By: Harry Scherzer
On 29 May, South Africans will go to the polls in what are widely anticipated to be the country’s most important national and provincial elections since 1994. Failing infrastructure, persistent load shedding, low growth, and high unemployment mean that many are hungry for change, even if there’s significant contestation about how that change should look.
There's also a great deal of apprehension and uncertainty about what the country will look like in the aftermath of the elections. Will a coalition government be necessary? And if it is, what players will be involved? While we don’t know the answers to those questions, we do know that there’s likely to be added pressure on an already fragile Rand in the coming weeks. The local currency has already lost 28% of its value against the US Dollar over the past three years, and there’s little chance that things will improve anytime soon.
With that in mind, there’s a good case to be made for increasing the amount of money you invest offshore, especially if you’ve got significant South African exposure at present. Every time the Rand gets weaker, you get poorer on a global scale. Contrastingly, the more money you have offshore, the wealthier you are from a global perspective. It’s also true that you can access better-performing products by investing offshore. The S&P 500, for example, delivered average annual returns of 13.05% annually between 2013 and 2023. By comparison, the JSE All Share Index lost five percent in Dollar terms over the same period.
That’s not to say that the Rand won’t stabilise, or even recover. Under the right circumstances, that could well happen. Given the recent performance of the currency, however, moving money offshore should be high up on any business or individual’s risk mitigation list.
When it comes to doing so, you must choose the right provider. Despite what your first instincts might tell you, that isn’t your bank. While that instinct to default to your bank is understandable (if your bank can handle all of your other financial transactions, why shouldn’t you use it for international money transfers?), it’s seldom a good idea.
There are a couple of reasons for this. The first is that almost all banks aren’t transparent with the fees they charge for international money transfers. This inevitably means people and businesses end up paying more on each transaction than they should. These additional costs can add up quickly for businesses that have to make regular international payments, impacting their bottom lines.
Another reason to avoid banks for international money transfers is that the overall customer experience tends to be incredibly poor. Onboarding is seldom automated and can be a laborious, time-consuming process. Once you’re onboarded, things don’t get much better, with international money transfers seldom front-and-centre on a bank’s app or website. Should there be an issue with a transaction, you’ll likely have to spend hours on the phone with agents at the bank’s contact centre who know next to nothing about what you’re trying to do.
Knowing this, where should businesses and individuals turn for their international money transfer needs? Ideally, they should look for an independent provider that places a premium on transparency and a seamless customer experience.
After all, if an international money transfer provider is confident enough to be fully transparent, it probably knows that its prices are better than those that the banks offer. Meanwhile, when it comes to the customer experience, you should be able to sign up in a matter of minutes and easily make transfers. Should you have any issues or queries around a transfer, you should have access to a dedicated Account Manager who is well-versed in the intricacies of international money transfers.
Businesses can give themselves further protection by using a service that offers forward exchange cover (FEC). Simply put, forward exchange cover is a financial tool used to manage the risk of fluctuations in exchange rates. In essence, the company making an international payment enters into a contract with the payment provider to exchange a specified amount of one currency for another at a specified exchange rate on a future date. So, regardless of the currency fluctuations in between, the company knows exactly how much it’ll pay for that transaction, providing much-needed certainty.
Ultimately, businesses and individuals making international money transfers should look for certainty wherever they can in the coming weeks and months. The chances of them finding that certainty with their banks are very slim. They should, therefore, switch to a provider that can give them certainty in this incredibly important space.
* Scherzer is the CEO of Future Forex.
PERSONAL FINANCE