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South Africa

Executive Summary

South Africa boasts the most advanced, broad-based economy on the African continent. The investment climate is fortified by stable institutions, an independent judiciary and robust legal sector committed to upholding the rule of law, a free press and investigative reporting, a mature financial and services sector, good infrastructure, and a broad selection of experienced local partners.

In dealing with the legacy of apartheid, South African laws, policies, and reforms seek to produce economic transformation to increase the participation of and opportunities for historically disadvantaged South Africans. The government views its role as the primary driver of development and aims to promote greater industrialization. Government initiatives to accelerate transformation have included tightening labor laws to achieve proportional racial, gender, and disability representation in workplaces, and prescriptive requirements for government procurement such as equity stakes for historically disadvantaged South Africans and localization requirements.

The COVID-19 pandemic has caused widespread disruption to economies and societies across the globe, and South Africa is no exception. Implementing one of the strictest economic and social lockdown regulations in the world, South Africa has limited the health impacts of the COVID-19 pandemic on its people, but at a significant cost to its economy. In a 2020 survey of over 2,000 South African businesses conducted by Statistics South Africa (StatsSA), over 8 percent of respondents have permanently ceased trading, while over 36 percent indicated short-term layoffs. Experts predict South Africa will have a -3 percent to -7 percent rate of GDP growth for the year.

Pre-COVID-19 lockdown numbers hovered just below zero growth as South Africa continued to fight its way back from a “lost decade” in which economic growth stagnated, largely as a consequence of corruption and economic mismanagement during the term of its former president. StatsSA released fourth quarter 2019 growth figures that indicated that South Africa entered a recession in the second half of 2019, the second recession in two years as the country had negative growth in the first two quarters of 2018. This lackluster performance led Moody’s rating agency to downgrade South Africa’s sovereign debt to sub-investment grade. S&P and Fitch ratings agencies made their initial sovereign debt downgrades to sub-investment grade a couple of years earlier. Other challenges include: creating policy certainty; reinforcing regulatory oversight; making state-owned enterprises (SOEs) profitable rather than recipients of government money; weeding out widespread corruption; reducing violent crime; tackling labor unrest; improving basic infrastructure and government service delivery; creating more jobs while reducing the size of the state (unemployment is over 29 percent); and increasing the supply of appropriately-skilled labor.

Despite structural challenges, South Africa remains a destination conducive to U.S. investment. The dynamic business community is highly market-oriented and the driver of economic growth. South Africa offers ample opportunities and continues to attract investors seeking a comparatively low-risk location in Africa from which to access the continent that has the fastest growing consumer market in the world.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 70 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 84 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 63 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $7.6 Billion https://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 $5,750 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of South Africa is generally open to foreign investment as a means to drive economic growth, improve international competitiveness, and access foreign markets. Merger and acquisition activity is more sensitive and requires advance work to answer potential stakeholder concerns. The 2018 Competition Amendment Bill, which was signed into law in February, 2019, introduced a mechanism for South Africa to review foreign direct investments and mergers and acquisitions by a foreign acquiring firm on the basis of protecting national security interests (see section on Laws and Regulations on Foreign Direct Investment below). Virtually all business sectors are open to foreign investment. Certain sectors require government approval for foreign participation, including energy, mining, banking, insurance, and defense.

The Department of Trade and Industry and Competition’s (the DTIC) Trade and Investment South Africa (TISA) division provides assistance to foreign investors. TISA has opened provincial One-Stop Shops that provide investment support for foreign direct investment (FDI), with offices in Johannesburg, Cape Town, and Durban, and a national One Stop Shop located on the DTIC campus in Pretoria and online at http://www.investsa.gov.za/one-stop-shop/ . An additional one-stop shop has opened at Dube Trade Port, which is a special economic zone aerotropolis linked to the King Shaka International Airport in Durban.

The DTIC actively courts manufacturing enterprises in sectors that its research indicates South Africa has a comparative advantage. It also favors manufacturing that it hopes will be labor intensive and where suppliers can be developed from local industries. The DTIC has traditionally focused on manufacturing industries over services industries, despite a strong service-oriented economy in South Africa. 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. The DTIC publishes the “Investor’s Handbook” on its website: www.thedtic.gov.za 

While the government of South Africa supports investment in principle and takes active steps to attract FDI, investors and market analysts are concerned that its commitment to assist foreign investors is insufficient in practice. Several investors reported trouble accessing senior decision makers. South Africa scrutinizes merger- and acquisition-related foreign direct investment for its impact on jobs, local industry, and retaining South African ownership of key sectors. Private sector representatives and other interested parties were concerned about the politicization of South Africa’s posture towards this type of investment. Despite South Africa’s general openness to investment, actions by some South African Government ministries, populist statements by some politicians, and rhetoric in certain political circles show a lack of appreciation for the importance of FDI to South Africa’s growth and prosperity and a lack of concern about the negative impact domestic policies may have on the investment climate. Ministries often do not consult adequately with stakeholders before implementing laws and regulations or fail to incorporate stakeholder concerns if consultations occur. On the positive side, the President, assisted by his appointment of four investment envoys in 2018, and a few business-oriented reformists in his cabinet, are working to restore a positive investment climate and appear to be making progress as they engage in senior level overseas roadshows to attract investment. Nevertheless, the government has not yet implemented any real economic reforms to address the structural deficiencies hindering South Africa’s economic growth.

Limits on Foreign Control and Right to Private Ownership and Establishment

Currently there is no limitation on foreign private ownership. South Africa’s transformation efforts – the re-integration of historically disadvantaged South Africans into the economy – has led to policies that could disadvantage foreign and some locally owned companies. The Broad-Based Black Economic Empowerment Act of 2013 (B-BBEE), and associated codes of good practice, requires levels of company ownership and participation by Black South Africans to get bidding preferences on government tenders and contracts. The DTIC created an alternative equity equivalence (EE) program for multinational or foreign owned companies to allow them to score on the ownership requirements under the law, but many view the terms as onerous and restrictive. Currently eight multinationals, most in the technology sector, participate in this program.

Other Investment Policy Reviews

The last Trade Policy Review carried out by the World Trade Organization for the Southern African Customs Union, in which South Africa is a member, was in 2015. Neither the OECD nor the UN Conference on Trade and Development (UNCTAD) has conducted investment policy reviews for South Africa.

Business Facilitation

According to the World Bank’s Doing Business report, South Africa’s rank in ease of doing business in 2020 was 84 of 190, down from 82 in 2019. It ranks 139th for starting a business, 5 points lower than in 2019. In South Africa, it takes an average of forty days to complete the process. South Africa ranks 145 of 190 countries on trading across borders.

The DTIC has a national InvestSA One Stop Shop (OSS) to simplify administrative procedures and guidelines for foreign companies wishing to invest in South Africa. The DTIC, in conjunction with provincial governments, opened physical OSS locations in Cape Town, Durban, and Johannesburg. These physical locations bring together key government entities dealing with issues including policy and regulation, permits and licensing, infrastructure, finance, and incentives, with a view to reducing lengthy bureaucratic procedures, reducing bottlenecks, and providing post-investment services. Some users of the OSS complain that not all of the inter-governmental offices are staffed, so finding a representative for certain transactions has proven difficult. The virtual OSS web site is: http://www.investsa.gov.za/one-stop-shop/ .

The Companies and Intellectual Property Commission (CIPC), a body of the DTIC, is responsible for business registrations and publishes a step-by-step process for registering a company. This process can be done on its website (http://www.cipc.co.za/index.php/register-your-business/companies/ ), through a self-service terminal, or through a collaborating private bank. New business registrants also need to register through the South African Revenue Service (SARS) to get an income tax reference number for turnover tax (small companies), corporate tax, employer contributions for PAYE (income tax), and skills development levy (applicable to most companies). The smallest informal companies may not be required to register with CIPC, but must register with the tax authorities. Companies also need to register with the Department of Labour (DoL) – www.labour.gov.za  – to contribute to the Unemployment Insurance Fund (UIF) and a compensation fund for occupational injuries. The DoL registration takes the longest (up to 30 days), but can be done concurrently with other registrations.

Outward Investment

South Africa does not incentivize outward investments. South Africa’s stock foreign direct investments in the United States in 2018 totaled USD 3.9 billion (latest figures available), a 5.6 percent decrease from 2017. The largest outward direct investment of a South African company is a gas liquefaction plant in the State of Louisiana by Johannesburg Stock Exchange (JSE) and NASDAQ dual-listed petrochemical company SASOL. There are some restrictions on outward investment, such as a R1 billion (USD 83 million) limit per year on outward flows per company. Larger investments must be approved by the South African Reserve Bank and at least 10 percent of the foreign target entities voting rights must be obtained through the investment. https://www.resbank.co.za/RegulationAndSupervision/FinancialSurveillanceAndExchangeControl/FAQs/Pages/Corporates.aspx 

3. Legal Regime

Transparency of the Regulatory System

South African laws and regulations are generally published in draft form for stakeholders to comment, and legal, regulatory, and accounting systems are generally transparent and consistent with international norms.

The DTIC is responsible for business-related regulations. It develops and reviews regulatory systems in the areas of competition, standards, consumer protection, company and intellectual property registration and protections, as well as other subjects in the public interest. It also oversees the work of national and provincial regulatory agencies mandated to assist the DTIC in creating and managing competitive and socially responsible business and consumer regulations. The DTIC publishes a list of Bills and Acts that govern its work at: http://www.thedtic.gov.za/legislation/legislation-and-business-regulation/?hilite=%27IDZ%27 

The 2015 Medicines and Related Substances Amendment Act authorized the creation of the South African Healthcare Products Regulatory Authority (SAHPRA), meant in part to address the backlog of more than 7000 drugs waiting for approval to be used in South Africa. Established in 2018, and unlike its predecessor, the Medicines Control Council (MCC), SAHPRA is a stand-alone public entity governed by a board that is appointed by and accountable to the South African Ministry of Health. SAHPRA is responsible for the monitoring, evaluation, regulation, investigation, inspection, registration, and control of medicines, scheduled substances, clinical trials and medical devices, in vitro diagnostic devices (IVDs), complementary medicines, and blood and blood-based products. SAHPRA intends to do this through 207 full-time in-house technical evaluators, though this structure has not been fully staffed. Unlike with the MCC, SAHPRA’s funding is provided by the retention of registration fees. Despite its launch in 2018, the full staffing and implementation of SAPHRA is anticipated to take up to five years, and clearing the backlog of drug registration dossiers will also take significant time.

South Africa’s Consumer Protection Act (2008) went into effect in 2011. The legislation reinforces various consumer rights, including right of product choice, right to fair contract terms, and right of product quality. Impact of the legislation varies by industry, and businesses have adjusted their operations accordingly. A brochure summarizing the Consumer Protection Act can be found at: http://www.thedtic.gov.za/wp-content/uploads/CP_Brochure.pdf . Similarly, the National Credit Act of 2005 aims to promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide the general regulation of consumer credit and improves standards of consumer information. A brochure summarizing the National Credit Act can be found at: http://www.thedtic.gov.za/wp-content/uploads/NCA_Brochure.pdf 

International Regulatory Considerations

South Africa is a member of the Southern African Customs Union (SACU), the oldest existing customs union in the world. SACU functions mainly on the basis of the 2002 SACU Agreement which aims to: (a) facilitate the cross-border trade in goods among SACU members; (b) create effective, transparent and democratic institutions; (c) promote fair competition in the common customs area; (d) increase investment opportunities in the common customs area; (e) enhance the economic development, diversification, industrialization and competitiveness of member States; (f) promote the integration of its members into the global economy through enhanced trade and investment; (g) facilitate the equitable sharing of revenue arising from customs and duties levied by members; and (h) facilitate the development of common policies and strategies.

The 2002 SACU Agreement requires member States to develop common policies and strategies with respect to industrial development; cooperate in the development of agricultural policies; cooperate in the enforcement of competition laws and regulations; develop policies and instruments to address unfair trade practices between members; and calls for harmonization of product standards and technical regulations. SACU continues to work on developing these common policies.

In general, South Africa models its standards according to European standards or UK standards where those differ.

South Africa is a member of the WTO and attempts to notify all draft technical regulations to the Committee on Technical Barriers to Trade (TBT), though often after the regulations have been implemented.

In November 2017, South Africa ratified the WTO’s Trade Facilitation Agreement. According to the government, it has implemented over 90 percent of the commitments as of May 2020. The outstanding measures were notified under Category B, to be implemented by the indicative date of 2022 without capacity building support and include Article 3 and Article 10 commitments on Advance Rulings and Single Window.

The South African Government is not party to the WTO’s Government Procurement Agreement (GPO).

Legal System and Judicial Independence

South Africa has a mixed legal system composed of civil law inherited from the Dutch, common law inherited from the British, and African customary law, of which there are many variations. As a general rule, South Africa follows English law in criminal and civil procedure, company law, constitutional law, and the law of evidence, but follows Roman-Dutch common law in contract law, law of delict (torts), law of persons, and family law. South African company law regulates corporations, including external companies, non-profit, and for-profit companies (including state-owned enterprises). Funded by the national Department of Justice and Constitutional Development, South Africa has district and magistrates courts across 350 districts and high courts for each of the provinces (except Limpopo and Mpumalanga, which are heard in Gauteng). Often described as “the court of last resort,” the Supreme Court of Appeals hears appeals, and its jurisprudence may only be overruled by the apex court, the Constitutional Court. Moreover, South Africa has multiple specialized courts, including the Competition Appeal Court, Electoral Court, Land Claims Court, the Labour and Labour Appeal Courts, and Tax Courts to handle disputes between taxpayers and the South African Revenue Service. These courts exist parallel to the court hierarchy, and their decisions are subject to the same process of appeal and review as the normal courts. Analysts routinely praise the competence and reliability of judicial processes, and the courts’ independence has been repeatedly proven with high-profile rulings against controversial legislation, as well as against former presidents and corrupt individuals in the executive and legislative branches.

Laws and Regulations on Foreign Direct Investment

The February 2019 ratification of the Competition Amendment Bill introduced, among other revisions, section 18A that mandates the President create a committee – comprised of 28 Ministers and officials chosen by the President – to evaluate and intervene in a merger or acquisition by a foreign acquiring firm on the basis of protecting national security interests. The new section states that the President must identify and publish in the Gazette – the South African equivalent of the U.S. Federal Register – a list of national security interests including the markets, industries, goods or services, sectors or regions in which a merger involving a foreign acquiring firm must be notified to the South African government. It also suggests the President consider a merger’s impact on the economic and social stability of South Africa. As of May, 2020, the president has not established the committee, nor has he published the list of national security interests.

Competition and Anti-Trust Laws

The Competition Commission is empowered to investigate, control and evaluate restrictive business practices, abuse of dominant positions, and mergers in order to achieve equity and efficiency. Their public website is www.compcom.co.za 

The Competition Tribunal has jurisdiction throughout South Africa and adjudicates competition matters in accordance with the Competition Act. While the Commission is the investigation and enforcement agency, the Tribunal is the adjudicative body, very much like a court.

In addition to the points made in the previous section, the amendments, presented by the Ministry for Economic Development that revise the Competition Act of 1998 and entered effect in February 2019 extend the mandate of the competition authorities and the executive to tackle high levels of economic concentration, address the limited transformation in the economy, and curb the abuse of market power by dominant firms. The changes introduced through the Competition Amendment Act are meant to curb anti-competitive practices and break down monopolies that hinder “transformation” – the increased participation of black and HDSA in the South African economy. The amendments aim to deter the abuse of market dominance by large firms that use practices such as margin squeeze, exclusionary practices, price discrimination, and predatory pricing. By increasing the penalties for these prohibited business practices – for repeat offences the penalties could amount to between 10 percent to 25 percent of a firm’s annual turnover – and allowing the parent or holding company to be held liable for the actions of its subsidiaries that contravene competition law, the Competition Commission hopes to break down these anticompetitive practices and open up new opportunities for SMEs.

Expropriation and Compensation

Racially discriminatory property laws and land allocations during the colonial and apartheid periods resulted in highly distorted patterns of land ownership and property distribution in South Africa. Given the slow and mixed success of land reform to date, the National Assembly (Parliament) passed a motion in February 2018 to investigate a proposal to amend the constitution (specifically Section 25, the “property clause”) to allow for land expropriation without compensation (EWC). The constitutional Bill of Rights, where Section 25 resides, has never been amended. Some politicians, think-tanks, and academics argue that Section 25, as written, allows for EWC in certain cases, while others insist that in order to implement EWC more broadly, amending the constitution is required. Academics foresee a few test cases for EWC over the next year, primarily targeted at abandoned buildings in urban areas, informal settlements in peri-urban areas, and involving labor tenants in rural areas.

Parliament tasked an ad hoc Constitutional Review Committee – made up of parliamentarians from various political parties – to report back on whether to amend the constitution to allow EWC, and if so, how it should be done. In December 2018, the National Assembly adopted the committee’s report recommending a constitutional amendment. Following elections in May 2019 the new Parliament created an ad hoc Committee to Initiate and Introduce Legislation to Amend Section 25 of the Constitution. That committee drafted proposed constitutional amendment language that would explicitly allow for EWC and is currently holding public workshops and accepting public comments on the draft language. Parliament had tasked the committee with finalizing the draft language for submission to Parliament by the end of May 2020. That deadline will likely be extended due to restrictions on Parliament’s legislative abilities under the current national declaration of a state of disaster respond to the COVID-19 pandemic. South African law requires that Parliament engage in a rigorous public participation process. Parliament must publish a proposed bill to amend the Constitution in the Government Gazette at least 30 days prior to its introduction to allow for public comment. Any change to the constitution would need a two-thirds parliamentary majority (267 votes) to pass, as well as the support of six out of the nine provinces in the National Council of Provinces. Currently, no single political party has such a majority.

In addition to an amendment to Section 25 of the Constitution, Parliament must also pass an Expropriation Bill to set forth the legal procedures of how the expropriation process will occur. A draft Expropriation Bill was published in December 2018 for public comment but has not yet been submitted to Parliament.

In September 2018, President Ramaphosa appointed an advisory panel on land reform, which supports the Inter-Ministerial Committee on Land Reform chaired by Deputy President David Mabuza. Comprised of ten members from academia, social entrepreneurship, and activist organizations, the panel published its Report on Land Reform and Agriculture in May 2019 and submitted it to the National Assembly Committee on Agriculture, Land Reform and Rural Development in March 2020. The 144-page report was a comprehensive overview of all aspects of land reform in rural and urban areas, including land tenure, agriculture, access to land, infrastructure development, and the failure of the government’s current land reform policies. The panel made recommendations, many focused on improving current programs and making them more efficient. The panel recognized expropriation without compensation (EWC) as one tool of land reform but saw its usefulness in only limited circumstances and reinforced the need to protect the rights of landowners.

Existing expropriation law, including The Expropriation Act of 1975 (Act) and the Expropriation Act Amendment of 1992, entitles 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 as agreed between the buyer and seller, or determined by the court, as per Section 25 of the Constitution. In several restitution cases in which the government initiated proceedings to expropriate white-owned farms after courts ruled the land had been seized from blacks during apartheid, the owners rejected the 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, taking possession of farms in Northern Cape and Limpopo provinces in 2007 after negotiations with owners collapsed. The government paid the owners the fair market value for the land in both cases. A new draft expropriation law, intended to replace the Expropriation Act of 1975, was passed and is awaiting Presidential signature. Some analysts have raised concerns about aspects of the new legislation, including new clauses that would allow the government to expropriate property without first obtaining a court order.

In 2018, the government operationalized the 2014 Property Valuation Act that creates the office of Valuer-General charged with the valuation of property that has been identified for land reform or acquisition or disposal by a department. Among other things, the Act gives the government the option to expropriate property based on a formulation in the Constitution termed “just and equitable compensation.” This considers the market value of the property and applies discounts based on the current use of the property, the history of the acquisition, and the extent of direct state investment and subsidy in the acquisition and capital improvements to the property. Critics fear that this could lead to the government expropriating property at a price lower than fair market value. The Act also allows the government to expropriate property under a broad range of policy goals, including economic transformation and correcting historical grievances.

The Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), enacted in 2004, gave the state ownership of all of South Africa’s mineral and petroleum resources.  It replaced private ownership with a system of licenses controlled by the government of South Africa, and issued by the Department of Mineral Resources.  Under the MPRDA, investors who held pre-existing rights were granted the opportunity to apply for licenses, provided they met the licensing criteria, including the achievement of certain B-BBEE objectives.  Amendments to the MPRDA passed by Parliament in 2014, but were not signed by the President.  In August 2018, the Minister for the Department of Mineral Resources, Gwede Mantashe, called for the recall of the amendments so that oil and gas could be separated out into a new bill.  The Minister also announced the B-BBEE provisions in the new Mining Charter would not apply during exploration, but would start once commodities were found and mining commenced. On November 28, 2019, the newly merged Department of Mineral Resources and Energy (DMRE) published draft regulations to the MPRDA, giving a 30-day window for providing public comments. On December 24, 2019, the DMRE published the Draft Upstream Petroleum Resources Development Bill for public comment, with a February 20, 2020 deadline for the submission of public comments. Oil and gas exploration and production is currently regulated under the Mineral and Petroleum Resources Development Act, 2002 (MPRDA), but the new Bill will repeal and replace the relevant sections pertaining to upstream petroleum activities in the MPRDA.

Dispute Settlement

ICSID Convention and New York Convention

South Africa is a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards as implemented through the Recognition and Enforcement of Foreign Arbitral Awards Act, No. 40 of 1977 . South Africa is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, nor a member of the World Bank’s International Center for the Settlement of Investment Disputes.

Investor-State Dispute Settlement

The 2015 Promotion of Investment Act removes the option for investor state dispute settlement through international courts typically afforded through bilateral investment treaties (BITs). Instead, investors disputing an action taken by the South African government must request the Department of Trade and Industry to facilitate the resolution by appointing a mediator. A foreign investor may also approach any competent court, independent tribunal, or statutory body within South Africa for the resolution of the dispute.

Dispute resolution can be a time-intensive process in South Africa. If the matter is urgent, and the presiding judge agrees, an interim decision can be taken within days while the appeal process can take months or years. If the matter is a dispute of law and is not urgent, it may proceed by application or motion to be solved within months. Where there is a dispute of fact, the matter is referred to trial, which can take several years. The Alternative Dispute Resolution involves negotiation, mediation or arbitration, and may resolve the matter within a couple of months.

International Commercial Arbitration and Foreign Courts

Arbitration in South Africa follows the Arbitration Act of 1965, which does not distinguish between domestic and international arbitration and is not based on UNCITRAL model law. South African courts retain discretion to hear a dispute over a contract entered into under U.S. law and under U.S. jurisdiction; however, the South African court will interpret the contract with the law of the country or jurisdiction provided for in the contract.

South Africa recognizes the International Chamber of Commerce, which supervises the resolution of transnational commercial disputes. South Africa applies its commercial and bankruptcy laws with consistency and has an independent, objective court system for enforcing property and contractual rights.

Alternative Dispute Resolution is increasingly popular in South Africa for many reasons, including the confidentiality which can be imposed on the evidence, case documents, and the judgment. South Africa’s new Companies Act also provides a mechanism for Alternative Dispute Resolution.

Bankruptcy Regulations

South Africa has a strong bankruptcy law, which grants many rights to debtors, including rejection of overly burdensome contracts, avoiding preferential transactions, and the ability to obtain credit during insolvency proceedings. South Africa ranks 68 out of 190 countries for resolving insolvency according to the 2020 World Bank Doing Business report, a drop in its ranking from its 2018 rank of 55 and 2019 rank of 65.

5. Protection of Property Rights

Real Property

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 register mortgages as security when providing finance for the purchase of property.

Foreigners may purchase and own immovable property in South Africa without any restrictions, as foreigners are generally subject to the same laws as South African nationals. Foreign companies and trusts are also permitted to own property in South Africa, provided that they are registered in South Africa as an external company.

South Africa ranks 108 of 190 countries in registering property according to the 2020 World Bank Doing Business report.

Intellectual Property Rights

South Africa has a strong legal structure and enforcement of intellectual property rights through civil and criminal procedures.  Criminal procedures are generally lengthy, so the customary route is through civil enforcement.  There are concerns about counterfeit consumer goods, illegal commercial photocopying, and software piracy.

Owners of patents and trademarks may license them locally, but when a patent license entails the payment of royalties to a non-resident licensor, the DTIC 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, 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 is the standard approval for consumer goods, and up to six percent 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 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). Further 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. The private sector and law enforcement cooperate extensively to stop the flow of counterfeit goods into the marketplace, and the private sector believes that South Africa is making significant progress in this regard. Statistics on seizures are not available.

In an effort to modernize outdated copyright law to incorporate “digital age” advances, the DTIC introduced the latest draft of the Copyright Amendment Bill in May 2017. The South African Parliament and the National Council of Provinces approved the Copyright Amendment Bill in March 2019 and sent the bill to the president for signature. Among the issues of concern to some private sector stakeholders is the introduction of the U.S. model of “fair use” for copyright exemptions without prescribing industry-specific circumstances where fair use will apply, creating uncertainty about copyrights enforcement. Other concerns that stakeholders have include a clause which allows the Minister of Trade Industry and Competition to set royalty rates for visual artistic works and impose compulsory contractual terms. The bill also limits the assignment of copyright to 25 years before it reverts back to the author. In June 2020, the president sent the bill back to the Parliament noting concerns regarding the constitutionality of the bill as well as its compliance with international treaties.

The Performers’ Protection Amendment Bill seeks to address issues relating to the payment of royalties to performers; safeguarding the rights of contracting parties; and promotes performers’ moral and economic rights for performances in fixations (recordings). Similar to the Copyright Amendment Bill, this bill gives the Minister of Trade and Industry authority to determine equitable remuneration for a performer and copyright owner for the direct or indirect use of a work. It also suggests that any agreement between the copyright owner and performer will only last for a period of 25 years and does not determine what happens after 25 years. The bill also does not stipulate how it will address works with multiple performers, particularly how to resolve potential problems of hold-outs when contracts are renegotiated that could hinder the further exploitation of a work. In June 2020, the president sent the bill back to the Parliament.

The DTIC released the final Intellectual Property Policy of the Republic of South Africa Phase 1 in June, 2018, that informs the government’s approach to intellectual property and existing laws. Phase I focuses on the health space, particularly pharmaceuticals. The South African Government, led by the DTIC, held multiple rounds of public consultations since its introduction and the 2016 release of the IP Consultative Framework.

Among other things, the IP policy framework calls for South Africa to carry out substantive search and examination (SSE) on patent applications and to introduce a pre- and post-grant opposition system. The DTIC repeatedly stressed its goal of creating the domestic capacity to understand and review patents, without having to rely on other countries’ examinations. U.S. companies working in South Africa have been generally supportive of the government’s goal; they are concerned, however, that the relatively low number of examiners currently on staff (20) to handle the proposed SSE process and the introduction of a pre-grant opposition system in South Africa could lead to significant delays of products to market. The South African Government is working with international partners (including USPTO and the European Union) to provide accelerated training of their patent reviewers while also recruiting new staff.

The new IP policy framework also raises concerns around the threat of separate patentability criteria for medicines and a more liberalized compulsory licensing regime. Stakeholders are calling for more concrete assurances that the use of compulsory licensing provisions will be as a last resort and applied in a manner consistent with WTO rules. Industry sources report they are not aware of a single case of South Africa issuing a compulsory license.

South Africa is currently in the process of implementing the Madrid Protocol. CIPC has completed drafting legislative amendments after consultations with stakeholders and the World Intellectual Property Organization (WIPO) on the implementation process in South Africa. WIPO has conducted a number of missions to South Africa on this matter, the latest of which was in February 2018. South Africa has also engaged with national IP offices with similar trade mark legislation, such as New Zealand.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

South Africa recognizes the importance of foreign capital in financing persistent current account and budget deficits and openly courts foreign portfolio investment.  Authorities regularly meet with investors and encourage open discussion between investors and a wide range of private and public-sector stakeholders. The government enhanced efforts to attract and retain foreign investors.  President Cyril Ramaphosa hosted investment conferences in October 2018 and October 2019 and attended the World Economic Forum in Davos in January 2019 to promote South Africa as an investment destination. South Africa suffered a two-quarter technical recession in 2019 with economic growth registering only 0.2 percent for the entire year.

South Africa’s financial market is regarded as one of the most sophisticated among emerging markets.  A sound legal and regulatory framework governs financial institutions and transactions.

The fully independent South African Reserve Bank (SARB) regulates a wide range of commercial, retail and investment banking services according to international best practices, such as Basel III, and participates in international forums such as the Financial Stability Board and G-20 Finance Ministers and Central Bank Governors. There are calls to “nationalize” the privately-held SARB, which would not change its constitutional mandate to maintain price stability. The Johannesburg Stock Exchange (JSE) serves as the front-line regulator for listed firms, but is supervised in these regulatory duties by the Financial Services Board (FSB). The FSB also oversees other non-banking financial services, including other collective investment schemes, retirement funds and a diversified insurance industry. The South African government has committed to tabling a Twin Peaks regulatory architecture to provide a clear demarcation of supervisory responsibilities and consumer accountability and to consolidate banking and non-banking regulation in 2017.

South Africa has access to deep pools of capital from local and foreign investors which provide sufficient scope for entry and exit of large positions.  Financial sector assets amount to almost three times GDP, and the JSE is the largest on the continent with capitalization of approximately USD 670 billion and 344 companies listed on the main, alternative and other smaller boards. Non-bank financial institutions (NBFI) hold about two thirds of financial assets.  The liquidity and depth provided by NBFIs make these markets attractive to foreign investors, who hold more than a third of equities and government bonds, including sizeable positions in local-currency bonds. A well-developed derivative market and a currency that is widely traded as a proxy for emerging market risk allows investors considerable scope to hedge positions with interest rate and foreign exchange derivatives.

The SARB’s exchange control policies permit authorized currency dealers, normally one of the large commercial banks, to buy and borrow foreign currency freely on behalf of domestic and foreign clients.  The size of transactions is not limited, but dealers must report all transactions to SARB, regardless of size. Non-residents may purchase securities without restriction and freely transfer capital in and out of South Africa.  Local individual and institutional investors are limited to holding 25 percent of their capital outside of South Africa. Given the recent exchange rate fluctuations, this requirement has entailed portfolio rebalancing and repatriation to meet the prescribed prudential limits.

Banks, NBFIs, and other financial intermediaries are skilled at assessing risk and allocating credit based on market conditions. Foreign investors may borrow freely on the local market.  A large range of debt, equity and other credit instruments are available to foreign investors, and a host of well-known foreign and domestic service providers offer accounting, legal and consulting advice. In recent years, the South African auditing profession has suffered significant reputational damage with the leadership of two large foreign firms being implicated in allegations of aiding and abetting irregular client management practices that were linked to the previous administration, or of delinquent oversight of listed client companies. South Africa’s WEF competitiveness rating for auditing and reporting fell from number one in the world in 2016, to number 60 in 2019.

Money and Banking System

South African banks are well capitalized and comply with international banking standards. There are 19 registered banks in South Africa and 15 branches of foreign banks. Twenty-nine foreign banks have approved local representative offices. Five banks – Standard, ABSA, First Rand (FNB), Capitec, and Nedbank – dominate the sector, accounting for over 85 percent of the country’s banking assets, which total over USD 390 billion. The 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: www.banking.org.za .

The Financial Services Board (FSB) governs South Africa’s non-bank financial services industry (see website: 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 sixteenth largest exchange in the world measured by market capitalization and enjoys the global reputation of being one of the best regulated. Market capitalization stood at USD 670 billion as of March 2020, with 344 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 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. A finance ratio of 1:1 also 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.

Foreign Exchange and Remittances

Foreign Exchange

The South African Reserve Bank (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. Generally, there are only limited delays in the conversion and transfer of funds. Due to South Africa’s relatively closed exchange system, no private player, however large, can hedge large quantities of Rand for more than five years.

While non-residents may freely transfer capital in 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 ensure an authorized dealer endorses their share certificates as “non-resident.” Foreign investors should also be sure to maintain an accurate record of investment.

Remittance Policies

Subsidiaries and branches of foreign companies in South Africa are considered South African entities and are treated legally as South African companies. As such, they 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 may invest in other countries, SARB approval/notification is required for investments over R500 million (USD 43.5 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 (USD 340,000) in other countries. As of 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 25 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 DTIC 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.

Sovereign Wealth Funds

Although the President announced in February, 2020 the aim to create a Sovereign Wealth Fund and the Finance Minister followed up with a mention of it in his February budget speech, no action has been taken to create such a fund.

8. Responsible Business Conduct

Responsible Business Conduct (RBC) is well-developed in South Africa, and is driven in part by the recognition by the private sector that it has an important role to play in uplifting society. The socio-economic development element of B-BBEE has formalized and increased RBC in South Africa, as firms have largely aligned their RBC activities to the element’s performance requirements. The 2013 B-BBEE amendment’s compliance target is one percent of net profit after tax spent on RBC, and at least 75 percent of the RBC activity must benefit historically disadvantaged South Africans, referred to the B-BBEE act as black people, which includes South Africans of black, colored, Chinese and Indian descent. Most RBC is directed towards non-profit organizations involved in education, social and community development, and health.

The South African mining sector follows the rule of law and encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. For example South Africa is a founding member of the Kimberley Process Certification Scheme (KPCS), the process established in 2000 to prevent conflict diamonds from entering the mainstream rough diamond market. The Kimberley Process is designed to ensure that diamond purchases do not finance violence by rebel movements and their allies seeking to undermine legitimate governments.

South Africa does not participate in the Extractive Industries Transparency Initiative (EITI). South African mining, labor and security legislation seek to speak to the values as embodied by Voluntary Principles on Security and Human Rights.

South African mining laws and regulations allow for the accounting of all revenues from the extractive sector in the form of mining taxes, royalties, fees, dividends and duties. The reporting and accounting of all revenues from the extractive sector is done through Parliament by such institutions as the Auditor General and the National Treasury budgetary processes and the results are publicly available. There is a sizeable illicit mining sector in South Africa, mostly in decommissioned gold mines.

9. Corruption

South Africa has a robust anti-corruption framework, but laws are inadequately enforced and accountability in public sectors tends to be low. The law provides for criminal penalties for conviction of official corruption, and the government continued efforts to curb corruption, but officials sometimes engaged in corrupt practices with impunity.

High-level political interference has undermined the ability of the country’s National Prosecuting Authority (NPA) – constitutionally responsible for all prosecutions – to pursue criminal proceedings and enforce accountability. After an unprecedented consultative process, President Ramaphosa appointed Shamila Batohi as the National Director of Public Prosecutions (NDPP) in December 2018, and he created an Investigative Directorate within her office in March 2019 to focus on the significant number of cases emanating from ongoing corruption investigations. The Constitutional Court ruled in August 2018 that Zuma’s appointment of Shaun Abrahams as the former NDPP was invalid and ordered President Ramaphosa to replace Abrahams within 90 days. Widely praised by civil society, the court also ordered former NDPP Mxolisi Nxasana to repay a “golden handshake” (an illegal departure bonus) of 10.2 million rand (USD 788,000) he received when Zuma replaced him with Abrahams in 2015.

The Department of Public Service and Administration formally coordinates government initiatives against corruption, and the “Hawks” – South Africa’s Directorate for Priority Crime Investigations – focuses on organized crime, economic crimes, and corruption. In 2018, the Office of the Public Protector, a constitutionally mandated body designed to investigate government abuse and mismanagement, investigated thousands of cases, some of which involved high-level officials. The public and NGOs considered the Office of the Public Protector independent and effective, despite limited funding. According to the NPA’s 2017-2018 Annual Report, it recovered 410,000 rand (USD 31,700) from government officials involved in corruption, a 92-percent decrease from the previous year. Courts convicted 213 government officials of corruption.

The Prevention and Combating of Corrupt Activities Act (PCCA) officially criminalizes corruption in public and private sectors and codifies specific offenses (such as extortion and money laundering), making it easier for courts to enforce the legislation. Applying to both domestic and foreign organizations doing business in the country, the PCCA covers receiving or offering bribes, influencing witnesses and tampering with evidence in ongoing investigations, obstruction of justice, contracts, procuring and withdrawal of tenders, and conflict of interests, among other areas.  Inconsistently implemented, the PCCA does not include any protectionary measures for whistleblowers. Complementary acts – such as the Promotion of Access to Information Act and the Public Finance Management Act – calls for increased access to public information and review of government expenditures. “State capture” – the popular term used to describe systemic corruption of the state’s decision-making processes by private interests – has become synonymous with the administration of former president Jacob Zuma. In response to widespread calls for accountability, President Cyril Ramaphosa has denounced corruption since assuming office in February 2018. He has vowed to tackle the scourge at all levels of government, including through proposed lifestyle audits of officials to expose bribery, corruption, and public tender irregularities. He has also launched four separate judicial commissions of inquiry to investigate corruption, fraud, and maladministration, including in the Public Investment Corporation, South African Revenue Service, National Prosecuting Authority, and writ large across the government. These commissions have revealed pervasive networks of criminality across all levels of the municipal, provincial, and national government. Numerous former senior officials had already testified before the commission; a number of them directly implicated former president Jacob Zuma in corruption cases.

“State capture” – the popular term used to describe systemic corruption of the state’s decision-making processes by private interests – has become synonymous with the administration of former president Jacob Zuma. In response to widespread calls for accountability, President Cyril Ramaphosa has denounced corruption since assuming office in February 2018. He has vowed to tackle the scourge at all levels of government, including through proposed lifestyle audits of officials to expose bribery, corruption, and public tender irregularities. He has also launched four separate judicial commissions of inquiry to investigate corruption, fraud, and maladministration, including in the Public Investment Corporation, South African Revenue Service, National Prosecuting Authority, and writ large across the government. These commissions have revealed pervasive networks of criminality across all levels of the municipal, provincial, and national government. Numerous former senior officials had already testified before the commission; a number of them directly implicated former president Jacob Zuma in corruption cases.

Corruption charges were reinstated against Zuma in 2018 related to a USD 2.5-billion arms deal in the late 1990s. The Zuma-linked Gupta family, which owns interests in multiple industries from computer services to mining, has also been placed under investigation and its assets frozen while the state investigates allegations of state capture, bribery, and the siphoning off of public funds meant for small-holder farmers. These and other ongoing efforts are meant to rebuild the public’s trust in government and to foment transparency and predictability in the business environment in order to woo investors.

South Africa signed the Anticorruption Convention on 9 Dec 2003 and ratified it on 22 Nov 2004.  South Africa also signed the OECD Convention on Combatting Bribery in 2007, with implementing legislation dating from 2004.

South Africa is also a party to the SADC Protocol Against Corruption, which promotes the development of mechanisms needed to prevent, detect, punish and eradicate corruption in the public and private sector. The protocol also seeks to facilitate and regulate cooperation in matters of corruption amongst Member States and foster development and harmonization of policies and domestic legislation related to corruption. The Protocol defines ‘acts of corruption,’ preventative measures, jurisdiction of Member States, as well as extradition. http://www.sadc.int/files/7913/5292/8361/Protocol_Against_Corruption2001.pdf 

Resources to Report Corruption

To report corruption to the government:

Advocate Busisiwe Mkhwebane
Public Protector
Office of the Public Protector, South Africa
175 Lunnon Street, Hillcrest Office Park, Pretoria 0083
Anti-Corruption Hotline: +27 80 011 2040 or +27 12 366 7000
http://www.pprotect.org  or customerservice@pprotect.org

Or for a non-government agency:

David Lewis
Executive Director
Corruption Watch
87 De Korte Street, Braamfontein/Johannesburg 2001
+27 80 002 3456 or +27 11 242 3900 http://www.corruptionwatch.org.za/content/make-your-complaint 
info@corruptionwatch.org.za

10. Political and Security Environment

South Africa has a history of politically-motivated violence and civil disturbance.  Violent protests, often by residents in poor communities against the lack of effective government service delivery, are common.  Killings of, and by, mostly low-level political and organized crime rivals take place on a regular basis.  Still, South Africa enjoys strong, democratic political institutions and the overall political environment is stable and secure.

In May 2018, President Cyril Ramaphosa set up an inter-ministerial committee in the security cluster to serve as a national task force on political killings. The task force includes the Police Minister‚ State Security Minister‚ Justice Minister‚ National Prosecuting Authority, and the National Police Commissioner. The task force ordered multiple arrests, including of high profile officials, in what appears to be a crackdown on political killings.

There is suspicion that criminal threats have been used to resolve business disputes. There was one known incident in 2018 when two expat employees of a U.S. company managing an ongoing construction project received threats to leave the country. The threats escalated to mention the expats’ families as targets, and the company evacuated them from South Africa. Subcontractors accused of using substandard construction materials were suspected. There were no reports of physical damage at the project.

Labor unrest in one part of South Africa has caused damage to property and halted operations to a U.S. company operating in an industrial zone. In this case, the U.S. company was targeted as a single employer by strikes and labor unrest on what was a national bargaining council issue.

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