South Africa is currently trapped in a heated shouting match about where our money goes, specifically focusing on the decision to let institutional investors move 45% of their funds offshore. Finance Minister Enoch Godongwana has publicly called this policy shift a 'grave mistake,' while industry veterans like Duarte da Silva are leading the charge to reverse it, arguing it has crippled the Johannesburg Stock Exchange (JSE) and weakened the Rand.
But let’s be honest: blaming one policy for our economic woes is like blaming a light switch for a power outage. The real issue isn't the policy; it’s that our country hasn't been generating enough bankable, profitable projects to attract that capital in the first place. We have been stuck in a cycle of sub-1% growth for nearly two decades. Money, by its nature, flows to where it can earn the best return at the lowest risk.
Even when companies actually want to invest locally, they often find themselves staring at a dry pipeline. Managers of infrastructure funds frequently report—privately, of course—that there simply aren't enough viable projects to absorb the available capital. So, instead of letting that money sit idle, they build offshore portfolios just to keep their businesses moving. They aren't abandoning South Africa out of malice; they're doing it to survive.
'That distinction matters, and it's the one most conspicuously absent from the debate about whether to reverse the 2022 increase in the institutional offshore investment limit from 30% to 45%.' — Stuart Theobald, founder of Krutham.
The idea that we can 'trap' money here to force growth is a dangerous fantasy. If capital is forced to stay home against its will, it creates a false sense of security that actually warns off foreign investors. Real investment signals are sent when money chooses to stay here because the opportunities are just too good to pass up, not because the government has locked the doors.
The math behind the panic is shaky at best. Critics point to an increase in offshore investment from R3.2-trillion to R3.9-trillion between 2022 and 2023, claiming it’s evidence of a mass exodus. What they ignore is that the Rand took a massive hit during that period. When our currency loses value, the Rand-denominated value of existing offshore assets automatically inflates, even if not a single extra cent was moved out of the country.
Most pension funds aren't even near the 45% limit yet. Take the Old Mutual Superfund, the largest umbrella fund in the country; it’s currently sitting at roughly 37% offshore. When retirement funds do invest offshore, that money isn't lost forever. Eventually, pensioners will spend those returns locally, injecting that wealth back into the South African economy during their golden years.
Beyond the headline-grabbing 45% rule, there are actual, boring, structural hurdles that do real damage. For instance, the shift from defined benefit to defined contribution pension schemes means funds must keep more liquid cash on hand to handle daily withdrawals. This makes it incredibly difficult for these funds to back small and mid-cap companies. These businesses are exactly the kind of firms that need the capital to grow.
Then there is the issue of tax-free savings accounts. Currently, these accounts are restricted to exchange-traded funds and are blocked from holding individual stocks. This prevents the most ambitious retail investors from backing speculative, high-growth assets. It’s a policy failure that ignores the success of platforms like EasyEquities, which have finally brought a new, younger generation of South Africans into the world of direct equity ownership.
The National Treasury commissioned an International Monetary Fund (IMF) assessment on the 45% cap, and the result was clear: the costs of reversing it would far outweigh any perceived benefits. That debate is effectively over. The real work starts now, and it doesn't involve relitigating old laws.
If we want to fix this, we need to focus on building a pipeline of profitable, bankable projects in energy, logistics, and infrastructure. We should be unlocking tax-free savings accounts to allow for direct equity investments and finding ways to help long-term pension capital support illiquid assets. Until we make it rational for money to stay here, no amount of regulation will keep it in the country.