By: Noxolo Majavu
Lifting exchange controls on the offshore transfer of intellectual property and introducing tax incentives for investors in start-ups could boost the economy by R426 billion and create thousands of jobs. Speaking on the reforms that Finance Minister Enoch Godongwana could adopt to boost the economy, Western Cape provincial minister of finance and economic opportunities, Mireille Wenger, said the growth of both small and big businesses should be fast-tracked.
“Our research shows that changes to the Exchange Control Regulations relating to the offshore transfer of intellectual property and offshore movement of money could create a net benefit to the South African economy of R426 billion over the next five years. “In addition, SARS could collect a net increase of R315 billion in tax revenue over the same period. These reforms would not compromise attempts to comply with the Financial Action Task Force (FATF) standards,” Wenger. The provincial government has shared some of these proposals with Godongwana, the SA Reserve Bank (SARB), and the SA Revenue Service. Wenger believes they offer a relatively easy path toward achieving rapid growth and expansion in the start-up sector while aiding South Africa’s economic recovery.
Improving tax incentives for investors to encourage early-stage start-up enterprises could result in R927 million in total investment raised by the country’s venture capital industry over the next five years. This would result in an additional 79 start-ups, creating 1840 jobs with total after-tax salaries generated amounting to R890 million, she said. According to Wenger, these reforms would also allow South Africa to remain competitive against other global destinations and those on the continent like Nigeria, Kenya, and Egypt.
She cited the South African Start-up Act Movement survey conducted in 2023 of 52 start-up founders who had moved part or all of their businesses offshore. “Of the respondents, 42 (81%) reported that they had moved their businesses offshore to raise capital from international investors whose main concern was South Africa’s exchange controls. Views from start-ups consulted all confirmed that investors are increasingly refusing to invest in South African-domiciled companies due to restrictions on the offshore movement of IP,” said Wenger. She said described the introduction of these reforms was a no-brainer.
