Openness to Foreign Investment
The government of South Africa is open to foreign investment as a means to drive economic growth, improve international competitiveness, and obtain access to foreign markets for its exports. Virtually all business sectors are open to foreign investors. No government approval is required to invest, and there are few restrictions on the form or extent of foreign investment. The Department of Trade and Industry's (DTI) Trade and Investment South Africa (TISA) division provides assistance to foreign investors. The DTI concentrates on sectors in which research has indicated that the country has a comparative advantage. TISA offers information on sectors and industries, consultation on the regulatory environment, facilitation for investment missions, links to joint venture partners, information on incentive packages, assistance with work permits, and logistical support for relocation. DTI publishes the "Investor's Handbook" on its website: http://www.dti.gov.za/publications/publications.htm.
Macroeconomic management was strong over the past decade, with reduced levels of public debt, generally low inflation, a progression from a fiscal deficit to a fiscal surplus, and a positive rate of economic growth until the global slowdown in 2009. Since the end of apartheid in 1994, the government has sought to liberalize trade and enhance international competitiveness by lowering tariffs, abolishing most import controls, undertaking some privatization, and reforming the regulatory environment. While this has resulted in several large foreign acquisitions in banking, telecommunications, tourism, and other sectors, foreign direct investment has fallen short of the government's expectations. South African banks are well capitalized and have little exposure to sub-prime debt or other sources of financial contagion. In January 2011, Fitch and Standard & Poor’s (S&P) upgraded South Africa’s credit outlook from “negative” to “stable” after concerns about capital outflow in the wake of the global financial crisis subsided.
In August 2007, the DTI launched its Industrial Policy Action Plan (IPAP) to promote a more labor-absorbing and broadly-based industrialization path in four lead sectors: 1) capital and transport equipment; 2) automotive; 3) chemical, plastic fabrication and pharmaceuticals; and 4) forestry, paper and furniture. Other sectors identified for attention included business-process outsourcing, clothing and textiles, tourism, and biofuels. In February 2010, DTI released an updated IPAP (IPAP2). IPAP2 builds upon IPAP and is focused on South Africa’s industrial infrastructure development. Key stated IPAP2 objectives include revising government procurement policy to enable the government to support targeted sectors; improving South Africa’s competitiveness by using trade and competition policy, and improving small- and medium-sized firms’ access to industrial financing.
The Broad- Based Black Economic Empowerment (BBBEE) strategy is a government program to increase the participation in the economy of historically disadvantaged South Africans. BBBEE requirements are specified in the Codes of Good Practice, which were published in the Government Gazette in February 2007. The codes set forth best practices for employment equity, skills development, enterprise development, preferential procurement, equity ownership, and small and medium-sized enterprises. They also permit multinational corporations to score equity ownership "points" ("equity equivalent") through the use of mechanisms not involving the transfer of equity if these mechanisms are approved by DTI and the multinationals have a global corporate policy of owning 100 percent of the equity in their subsidiaries. The process for getting an equity equivalent mechanism approved is complicated and requires a significant effort from the company. DTI has recently provided more clarity and the rate of approval of such mechanisms has improved. By the end of 2010, six “equity-equivalent” deals had been approved. A firm's BBBEE "score" is considered by government departments when awarding contracts. While firms are not legally required to meet BBBEE criteria, they are less competitive for government tenders if they fail to meet the criteria. The BBBEE Codes of Good Practice may be found on DTI's website: http://www.dti.gov.za/bee/beecodes.htm.
Some state-owned enterprises were fully or partially privatized in the 1995-2004 period. Since 2004, the government has focused on "restructuring" most of the remaining state-owned enterprises rather than proceeding with further privatization. Transnet (transportation) is focusing on core sectors that support its freight transport and logistics business. Some assets or businesses that are not part of this strategy have been sold to the private sector or transferred back to the government. Transnet transferred its regional airline SA Express to the Department of Public Enterprises in 2009 and sold its commercial telecommunications subsidiary Transtel Telecom to Neotel in 2007.
With respect to the energy sector, positive government intentions to involve independent power producers in electricity provision have been slow to materialize into contracts. For example, South Africa’s Department of Energy (DOE) contracted with US firm AES for a 1000 MW power project, but the project was terminated in 2007 due to issues over a power purchase agreement with Eskom, South Africa’s state-owned electric utility. In early 2010, President Zuma announced that an independent system operator would be established. Timing and details are under discussion.
Conversion and Transfer Policies
The South African Reserve Bank's (SARB) Exchange Control Department administers foreign exchange policy. An authorized foreign exchange dealer, normally one of the large commercial banks, must handle international commercial transactions and report every purchase of foreign exchange, irrespective of the amount, that is received by South African residents or companies. Generally, there are only limited delays in the conversion and transfer of funds.
While non-residents may freely transfer capital into and out of South Africa, transactions must be reported to authorities. Non-residents may purchase local securities without restriction. To facilitate repatriation of capital and profits, foreign investors should make sure that an authorized dealer endorses their share certificates as "non-resident." Foreign investors should also be sure to maintain an accurate record of investment.
Subsidiaries and branches of foreign companies in South Africa are considered to be South African residents and are treated legally as South African companies, and as such, are subject to exchange control by the SARB. South African companies may, as a general rule, freely remit the following to non-residents: repayment of capital investments; dividends and branch profits (provided such transfers are made out of trading profits and are financed without resorting to excessive local borrowing); interest payments (provided the rate is reasonable); and payment of royalties or similar fees for the use of know-how, patents, designs, trademarks or similar property (subject to prior approval of SARB authorities).
While South African companies are permitted to invest in other countries without restriction, SARB approval/notification is required for investments over R500 million. South African individuals may freely invest in foreign firms listed on South African stock exchanges. Individual South African taxpayers in good standing may make investments up to a total of R4 million in other countries. As of March 2010, South African banks are permitted to commit up to 25 percent of their capital in direct and indirect foreign liabilities. In addition, mutual and other investment funds can invest up to 25 percent of their retail assets in other countries. Pension plans and insurance funds may invest 15 percent of their retail assets in other countries.
Before accepting or repaying a foreign loan, South African residents must obtain SARB approval. The SARB must also approve the payment of royalties and license fees to non-residents when no local manufacturing is involved. When local manufacturing is involved, the DTI must approve the payment of royalties related to patents on manufacturing processes and products. Upon proof of invoice, South African companies may pay fees for foreign management and other services provided such fees are not calculated as a percentage of sales, profits, purchases, or income.
SARB approval is also required for the sale of all forms of South African-owned intellectual property rights (IPR). Approval is generally granted by SARB if the transaction occurs at arm's length and at fair market value. IPR owned by non-residents is not subject to any restrictions in terms of repatriation of profits, royalties, or proceeds from sales.
Further questions on exchange control may be addressed to:
South African Reserve Bank
Exchange Control Department
P.O. Box 427, Pretoria, 0001
Tel: +27 (0) 12 313-3911; Fax: +27 (0) 12 313-3197
Expropriation and Compensation
The Expropriation Act of 1975 (Act) and the Expropriation Act Amendment of 1992 entitle the government to expropriate private property for reasons of public necessity or utility. The decision is an administrative one. Compensation should be the fair market value of the property. There is no record, dating back to 1924, of an expropriation or nationalization of a U.S. investment in South Africa.
Racially discriminatory property laws during apartheid resulted in highly disproportionate patterns of land ownership in South Africa. As a result, the post-apartheid government has committed to redistributing 30 percent of the country's farm land to black South Africans by 2014.
In several restitution cases, the government has initiated proceedings to expropriate white-owned farms after courts ruled that the land had been seized from blacks during apartheid and that the owners subsequently refused court-approved purchase prices. In most of these cases, the government and owners reached agreement on compensation prior to any final expropriation actions. The government has twice exercised its expropriation power. It took possession of farms in Northern Cape Province and Limpopo in March 2007 and December 2007 after negotiations with owners collapsed. The government paid the owners the fair market value for the land in both cases.
Parliament shelved a controversial expropriations bill in 2008. The draft legislation would have enabled the government to expropriate farms and compensate owners as part of land reform. The legislation’s detractors claimed that the bill was unconstitutional due to provisions allowing government officials to determine the amount of compensation farm owners would receive, instead of allowing courts to make this determination. A revised version of the legislation is set to be reintroduced in Parliament in 2011.
Mineral rights have also been the subject of expropriation claims. The Mineral and Petroleum Resources Development Act 28 of 2002 ("MPRDA") replaced private ownership of mineral rights with a system of licenses controlled by the South African government. Under the MPRDA, investors who held pre-existing mineral rights were granted the opportunity to apply for licenses provided they met certain criteria, including the achievement of certain BBBEE objectives.
In his closing address at the African National Congress (ANC) National General Council (NGC) meeting in September 2010, President Zuma indicated that mines will not be nationalized. However, the NGC did agree in principle to folding existing state-owned mining assets into a single parastatal that could partner with other companies. Party leadership said it will study other countries' experiences with nationalization and revisit the issue at the ANC policymaking congress in 2012.
South Africa is a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards, but is not a member of the World Bank's International Center for the Settlement of Investment Disputes. South Africa recognizes the International Chamber of Commerce, which supervises the resolution of transnational disputes. South Africa applies its commercial and bankruptcy laws with consistency and has an independent, objective court system for enforcing property and contractual rights.
Performance Requirements and Incentives
DTI offers several investment incentives for manufacturing:
· The Business Process Outsourcing & Off-Shoring (BPO&O) investment incentive comprises an Investment Grant ranging between R37,000-R60,000 ($5,400-$8,800 U.S.) and a Training Support Grant towards costs of company specific training up to a maximum of R12,000 ($1,765 U.S.) per agent. The incentive is offered to local and foreign investors establishing projects that aim primarily to serve offshore clients. The objective of the incentive is to attract BPO&O investments that create employment opportunities. The grant is provided directly to approved projects depending on the value of qualifying investment cost and employment creation.
· The 12i Tax Incentive is designed to support greenfield investments (i.e. new industrial projects that utilize only new and unused manufacturing assets), as well as brownfield investments (i.e. expansions or upgrades of existing industrial projects). The 12i incentive is available for investments with a total value of more than R1.6 million ($235,000 U.S.).
· The Manufacturing Investment Program offers local- and foreign-owned entities an investment grant of up to 30 percent of the value of qualifying investment costs in machinery, equipment, commercial vehicles, land and buildings, required for establishing a new production facility; expanding an existing production facility; or upgrading production capability in an existing clothing and textile production facility.
· The Sector Specific Assistance Scheme (SSAS) is a reimbursable cost-sharing grant whereby financial support is granted to Export Councils, Industry Associations, and Joint Action Groups. Export Councils represent the trade promotion efforts of specific industries, while Industry Associations are trade associations that represent sectors that are prioritized for development by DTI. Joint Action Groups are groups of companies or associations that seek to cooperate on one-time projects in sectors prioritized for development by DTI. Foreign companies can access SSAS funding through participation in one of these entities.
· The Film and Television Production Rebate Scheme encourages foreign and domestic investment in the local film industry. Eligible applicants may receive a rebate of 15 percent of the production expenditures for foreign productions and up to 25 percent for qualifying South African productions. Film projects must have begun after April 1, 2004 and investment in the film must reach a threshold of R25 million ($3.67 million U.S.) to qualify for the rebate. Other requirements include 50 percent completion of the principal photography in South Africa and a minimum of four weeks' local photography time. Eligible productions include movies, television series, and documentaries. The maximum rebate for any project will be R20 million ($2.9 million U.S.).
· To encourage investment in the automotive sector, the Automotive Investment Scheme was announced in June 2010 as part of the Automotive Production and Development Program (APDP). It will provide qualifying firms with a taxable cash grant of 20 percent of the value of qualifying investment in productive assets. In order to qualify, a light motor vehicle manufacturer must introduce a new or replacement model and demonstrate that it will achieve a minimum of 50,000 annual units of production per plant within 3 years. A component manufacturer can qualify by proving that a contract has been awarded for the manufacture of components to supply into the light motor vehicle manufacturing supply chain, and that the investment will generate revenue of R10 million ($1.4 million U.S.). An additional taxable cash grant of 5-10 percent is available if additional conditions are met. APDP stipulates that automobile import tariffs will be frozen at 25 percent until 2020.
· Details on all investment programs are available at the DTI website at: http://www.thedti.gov.za/offerings/Investment_Support.htm
· AIS details can be found at this website: http://www.dti.gov.za/ais/ais.htm
South Africa's various provinces have development agencies that offer incentives to encourage investors to establish or relocate industry to their areas. The incentives vary from province to province and may include reduced interest rates, reduced costs for leasing land and buildings, cash grants for the relocation of physical plants and employees, reduced rates for basic facilities, railroads and other transport rebates, and assistance in the provision of housing. Under the National Industrial Participation Program (NIPP), foreign companies winning large government tenders exceeding $10 million must invest at least 30 percent of the value of the imported content of the tender in South Africa.
Several South African entities have been established to support investment in export-oriented industries, research and development, or offer technical assistance to industry:
· The Industrial Development Corporation (IDC) is a self-financing, state-owned corporation that provides equity and loan financing to support investment in target sectors. The IDC also provides credit facilities for South African exporters
· The Council for Scientific and Industrial Research (CSIR) is a government-owned organization that does multi-disciplinary research and development for industrial application.
· Technifin, a CSIR subsidiary, finances the commercialization of new technology and products.
· MINTEK develops mining and mineral processing technology for commercial application.
· The Council for Geoscience undertakes geological surveys and services related to minerals exploration. Foreign companies and research organizations can access research done by a specific organization through partnerships and direct contract.
Right to Private Ownership and Establishment
The right to private property is protected under South African law. All foreign and domestic private entities may freely establish, acquire, and dispose of commercial interests. The securities regulation code requires that an offer to minority shareholders be made when 30 percent shareholding has been acquired in a public company that has at least ten shareholders and net equity in excess of R5 million ($750,000 U.S.).
State-owned enterprises dominate a number of key sectors in South Africa. Eskom supplies 94 percent of South Africa's electricity. Transnet operates the bulk of the nation's railways and ports. The South African Post Office is a legislated monopoly.
Telkom is the dominant fixed-line telephone operator and is 37 percent government-owned. Neotel is a second national operator that began limited business-only operations in October 2006 and is 30 percent government-owned. Neotel entered the business-to-business market in 2007 and has entered the residential market in selected areas. InfraCo, a 100 percent government-owned broadband provider, was formed using the fiber-optic networks of Eskom and Transnet in December 2006, approved for operations by Parliament in October 2007, and awarded an electronic communications network services license in October 2009.
The Competition Act of 1998 and subsequent amendments address anticompetitive practices in both the private and public sectors. The Competition Commission has demonstrated increasing capacity to implement competition policy. There have been more frequent challenges in recent years against state-owned enterprises that compete unfairly or otherwise abuse their dominant position.
Political sensitivity to foreign ownership in certain sectors has not resulted in restrictive legislation thus far.
Protection of Property Rights
The South African legal system protects and facilitates the acquisition and disposition of all property rights, e.g., land, buildings, and mortgages. Deeds must be registered at the Deeds Office. Banks usually provide finance for the purchase of property by registering the mortgage as security.
Owners of patents and trademarks may license them locally, but when a patent license entails the payment of royalties to a non-resident licensor, DTI must approve the royalty agreement. Patents are granted for twenty years - usually with no option to renew. Trademarks are valid for an initial period of ten years and thereafter are renewable for ten-year periods. The holder of a patent or trademark must pay an annual fee to preserve ownership rights. All agreements relating to payment for the right to use know-how, patents, trademarks, copyrights, or other similar property are subject to approval by exchange control authorities in the SARB. A royalty of up to four percent of the factory selling price is the standard approval for consumer goods. A royalty of up to six percent will be approved for intermediate and finished capital goods.
Literary, musical, and artistic works, as well as cinematographic films and sound recordings are eligible for copyright under the Copyright Act of 1978. New designs may be registered under the Designs Act of 1967, which grants copyrights for five years. The Counterfeit Goods Act of 1997 provides additional protection to owners of trademarks, copyrights, and certain marks under the Merchandise Marks Act of 1941. The Intellectual Property Laws Amendment Act of 1997 went into force on October 1, 1997. It amended the Merchandise Marks Act of 1941, the Performers' Protection Act of 1967, the Patents Act of 1978, the Copyright Act of 1978, the Trademarks Act of 1993, and the Designs Act of 1993 to bring South African intellectual property legislation fully into line with the WTO's Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS). Amendments to the Patents Act of 1978 also brought South Africa into line with TRIPS, to which South Africa became a party in 1999, and implemented the Patent Cooperation Treaty.
Legislation before Parliament aims to protect the intellectual property of “indigenous knowledge” by amending current intellectual property law. The legislation would amend the Performer Protection Act, the Trademark Act, the Copyright Act and the Design Act to incorporate protection of “indigenous” knowledge. Some have expressed concern that the legislation will impact existing intellectual property rights holders by altering existing interpretations of South African intellectual property law.
Transparency of the Regulatory System
The Companies Act of 2008 to reform and replace the Companies Act of 1973 is in the process of being implemented. The 1973 Act provided for transparent regulations concerning the establishment and operation of businesses. Major reforms in the 2008 Act include the alignment of corporate governance regulations with international best practices, allotment of greater powers to minority shareholders, the codification of common law duties and liabilities of directors, and the introduction of flexibility in the design and organization of companies.
On April 1, 2011, South Africa’s Consumer Protection Act (2008) is also slated to go into effect. Provisions of the legislation aim to reinforce various consumer rights, including right of product choice, right to fair contract terms, and right of product quality. The legislation’s impact will vary by industry, and businesses will need to adjust their operations accordingly. The legislation for the Consumer Protection Act can be found at http://www.dti.gov.za/ccrdlawreview/DraftConsumerProtectionBill.htm and the draft regulations can be found at http://www.dti.gov.za/ccrd/cpa_regulations.htm.
Efficient Capital Markets and Portfolio Investment
South Africa's banks are well capitalized and comply with international banking standards. Six of the 35 banks in South Africa are foreign-owned and 15 are branches of foreign banks. The "Big Four" (Standard, ABSA, First Rand, and Nedbank) dominate the sector, accounting for almost 85 percent of the country's banking assets, which total over $240 billion. Barclays' acquisition of ABSA received government approval in 2005. The International Commercial Bank of China purchased a 20 percent stake in Standard Bank in late 2007 and the government approved the sale in early 2008. The South African Reserve Bank (SARB) regulates the sector according to the Bank Act of 1990. There are three alternatives for foreign banks to establish local operations, all of which require SARB approval: separate company, branch, or representative office. The criteria for the registration of a foreign bank are the same as for domestic banks. Foreign banks must include additional information, such as holding company approval, a letter of "comfort and understanding" from the holding company, and a letter of no objection from the foreign bank's home regulatory authority. More information on the banking industry may be obtained from the South African Banking Association at the following website: http://www.banking.org.za/.
The Financial Services Board (FSB) governs South Africa's non-bank financial services industry (see website: http://www.fsb.co.za/). The FSB regulates insurance companies, pension funds, unit trusts (i.e., mutual funds), participation bond schemes, portfolio management, and the financial markets. The JSE Securities Exchange SA (JSE) is the fourteenth largest exchange measured by market capitalization in the world. Market capitalization stood at R6.6 billion ($1 billion U.S.) in December 2010 with over 400 firms listed. The Bond Exchange of South Africa
(BESA) is licensed under the Financial Markets Control Act. Membership includes banks, insurers, investors, stockbrokers, and independent intermediaries. The exchange consists principally of bonds issued by government, state-owned enterprises, and private corporations. The JSE acquired BESA in June 2009. More information on financial markets may be obtained from the JSE (website: www.jse.co.za). Non-residents are allowed to finance 100 percent of their investment through local borrowing (previously, they were required to invest R1 for every R3 borrowed locally). However, a finance ratio of 1:1 still applies to emigrants, the acquisition of residential properties by non-residents, and financial transactions such as portfolio investments, securities lending and hedging by non-residents.
South Africa's national election in April 2009 was free, fair, and peaceful, with isolated incidents of violence in the run up to the vote and on election day. This was the fourth national election since the transition to democracy in 1994. Criminal violence remains at a high level. National and provincial governments have pursued a number of programs that aim to diminish the level of criminal violence. Some forms of crime, including murders, armored vehicle and mall robberies, have declined over the past five years, while others, including burglaries, small business robberies, and sexual assaults, have increased.
The 2000 Promotion of Access to Information Act and the 2000 Public Finance Management Act increased transparency in government. The 2004 Prevention and Combating of Corrupt Activities Act (PCCAA) defines graft, bars the payment of bribes by South African citizens and firms to foreign public officials, and obliges public officials to report corrupt activities. One shortcoming of the PCCAA is its failure to protect whistleblowers against recrimination or defamation claims. South African law also provides for the prosecution of government officials who solicit or accept bribes. Available penalties for offering or accepting a bribe include criminal prosecution, monetary fines, dismissal from government employment, and deportation (for foreign citizens).
South Africa has no fewer than 10 agencies engaged in anti-corruption activities. Some, like the Public Service Commission, the Office of the Public Protector, and the Office of the Auditor-General, are constitutionally mandated to address corruption as part of their responsibilities. High rates of violent crime are a strain on capacity and make it difficult for South African criminal and judicial entities to dedicate adequate resources to anti-corruption efforts.
In 2010 the government intensified anti-corruption efforts. Former National Police Commissioner Jackie Selebi, who was charged with corruption, was found guilty of defeating the ends of justice in July 2010 and sentenced to 15 years in prison. While the newly formed priority crimes unit, known as the “Hawks”, has been criticized as less effective than the unit it replaced in 2009 (the “Scorpions”), it has arrested a number of white collar criminals for banking irregularities and fraud. In August 2010, the government announced that the Special Investigating Unit (SIU), an independent anti-corruption agency, would investigate five ministries, two provincial departments and the South African Social Security Agency for tender and procurement irregularities. Also in August 2010, the Minister of Human Settlements announced the arrest of 1,910 government officials who had been benefitting illegally from housing subsidies worth Rand 44 million ($6.35 million U.S.).
Transparency International's 2010 Corruption Perceptions Index reported that corruption in South Africa was perceived to be at the same level it was in 2009. South Africa was ranked 55th out of 180 countries (where 1 is the country where corruption is perceived to be the lowest, and 180 the country where corruption is perceived to be the highest) in 2009 and 54th out of 180 countries in 2010. In 2010, South Africa was deemed the second least corrupt country in Africa, after Botswana. Transparency International maintains an office in South Africa. More information about the Corruption Perceptions Index is available at the following website: http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results.
Public perception of widespread official corruption, particularly in the police and the Department of Home Affairs, continues. South Africa is a signatory of the OECD Convention on Combating Bribery and the UN Convention against Corruption.
Bilateral Investment Agreements
South Africa has bilateral investment treaties (BITs) with Argentina, Austria, Belgium, Canada, Chile, the Czech Republic, Finland, France, Germany, Greece, Mauritius, the Netherlands, the Republic of Korea, Spain, Sweden, Switzerland, Turkey, and the United Kingdom. A Trade, Development, and Cooperation Agreement that came into force between South Africa and the European Union on January 1, 2000 does not contain an investment chapter.
South Africa, as a member of the Southern African Customs Union (SACU), is party to a Preferential Trade Agreement (PTA) between SACU and the Southern Common Market (MERCOSUR), which was concluded and signed in 2009. This is the first agreement concluded by SACU as a single entity with another developing country region. The PTA does not contain an investment chapter. SACU is currently in negotiations for a PTA with India.
The United States and South Africa signed a Trade and Investment Framework Agreement in 1999. The United States began free trade agreement (FTA) negotiations with the five SACU countries (South Africa, Botswana, Lesotho, Namibia, and Swaziland) in June 2003, but active negotiations were suspended in April 2006. In lieu of a U.S.-SACU FTA, the United States and SACU negotiated a Trade, Investment and Development Cooperation Agreement (TIDCA), which was signed in July 2008. The four areas identified for special attention under the TIDCA are customs cooperation, technical barriers to trade, sanitary/phytosanitary (SPS) issues, and trade and investment promotion. Agreements regarding mutual assistance between the customs administrations of the United States and South Africa became effective on August 1, 2001. The U.S.-South Africa bilateral tax treaty eliminating double taxation became effective on January 1, 1998.
OPIC and Other Investment Insurance Programs
South Africa and the United States signed an agreement to facilitate Overseas Private Investment Corporation (OPIC) programs in 1993. OPIC has since invested in a number of funds supporting sub-Saharan Africa development, including the Africa Catalyst Fund ($300 million Pan- Africa, focused on small- and medium- sized enterprise development), Africa Healthcare Fund ($100 million Sub-Saharan Africa, focused on private healthcare delivery businesses, and ECP Africa Fund II, ($523 million, focused on telecommunications, oil and gas, power, transportation, agribusiness, media, financial services and manufacturing.) Specific to South Africa, OPIC also currently supports the South Africa Workforce Housing Fund ($240 million) for investments in individual housing developments and in companies that contribute to the development and affordability of residential housing at any point along the value chain. Additional information on OPIC programs that involve South Africa may be found on OPIC's website: http://www.opic.gov/investment-funds/africa.
In November 2010, the United States Export-Import (Ex-Im) Bank signed a memorandum of understanding (MOU) with South Africa’s Export Credit Insurance Corporation (ECIC). Under the agreement, Ex-Im and ECIC will exchange trade and business information and identify opportunities for cooperation in sub-Saharan Africa. South Africa is also a member of the World Bank's Multilateral Investment Guarantee Agency.
The South African government has worked to remove all vestiges of apartheid-era labor legislation over the last 17 years. In its place, the government created a labor market characterized by employment security, reasonable wages, and decent working conditions. Under the aegis of the National Economic Development and Labor Council (NEDLAC), government, business, and organized labor negotiated all labor laws, with the exception of laws pertaining to occupational health and safety. NEDLAC negotiations placed a high value on worker rights and collective bargaining. The law allows all workers to form or join trade unions of their choice without previous authorization or excessive requirements. Trade union membership figures are imprecise but total membership is estimated at three and one half million people, which is 31 percent of the economically active population employed in the formal sector as of 2010. Most union members belong to affiliates of the Congress of South African Trade Unions (COSATU). Other unions are affiliated to the Federation of Unions of South Africa (FEDUSA) or the National Council of Trade Unions (NACTU). COSATU, the largest of the federations, is part of the ruling alliance with the African National Congress (ANC) and the South African Communist Party and vigorously lobbies the ruling party to implement its policy positions.
The right to strike is protected under South African law. The Economist reported that 1.5 million work days were lost to strike action in 2009. The 2010 "Strike Season" was extremely robust, with multiple long-term strikes and trade unions pushing for wage increases twice the rate of inflation. Sectors most affected historically have been community services such as public health and education, manufacturing, mining, and retail.
South African business argues that the labor market is rigid and over-regulation has constrained job creation and employment. Trade unions argue that employers evade labor legislation through the use of labor brokers who supply temporary workers.
In December 2010, South Africa’s Labor Minister proposed an overhaul of South Africa’s already strict labor laws. The amended legislation envisions: (1) heavily regulating the labor brokering (third party contract labor) industry; (2) mandating workers doing similar work receive the same pay; and (3) requiring that “an employee must be employed permanently, unless the employer can establish a justification for employment on a fixed term. The South African Department of Labor (SADOL) also proposes creating a government employment agency. The laws must be submitted to Parliament and the National Economic Development and Labor Council (NEDLAC) for review and are expected to spark contentious debate prior to any enactment.
Major labor legislation includes:
· The Labor Relations Act, in effect since November 1996, provides retrenchment guidelines, stating that employers must consider alternatives to retrenchment and must
consult all relevant parties when considering possible layoffs. The Act enshrines the right of workers to strike and of management to lock out striking workers. The Act created the Commission on Conciliation, Mediation, and Arbitration (CCMA) which can conciliate, mediate, and arbitrate in cases of labor dispute, and is required to certify an impasse in bargaining council negotiation before a strike can be called legally. The CCMA has a caseload that exceeds what was anticipated.
· The Basic Conditions of Employment Act, implemented in December 1998, establishes a 45-hour workweek and minimum standards for overtime pay, annual leave, and notice of termination. The Act also outlaws child labor. Further, it states that no employer may require or permit overtime except by agreement, and overtime may not be more than ten hours per week.
· The Employment Equity Act of 1998 prohibits employment discrimination and requires large- and medium-sized companies to prepare affirmative action plans to ensure that black South Africans, women, and disabled persons are adequately represented in the workforce.
· The Occupational Health and Safety Act, last amended in 1993, provides for occupational health and safety standards and gives the Department of Labor the right to inspect the workplace. The Mine, Health and Safety Act authorizes the Inspector of Mines to provide regulatory oversight for the mining industry.
· The Skills Development Act of 1998 imposes an annual levy on employers equal to one percent of the payroll that is to be used for training programs devised by industry-specific training authorities (SETAs). Many groups, including organized business, question the effectiveness of SETAs. Businesses allege that their statutory contributions to these government-sponsored training authorities are wasted or misused, and that SETAs have done little to increase the skills base. The Department of Higher Education and Training has reformed SETA structures in light of criticisms but has not responded favorably to business proposals for independently managed training. SETAs report that more than half of high school graduates do not have sufficient basic skills to obtain any formal employment.
The most recent Quarterly Labor Force Survey (LFS) published on October 26, 2010 listed the official unemployment rate at 25.3 percent. The LFS defines unemployment to exclude persons who have not actively sought employment during the previous four weeks. The unemployment rate increases to 37 percent if these 2 million discouraged job seekers are included. Many unemployed people have never worked. Despite the high unemployment rate, South Africa has a shortage of skilled workers across many sectors.
South Africa has no country-wide minimum wage, but the Minister of Labor has issued determinations that set a minimum wage for certain occupations where collective bargaining is not common. These occupations include domestic workers, farm workers, and taxi drivers. More information regarding South African labor legislation can be found at http://www.labour.gov.za/legislation.
Foreign Trade Zones/Free Ports
South Africa designated its first Industrial Development Zone (IDZ) in 2001. IDZs offer duty-free import of production-related materials and zero VAT on materials sourced from South Africa, along with the right to sell into South Africa upon payment of normal import duties on finished goods. Expedited services and other logistical arrangements may be provided for small
to medium-sized enterprises, or for new foreign direct investment. Co-funding for infrastructure development is available from DTI. There are no exemptions from other laws or regulations, such as environmental and labor laws. The Manufacturing Development Board licenses IDZ enterprises in collaboration with the South African Revenue Service (SARS), which handles IDZ customs matters. IDZ operators may be public, private, or a combination of both. IDZs are currently located at Coega near Port Elizabeth, in East London, Richards Bay, Mafikeng, and at OR Tambo International Airport near Johannesburg.
Foreign Direct Investment Statistics
Foreign direct investment (FDI) data is readily available in South Africa. The U.S. Embassy relies primarily on the SARB for foreign investment data. SARB statistics conform to the IMF definition of FDI (i.e., ownership of at least 10 percent of the voting rights in an organization by a foreign resident or several affiliated foreign residents, including equity capital, reinvested earnings, and long-term loan capital) and represent actual investment, excluding announced but not completed "intended" investment. The SARB does not provide country-specific figures that distinguish between actual investment flows and changes in investment stocks caused by asset swaps, exchange rate adjustments, and mergers and acquisitions. This makes it difficult to track the United States' and other countries' FDI position in South Africa on an annual basis. Original SARB statistics can be found at: http://www.reservebank.co.za/internet/publication.nsf/WTV/QuarterlyBulletins6AF7920302C489BB42256B440046F4F2?OpenDocument.
Because SARB statistics only provide an annual total for all the countries' flows combined, observers also often consult more updated information obtained from the South Africa-based firm "Business Map" (BM). The latter offers fee-based services for a wide range of investor-related data and analysis at their website: http://www.businessmap.co.za.
The following FDI statistics were drawn from the SARB's December 2010 Quarterly Bulletin. The conversion exchange rate used was the average exchange rate for each year cited.
*The high inflow in 2001 was due to the DeBeers/Anglo American transaction.
*The inflow in 2005 was due to the Barclays/ABSA and Vodafone/Vodacom transactions.
*The inflow in 2007 was due to ICBCFs purchase of Standard Bank.
*2001 De Beers/Anglo American transaction resulted in the return of capital, previously invested abroad, to South Africa. Since 1994 many foreign firms have opened or re-opened offices in South Africa. There are an estimated 600 American companies (including subsidiaries, joint ventures, local partners, agents, franchises, and representative offices) doing business in South Africa.
U.S. Companies with investment of at least R10 million ($1.4 million U.S.) in South Africa:
Amazon Books, Caltex, Caterpillar, Coca-Cola, Cisco, CitiGroup, CSX, Dell, Dow Chemical, Eli Lilly, Ford, Forest Oil, Fluor, General Electric, General Motors, Goodyear, HP, IBM, Joy Global, Levi Strauss, Johnson & Johnson, Kimberly-Clark, McDonald's, Microsoft, Nike, Pioneer Energy, Proctor & Gamble, Sara Lee, and Silicon Graphics, Timken, Westinghouse.