Address by Dr Chris Stals, Governor of the South African Reserve Bank, at a breakfast to celebrate the First Anniversary of "Business Report" Durban. 1. Developments over the past two yearsWith the establishment of the Government of National Unity in April 1994, the scene was set for the reinte-gration of South Africa in the international financial markets. International economic sanctions, trade boycotts, disinvestment campaigns and pressures for the withdrawal of foreign loans from South Africa were repealed. South Africa itself started with a gradual removal of exchange control restrictions, firstly of those applicable to non-resident investors and subsequently also others that restricted outward investment by South African residents. Net capital outflows to the rest of the world placed an effective ceiling on the growth potential of the South African economy for a decade beginning in 1984. The capital outflows, however, suddenly switched into net inflows as from April 1994. After registering a net capital outflow of R15 billion in the balance of payments for 1993, net inflows of R5,4 billion and R22 billion occurred in 1994 and 1995, respectively. This reversal had a major impact on the growth potential of the economy, and last year's growth rate of 3,5 per cent was the best South Africa experienced since 1988. Apart from gradually relaxing exchange controls, the Reserve Bank also started replenishing the country's depleted official gold and foreign exchange reserves. In April 1994, when the election for the Government of National Unity took place, the Reserve Bank had about R8,5 billion in foreign reserves, but also outstanding short-term borrowings of a like amount. The net foreign reserves therefore were at a zero level. At the end of January 1996, the Reserve Bank held R15,5 billion in foreign reserves, and had repaid all its foreign liabilities.South Africa also negotiated for international sovereign credit ratings from Moody's, Standard & Poor's and Nippon Investor Service of Japan. These credit ratings were good enough to allow South Africa to enter the international capital market for public issues, and the Government made three successful issues in the global dollar market, the Japanese Samurai market, and the British Sterling market. A number of South African parastatals and private sector companies also raised funds from the international capital markets, through either loan or equity issues. Foreigners became active investors on the Johannesburg Stock Exchange. The net inflow of foreign funds of R22 billion last year included no less than R6 billion of capital invested in South African bonds and shares purchased through the Johannesburg Stock Exchange. Total transactions by non-residents at times now account for as much as 50 per cent of the total turnover on the Johannesburg Stock Exchange. Another interesting development is the emergence of a Eurorand market where non-resident institutions, mainly in Europe, raise funds through the issue of rand-denominated bonds sold to non-resident investors. These non-resident borrowers normally hedge their rand exposures by reinvesting the funds in South African bonds acquired through the Johannesburg Stock Exchange.There are now more than ten foreign banks operating in South Africa through branch offices or subsidiaries, and more than fifty representative offices of foreign banks in South Africa. These foreign banks provide increased competition for South African banks, particularly in arranging and providing foreign finance for South African importers and exporters, and in raising foreign funds for South African borrowers. South African banks in turn have established a number of branches and subsidiaries in the main financial centres of the world, and are now also operating through branches and subsidiaries in about 15 different African countries. South African banks at the end of last year had about R10 billion of outstanding short-term foreign liabilities, and were instrumental in arranging a further R10 billion of short-term foreign financing for their clients.