South Africa is one of the major financial powers on the African Continent. They are second only to Nigeria in terms of national GDP and development. All of this translates into sophisticated financial markets and business for the locals. However, there is an amazing opportunity on the horizon and the financial firms in the country simply cannot wait for it.
The significance of Brexit for South Africa
Brexit is an extremely controversial topic nowadays. Even after months of debate the UK government was not able to find a cosensus about the way the country is going to leave. Because of such political turmoil, the Prime minister, Theresa May, pleaded with the EU to extend the deadline, which was approved.
This may be a sigh of relief for most UK firms, but it is only temporary. As a matter of fact it is an even bigger disaster as the government start to seem incompetent about the whole ordeal. Furthermore, this just gives other financial institutions more time to withdraw capital from the Island nation and distribute it to their offshore offices.
Several large banks such as Bank of Scotland have applied and been approved to move large amounts of cash out of the country. We are talking about billions here, tens of billions of pounds flowing out of the country. No matter how strong an economy may be, it cannot maintain such an outflow.
According to experts at topforexbrokers.co.za the UK firms will soon have to start looking for places to migrate to as their host country disintigrates further into financial uncertainty.
According to those very same experts, the firms have limited options on which country they can flee to. There are generally 3 main points that the potential host country needs to cover. 1) Political stability, 2) An economy with great potential, 3) A majority English speaking population.
When considering these 3 point, I believe that most of us already have potential destinations for these brokers. Currently there are about 5 options the companies have. Let’s take a look at them.
The United States seems to be the most reasonable destination right? Unfortunately, no. The SEC has proven to be one of the most strict and unreasonable regulators in the world. Their grip on even local companies is firmer than any other. If the UK brokerages simply swarm in the country, they would have very little chance to adopt to it.
The US has completely different laws, and strict ones at that. Being able to adapt to those laws and comply to them are going to cost a fortune. A fortune that these companies do not have.
The 3 points are indeed ticked with the USA, at a certain degree. But the amount of costs connected to the migration are just unworkable.
Canada is in pretty much the same situation. Being this close to their border, the USA has had a significant influence on Canadian financial regulations. This means that even though the same strictness is not enforced in the former UK colony, it is still a force to be reckoned with.
Furthermore, the population is definitely not a supporting factor of the migration. A market of just 37 million inhabitants, some of whom are migrants is definitely not attractive for Forex brokers.
Canada is also able to tick the 3 requirements. Their economy has potential, their political sphere is quite stable and the majority of their population speaks English. But the costs of operating there and the size of the market prevent it to be lucrative.
Australia is like a big brother to Canada in financial terms. Their currency market is far more sophisticated and lucrative, but they are also connected to huge costs. Just licensing the company in Australia may cost the broker somewhere near $500,000. Not to mention, Australia is considered as one of the world’s financial hubs, making it an already developed country in terms of finance.
So, migrating to Australia could turn into a disaster as UK companies fail to conquer the market and fall further into costs and debt.
So far these 3 countries have all ticked the 3 requirements for a company to move to them. But outside issues such as population and strong competition prevents them to do so. Where can these UK companies go then?
Compared to the financial monsters we just mentioned, New Zealand seems like a fairy tale (it is quite often ascosiated with it as well). The country is rather small and does not have a serious presence on the global currency market. Therefore, the competition there would be far weaker. The political stability has just been reinforced even further, because of the terrible terror attack last week in Christchurch.
The economy is stable, but has great potential and the majority of the population is English Speaking. One huge problem that the country has is the population.
A population of nearly 5 million is definitely not enough to make a UK firm’s operations there lucrative. In fact it may even turn out to be a liability rather than an asset.
So who do we have left? Which country are the brokerages most likely to flee to?
South Africa may not seem as the perfect place for a brokerage to flee to, but the economic development that the country has seen over the last few years counter that argument. You see, the private equity sector in South Africa has been on the rise, even though most other industries have slowed down. This means that the population now has more capability to direct their resources towards new investment, one of which can be the currency market.
Another reason for choosing South Africa is the timezone. Companies located in South Africa are able to cater to European customers without any problems. This provides the possibility for brokers to retain their support staff in European countries while they set a foothold in the south.
The costs of operating the company in South Africa are way smaller than any other country in this list. Furthermore, the Forex market is just starting to become popular with the locals, creating a great source of new customers for the brokerages.
The population is large enough to have a long-term presence in the country while not running out of new customers.
The regulations are not as strict, but a license is required which is rather easy to get for a sophisticated brokerage.
South Africa – The next Forex hub?
As you can see South Africa is the only country which can tick all 3 requirements as well as provide an even playing field for the brokers. The political situation is in the process of stabiliztion, the economy has more potential than any other country on the African continent, and virtually all of the 57 million people living there speak English.
Call me crazy, but I believe that Forex brokers will soon be flocking to South Africa.