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The South African EB-5 market and its unique perspective

South African broker-dealer rep Carel van der Merwe and immigration attorney Leon Versfeld discuss EB-5 as it relates to their homeland, including currency exchange controls, timing, source of funds, and the local perspective. 

The typical South African investor is savvy and has built family wealth over a couple generations, or is an entrepreneur. Most are motivated by giving their children better education and work opportunities. Also featuring investment banker Kurt Reuss of eb5Marketplace.

Part 1: EB-5 Market for South Africans

Currency and exchange control implications 

Kurt: Could we start by discussing the currency and exchange control implications of making an EB-5 investment? 

Leon: Sure. The South African Reserve Bank, also referred to as SARB, has a limit on how much money a South African citizen or taxpayer can take out of the country. You can take out, per passport holder, one million Rand in a discretionary allowance without any questions being asked. 

Often times South Africans will utilize this just to externalize their capital. In addition, individuals can get permission from SARB to take out up to an additional R10 million. 

In the past this process was not all that intrusive, but obviously you need to make sure that your tax affairs are all in order. Getting a clearance didn’t necessarily take all that long, however with the increase in the investment amount from $500,000 to $900,000, there’s been a significant slowdown in that process, because the amount of money that you would want to externalize, entails a significant, intrusive, review by the Internal Revenue Service of South Africa and the South African Reserve Bank. 

However, many prudent investors have diversified their portfolios and externalized their money at an earlier stage so the amount of money that they are asking SARB for clearance may not necessarily be the full $900,000. 

Carel: As Leon mentioned, the allowances are per person, so if there is a need to take out more than R10 million, and $900,000 is currently about R15 million, then you can do a spousal donation in order to get to where you need to be. 

Leon: This is a process that is not different to what we’ve done before, even when the minimum investment threshold was $500,000. This is because a lot of people want to externalize all their assets and permanently emigrate to the United States. 

What we find is that investors sometimes want to try and time their move offshore with strength in the Rand, which is difficult to predict and sometimes works to their detriment, especially last year when we were running up against a looming EB-5 deadline. 

Kurt: Right. I’m going to share with you that, Carel and I are working with a South African family that will need five EB-5 petitions. And I believe their wealth is in the farmland they own. So how would a family like that get in the neighborhood of R75 million out the country? Is the process basically the same as the one you mentioned? 

Leon: Yes. We have local companies that we have been working with that specifically help in terms of getting clearances and dealing with SARS. They can help these guys navigate through this to move the money offshore. 

Plan your move 

Kurt: When you talk to a client who’s considering moving to the U.S. on an EB-5 visa, how far ahead do you suggest they start to plan their move? 

Leon: I would say at least three years before they prepare to leave, and that’s a very conservative timeline. What I typically tell folks, especially at an early phase, is that there is very little that we can do to hurry the process. 

There are a few things we can do at phase two, during the consulate processing stage, in order to move things along, or to slow things down, depending on where your kids are at school or where you are in your career or business dealings. But a three-year timeframe kind of covers everybody in regard to expectations. 

You touch on something that is crucial because as far as timelines are concerned, we typically base things on historical adjudications. Sometimes the process goes faster and sometimes it just drags on, which makes it very tough to meet client’s expectations. 

What I typically tell folks is that as soon as we get the I-526 approval, then we can start to make more definite plans because the consulate process is relatively straightforward. I-526 approval times are difficult to handicap, we are seeing adjudication times from 8 months up to 24 months, and processing times for non-exemplar approved projects could take even longer. 

Kurt: I guess my question about timing was more about prior to making the investment. You have this currency that needs to get out of the country. How much time does it typically take someone from when they decide to leave until they are able to make an investment? 

Leon: That’s a very good question. A lot of high net worth investors have a diverse portfolio with money offshore, so it depends on how much money they need to get clearance for and whether their historical tax returns are up to date. 

It could take anywhere from a month to three months. That would be the typical case in my experience. 

Carel: I’d agree with Leon, although most of the clients we’ve had didn’t have to get an approval from SARS because they use their offshore money. 

Source of Funds tracing 

Kurt: When it comes to the source of funds tracing, Leon, is that something that you get involved in directly? 

Leon: Sure. I want to say that aside from the handholding during the whole process the most important aspect we get involved with is the source of funds. 

Kurt: Could you give me the pitch that you would make to a new client as to how you go about source of funds tracking? 

Leon: Sure. What is very helpful is that they are at least familiar with a source of funds concept in that they needed to do something similar through the SARS clearance. So, there’s quite a lot of information that they will have readily available. 

But then I tell them that we’re going to identify and isolate the $900,000 that you’re going to use for source of funds purposes. And more importantly, I tell them what to expect. USCIS is going to want to know where you got the money to buy the first seed that you put in the ground that ultimately grew into this apple tree. And we are selling the apples to generate the funds.

They get that concept, and a lot of these guys keep good records. A lot of the stuff is not all that intrusive, but it gets a bit challenging when you have somebody who’s accumulated wealth for a significant amount of time, and immigration will want to know where you got the money to start the company or buy the house that now sold for 10 times the value. 

Some of these investors are very sophisticated and have family trusts that generate wealth from ownership in companies. It can get a bit complicated when there’s a spider’s web of financial interests to make sure that immigration understands exactly where the source of funds comes from. 

The Typical South African EB-5 investor 

Kurt: Leon, could you tell me what the typical South African EB-5 client looks like?

Leon: In most cases the typical guy is somebody who accumulated family wealth over a couple of generations, but then there’s also the entrepreneurs. 

Most of the investors are sophisticated and have managed their investments well. So, when they realize that the return on their EB-5 investment is low they question why they would take a substantial amount of their wealth to invest in something that’s not going to generate a decent return. 

Kurt: Right, it’s almost a million dollars that gets sidelined for five years typically. 

Leon: Yeah. I oftentimes say to investors that you need to look at this part of the portfolio as opportunity. By doing due diligence, you can make a very secure investment, and the opportunity that you give your family by bringing them to the United States is tremendous… enrolling your kids into school, the opportunities that they would get from employment during and after graduation. 

It’s something that money just can’t buy. I mean, yes, you could probably, at a high cost, send your kids to the United States to study at international rates, but your chances of getting them into an Ivy League school is very minimal if you’re not a permanent resident. 

And their employment opportunities beyond that are limited. Number one, finding an employer who is willing to hire you, good luck with that. Secondly, if are they willing to hire you, it does not automatically mean employment because those visas are very limited. 

And so, once you go through this analysis, it boils down to an opportunity that you are investing in more than anything else. And that’s where the return lies. Not the monetary return. 

Kurt: How frequently do you find that the motivation for people to come to the U.S. relates to educational opportunities? And, maybe even in contrast, how often do you find it more about the economic opportunities? 

Leon: I would say 70% are for education opportunities and the remaining 30% are for business opportunities and whatever other reason. But let me add something that is an overarching factor. 

Some of these guys realize that the rule of law in South Africa, unfortunately, is going out the window. It doesn’t matter if it’s South Africa, or anywhere else, but once the rule of law is in jeopardy it behooves you to take your business elsewhere. 

Kurt: What is the size of the South African EB-5 market in your opinion? 

Leon:I don’t think it’s as large as you would see in other parts of the world, but there are a significant amount of folks that are seriously considering emigrating. Unfortunately for most of them the $900,000 threshold is just too much. 

Carel:According to USCIS between 2015 and 2018, the average number of South African I-526 visas issued was 40 per year, but last year, 2019, there was a significant increase, partly due to the imminent investment amount increase, with 120 I-526 approvals. 

I think the other interesting fact to mention is that the approval rate for South Africans was 92% last year, which is incredibly high by any standards. 

Leon: And I think that is a testament to the sophistication of the South African investors, but maybe also some of the attorneys that they choose to work with.

Part 2: Discussion around the current state of the market

Risk and return of the EB-5 market 

Kurt: What do you think about the risk level of EB-5 investments available in the market today? 

Carel:I think it’s important for potential investors to find a suitable investment and get comfortable with it before going down this pathway. I also think it is important to evaluate several investments and have thorough due diligence available on all of them. This is why the eb5marketplace platform is so helpful. 

Plus, I think it’s correct to be cautious about some of the investments in the market, because a lot of these projects are real estate projects in the hospitality sector and with COVID there are some legitimate concerns as to how hotels are going to do. 

Kurt: Why do EB-5 investments offer such low rates of return? 

Carel:I think Leon summarized it well in the sense that it’s not a typical investment. If you are looking for a traditional investment, this is a lousy investment because of the low returns, but what you really should be concerned about is safety of capital and a successful immigration outcome. And in that sense, it is a great investment because you’re really investing in the opportunity to bring your family to the U.S. 

Having said that, in the $900,000 era, we are seeing more investments offering better returns. Whereas it used to be that a quarter percent was the sort of standard return for a high quality EB-5 project, that has improved in the current market. Some investments are offering up to a 5% return in dollar terms and that is an attractive return for a safe investment. 

I think from a South African’s perspective, we’ve got this consistent decline in the Rand over the years so if you look at it in Rand terms, you could make a solid argument that this is a good Rand hedge investment. 

In recent conversations with South Africans, they were not too concerned about return. All they wanted was an investment where they felt confident they would get their money back. As you know, Kurt, in addition to getting your money back, the other important outcome with an EB-5 investment is the immigration outcome, in other words getting your Green Card, and particularly with exemplar approved projects this is a high likelihood outcome. 

Leon: Oftentimes I have shared with people what the bigger picture is. You need to understand how this whole process works and how people in the EB-5 value chain make money. If you understand how everybody makes money, oftentimes the investors say, okay, I get it. 

The more transparent you are, the better, so it’s not some grand scheme where all of this stuff is hidden. With a lot of these investors, they understand how money makes the world go round and it makes it easier in some ways to say, all right, as long as my money is secure the return on my investment is what it is, in order to grab a hold of this opportunity. 

Changes to the program? 

Kurt: Do either of you think that the investment amount will change anytime soon? 

Leon: Not to my knowledge. In an ideal world I would hope it would decrease, with maybe an increase in the number of visas available. If the objective is to stimulate the U.S. economy, what better way to increase the amount of jobs that need to be created. 

And, by lowering the investment amount, that means more investors, and more investors means more jobs. And from some of these regional centers there’s quite a big, direct and indirect job creation in any event. 

Kurt: Interestingly, you mentioned that the number of visas might go up. I don’t know that this really matters right now because we’re not using all the visas that are available, but I’m going to ask this question. Do you think a new Biden administration is going to significantly improve the processing time versus what we’ve seen over the last four years? 

Leon:Having been in this business for some time, I don’t get my hopes up from any administration that is promising an immigration benefit one way or the other. 

In fact, in the Trump administration, despite the fact that it’s been vilified in many different ways, I haven’t seen that much of a difference in adjudication, other than to say, maybe it’s a little bit easier. It seems to me from a variety of other cases that we handle in this office, EB5 applications have gotten some special attention. 

And we file quite a lot of applications. It hasn’t gotten to a point that you have with some of the other visas, like L or H1B visas, where you get this arbitrary ruling, or hindrance from an agency, and you shake your head and wonder who the hell made the change in the rules, because I haven’t seen any rule changes. 

EB-5 adjudication seems to be carved out from other immigration programs. Maybe it’s because it’s under the auspices of the Buy American, Hire America concept that all agencies are functioning under. 

Every time we get an approval, I celebrate it with clients’ consent, to let people know that this EB-5 immigration program does not necessarily have people coming and leaning on the American welfare system. 

These are people contributing to the American economy and creating jobs for your neighbors. 

Timing of adjudications 

Kurt: The reduction of petitions that we’ve seen in 2020 has been significant. I think only 21 petitions were filed in the first quarter of this year. Do you think that the reduction in petition filing is going to have an impact on the timing of adjudications? 

Leon: One would logically think that would be the outcome. In addition, the protocol changes that were made in March, as far as prioritizing the adjudication of non-retrogressed countries like South Africa would logically result in faster adjudications. 

But I haven’t seen that. In fact, we have seen slower adjudications and I think that may have had something to do with COVID, as well as maybe moving some resources around in anticipation of a possible furlough, because USCIS was running out of money. 

Kurt: Do you have any thoughts on the impact of COVID from an adjudication point of view? 

Leon: USCIS has been funded and is back to some sort of normality. But COVID did have an impact at the Consulates, especially in Johannesburg where EB-5 applications are exclusively processed. T

hey are very reluctant to get people in for interviews and the excuse used is that there’s a government shutdown. Well, we all know the government in South Africa is operating and we all know that students are coming over here because they get special treatment. So why could an EB-5 investor and his family not get interviewed?


  • South Africans have a limit of how much money they can take out, and this requires a significant review

  • As a $900,000 USD investment is more than one individual can take out at one time, the difference can be made up with money externalized at an earlier date, or from a spousal donation

  • Investors sometimes try to time their move with strength in the Rand, which is difficult to predict and sometimes works to their determent

  • Plan a move at least three years before hoping to leave

  • During the consulate processing stage, there are ways to speed up or slow down the process, to accommodate school or business needs

  • It takes about one to three months from starting the EB-5 process to making an investment

  • Overall, source of funds can be the most critical aspect a lawyer must deal with, especially tracking wealth that has been built over a significant amount of time

  • The typical South African investor has accumulated family wealth over a couple of generations, or is sometimes an entrepreneurs

  • South African investors are sophisticated and have managed their investments well

  • EB-5 offers significant family-related benefits for South African investors: a far better chances of getting children into an Ivy League school; giving children better employment opportunities afterwards

  • About 70% of South Africans choose EB-5 for education opportunities and the rest for business opportunities and other reasons

  • South Africans are concerned about the safety and stability of their homeland and the implications for their business

  • The 2019 92% approval rate for South Africans investors is a reflection of their sophistication

  • South African broker perspective on EB-5 investments: evaluate several investments with thorough due diligence; be cautious about projects in the hospitality sector because of COVID-19

  • Primary investor concerns should be safety of capital and a successful immigration outcome

  • While returns have been historically low, in 2020 more investments offering betters, some up to 5% return

  • South Africans investors, ultimately, are not too concerned about return

  • Transparency in dealing with investors is key

  • COVID has had an impact on the Johannesburg Consulate

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