The South Africa focused investment summit has just been concluded and the President of South Africa, Cyril Ramaphosa announced that 290 billion Rand in investment was pledged by various South African companies for the upcoming 5 to 10 years. In addition, 400 billion Rand in foreign investment was pledged by other states for the upcoming years.
While the above-mentioned investments are wonderful news for South Africa, they will not be implemented immediately, but rather over an extended period of time, being within 5 to 10 years’ from now. Therefore, the future investments are not expected to have a direct effect on the economy at present, nor within the upcoming year of 2019.
In light of the above, the question which arises is what can be done from an immigration perspective to boost investment into South Africa in the interim? To answer this, I have three ideas which, in my opinion, will contribute to an investor friendly immigration regime. The three ideas, which are elaborated on below, involve looking at the source of funding for Business Visas, the right of spouses of Critical Skills Work Visas to work in South Africa, and the creation of an Investment Visa category.
- Business Visa Funding
The Business Visa in its current state requires an applicant to show that he/she has a certain amount of funds available to invest into the business. In this regard, the existing legislation does not address third-party funding and the Department of Trade and Industry (“DTI”), who is the institution responsible for issuing the required Recommendation Letters, see third-party funding rather negatively. This has an extremely negative effect, especially in the tech sector, where founders have great ideas, a lot of knowledge and experience, but often no real investment capital of their own. As a result, most of the investments and growth capital is derived from venture capital firms.
Furthermore and similar to the example above, a lot of the time a foreigner is part of a company with several foreign shareholders, all of whom invest a large amount of money into the new venture, but each individual’s investment is below the R5 million threshold. In such cases, the DTI currently requires a special motivation to issue the Recommendation Letter for a Business Visa application. This practice is in dire need of review and change, as often investments will only flow into a new or existing business in South Africa when a particular foreigner is granted a Business Visa. The reasons for this are that investors want to make sure that a co-shareholder sets-up the new business, as the co-shareholder is their reason to invest in the first place. Therefore, third-party funding should be allowed and whether the foreign applicant invests 500 000 Rand, 2 million Rand, or even nothing, should not be the determining factor for a successful DTI recommendation. In this regard, South Africa will benefit from direct foreign investment, even if such investment is provided by individuals other than the applicant.
Moreover, I am of the opinion that the current R5 million threshold is too high when compared to international best practice. To illustrate this, the UK has an Entrepreneur Visa where in one scenario only £50,000 is required for a successful application. As a second option, the UK requires £200,000, which is still below the R5 million threshold required in South Africa. In addition, Singapore requires $100,000 in order to qualify for an Entrepreneur Visa.
Should the proposed change be implemented, this can take place quite efficiently and without major legislative changes, as it only requires an explicit interpretation guideline from the DTI.
- Accompanying Spouse of a Critical Skills Work Visa
South Africa is serious about attracting and retaining talented individuals and, therefore, it has created the category of Critical Skills. However, we as immigration providers are often asked by foreign critical skills applicants whether their spouse/life partner is allowed to work in South Africa. Therefore, South Africa should consider the spousal situation if it truly intends attracting international talent. In this regard, some countries grant an automatic right to work, such as the European Union, Brazil, Canada, New Zealand, as well as Peru. The automatic right might be the best international practice, although it might be one step too far for South Africa, bearing in mind the high unemployment rate.
With the above being said, South Africa should look into providing a solution which breaks-down the barrier of issuing a work visa for spouses of Critical Skills holders. Our current legislation and immigration practice already offers such a possibility in terms of section 11 (6). Spouses/life-partners of South African citizens or Permanent Residence Permit holders who wish to work can apply for a spousal visa with an endorsement to work by merely providing an Offer of Employment.
We would suggest that the section 11(6) option be extended to foreign spouses of Critical Skills Visa holders too. The basic idea is: if you are serious about attracting international talent, you need a differentiating factor and, in our opinion, the above suggestion could be a very powerful one.
- Investment Visa Category
Internationally, there is a big trend in respect of Citizenship and Residence through investment. Based on the wording in the South African White Paper on immigration, there seems to be a decline in Permanent Residence and Citizenship, so it would not be realistic to suggest Citizenship through investment. However, we suggest that South Africa consider a long-term residence visa through investment. Our current immigration legislation is already familiar with the idea, as we offer Permanent Residence based on financial independence. In this category however, the foreigner only has to show the availability of assets but does not have to invest anything into South Africa.
To combat the aforegoing and ensure that investment takes place, it might be a good idea to offer a 10 year residence, or even Permanent Residence in exchange for a fixed-term investment into South Africa. We suggest an amount of $250,000, which would be quite competitive internationally. This amount would have to be invested into predefined investment vehicles and since we have an esteemed financial sector in South Africa, they should advise on the products for this category.
Another idea would be to look at section 12 J of our Income Tax Act, which grants substantial tax benefits for certain investment vehicles.
Alternatively the foreign investment must be invested in certain geographical areas or economic development zones. An example is the EB-5 visa which the US has successfully implemented.
In conclusion, we provided our recommendations to the Department of Home Affairs (“DHA”), as we realise they are currently working on a new immigration bill. In this regard, we can only hope that the DHA is as serious about investor friendly policies as our president.
by Andreas Krensel