2005-10-27,+Banks+get+R48bn+forex+break+to+grow+in+Africa,+B+Day

Business Day, Johannesburg, Front Page Splash, 26 October 2005 = Banks given R48bn forex break to grow in Africa = Linda Ensor

Political Correspondent

THE Reserve Bank is to allow domestic banks to use up to R48bn of their assets to take on their international rivals in foreign markets, especially in Africa.

Foreign-exchange restrictions have hamstrung SA’s banks in taking on foreign competition, with less than 20% of bank loans and guarantees on the continent sourced locally.

They have also limited local banks’ growth potential as they have not been able to lend to nonresidents using their own domestic balance sheets. This further step in the gradual relaxation of forex controls was announced by Finance Minister Trevor Manuel in Parliament yesterday.

The move is also intended to level the playing fields in the local banking sector following the Barclays Bank takeover of Absa.

The deal gave Absa an unfair advantage, enabling it to access the British bank’s substantial financial muscle for its foreign investments.

The liberalisation measure, to take effect on a date to be announced, will enable banks to lend 3% of their total assets, or 40% of their regulatory capital, offshore without Reserve Bank approval. The entire 40% could be made up of African assets but only 20% in non-African assets.

South African banks will also be able to lend foreign currency denominated instruments to South African companies for approved foreign direct investments without official go-ahead.

Manuel also announced the offshore investment limits for unit trusts and investment managers would rise with immediate effect to 25% of total retail assets from 20% and 15% respectively.

At a media briefing, ahead of the tabling of the medium-term budget policy statement, Manuel said government would consider relaxing the R750000 limit on amounts taken offshore for individual investments.

Highlights of the budget policy statement included an estimated R30,2bn revenue overrun this year which will be used to underpin a growth-oriented budget in 2006-07. Value added tax receipts, fuelled by strong consumer spending, had been a big contributor to the excess.

However, Manuel offered little prospect of corporate tax rate cuts next year, saying he was not convinced doing so would result in more investments or jobs.

This robust revenue collection has again meant a lower budget deficit of 1% of gross domestic product (GDP), which critics regard as a sign of government’s inability to spend its cash. They also say such a low figure does not satisfy the need for the kind of expansionary fiscal policy required by a developing country. The deficit is forecast to average 2,1% over the next three years.

The public sector borrowing requirement also dipped sharply this year to 1,2% of GDP from the budget estimate of 3,9%, though it is expected to pick up again next year.

Additional funds of R78,3bn will be available for spending over the next three years. Of this, R46bn will go to provinces, with R20bn reserved for infrastructure development. Noninterest government expenditure over the next three years is expected to show an average real growth of 6,3% a year.

Economic growth of 4,4% is expected for this year, slowing to 4,2% next year before picking up to 4,4% and 4,8% in the following two years.

Manuel said next year’s budget would be slanted heavily towards infrastructure spending and building the capacity of the state, with further personal tax relief a feature.

Other objectives are to accelerate the pace of economic growth and the rate of investment; to promote economic opportunities for the marginalised; and social security provision and crime prevention.

Over the next three years R20bn has been earmarked for investment in housing, municipal infrastructure, water schemes, public transport and community facilities and R12bn for social services.

From: http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A106095