Foreign capital flows and economic policies in South Africa

Abstract

There is no "silver bullet" for reducing the external imbalances facing South Africa, and for coping with the ebb and flow of foreign capital movements. Nevertheless, various policy measures can be identified which would most probably reduce the incidence of external shocks which can plague South Africa's capital account of the balance of payments. Sound macro-economic policies, and in particular the creation of an environment incorporating greater monetary stability are perceived to be crucially important. The position on the capital account needs to be altered such that greater inflows of foreign direct equity capital take place, and in this respect it is concluded that a reduction in the corporate tax rate offers one of the few options open to the authorities at this stage. This offers greater potential than a system of special tax incentives, the effectiveness of the latter in attracting greater foreign investments being open to question.