically should be against the dollar – the worst undervaluation of all the currencies measured.

The Big Mac Index is based on the theory of purchasing-power parity. In the long run, theoretically, exchange rates ought to adjust so that an identical product – the McDonald’s hamburger - must cost the same across countries.

While the vast majority of currencies were also undervalued to the dollar – Brazil by 32%, Argentina (-39%), India (-56%) and Turkey (-64%) – none beat the rand. The rand was even weaker than the Russian rouble (-66.5%)

As recently as a decade ago, the rand was “only” undervalued by 39% against the dollar, according to the Big Mac index.

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Municipal manager with fake documents deported to Zimbabwe

25 December 2020 – Soweto Live

 

The Rand West City municipality senior manager who was arrested for working in SA illegally has been deported to Zimbabwe.

Minister of home affairs Aaron Motsoaledi's spokesperson Siya Qoza said the department concluded the deportation process for Zivanai Katikiti, a manager for financial control and reporting at the Rand West City municipality in Gauteng, on Wednesday...

 

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Beitbridge border post bottleneck cleared, says home affairs

27 December 2020 - Soweto Live

The chronic traffic congestion at Beitbridge border post has been cleared, says the department of home affairs.

This followed calls by the transport and freight industries for urgent intervention after reports of people dying in queues that stretched for kilometres at the border post. The backlog was attributed to the enforcement of strict Covid-19 health checks.

“The department of home affairs wishes to announce that congestion at Beitbridge border post has been cleared and traffic has returned to normal,” the department said in  a statement on Saturday evening.

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The United Kingdom (UK) government has announced a new points-based visa route to encourage international students to study and live in the UK.

South African students interested in starting the application process need to ensure they meet the basic entry requirements; this includes securing an offer from their chosen university."Due to complicated and confusing visa processes, local students have often been discouraged from applying to international universities," says Rebecca Pretorius, Country Manager at global mentorship  company Crimson Education.

"The UK's new student visa route opens up an opportunity for South Africans with dreams of  studying overseas, provided they have applied to and been accepted at a UK university," she explains. 

Prospective international students are required to achieve a total of 70 points to be granted a UK student visa. For 50 points, students must present proof of an unconditional offer from an approved educational institution, including a reference number from the Confirmation of Acceptance for Studies (CAS).

The course must also lead to an approved qualification, at an appropriate level of study.  For a further 10 points, students must demonstrate that they can speak,read, write and understand English to the required standard for the level, of course, they intend to study.

To secure the remaining 10 points, students must show that they can financially support themselves throughout their studies in the UK. Students can apply via the new student visa route from October 2020, at a cost of £348 (around R7 500, depending on the current exchange rate).The most difficult part of the process for many hopeful students will be the process of applying to international universities.

"Every country and university has its requirements, including extracurriculars, essays, admissions tests and portfolios," says Pretorius. "Considering the complexity of the applications and competitiveness of top universities abroad, students should consider the services of an admissions company, who can assist in all areas of the candidacy building and application process," she advises.

Chief Minister Michael Gunner speaks to reporters in Darwin and says he wants to see more international students in the Northern Territory. "This is an important area for us," he says. "We are targeting a big number, 10,000 by 2025. "We know that ...

International students may need to leave U.S. International students in the U.S. with a fully virtual courseload will soon be forced to leave the country, as universities like Harvard shift to online instruction for the upcoming academic year.

COVID-19 curbs Australia's foreign student industry The pace of new enrolments of international students have already dropped drastically in Australia, in a bad omen for the country's economy which boasts education as its fourth biggest export.

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South African businesses are increasingly setting up businesses in the UK, sometimes as a hedging strategy in the uncertain economic climate in South Africa, and often because they want to tap into the global trade opportunities the UK is well-positioned for.

Scott Brown, managing director of Sable International UK, says that Britain is known for its complex bureaucracy, but if you have your paperwork in order it is a very efficient process. Setting up a comp

“Incorporating a company is relatively quick and easy – The set-up can be done in 48 hours. Most people take the subsidiary option, opposed to branch. When it comes to a branch, you would have to declare your overseas company’s result at Companies House in the UK and most people don’t want to do that,” said Brown.

“Setting up an entirely new business in the UK is not impossible to do. I would recommend that if an individual is looking to incorporate a company, they should go for the simplest structure possible; this would be one person being the director and one person being the shareholder which can be the same person. Over time more people can be added.”

The Companies Act of 2006 governs company law in England and Wales. A foreign company is required to register as an establishment with Companies House within one month of commencing business in the UK.

“Tax number applications including PAYE and VAT can usually be applied online though there are a number of questions and if completed incorrectly will lead to queries from HMRC. However, if completed correctly, you should receive the tax numbers within 5-10 working days,” said Brown.

Opening a bank account

“The red tape is not necessarily created by the government; it’s actually created by the banks,” said Brown.

Rampant money laundering and tax fraud has made the banks extremely cautious. Opening a bank account can take 3-6 months. There are certain formalities to be met from a ‘know your client (KYC)’ and anti-money laundering perspective.

“The banks want to meet and interview a director in person. As a chartered accountancy firm, we are also obliged to adhere to these procedures and regulations. Usually, the proofs obtained when we gather information to act on your behalf will also be acceptable to a banking provider,” said Brown.

“We anticipate that the process of opening an account should normally take between three to six months from start to finish. However, because we know there can be delays especially on more complex structures, we usually open a designated managed trust account for our clients to use in the meantime.”

“The bank allows us to set up a company trust account – the RE account can be opened in the company’s name, their clients can make payments into that account and we can help facilitate payments out of the account. The benefit of the RE Account is that it can generally be set up in 1-2 weeks which means the client can be up and running in a couple of weeks.

Issues arise with the banks when there are multiple shareholders or multiple directors because every director and shareholder has to be KYC. The banks may also want proof that the business is legitimate and ask for anything from a business plan, what the business is doing, their operations in South Africa and whether they have a website.

The bank must be sure the company is set up for legitimate purposes and will not be involved in crimes such as money laundering.

Other issues that can cause problems are when shares are held in trusts. Banks may require full disclosure of the trust and require details of the settlor, trustees and beneficiaries.

“The banks go down to the level of individual ownership. If you have a UK company, owned by a South African company, owned by a trust then the account opening procedure will take longer than normal as the banks want to know who the individuals in charge are. Proof of ID, ownership, who you are and your physical address is everything in the UK. You’re not going anywhere without that,” said Brown.

You do not have to be a UK Resident in order to set up a UK company bank account, but you have to have at least one director (not necessarily a shareholder) residing in the UK. To open a bank account as a non-resident, you will need proof of identity and your residential address that has been notarised. There are strict requirements involving who can, and how they can, do this.

Private limited companies are not obliged to appoint a company secretary unless the company’s articles contain a reference to this position. Existing private limited companies may retain a company secretary if they wish, and newly established companies can opt to appoint one. If you’re running a public limited company you must, by law, have a company secretary.

The company secretary usually acts as the chief administrative officer of the company, leaving the directors free to concentrate on running the business. The company secretary doesn’t have to be a director but they do share some of the directors’ legal responsibilities.

However, ultimate responsibility for ensuring the company is properly administered remains with the directors.

“One of our principals takes this role for the UK companies we act for. With our address as the registered office (legal, not trading) we combine the two roles and ensure that official documents from HMRC and Companies House, are received and dealt with in a timely and professional manner,” said Brown.

Why South Africans are taking their businesses to the UK

“The UK offers a stable currency, stable political structure and even in the wake of Covid-19, a stable economy. Regardless of Brexit, the UK is an investor- and entrepreneur-friendly country, making start-up costs for businesses lower than in most other developed countries.

“It also has one of the lowest corporation tax rates in Europe. As a small, densely-populated and wealthy country, it’s easy to find a large customer base,” said Brown.

“UK markets are opening up more because of Brexit, but Britain is still very close to Europe. UK is a very easy place to do trade from. For export businesses, the UK is a great place to be.”

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