South Africa Market Update - March 2024

Written by Cecilia Albertyn - South Africa Business Development Consultant, Finance Isle of Man

It has been a busy month in South Africa with big events and happenings in the annual calendar - from the budget speech to Mining Indaba and a host of smaller events where I engaged with businesses and flew the flag for the Isle of Man. Here are some key updates:

• Finance Minister Enoch Godwongana delivered his budget speech on 21 Feb. The rand so far maintained its small gains after the delivery of what analysts viewed as a “balanced” budget. With debt the biggest threat to SA’s fiscal stability, National Treasury will tap the Gold & Foreign Exchange Contingency Reserve Account (GFECRA) by drawing down R150bn to reduce borrowing costs. There is no change to corporation tax which remains at 27%, but notice should be taken of the implementation of a Global Minimum Tax of 15% effective 01 January 2024 payable by ultimate holding companies of multi-national enterprises operating in South Africa.

• Greylisting: In a best case scenario, South Africa’s greylist status could be reviewed June 2025. Kenya and Namibia have been newly greylisted by FATF as of Feb 2024. South African businesses continue to face delays and regulatory hurdles with international banking, slowing down transactions. The FATF cited that it would be a “huge challenge” for South Africa to successfully address all outstanding issues needed for a removal from its Grey list by June 2025. Jurisdictions like the Isle of Man continue to pose an attractive solution as a platform for businesses to safeguard against related issues when internationalising.

• Mining Indaba insights: Critical minerals and funding thereof will be a global driver and dictator of power. The race to secure critical mineral supply for the energy transition is facing a financing problem and there is intense competition and political parrying. Resource nationalisation, critical minerals funds, and infrastructure (particularly the Lobito Atlantic -and Tazaro railways) to secure supply chains are the key drivers. Private Equity investors and funds are increasingly incorporating critical minerals into their structures to be wrapped up in ESG funds.

• Sanctions outlook: Concerns linger as South Africa’s foreign policy continues to indicate alignment with Russia. Diplomatic skirmishes with the USA have cropped up, and should these escalate to secondary sanctions, South Africa would face severe constraints. The Isle of Man presents an opportunity to ringfence capital for businesses in the event of secondary sanctions being imposed on South Africa.