South Africa has a shortage of places worth investing in, not a problem of available investment capital. That distinction matters, and it is the one most conspicuously absent from the debate about whether to reverse the 2022 increase in the institutional offshore investment limit from 30% to 45%. The argument for reversal has been made most forcefully by investment veteran Duarte da Silva in a widely circulated open letter, which describes the limit increase as the “decision that broke the dam” on domestic investment. The charge sheet is serious: a weakened JSE, a wave of delistings, a softer rand, and reduced foreign investor appetite. Finance minister Enoch Godongwana has also called the change a “grave mistake”.Reality obscured But scapegoating one policy decision obscures the reality that South Africa’s investment challenges predate and dwarf the institutional limit amendment. Start with the demand side. Investment flows to where expected returns are highest, given risk. That is not ideology; it is the operating logic of every capital allocator in the world. But the uncomfortable truth is that South Africa hasn’t been generating enough opportunities that clear that bar. We have averaged sub-1% growth for almost two decades. There are not enough profitable businesses to back, and not enough bankable projects to fund. Even in our most promising sectors, infrastructure fund managers will tell you privately there are simply not enough projects relative to available capital, which is why several of those funds have already built offshore portfolios just to stay productive while waiting for a domestic pipeline that never quite arrives. If capital is leaving, the question worth asking is not how to trap it here, but why it isn’t finding a home. Da Silva’s analysis is supply-side: too much capital is permitted to leave, so less stays to work locally. But this treats the symptom. A pension fund with a 45% offshore allowance that cannot find sufficient domestic opportunities at acceptable risk-adjusted returns is not being liberated by that allowance — it is being relieved of the fiction that a lower limit was doing useful work.Surely, a more damning signal to foreign investors than South African capital going offshore is South African capital being forced to stay home despite the alternatives. Voluntary domestic investment, made in competition with global options, is the signal that attracts foreign capital. Captive domestic investment is not.What evidence? There’s also a basic empirical problem with the scapegoating narrative. Most pension funds are not at the 45% limit. The Old Mutual Superfund — the country’s biggest umbrella fund — sits at about 37% offshore. Many other funds I have examined are below that level. The oft-cited statistic that offshore portfolio investment rose from R3.2-trillion to R3.9-trillion in 2022-23 is used to imply that the rule change triggered a R700bn exodus. But 2022–23 was also a period of sharp rand depreciation, which mechanically inflates the rand value of existing offshore holdings without any new outflows. The counterfactual is considerably less dramatic than the headline figure suggests. The 45% isn’t a one-way door either. Retirement savers eventually retire and spend. The offshore component of their portfolios — like the rest — must finance domestic consumption. South Africans saving offshore are, in a meaningful sense, still saving for South Africa. Their accumulated wealth, when drawn down, re-enters the domestic economy as spending. The offshore allowance provides an important buffer: it partially decouples the retirement savings stock from the performance of the domestic economy, which means consumption in retirement is not held hostage to whatever growth trajectory we manage to produce over the next two decades. On the smaller end of the market, where Da Silva also locates some of the damage, the constraints that really bite are different. The shift from defined benefit to defined contribution pension structures has forced funds to maintain higher liquidity to service individual account statements and redemptions. Daily settlement requirements for unit trusts create similar constraints. These structural features limit exposure to small and mid-cap equities far more directly than the offshore allowance does. And there is a related retail dimension worth noting: tax-free savings accounts are restricted to exchange-traded funds and cannot hold individual equities, which means the most growth-orientated retail investors are prevented from backing the speculative stocks where their risk appetite is actually suited.Policy anomaly That is a policy anomaly that should be fixed. It sits alongside the remarkable story of EasyEquities, which has introduced a generation of retail investors to direct equity ownership — investors who are beginning to move the needle on available capital for smaller companies. We should be building policy around that momentum, not ignoring it. The National Treasury has taken the 45% question seriously enough to commission an IMF assessment, which concluded that reversing the limit would impose costs that outweigh the benefits. That has now hardened into a regulatory position. The debate, as a practical matter, is in effect closed. Which means the question that actually needs answering is: what do we change instead? Freeing tax-free savings accounts to hold direct equities is one step. Making it easier for long-term pension capital to hold illiquid assets is another — the small-cap index yields 9% on a trailing earnings basis against 6.9% for the Top 40; there are returns there for investors who can tolerate the illiquidity. And above all, the policy energy that is going into relitigating the 45% should go into generating the pipeline of profitable businesses and bankable projects — in infrastructure, in energy, in logistics — that would make domestic investment the rational choice even when global alternatives are available. That is the policy agenda. Reversing the 45% is not on it. • Dr Theobald is founder and chair of research-led consultancy Krutham.