Sounds like quite a silly notion does it not? Why would a country so far away from the politics of Europe be so eager about arguably the most impactful political development of the region? No, it’s not about finally seeing the Brexit question be laid to rest. In fact, the desire is completely monetary. Let’s elaborate.
In the wake of yet another extension of the deadline, people may think that the UK is given more time to prepare a plan for the most effective withdrawal. But in fact, the UK has been given more time to lose even more companies from its shores.
Many reports have been circling the web, about how large financial companies and institutions are trying their best to abandon the island. It’s true, as we’ve seen bank such as JPMorgan and the Bank of Scotland withdraw vast amounts of capital from the UK and into their subsidiaries in Frankfurt, Amsterdam and Dublin.
The UK would have at least some say in the withdrawal of these funds, after Brexit. For example, showcase the immediate effects of the withdrawal, which may not be as serious as people predict.
However, the anticipation of those effects drives companies outside of the country. A major part of the UK’s economy is dangling on nothing more than company emotions.
Since the companies are so willing to withdraw from the country, where would they actually go?
Most companies that are trying to minimize their losses are financial. Banks, brokerages, exchanges, Hedge funds and etc. Therefore, they need to find a place where they can still cater to local, as well as the international customer base. But none of these companies is finding it harder to do, than Forex brokers.
You see, the largest countries with the most sophisticated economies, have very strict regulations when it comes to currency exchanges. In fact, one may say that Forex comes with the largest amount of risk, thanks to its predominant Margin trading nature. A lot can change in a currency’s valuation within minutes, while investors would be dumbfounded as to why. Therefore, most countries would be either not very willing to accommodate UK Forex brokers, or the brokers themselves would be reluctant to go there. So where does South Africa come into play?
Well, according to this South African Forex brokers list, the numbers have been slowly growing and most of the companies listed are not local. The FSCA has been having a very busy quarter, trying to filter out these brokerages so as to find out which deserve licenses, and which need to be turned away. It is only natural to wonder, what makes South Africa such a celebrity for the Forex brokerages? Well, there are a number of factors.
A popular counter-argument about this point is that there are way larger markets out there, such as the United States and Australia. But as mentioned previously, these are countries that are either reluctant to accept Forex brokerages or Forex brokers themselves don’t want to go to.
The USA is connected to extreme amounts of regulation, to a point where the broker’s profitability capabilities are inhibited to a point that they can’t even cover its costs for the first couple of years. And there’s a chance that they may never manage it. Furthermore, the costs of operating in the USA is much higher than in South Africa. The rent, the salaries, taxes and everything connected to inhibitions of Financial services, pile up to a point where even a Billion dollar investment may not be enough to keep the company afloat. Same goes for Australia, but not at the same level.
The other choice brokers had was Canada. But, unfortunately, Canada also suffers from extensive regulation and operation costs. Furthermore, the market there is much smaller, even than in South Africa. The population of Canada is around 37 million, while South Africa has nearly 57 million.
You’ve probably already caught up with the trend of these countries. All of them are majority English speaking states, which is an essential asset for a UK based firm.
Furthermore, South Africa is in the same time-zone as Central Europe, therefore it will help the brokers retain their support staff in the UK and EU while moving headquarters away from it.
Nearly every US citizen watches their football games. They love it, they keep track of it and overall spend a bunch of money to attend a match. For South Africans, a similar love for Forex has developed. Many young people have started exploring the opportunity of making money through traders. All of this was encouraged by the ravaging un-employment in the country, where even educated individuals found it hard to find a job that could sustain them and their family.
Therefore these, convenient get-aways such as Forex came into play for the community. Young people could maintain a stable job while trading in the evening hours and making extra money for rents, food and other appliances. Most just re-invested all of their profits from trading into various industries, thanks to which the private equity sector of South Africa is the most prosperous one.
Overall, the UK-based firms have quite a lot of incentives to move to South Africa. They are the following:
- Relatively stable political situation
- A developing economy with much promise
- A majority English-speaking community
- Forex is already a popular industry
- Large population
- Soft regulations
- Smaller costs for rent, labour and taxes
Ticking all of these checkboxes is mouth-watering for Forex brokers as they will have no inhibition in their activities while garnering more trust to the industry and increasing their sales.
Whether or not Brexit happens this year or next, more and more companies are going to start just melting away from the island. Many product-oriented businesses will most likely flee to large markets such as the US, China or India. But Forex brokers, who are not restricted by territory for their operations will go for the best choice available. And in this case, it is South Africa.