South Africa’s regulation of exchange controls recently came under the spotlight when the constitutionality of its framework was unsuccessfully challenged by South African born billionaire, Mark Shuttleworth.

Shuttleworth sought an order which was described as “the most radical court order imaginable” by Senior Advocate of the Johannesburg Bar, Jeremy Gauntlett.

According to Lerato Maboya, Associate at pan-African corporate law firm, Bowman Gilfillan, at the heart of Shuttleworth’s challenge was the notion that exchange control regulations have a damaging effect on external investment into the South African and other African economies by shutting the gate on potential investors.

She added that in his bid to have the entire exchange control framework declared unconstitutional, Shuttleworth sought an order that, were it successful, would have effectively allowed for the uncontrolled movement of capital out of South Africa.

“While the court dismissed his application, the challenge will leave a lasting impression on exchange control in South Africa going forward,” said Puso Thahane, Candidate Attorney at Bowman Gilfillan.

The North Gauteng High Court will on Friday hear applications of leave to appeal the earlier ruling against Shuttleworth.

According to Maboya, Shuttleworth’s constitutional challenge was premature as it comes after Finance Minister, Pravin Gordhan’s announcement of significant proposed reforms to exchange controls in his 2013/2014 budget speech.

“Dubbed the ‘Gateway to Africa’ reforms, if implemented, South African exchange controls will be maintained but considerably liberalised to encourage companies to manage their African and offshore operations from South Africa,” said Maboya.

The most important proposal of the Gateway to Africa reforms is the creation of a “gateway subsidiary” regime for African operations in the light of the 18% increase in South African total exports into the rest of Africa.

According to Thahane, if the reforms are implemented, each company listed on the Johannesburg Stock Exchange (JSE) will be entitled to incorporate and register one subsidiary as a gateway subsidiary for its African and offshore operations.

Each gateway subsidiary will be allowed to raise and deploy capital offshore provided that these funds are not subject to South African guarantees, enjoy tax incentives and currency loss protections and be allowed to freely transfer any local income generated from cash management.

“As an additional incentive the Gateway to Africa reforms will also apply to those JSE listed entities that wish to invest in the BRICS economies outside of Africa”, said Thahane.