Until 1996 the stringent exchange controls that were in effect in South Africa ensured that the South African investor was totally isolated from the rest of the investment world. This has had serious consequences for many investors’ portfolios, especially if o9ne considers that diversification is one of the most important principles of investing. The JSE’s capitalisation is less than 2% of the world total. This is not only a tiny proportion of the capital of the world, but it is a proportion made up of an emerging market economy, which in global financial terms is a high risk area.

The bottom line is that having all your wealth (and this includes property, cars etc.) tied up in one currency, one stock exchange and one economy does not make good investment sense. Considerable research has been done by international experts, and there is a fair amount of consensus that the SA investor should have between 20 and 35% of their assets offshore. At present every South African investor is allowed to invest R750 000.

The only legal way to get your money abroad (in your personal capacity) is to apply to the Revenue Service for a tax clearance certificate, which must accompany your offshore investment application. Provided your tax affairs are in good order, the Revenue Service will issue clearance for an amount of up to R750 000 per tax payer. This certificate is valid for three months from date of issue. A husband and a wife can therefore invest R1 500 000 offshore between them. Indications are that this amount will be increased over the next few years until eventually there is no exchange control in South Africa. Once the tax clearance certificate is obtained, foreign exchange forms need to be completed and the rand amount converted into the chosen currency and sent by your local bank to the foreign investment company’s bank account overseas. Although there is a lot of paperwork, the entire process is very swift. Another method of investing offshore is the use of rand-denominated offshore unit trusts. These products are offered by local unit trust companies, and do not require as much paperwork and administration.

Going offshore opens a wide array of investment opportunities, and below are a list of some of the offshore investment vehicles available:

  • offshore bank accounts
  • offshore equities
  • offshore unit trusts
  • foreign endowments
  • foreign guaranteed products
  • foreign property

Most offshore investments have considerably higher minimums, due largely to a weaker rand. Although £10 000 might be a small amount of money to a British investor, it equates to more than R100 000! There are, however, certain offshore investments that will accept as little as R10 000. There is a false perception among SA investors that offshore investment is high risk in nature. The feeling is probably fostered by the discomfort of having your funds thousands of miles away. Off course there are risky investments, but most of the large and reputable international firms are much more solid than the largest South African companies. There is, however, currency risk. The fact that international losses can be magnified by strength in the rand is worrying.