It meant that a company wanting to set up a South African operation would obtain finrands at a better rate than commercial rands for its currency. But if it wanted to disinvest the exchange rate was at a less favourable commercial rand rate.

Senior government officials have said the Reserve Bank had secured foreign credit to support the exchange rate once the dual currency system was abolished.

An increase in interest rates is also expected to prevent a flight of capital into foreign markets.

Mr Carter said: 'We are trying to make sure we are an integral part of the world's economic community. Where we have impediments they are gradually being phased out.' But the government, which is in the process of dismantling the apartheid system, has so far failed to attract the level of foreign investment predicted after last year's first truly free elections.

Mr Carter said: 'We are a re-emerging market, not an emerging market.' He said the economy was suffering from too highly concentrated private and corporate ownership, foreign exchange controls, limited competition resulting from anti-trust legislation, and low discretionary savings.

There are 638 listed companies, down from 900 in 1990.

The top 20 per cent of the 638 companies account for 91 per cent of market capitalisation.

Over the past two years, overall market capitalisation increased from 533 billion rand (about HK$1.01 trillion) to more than 800 billion rand. Financial controls preventing overseas investment also have resulted in low turnover and poor liquidity.

Mr Carter said: 'The market's liquidity is pathetic. Once an institution buys a share it is too scared to sell it because of concerns that it will not be able to find an adequate replacement.

'The reforms will be very uncomfortable for us, but the process of change is under control and the process of financial reform is in place.' In addition to removing exchange controls, the stock market also is deregulating its dealing and admission rules.

This package of reforms will include allowing banks and foreign institutions to become brokers from November. 'A lot of companies have expressed a wish to invest in an emerging economy,' Mr Carter said.

'The question is whether we are more attractive than our competitors.

'If you believe Africa has a future, the best way to invest is through South Africa, because it is the only [country] with any substantial infrastructure. It also has a huge resources base.' But political troubles, such as the Inkatha Freedom Party's walk-out from Parliament, are likely to decrease foreign investment and make introducing the reforms more difficult.

Carole Judd, a director of Old Mutual, Africa's biggest fund management group, said at current levels the market was not 'great value'.