Small business owners in South Africa are running into one of the Reserve Bank’s exchange control limits, which is making it difficult to pay for Amazon and Microsoft cloud services.
The SARB blocks foreign currency credit card transactions of R50,000. When that happens banks send a notification to their clients, but start-ups are reporting that they don’t receive clear instructions on how to resolve the issue.
Thinkst, a global information security company based in South Africa, ran into the problem in June. In July, Thinkst founder Haroon Meer said that the Reserve Bank sent them a warning letter.
Forgood cofounder and CEO Andy Hadfield recently reported that they ran into the same issue.
MyBroadband asked South African banks if there was a recent change that’s caused the SARB to flag these transactions, and what to do when it happens.
The head of transactional banking at Absa’s retail and business banking division, Omar Baig, explained that these restrictions have been in place for a long time.
“The Currency and Exchange Manual for Authorised Dealers has always included a dispensation that allowed a special treatment for resident individuals and local entities to make miscellaneous online payments for imports, services, or subscriptions by means of credit and/or debit cards without the need for import documentation,” said Baig.
“Payments are limited to R50,000 per transaction and may not be split to circumvent the limit applicable to this dispensation.”
The reason for this rule, Baig said, is because import and service payments made under your Single Discretionary Allowance require monitoring. Import and service payments made using import allowances require documentation.
“We are aware that some Absa clients are paying online for advertising costs and from our records it would appear that the SA Reserve Bank only queries transactions exceeding R50,000,” Baig said.
“In these circumstances suitable motivated applications are submitted to the SA Reserve Bank requesting exemption from the above limit.”
South African residents are exempted from this limit when it comes to travel. While travelling, you may spend your entire Single Discretionary Allowance through a credit or debit card.
The Reserve Bank defines the Single Discretionary Allowance as follows.
Residents who are 18 years and older may be permitted to avail of a single discretionary allowance within an overall limit of R1 million per individual per calendar year without the requirement to obtain a Tax Clearance Certificate, which may be used for any legal purpose abroad (including for investment purposes as well as the sending of gift parcels in lieu of cash, excluding gold and jewellery).
Banks act on behalf of customers
FNB told MyBroadband that an important distinction to make is that authorised banks act on behalf of their customers to buy and sell foreign currency. The banks themselves are not agents of the Financial Surveillance Department of the SARB.
“The Minister of Finance has appointed certain banks – FNB is one of them – to act as Authorised Dealers in foreign exchange that gives such banks the right to buy and sell foreign exchange, subject to conditions and within limits prescribed by the Financial Surveillance Department,” said Daniel Kaan, the head of FNB Transaction Banking
“As an Authorised Dealer in Foreign Exchange, [FNB] is required to ensure customers comply with the conditions, if any, and limits in transacting foreign exchange,” said Kaan.
Any transactions that do not comply are reported to the relevant regulatory bodies: FIC, AML, Excon.
Feedback from the SARB
The Reserve Bank confirmed Absa’s explanation, emphasising that the limit on “foreign” credit card purchases is R50,000 per transaction.
To comply with regulations, companies can either pay their large bills to overseas service providers using international bank transfer facilities, or apply for an exemption.
“A fully motivated application can be submitted to the Financial Surveillance Department of the South African Reserve Bank, via an Authorised Dealer in foreign exchange – i.e. a commercial bank -for an exemption to be considered,” the Reserve Bank explained.
“Furthermore, section B.1 of the Currency and Exchanges Manual for Authorised Dealers covers the methods of making payments for imports exceeding R50,000 per transaction.”
No Silicon Valley for South Africa
The Reserve Bank’s limits on credit card transactions is a big obstacle to trying to start a technology company in South Africa, entrepreneurs have told MyBroadband.
“One of the promises of the digital age is that kids in a garage are able to build technology companies that service the world,” said Thinkst’s Haroon Meer.
He said that South African exchange control complications actively prevent young companies from being all they can be in this regard.
“Need to accept a credit card payment online? We have a complication for that. Need to pay Amazon on your credit card? We have a complication for that. Need to accept investment via share swaps? We have a complication for that.”
Meer said that fledgling South African startups are filled with uncertainty at the best of times. Operating in South Africa, and attempting to service the world, amps this up.
Almost everything either forces young entrepreneurs to leave, or to incorporate their businesses outside of South Africa, he said.