Capital flight from SA is not a new phenomenon. Successive apartheid governments turned a blind eye to illegal capital flight by big business. Total capital flight between 1970- 88 was about 7% of gross domestic product. The evidence is that it has only worsened post-apartheid.
It is surely time for the government to address the issue of capital flight, both in terms of the expatriation of wealth as well as lost revenue through tax evasion by the super rich. But recent announcements from the Treasury and the Reserve Bank show the government is doing the opposite.
On July 1, the Bank published details of a new “voluntary disclosure programme” on its website, to be implemented on November 1. The proposed programme amounts to an “amnesty” to businesses that had illegally taken capital offshore before February 28 this year.
Bank officials have said the proposed programme should be interpreted as part of the gradual liberalisation of exchange controls. In other words, the programme seeks to “regularise” the past practice of illegal capital outflows before the full liberalisation of exchange controls makes capital flight fully legal. For a flat fee of 10%, the amnesty excuses those who have acted illegally.
More resources have left SA than have been retained for investment and job creation. It is outrageous that such economic crimes should be pardoned for a 10% fee, with no open public discussion of their scale, their effect, the appropriate levels of retribution and the implications for macroeconomic and financial management in uncertain global conditions.
After more than five decades of capital flight, the Reserve Bank has announced just one month in which South African individuals and entities can respond to the proposed programme, which is part of a larger overhaul of exchange regulations. Freeing up capital outflows is not only at odds with the developmental strategies of the Department for Trade and Industry and the Economic Development Department, but is in conflict with the government’s more recent indications that it will open up discussions about managing the exchange rate.
Even the International Monetary Fund has recently accepted that there can be a case for capital controls, in a move that Harvard economist Dani Rodrik described as a welcome revolution in its thinking.
The way in which the Bank has offered this amnesty raises important issues about economic governance, transparency and accountability, quite apart from the substance of policy itself. Is the Bank preempting an important discussion in the government and society and implementing financial policies by stealth? The Bank has been opaque in giving the economic reasoning behind its decision to propose the programme.
There needs to be open public debate before the programme and amendments to exchange control regulations are passed.
At the very least, the Reserve Bank needs to answer the following questions: Why is it proposing the programme now? Why the programme in addition to the amnesty offered to individuals alone, as opposed to corporations, in 2003? Is this a revenue trawl on corporations to buffer the fiscal crisis, in return for which past misdemeanours will be condoned and those of the future made legal?
Has the Bank estimated the amount of money that has left the country illicitly? How will the bank pursue those who do not disclose now, and why should they disclose — having acted illegally in the past and got away with it? Why is this information not made available to the public as part of a reasoned account for the measures that are being proposed?
The authors are based at Wits University and the School of Oriental and African Studies in London.