You can now buy $120 000 a year instead of $60 000 without any permissions from the Reserve Bank – and there’s plenty you can do with this, says 80eight CEO Faadil Moti. From Moneyweb.
You can also listen to this podcast on iono.fm here.
There were some nuggets of good news in last week’s budget – one of them being an increase in the Single Discretionary Allowance [also called the special discretionary allowance] (SDA) from R1 million to R2 million per year. That’s money you can ship abroad for investment, travel, education – and of course crypto arbitrage.
Read: Budget in a minute
The last time this allowance was adjusted was in 2011. Government was criticised for not increasing that limit in 15 years, but here we are.
This R2 million is in addition to the R10 million a year Foreign Investment Allowance – for which you need South African Reserve Bank approval and tax clearance from the South African Revenue Service. The SDA requires no permissions at all.
Faadil Moti, CEO of fintech payments company 80eight, says this is a meaningful increase that opens up numerous opportunities for South Africans.
“This is especially meaningful for high-net-worth individuals and families with offshore exposure. The R1 million limit hadn’t moved since 2011. And in real terms, after inflation and rand depreciation, it become relatively small. If you calculate, it’s an odd $60 000 and now at R2 million becomes double that. If you’ve got a child studying overseas, R1 million can disappear very quickly just on tuition fees, never mind the travel or other expenses.
“Doubling it to R2 million without needing Sars tax clearance reduces the friction significantly. It gives people more flexibility and removes administrative headaches. That’s where the real benefit lies.”
The vast majority of South Africans don’t know they are entitled to move R2 million abroad each year under the SDA. That’s because most don’t have R2 million to spare. It’s a struggle for them just to pay the monthly bills.
But Moti explains that you don’t need to have R2 million in the bank to benefit from this. You can do some interesting things with just a portion of this. “Even R100 000 or R200 000 offshore can be useful. That could cover travel, business trips or partial offshore investments, or even diversifying into foreign money market funds.
“Some investors also stagger offshore exposure over time instead of moving everything at once. So having a higher limit simply gives you more optionality. You don’t feel constrained,” says Moti.
“For many South Africans, I believe it’s about flexibility rather than maxing out their limit.”
This doubling in the SDA comes at a time when the rand is strengthening against the US dollar.
Listen/read: Been using rand strength to take money offshore?
Crypto arbitrage
Thousands of South Africans got involved in crypto arbitrage over the last seven or eight years. That’s where you buy crypto abroad and sell it in SA a few hours later at a profit.
In years past, that profit went as high as 8%, 10% and even 20% on some occasions. As more people entered the market, the profitability declined and is now below 1%. That’s still attractive enough to keep many of them involved, resulting in a compound annual growth – at relatively low risk – of about 30% to 40%.
Moti says the additional SDA allowance makes more funds available for crypto arbitrage and could compress the profit even further.
“A big part of the arbitrage spread historically came from friction, such as delays in moving the capital offshore and exchange control. When you double the readily available allowance and remove friction, such as with the new R2 million a year allowance, more participants can deploy capital faster. In the short term, that increases supply and narrows the spread.
“We’ve seen [crypto arbitrage] margins drop from around 8%, then 4% and the 3% several years ago to below 1% today. This SDA adjustment could accelerate that trend, I would say so, and markets naturally become more efficient as access improves.”
Read: What’s happened to the crypto arbitrage spread?
Moti says many people may prefer to use their R2 million SDA to top up offshore investments or provide seed capital for a new offshore venture.
There’s also the cost of sending funds abroad through a bank – usually 2% to 3% of the total funds – to consider.
However Fintechs like 80eight are slashing those fees to around 1% using some fancy technology in the background, and this is putting downward pressure on banks to reduce their charges. Not only are they lowering fees, the recipient usually gets paid within a day – unlike banks, which can take up to a week.
Moti says once the new SDA limit is operational, he expects clients to make full use of it, either for arbitrage, offshore investment and property, travel or education.
