The decision in February 2022 to lift the offshore‑allocation ceiling for South African retirement funds from 30 percent to 45 percent has, within a few short years, stripped the Johannesburg Stock Exchange of the domestic support it once enjoyed. R800 billion of capital has been nudged out of the local economy, leaving the JSE‑Top 40 more a proxy for foreign growth than a barometer of South African enterprise. The result is a market that is increasingly a conduit for capital export rather than a driver of home‑grown investment.
The fallout is evident in the numbers. In the early 1990s the JSE listed more than 800 companies; today that roster has dwindled to roughly 280. The Top 40 index, the benchmark most investors associate with the local market, derives over 80 percent of its revenue from overseas operations. Global giants such as Naspers, Glencore, Richemont, British American Tobacco and Anglo American dominate the list, while their growth strategies are dictated from London, Geneva, Shanghai or New York, not from Pretoria.
| Metric | 1990s | 2024 |
|---|---|---|
| Listed companies on JSE | ~800 | ~280 |
| Revenue sourced domestically (Top 40) | ~70 % | < 20 % |
| Retirement fund offshore allocation limit | 30 % | 45 % |
| Capital moved offshore (R) | – | R800 bn |
The table illustrates the scale of contraction: fewer listings, a dramatic shift in revenue sources and a policy change that unlocked a massive outflow of savings. The key takeaway is that the regulatory tweak has directly eroded the domestic capital pool that once underpinned the JSE’s vibrancy.
When pension funds redirected their portfolios abroad, demand for JSE equities fell, the rand weakened and appetite for South African government bonds slipped. International investors took note, withdrawing US$2.5 billion from local bonds and equities over the past decade—US$1.25 billion in bonds and US$1.4 billion in equities. The MSCI Emerging Markets weight for South Africa, already below 3 percent, has continued to slide, reinforcing the perception that the country is no longer a compelling investment destination.
Restoring the South African retirement fund offshore allocation balance
The core of the problem lies in a broken social compact. Tax‑advantaged retirement savings were granted on the condition that funds would be reinvested domestically, fuelling infrastructure, industry and job creation. By permitting almost half of those savings to be parked offshore, the government has effectively handed tax‑subsidised capital to foreign markets, leaving the local economy starved of the investment needed to close its infrastructure gap.
A further loophole compounds the issue: inward listings—foreign‑domiciled companies that choose to list on the JSE—are excluded from the offshore‑allocation calculation. This allows fund managers to maintain a de‑facto 100 percent offshore exposure while still meeting the letter of the law. The rule exists, but its intent is being side‑stepped.
To reverse the trend, two straightforward measures are required:
- Reset the offshore allocation ceiling to 30 percent and enforce this limit across all assets, including inward listings.
- Give existing portfolios 18 months to comply, a timeframe that aligns with standard fund‑rebalancing cycles and avoids abrupt market disruption.
Implementing these steps would immediately expand the domestic capital pool, negating the need for the controversial “prescribed assets” debate that seeks to force fund managers into specific investments. The solution is not radical; it is a restoration of a policy framework that previously delivered robust market participation and economic growth.
The urgency cannot be overstated. Every year that the current regime persists, more South African companies forgo the transparency, accountability and growth capital that a healthy public market provides. The next generation of firms—particularly in tech, renewable energy and advanced manufacturing—is increasingly looking to London, Amsterdam or New York for listings, taking future innovation and job creation out of South Africa’s reach.
The JSE’s decline is not inevitable. Finance Minister Enoch Godongwana has publicly admitted the Treasury’s mistake in raising the offshore limit, acknowledging that the policy change was misguided. However, acknowledgment without action does little to halt the capital flight. A decisive policy reversal would send a clear signal to both domestic savers and foreign investors that South Africa remains committed to fostering a vibrant, home‑focused capital market.
In the decades I spent at Merrill Lynch, Credit Suisse and Macquarie, I witnessed the JSE surf the highs of the 1990s tech boom, the property surge of the 2000s and the commodity super‑cycle driven by China’s industrial rise. Each era demonstrated the market’s capacity to mobilise savings into productive investment when the regulatory environment was aligned with national interests.
Today, the market stands at a crossroads. Restoring the offshore allocation limit, tightening the definition of eligible assets and ensuring that inward listings count towards domestic exposure could rejuvenate the JSE, bringing back the transparent, liquid platform that once allowed ordinary South Africans to own a slice of their nation’s growth. The path forward is clear; the choice now lies with policymakers willing to act before the trends become irreversible.