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Canada

Executive Summary

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2018, the United States had a stock of USD 401 billion of foreign direct investment (FDI) in Canada. U.S. FDI stock in Canada represents 46 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled US$511 billion.

The full impact of COVID-19 on Canada’s economy is yet to be seen. Private sector analysts predict Canada’s GDP will shrink between 1 and 6 percent in 2020. IMF’s April 2020 World Economic Outlook forecasts Canada’s annual GDP in 2020 will contract by 6.2 percent. A majority of small- and medium-sized enterprises are responding to steep declines in sales and mandated closures with layoffs, with more than 44 percent indicating on April 14 they might not survive should business restrictions remain in place until the end of May. Despite a rapidly changing business environment, borders and supply chains are functioning well.

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds. The Canadian government has blocked investments on only a few occasions.

The Canadian government announced April 18, 2020 enhanced scrutiny of certain foreign investments under the ICA, which will apply until the economy recovers from the effects of the COVID-19 pandemic. While all investments will continue to be examined on their own merits, the Government will scrutinize with particular attention foreign direct investments of any value in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians. The Government will also subject all foreign investments by state-owned investors, or investors with close ties to foreign governments, to enhanced scrutiny under the Investment Canada Act.

Canada, the United States, and Mexico signed a modernized and rebalanced NAFTA agreement – the United States-Mexico-Canada Agreement (USMCA) – November 30, 2018 and a protocol of amendment to the USMCA on December 10, 2019. President Trump signed legislation implementing the USMCA on January 29, 2020. The agreement will come into force after the completion of the domestic ratification processes by each individual member of the agreement, likely in 2020. The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Although foreign investment is a key component of Canada’s economic growth contributing 1.9 percent to GDP, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 12 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 23 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 17 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $401,874 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $44,940 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, its proximity to the U.S. market, its highly skilled work force, and abundant resources. As of 2018, the United States had a stock of US$401 billion of foreign direct investment (FDI) in Canada. U.S. FDI stock in Canada represents 46 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled US$511 billion.

Canada, the United States, and Mexico signed a modernized and rebalanced NAFTA agreement – the United States-Mexico-Canada Agreement (USMCA) – on November 30, 2018 and a protocol of amendment to the USMCA on December 10, 2019. President Trump signed legislation implementing the USMCA on January 29, 2020. The agreement will come into force after the completion of the domestic ratification processes by each individual member of the agreement, likely in 2020. The agreement updates NAFTA’s provisions with respect to investment protection rules and investor-state dispute settlement procedures to better reflect U.S. priorities related to foreign investment. All Parties to the agreement have agreed to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.

Invest in Canada is Canada’s investment attraction and promotion agency. It provides information and advice on doing business in Canada, strategic market intelligence on specific industries, site visits, as well as introductions to provincial, territorial, and local investment promotion agencies who can help companies access local opportunities, networks, and programs.

Limits on Foreign Control and Right to Private Ownership and Establishment

U.S. FDI in Canada is subject to the provisions of the Investment Canada Act (ICA), the World Trade Organization (WTO), and the 1994 North American Free Trade Agreement (NAFTA). Chapter 11 of NAFTA contains provisions such as “national treatment” designed to protect cross-border investors and facilitate the settlement of investment disputes. NAFTA does not exempt U.S. investors from review under the ICA, which has guided foreign investment policy in Canada since its implementation in 1985. The ICA provides for review of large acquisitions by non-Canadian investors and includes the requirement that these investments be of “net benefit” to Canada. The ICA also has provisions for the review of investments on national security grounds. The Canadian government has blocked investments on a few occasions.

The Canadian government announced April 18 enhanced scrutiny of certain foreign investments under the ICA, which will apply until the economy recovers from the effects of the COVID-19 pandemic. While all investments will continue to be examined on their own merits, the Government will scrutinize with particular attention foreign direct investments of any value in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians. The Government will also subject all foreign investments by state-owned investors, or investors with close ties to foreign governments, to enhanced scrutiny under the Investment Canada Act.

Although foreign investment is a key component of Canada’s economic growth contributing 1.9 percent to GDP, restrictions remain in key sectors. Under the Telecommunications Act, Canada maintains a 46.7 percent limit on foreign ownership of voting shares for a Canadian telecom services provider. However, a 2012 amendment exempts foreign telecom carriers with less than 10 percent market share from ownership restrictions in an attempt to increase competition in the sector. In May 2018, Canada eased its foreign ownership restrictions in the aviation sector, which increased foreign ownership limits of Canadian commercial airlines to 49 percent from 25 percent. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of “net benefit” to Canada. Canada is open to investment in the financial sector, but barriers remain in retail banking.

Other Investment Policy Reviews

The World Trade Organization conducted a trade policy review of Canada in 2019. The report is available at: https://www.wto.org/english/tratop_e/tpr_e/tp489_e.htm .

Business Facilitation

Canada ranks third out of 190 countries in the World Bank’s Doing Business survey on starting a business. The Canadian government has a business registration page available at: https://www.canada.ca/en/services/business/start/register-with-gov.html?it=government/registering-your-business/&it=eng/page/2730/ . Corporations must incorporate either through the federal or provincial government, apply for a federal business number and corporation income tax account from the Canada Revenue Agency, register as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions where you plan to do business, and apply for any permits and licenses the business may need. In some cases, registration for these accounts is streamlined (a business can receive its business number, tax accounts, and provincial registrations as part of the incorporation process); however, this is not true for all provinces and territories.

Outward Investment

Canada’s trade diversification strategy promotes trade and investment opportunities, primarily through export promotion and negotiation of free trade agreements, which generally have investment chapters.

3. Legal Regime

Transparency of the Regulatory System

The transparency of Canada’s regulatory system is similar to that of the United States. The legal, regulatory, and accounting systems, including those related to debt obligations, are transparent and consistent with international norms. Proposed legislation is subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation in the Canada Gazette. While federal and/or provincial licenses or permits may be needed to engage in economic activities, regulation of these activities is generally for statistical or tax compliance reasons. Under the United States-Mexico-Canada Agreement (USMCA), parties agreed to make publicly available any written comments they receive, except to the extent necessary to protect confidential information or withhold personal identifying information or inappropriate content.

Canada and the United States announced the creation of the Canada-U.S. Regulatory Cooperation Council (RCC) on February 4, 2011. This regulatory cooperation does not encompass all regulatory activities within all agencies. Rather, the RCC focuses on areas where benefits can be realized by regulated parties, consumers, and/or regulators without sacrificing outcomes such as protecting public health, safety, and the environment. The initial RCC Joint Action Plan set out 29 initiatives where Canada and the United States sought greater regulatory alignment. A Memorandum of Understanding between the Treasury Board of Canada and the U.S. Office of Information and Regulatory Affairs, signed on June 4, 2018, reaffirmed the RCC as a vehicle for regulatory cooperation.

Canada publishes an annual budget and debt management report. According to the Ministry of Finance, the design and implementation of the domestic debt program are guided by the key principles of transparency, regularity, prudence, and liquidity.

International Regulatory Considerations

Canada is not part of a regional economic block and does not incorporate regional standards into its economic system. Through the new United States-Mexico-Canada Agreement (USMCA) the three countries agreed to a new chapter on Good Regulatory Practices that will promote transparency and accountability when developing and implementing regulations. Canada and the United States also work together through the RCC to reduce differences between their regulatory frameworks, making it easier for bilateral trade. Canada, with the United States and Mexico, is a member of the NAFTA. The Canada-EU Comprehensive and Economic Trade Agreement (CETA) also contains a chapter on regulatory cooperation that commits both sides to strengthen regulatory cooperation and facilitate discussions between regulatory authorities in the EU and Canada. The Comprehensive and Progressive Partnership for Trans-Pacific Partnership contains a chapter on regulatory coherence that aims to encourage members of the agreement to adopt widely accepted good regulatory practices, such as reviewing the effectiveness of existing regulatory practices and providing public notice of future regulatory measures.

Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Canada is a signatory to the Trade Facilitation Agreement, which it ratified in December 2016.

Legal System and Judicial Independence

Canada’s legal system is based on English common law, except for Quebec, which follows civil law. Canada has both a federal parliament which makes laws for all of Canada and a legislature in each of the provinces and territories that deals with laws in their areas. When Parliament or a provincial or territorial legislature passes a statute, it takes the place of common law or precedents dealing with the same subject. The judicial branch of government is independent of the executive branch and the current judicial process is considered procedurally competent, fair, and reliable. The provinces administer justice in their jurisdictions. This includes organizing and maintaining the civil and criminal provincial courts and civil procedures in those courts.

Canada has both written commercial law and contractual law, and specialized commercial and civil courts. Canada’s Commercial Law Directorate provides advisory and litigation services to federal departments and agencies whose mandate includes a commercial component and has legal counsel in Montréal and Ottawa.

Parliament and provincial and territorial legislatures give government organizations the authority to make specific regulations. As of June 1, 2009, all consolidated Acts and regulations on the Justice Laws Website (http://laws-lois.justice.gc.ca/eng/) are “official,” meaning they can be used for evidentiary purposes.

Laws and Regulations on Foreign Direct Investment

Foreign investment policy in Canada has been guided by the Investment Canada Act (ICA) since 1985. The ICA liberalized policy on foreign investment by recognizing that investment is central to economic growth and key to technological advancement. The ICA provides for review of large acquisitions by non-Canadians and imposes a requirement that these investments be of “net benefit” to Canada. The ICA also contains provisions that permit the government to conduct a national security review of virtually any investment or acquisition. For the vast majority of small acquisitions and the establishment of new businesses, foreign investors need only to notify the Canadian government of their investments.

U.S. FDI in Canada is subject to provisions of the ICA, the WTO, and the NAFTA. Chapter 11 of the NAFTA ensures that regulation of U.S. investors in Canada and Canadian investors in the United States results in treatment no different than that extended to domestic investors within each country, i.e., “national treatment.” The concept of national treatment is also a feature of the USMCA. Both governments are free to regulate the ongoing operation of business enterprises in their respective jurisdictions provided that the governments accord national treatment to both U.S. and Canadian investors.

Competition and Anti-Trust Laws

Competition Bureau Canada is a law-enforcement agency that administers and enforces Canadian legislation that regulates competition, including the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act. The Competition Tribunal is a specialized tribunal that adjudicates antitrust cases related to competition.

Expropriation and Compensation

Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose, and the obligation to pay compensation. The federal government has not nationalized any foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have assumed control of private firms, usually financially distressed, after reaching agreement with the former owners.

The USMCA, like NAFTA, requires that expropriation can only be used for a public purpose and must be done in a nondiscriminatory manner, with prompt, adequate, and effective compensation, and in accordance with due process of law.

Dispute Settlement

ICSID Convention and New York Convention

Canada ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on December 1, 2013 and is a signatory to the 1958 New York Convention, ratified on May 12, 1986. Canada signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (known as the Mauritius Convention on Transparency) in March 2015.

Investor-State Dispute Settlement

Canada accepts binding arbitration of investment disputes to which it is a party only when it has specifically agreed to do so through a bilateral or multilateral agreement, such as a Foreign Investment Protection Agreement. The provisions of Chapter 11 of the NAFTA guide the resolution of investment disputes between NAFTA persons and NAFTA member governments. The NAFTA encourages parties to settle disputes through consultation or negotiation. It also establishes special arbitration procedures for investment disputes separate from the NAFTA’s general dispute settlement provisions. Under the NAFTA, a narrow range of disputes dealing with government monopolies and expropriation between an investor from a NAFTA country and a NAFTA government may be settled, at the investor’s option, by binding international arbitration. An investor who seeks binding arbitration in a dispute with a NAFTA party gives up his right to seek redress through the court system of the NAFTA party, except for proceedings seeking nonmonetary damages. Canada does not have a history of extrajudicial action against foreign investors.

Over the history of the NAFTA, more than 25 disputes have been filed against the Government of Canada. For more information about cases filed under NAFTA Chapter 11, please visit https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/gov.aspx?lang=eng 

Upon entry into force of the USMCA, Investor State Dispute Settlement procedures that existed under NAFTA for the United States and Canada will be eliminated over a three-year period. Canadian and U.S. investors that believe their host country has violated USMCA will rely on the domestic courts and other dispute resolution mechanisms.

International Commercial Arbitration and Foreign Courts

Provinces primarily regulate arbitration within Canada. With the exception of Quebec, each province has legislation adopting the UNCITRAL Model Law. The Quebec Civil Code and Code of Civil Procedure are consistent with the UNCITRAL Model Law. The Canadian Supreme Court has ruled that arbitration agreements must be broadly interpreted and enforced. Canadian courts respect arbitral proceedings and have been willing to lend their enforcement powers to facilitate the effective conduct of arbitration proceedings, requiring witnesses to attend and give evidence and produce documents and other evidence to the arbitral tribunal.

Bankruptcy Regulations

Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act (BIA) and is not criminalized. Creditors must deliver claims to the trustee and the trustee must examine every proof of claim. The trustee may disallow, in whole or in part, any claim of right to a priority under the BIA. Generally, the test of proving the claim before the trustee in bankruptcy is very low and a claim is proved unless it is too “remote and speculative.” Provision is also made for dealing with cross-border insolvencies and the recognition of foreign proceedings. Canada was ranked number 13 for ease of “resolving insolvency” by the World Bank in 2020. Credit bureaus in Canada include Equifax Canada and TransUnion Canada.

4. Industrial Policies

Investment Incentives

Federal and provincial governments in Canada offer a wide array of investment incentives that municipalities are generally prohibited from offering. The incentives are designed to advance broader policy goals, such as boosting research and development or promoting regional economies. The funds are available to any qualified Canadian or foreign investor who agrees to use the monies for the stated purpose. For example, Export Development Canada can support inbound investment under certain specific conditions (e.g., investment must be export-focused; export contracts must be in hand or companies have a track record; there is a world or regional product mandate for the product to be produced). The government also announced the US$940 million Strategic Innovation Fund in 2017, which provides repayable or non-repayable contributions to firms of all sizes across Canada’s industrial and technology sectors in an effort to grow and expand those industries. One of the explicit goals of the program is to attract new investments to Canada.

The Liberal government invested US$730 million over five years, beginning in 2018, to support five business-led supercluster projects that have the potential to accelerate economic and investment growth in Canada. The superclusters are now operational, and feature projects in digital technologies, food production, advanced manufacturing, artificial intelligence in supply chain management, and ocean industries. There are 450 businesses, 60 post-secondary institutions, and 180 other partners involved in the supercluster projects. Several U.S. firms are participants.

Several provinces offer an array of incentive programs and services aimed at attracting foreign investment that lower corporate taxes and incentivize research and development. The Province of Quebec officially re-launched its “Plan Nord” (Northern Plan) in April 2015, a 20-year sustainable development investment initiative that is intended to harness the economic, mineral, energy, and tourism potential of Quebec’s northern territory. Quebec’s government created the “Société du Plan Nord” (Northern Plan Company) to attract investors and work with local communities to implement the plan. Thus far, Plan Nord has helped finance mining projects in northern Quebec and began building the necessary infrastructure to link remote mines with ports. The provincial government is actively seeking other foreign investors who desire to take advantage of these opportunities.

Provincial incentives tend to be more investor-specific and are conditioned on applying the funds to an investment in the granting province. For example, Ontario’s Jobs and Prosperity Fund provides US$2.5 billion from 2013 to 2023 to enhance productivity, bolster innovation, and grow Ontario’s exports. To qualify, companies must have substantive operations (generally three years) and at least US$7.5 million in eligible project costs. Alberta offers companies a 10 percent refundable provincial tax credit worth up to US$300,000 annually for scientific research and experimental development encouraging research and development in Alberta, as well as Alberta Innovation Vouchers worth US$11,000 to US$37,000 to help small early-stage technology and knowledge-driven businesses in Alberta get their ideas and products to market faster. Newfoundland and Labrador provide vouchers worth 75 percent of eligible project costs up to US$11,000 for R&D, performance testing, field trials, and other projects.

Provincial incentives may also be restricted to firms established in the province or that agree to establish a facility in the province. Government officials at both the federal and provincial levels expect investors who receive investment incentives to use them for the agreed purpose, but no enforcement mechanism exists.

Incentives for investment in cultural industries, at both the federal and provincial level, are generally available only to Canadian-controlled firms. Incentives may take the form of grants, loans, loan guarantees, venture capital, or tax credits. Provincial incentive programs for film production in Canada are available to foreign filmmakers.

Foreign Trade Zones/Free Ports/Trade Facilitation

Under the NAFTA, Canada operates as a free trade zone for products made in the United States. Most U.S. made goods enter Canada duty free.

Performance and Data Localization Requirements

As a general rule, foreign firms establishing themselves in Canada are not subject to local employment or forced localization requirements, although Canada has some requirements on local employment for boards of directors. Ordinarily, at least 25 percent of the directors of a corporation must be resident Canadians. If a corporation has fewer than four directors, however, at least one of them must be a resident Canadian. In addition, corporations operating in sectors subject to ownership restrictions (such as airlines and telecommunications) or corporations in certain cultural sectors (such as book retailing, video, or film distribution) must have a majority of resident Canadian directors.

Data localization is an evolving issue in Canada. Privacy rules in two Canadian provinces, British Columbia and Nova Scotia, mandate that personal information in the custody of a public body must be stored and accessed only in Canada unless one of a few limited exceptions applies. These laws prevent public bodies such as primary and secondary schools, universities, hospitals, government-owned utilities, and public agencies from using non-Canadian hosting services. The United States–Mexico–Canada Agreement (USMCA) will help ensure cross-border data flows between Canada and the United States remain open by prohibiting any member of the agreement from requiring the use or location of computing facilities in a particular jurisdiction as a condition of business.

The Canada Revenue Agency stipulates that tax records must be kept at a filer’s place of business or residence in Canada. Current regulations were written over 30 years ago and do not take into account current technical realities concerning data storage.

5. Protection of Property Rights

Real Property

Foreign investors have full and fair access to Canada’s legal system, with private property rights limited only by the rights of governments to establish monopolies and to expropriate for public purposes. Investors under NAFTA (and USMCA) have mechanisms available for dispute resolution regarding property expropriation by the Government of Canada. The recording system for mortgages and liens is reliable. Canada is ranked 18 out of 190 countries in 2020 in the World Bank’s “Ease of Registering Property” rankings. About 89 percent of Canada’s land area is Crown Land owned by federal (41 percent) or provincial (48 percent) governments; the remaining 11 percent is privately owned.

British Columbia began a 15 percent tax on foreign buyers of residential real estate in the Metro Vancouver area in August 2016. In early 2017, the province announced that foreign buyers with work permits would be exempt from the tax. In 2018, British Columbia increased this tax to 20 percent and expanded its geographical coverage to include several other metro areas, including that of the provincial capital Victoria. In 2018, British Columbia broadened taxation on foreign ownership in Metro Vancouver and enacted a 0.5 percent Speculation and Vacancy Tax, targeting foreign-owned homes left empty. In 2019, the Ministry of Finance increased the tax to 2.0 percent. The tax includes foreign owners and satellite families defined as those who earn a majority of their income outside of Canada. A group of homeowners is challenging the tax in the British Columbia Supreme Court. Canadian citizens and permanent residents pay 0.5 percent per year.

In April 2017, a 15 percent tax was instituted for non-resident buyers of residential property in the Greater Golden Horseshoe Area of Ontario, which includes most of southern Ontario including, but not limited to, such cities such as Toronto, Mississauga, and Hamilton.

A 2014 Supreme Court decision recognized the existence of aboriginal title on land in British Columbia, which has ramifications for aboriginal land claims across Canada. While stopping short of giving aboriginals a veto on projects, the decision gives them increased influence on the economic development of any land with a colorable (potentially valid) aboriginal title claim.

In terms of non-resident access to land, including farmland, Ontario, Newfoundland and Labrador, New Brunswick and Nova Scotia have no restrictions on foreign ownership of land. However, Prince Edward Island, Quebec, Manitoba, Alberta, and Saskatchewan maintain measures aimed at prohibiting or limiting land acquisition by foreigners. The acreage limits vary by province, from as low as five acres in Prince Edward Island to as high as 40 acres in Manitoba. In certain cases, provincial authorities may grant exemptions from these limits, for instance for investment projects. In British Columbia, Crown land cannot be acquired by foreigners, while there are no restrictions on acquisition of other land.

Intellectual Property Rights

Canada took significant steps to improve its intellectual property (IP) provisions by ratifying implementing legislation for the United States-Mexico-Canada Agreement (USMCA) in 2020. It is expected to issue accompanying regulations and Ministerial Statements that further fulfill its commitments under the agreement. Canada’s commitments under the USMCA will address areas where there have been longstanding concerns, including enforcement against counterfeits, inspection of goods in transit, transparency with respect to new geographical indicators, national treatment, copyright term, and patent term extensions for unreasonable patent office delay. Rights holders report that Canadian courts have established meaningful penalties against circumvention devices and services. Canada has also made positive progress in reforming proceedings before the Copyright Board related to tariff-setting procedures for the use of copyrighted works.

Commercial-scale online piracy is a significant issue in Canada where some notorious copyright-infringing websites are hosted or operated. Stream-ripping, the unauthorized converting of a file from a licensed streaming site into an unauthorized copy, is now a dominant method of music piracy, including in Canada, causing substantial economic harm to music creators and undermining legitimate online services. Industry stakeholders are also concerned with uneven application of new notice and notice regulations requiring Internet Service Providers (ISPs) to notify (and address) sites of trademark or copyright infringements. Canada’s ambiguous education-related exemption added to the 2012 copyright law has significantly damaged the market for educational publishers and authors. While Canadian courts have helped clarify this exception, confusion remains and the educational publishing sector reports lost revenue from licensing.

Canada is on the Watch List in USTR’s Special 301 Report to congress.

6. Financial Sector

Capital Markets and Portfolio Investment

Canada’s capital markets are open, accessible, and without onerous regulatory requirements. Foreign investors are able to get credit in the local market. Canada has several securities markets, the largest of which is the Toronto Stock Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The World Economic Forum ranked Canada’s banking system as the second “most sound” in the world in 2018. Among other factors, Canadian banking stability is linked to high capitalization rates that are well above the norms set by the Bank for International Settlements. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.

Money and Banking System

The Canadian banking industry is dominated by six major domestic banks, but includes a total of 36 domestic banks, 18 foreign bank subsidiaries, 28 full-service foreign bank branches and four foreign bank lending branches operating in Canada. The six largest banks manage close to US$4 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch of the parent bank. Ninety-nine percent of Canadians have an account with a financial institution.

Foreign financial firms interested in investing submit their applications to the Office of the Superintendent of Financial Institutions (OSFI) for approval by the Finance Minister. U.S. firms are present in all three sectors, but play secondary roles. U.S. and other foreign banks have long been able to establish banking subsidiaries in Canada, but no U.S. banks have retail banking operations in Canada. Several U.S. financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance. Foreigners may be able to open bank accounts in Canada with proper identification and would need to visit the financial institution in person.

The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are monetary policy, promoting a safe, sound, and efficient financial system, issuing and distributing currency, and being the fiscal agent for Canada.

Foreign Exchange and Remittances

Foreign Exchange

The Canadian dollar is a free floating currency with no restrictions on its transfer or conversion.

Remittance Policies

The Canadian dollar is fully convertible and the central bank does not place time restrictions on remittances.

Sovereign Wealth Funds

Canada does not have a sovereign wealth fund, but the province of Alberta has the Heritage Savings Trust Fund established to manage the province’s share of petroleum royalties. The fund’s net financial assets were US$13.5 billion on December 31, 2019. It is invested in a globally diversified portfolio of public and private equity, fixed income, and real assets. The fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. Forty-eight percent of the Heritage Fund is currently held in equity investments, eight percent of which are Canadian equities.

7. State-Owned Enterprises

Canada has more than 30 state-owned enterprises (SOEs) at the federal level, with the majority of assets held by three federal crown corporations: Export Development Canada, Farm Credit Canada, and Business Development Bank of Canada. Canada also has more than 90 SOEs at the provincial level that contribute to a variety of sectors including finance; power, electricity and utilities; and transportation. The Treasury Board Secretariat provides an annual report to Parliament regarding the governance and performance of Canada’s federal crown corporations and other corporate interests.

The Canadian government lists SOEs as “Government Business Enterprises” (GBE). A list is available at http://www.osfi-bsif.gc.ca/Eng/fi-if/rtn-rlv/fr-rf/dti-id/Pages/GBE.aspx and includes both federal and provincial enterprises.

There are no restrictions on the ability of private enterprises to compete with SOEs. The functions of most Canadian crown corporations have limited appeal to the private sector. The activities of some SOEs such as VIA Rail and Canada Post do overlap with private enterprise. As such, they are subject to the rules of the Competition Act to prevent abuse of dominance and other anti-competitive practices. Foreign investors are also able to challenge SOEs under the NAFTA and WTO.

Privatization Program

Federal and provincial privatizations are considered on a case-by-case basis, and there are no overall limitations with regard to foreign ownership. As an example, the federal Ministry of Transport did not impose any limitations in the 1995 privatization of Canadian National Railway, whose majority shareholders are now U.S. persons.

8. Responsible Business Conduct

Canada encourages Canadian companies to observe the OECD Guidelines for Multinational Enterprises in their operations abroad and provides a National Contact Point for dealing with issues that arise in relation to Canadian companies. Canada defines responsible business conduct as Canadian companies doing business abroad responsibly in an economically, socially, and environmentally sustainable manner. On April 8, 2019, Canada announced the appointment of Sheri Meyerhoffer as Canadian Ombudsperson for Responsible Enterprise. She is mandated to review allegations of human rights abuses arising from the operations of Canadian companies abroad. Canada’s Corporate Social Responsibility strategy, “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad” is available on the Global Affairs Canada website: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-strat-rse.aspx?lang=eng.

Despite the increased level of official attention paid to Responsible Business Conduct, the activities of Canadian mining companies abroad remain the subject of some critical attention and have prompted calls for the government to move beyond voluntary measures. Canada is a supporter of the Extractive Industries Transparency Initiative (EITI).

9. Corruption

On an international scale, corruption in Canada is low and similar to that found in the United States. In general, the type of due diligence that would be required in the United States to avoid corrupt practices would be appropriate in Canada. Canada is a party to the UN Convention Against Corruption. Canada is a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, as well as the Inter-American Convention Against Corruption.

Canada’s Criminal Code prohibits corruption, bribery, influence peddling, extortion, and abuse of office. The 1998 Corruption of Foreign Public Officials Act prohibits individuals and businesses from bribing foreign government officials to obtain influence and prohibits destruction or falsification of books and records to conceal corrupt payments. The law has extended jurisdiction that permits Canadian courts to prosecute corruption committed by companies and individuals abroad. Canada’s anti-corruption legislation is vigorously enforced, and companies and officials guilty of violating Canadian law are being effectively investigated, prosecuted, and convicted of corruption-related crimes. In March 2014, Public Works and Government Services Canada (now Public Services and Procurement Canada, or PSPC) revised its Integrity Framework for government procurement to ban companies or their foreign affiliates for 10 years from winning government contracts if they have been convicted of corruption. In August 2015, the Canadian government revised the framework to allow suppliers to apply to have their ineligibility reduced to five years where the causes of conduct are addressed and no longer penalizes a supplier for the actions of an affiliate in which it had no involvement. PSPC has a Code of Conduct for Procurement, which counters conflict-of-interest in awarding contracts. Canadian firms operating abroad must declare whether they or an affiliate are under charge or have been convicted under Canada’s anti-corruption laws during the past five years in order to receive help from the Trade Commissioner Service. U.S. firms have not identified corruption as an obstacle to FDI in Canada.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Mario Dion
Conflict of Interest and Ethics Commissioner (for appointed and elected officials, House of Commons)
Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
66 Slater Street, 22nd Floor
Ottawa, Ontario (Mailing address)

Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
Centre Block, P.O. Box 16
Ottawa, Ontario
K1A 0A6

Pierre Legault
Office of the Senate Ethics Officer (for appointed Senators)
Thomas D’Arcy McGee Building
Parliament of Canada
90 Sparks St., Room 526
Ottawa, ON K1P 5B4

10. Political and Security Environment

Political violence occurs in Canada to about the same extent as it does in the United States.

11. Labor Policies and Practices

The federal government and provincial/territorial governments share jurisdiction for labor regulation and standards. Federal employees and those employed in federally-regulated industries, including the railroad, airline, and banking sectors are covered under the federally administered Canada Labor Code. Employees in most other sectors come under provincial labor codes. As the laws vary somewhat from one jurisdiction to another, it is advisable to contact a federal or provincial labor office for specifics, such as minimum wage and benefit requirements.

Analysts note that Canada’s labor story varies significantly by province, with resource-dependent provinces affected more adversely than non-resource dependent provinces as a result of lower oil and other commodity prices. The impact of COVID-19 on the labor force is yet to be fully seen, but analysts have predicted unemployment rates around 10 percent or higher as a result of the pandemic. More than one million Canadians lost their jobs in March 2020 due largely to the outbreak, increasing Canada’s unemployment rate to 7.8 percent from 5.6 percent in February. The Canadian government created an emergency response benefit for workers who lost employment due to COVID-19 as well as wage subsidies and other support for employers.

Canada faces a labor shortage in skilled trades’ professions, such as carpenters, engineers, and electricians. Canada launched several initiatives including the Global Skills Visa, announced in November 2016, to address its skilled labor shortage, including through immigration reform, the inclusion of labor mobility provisions in free trade agreements, including the Canada-EU CETA agreement, and the Temporary Foreign Worker Program (TFWP).

The TFWP is jointly managed by Employment and Social Development Canada (ESDC) and Immigration, Refugees, and Citizenship Canada (IRCC). The International Mobility Program (IMP) primarily includes high skill/high wage professions and is not subject to a labor market impact assessment. The number of temporary foreign workers a business can employ is limited. For more information, see the TFWP website: http://www.cic.gc.ca/english/resources/publications/employers/temp-foreign-worker-program.asp 

Canadian labor unions are independent from the government. Canada has labor dispute mechanisms in place and unions practice collective bargaining. In Canada less than one in three employees belonged to a union or was covered by a collective agreement in 2015, the most recent year for which data is available. In 2015, there were 776 unions in Canada. Eight of those unions – five of which were national and three international – represented 100,000 or more workers each and comprised 45 percent of all unionized workers in Canada (https://www.canada.ca/en/employment-social-development/services/collective-bargaining-data/reports/union-coverage.html). In June 2017, Parliament repealed legislation public service unions had claimed contravened International Labor Organization conventions by limiting the number of persons who could strike.

In 2019, workers for Montreal-based CN rail walked off the job on November 19 over concerns about long hours, fatigue, and “dangerous working conditions.” The strike lasted for seven days from November 19 through November 26, during which the railroad operated at approximately 10 percent capacity. CN Rail carries about $189 billion worth of goods annually. Economists at Toronto-Dominion Bank predicted Canada’s gross domestic product would have lost as much as $1.65 billion if the strike had lasted four more days, until November 30. In the end, the one-week long strike clipped GDP by about 0.1 percent that month according to the Bank of Montreal. The Canadian government focused on finding a negotiated end to the strike amid calls to legislate the workers back to work.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

The DFC does not operate in Canada.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $1,352,603 2018 $1,713,000 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $313,069 2018 $401,874 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $458,746 2018 $511,176 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP 2018 $676,064 2018 52.2% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data:

  • Host Country Source: Office of the Chief Economist, State of Trade 2019, Global Affairs Canada.
  • Host Country Source: Statistics Canada
  • Note: Data converted to U.S. dollars using yearly average currency conversions from IRS
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 642,572 100% Total Outward 936,122 100%
United States 297,670 46% United States 436,181 47%
Netherlands 78,224 12% United Kingdom 80,149 9%
Luxembourg 40,927 6% Luxembourg 66,028 7%
United Kingdom 36,913 6% Barbados 47,521 5%
Switzerland 33,830 5% Bermuda 34,460 4%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 1,599,773 100% All Countries 1,200,859 100% All Countries 398,914 100%
United States 988,562 62% United States 717,341 60% United States 271,221 68%
United Kingdom 87,458 5% United Kingdom 68,708 6% United Kingdom 18,751 5%
Japan 62,038 4% Japan 55,151 5% Australia 10,087 3%
France 39,837 2% France 32,991 3% Germany 8,066 2%
Cayman Islands 33,899 2% Cayman Islands 29,510 2% Japan 6,887 2%

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.

4. Industrial Policies

Investment Incentives

The Public Investment Corporation SOC Limited (PIC) is an asset management firm wholly owned by the government of South Africa, represented by the Minister of Finance and is governed by the Public Investment Corporation Act, 2004 . PIC’s clients are mostly public sector entities, including the Government Employees Pension Fund (GEPF) and Unemployment Insurance Fund (UIF), among others. The PIC runs a diversified investment portfolio including listed equities, real estate, capital market, private equity and impact investing. The PIC has been known to jointly finance foreign direct investment if the project will create social returns, primarily in the form of new employment opportunities for South Africans.

South Africa offers various investment incentives targeted at specific sectors or types of business activities. The DTIC has a number of incentive programs ranging from tax allowances to support in the automotive sector and helping innovation and technology companies to film and television production:

  • Tax Allowance: is designed to support new industrial projects that utilize only new and unused manufacturing assets and expansions or upgrades of existing industrial projects. The incentive offers support for both capital investment and training.
  • Agro-Processing Support Scheme (APSS): aims to stimulate investment by South African agro-processing/beneficiation (agri-business) enterprises.
  • Aquaculture Development and Enhancement Programme (ADEP): is available to South African registered entities engaged in primary, secondary, and ancillary aquaculture activities in both marine and freshwater classified under SIC 132 (fish hatcheries and fish farms) and SIC 301 and 3012 (production, processing and preserving of aquaculture fish).
  • Automotive Investment Scheme (AIS): designed to grow and develop the automotive sector through investment in new and/ or replacement models and components that will increase plant production volumes, sustain employment and/ or strengthen the automotive value chain.
  • Medium and Heavy Commercial Vehicles Automotive Investment Scheme (MHCV-AIS): is designed to grow and develop the automotive sector through investment in new and/or replacement models and components that will increase plant production volumes, sustain employment and/or strengthen the automotive value chain.
  • People-carrier Automotive Investment Scheme (P-AIS): provides a non-taxable cash grant of between 20 percent and 35 percent of the value of qualifying investment in productive assets approved by the dtic.
  • Black Industrialist Scheme (BIS): The BIS program is aimed at unlocking the industrial potential of black-owned and managed businesses that operate within South Africa through financial and non-financial interventions.
  • Capital Projects Feasibility Programme (CPFP): is a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and services.
  • Critical Infrastructure Programme (CIP): aims to leverage investment by supporting infrastructure that is deemed to be critical, thus lowering the cost of doing business.
  • Clothing and Textile Competitiveness Improvement Programme (CTCIP): aims to build capacity among manufacturers and in other areas of the apparel value chain in South Africa, to enable them to effectively supply their customers and compete on a global scale.
  • Export Marketing and Investment Assistance (EMIA): develops export markets for South African products and services and recruits new foreign direct investment into the country. The purpose of the scheme is to partially compensate exporters for costs incurred with respect to activities aimed at developing an export market for South African product and services and to recruit new foreign direct investment into South Africa.
  • Film Incentive: The South African government offers a package of incentives to promote its film production and post-production industry. There are four incentives schemes: Foreign Film and Television Production and Post Production; SA Film & TV Production and Co-production; South African film and television production incentive; The South African Emerging Black Filmmakers Incentive.
  • Global Business Services Incentive (GBS): The incentive aims to create employment in South Africa through servicing offshore business process outsourcing activities.
  • Innovation and Technology Funding instruments: click on the link to see a graphic of the various funding instruments the government has made available.
  • Manufacturing Competitiveness Enhancement Programme (MCEP): aims to encourage manufacturers to upgrade their production facilities in a manner that sustains employment and maximizes value-addition in the short to medium term. Participants can also apply for incentives for energy efficiency and green economy incentives.
  • Production Incentive (PI): forms part of the Clothing and Textile Competitiveness Program, and forms part of the customized sector program for the clothing, textiles, footwear, leather and leather goods industries.
  • Sector-Specific Assistance Scheme (SSAS): is a reimbursable cost-sharing incentive scheme which grants financial support to organizations that support the development of industry sectors and those that contribute to the growth of South African exports.
  • Shared Economic Infrastructure Facility (SEIF) – contact the Department of Small Business Development on +27 861 843 384 (select option 2) or E-Mail: for more information.
  • Support Programme for Industrial Innovation (SPII): is designed to promote technology development in South Africa’s industry, through the provision of financial assistance for the development of innovative products and/or processes. SPII is focused on the development phase, which begins when basic research concludes and ends at the point when a pre-production prototype has been produced.
  • Strategic Partnership Programme (SPP): The SPP aims to develop and enhance the capacity of small and medium-sized enterprises to provide manufacturing and service support to large private sector enterprises.
  • Workplace Challenge Programme (WPC): managed by Productivity South Africa, WPC aims to encourage and support negotiated workplace change towards enhancing productivity and world-class competitiveness, best operating practices, continuous improvement, lean manufacturing, while resulting in job creation.

Foreign Trade Zones/Free Ports/Trade Facilitation

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 in 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 the DTIC. 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. There are currently five IDZs in South Africa: Coega IDZ, Richards Bay IDZ, Dube Trade Port, East London IDZ, and Saldanha Bay IDZ.

South Africa also has Special Economic Zones (SEZs) focused on industrial development. The SEZs encompass the IDZs but also provide scope for economic activity beyond export-driven industry to include innovation centers and regional development. There are five SEZ in South Africa: Atlantis SEZ, Nkomazi SEZ, Maliti-A-Phofung SEZ, Musina/Makhado SEZ, and O.R. Tambo SEZ. The broader SEZ incentives strategy allows for 15 percent Corporate Tax as opposed to the current 28 percent, Building Tax Allowance, Employment Tax Incentive, Customs Controlled Area (VAT exemption and duty free), and Accelerated 12i Tax Allowance. For more detailed information on SEZs, please see: http://www.thedtic.gov.za/sectors-and-services-2/industrial-development/special-economic-zones/?hilite=%27SEZ%27 

Performance and Data Localization Requirements

Foreign investors who establish a business or who invest in existing businesses in South Africa must show within twelve months of establishing the business that at least 60 percent of the total permanent staff are South African citizens or permanent residents.

The Broad-Based Black Economic Empowerment (B-BBEE) program measures employment equity, management control, and ownership by historically disadvantaged South Africans for companies which do business with the government or bid on government tenders. Companies may consider the B-BBEE scores of their sub-contractors and suppliers, as their scores can sometimes contribute to or detract from the contracting company’s B-BBEE score.

A business visa is required for foreign investors who will establish a business or who will invest in an existing business in South Africa. They are required to invest a prescribed financial capital contribution equivalent to R2.5million (USD 178 thousand) and have at least R5 million (USD 356 thousand) in cash and capital available. These capital requirements may be reduced or waived if the investment qualifies under one of the following types of industries/businesses: information and communication technology; clothing and textile manufacturing; chemicals and bio-technology; agro-processing; metals and minerals refinement; automotive manufacturing; tourism; and crafts.

The documentation required for obtaining a business visa is onerous and includes, among other requirements, a letter of recommendation from the Department of Trade and Industry regarding the feasibility of the business and its contribution to the national interest, and various certificates issued by a chartered or professional South African accountant.

U.S. citizens have complained that the processes to apply for and renew visas and work permits are lengthy, confusing, and difficult. Requirements frequently change mid-process, and there is little to no feedback about why an application might be considered incomplete or denied. Many U.S. citizens use facilitation services to help navigate these processes.

The government does not require the use of domestic content in goods or technology, though it incentivizes it. The transfer of personal information about a subject to a third party who is in a foreign country is prohibited unless certain conditions are met. These conditions are outlined in the Protection of Personal Information (PoPI) Act, which the government enacted in 2013 to regulate how personal information may be processed. The conditions relate to: accountability, processing limitations, purpose specification, information quality, openness, security safeguards, and data subject participation. PoPI also created an Information Regulator (IR) to draft regulations and enforce them; the five member body that comprises the IR was established in 2018. The IR released regulations on personal information processing in December 2018.

There are no performance requirements on investments.

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.

7. State-Owned Enterprises

State-owned enterprises (SOEs) play a significant role in the South African economy.  In key sectors such as electricity, transport (air, rail, freight and pipelines), and telecommunications, SOEs play a lead role, often defined by law, although limited competition is allowed in some sectors (e.g., telecommunications and air).  The government’s interest in these sectors often competes with and discourages foreign investment.  South Africa’s overall fixed investment was 19 percent of GDP.  The SOEs share of the investment was 21 percent while private enterprise contributed 63 percent (government spending made up the remainder of 16 percent).  The IMF estimates that the debt of the SOEs would add 13.5 percent to the overall national debt.

The Department of Public Enterprises (DPE) has oversight responsibility in full or in part for seven of the approximately 700 SOEs that exist at the national, provincial and local levels:  Alexkor (diamonds); Denel (military equipment); Eskom (electricity generation, transmission and distribution); South African Express and Mango (budget airlines); South African Airways (national carrier); South African Forestry Company (SAFCOL – (forestry); and Transnet (transportation).   These seven SOEs employ approximately 105,000 people. For other national-level SOEs, the appropriate cabinet minister acts as shareholder on behalf of the state. The Department of Transport, for example, has oversight of the state-owned South African National Roads Agency (SANRAL), Passenger Rail Agency of South Africa (PRASA), and Airports Company South Africa (ACSA), which operates nine of South Africa’s airports. The Department of Communications has oversight of the South African Broadcasting Corporation (SABC).

Combined, South Africa’s SOEs that fall under DPE’s authority posted a loss of R15.5 billion (USD 1.3 billion) in the 2017/2018 financial year. In recent years many have been plagued by mismanagement and corruption, and repeated government bailouts have exposed the public sector’s balance sheet to sizable contingent liabilities. The election of President Cyril Ramaphosa and appointment of Minister of Public Enterprises Pravin Gordhan signaled a renewed emphasis on improving SOE governance and performance.

The state-owned electricity giant Eskom generates approximately 95 percent of the electricity used in South Africa.  Coal-fired power stations generate approximately 93 percent of Eskom’s electricity.  Eskom’s core business activities are generation, transmission, trading and distribution.  South Africa’s electricity system operates under strain because of low availability factors for base load generation capacity due to maintenance problems.  The electricity grid’s capacity reserve margins frequently fall under two percent, well below international norms.  Beginning in November 2013, Eskom periodically declared “electricity emergencies,” and asked major industrial users to reduce consumption by ten percent for specified periods (usually one to two days).   To meet rising electricity demand, Eskom is building new power stations (including two of the world’s largest coal-fired power stations, but both are years overdue and over budget).  Eskom and independent industry analysts anticipate South Africa’s electricity grid will remain constrained for at least the next several years.  In December 2019 Eskom implemented State 6 load shedding, when portions of the grid are put offline for planned or unplanned maintenance on a rotating basis, which was a major blow to the economy and raised concerns about the viability of Eskom’s ability to generate sufficient power to meet South Africa’s electricity needs. In February 2019, President Ramaphosa announced that Eskom would be split into multiple entities for power generation, transmission, and distribution, but new structural changes have not occurred within the utility other than a new CEO starting in February 2020.

In October 2019 the DMRE finalized its Integrated Resource Plan (IRP), which outlines South Africa’s plan for new power generation up until 2020. The IRP calls for an increase in renewable energy, the decommissioning of coal-fired power plants, and does not provide for new nuclear power. The South African government has implemented a renewable energy independent power producer procurement program (REIPPP) that in the past three years has added 1500Mw of a planned 3900Mw of renewable energy production to the grid and in April 2018 signed 27 Independent Power Producer agreements to provide an additional 2,300 MW to the grid. DMRE published a Request for Information (RFI) with the public comment period ending on January 31, 2020 for new power generation. Companies were asked to provide solutions for energy generation that the government would consider in developing procurement requests for proposals. Given the new IRP, the RFI, and Eskom’s implementation of load shedding, industry is expecting new procurement rounds to be announced for renewable energy and battery storage in 2020. Considering that new energy generation procurements will take place and there is the potential for a new bid round for the REIPPP, recent credit rating agency downgrades could impact investors ability to obtain credit to finance long-term energy deals. All three major credit ratings agencies have downgraded Eskom’s debt. The rating agencies’ decision follows Moody’s downgrade of South Africa’s sovereign debt rating in March 2020, affecting South African government-related entities such as Eskom.

Transnet National Ports Authority (TNPA), the monopoly responsible for South Africa’s ports, charges some of the highest shipping fees in the world.  In March 2014, Transnet announced an average overall tariff increase of 8.5 percent at its ports to finance a USD 240 million modernization effort.  High tariffs on containers subsidize bulk shipments of coal and iron ore, thereby favoring the export of raw materials over finished ones.  According to the South African Ports Regulator, raw materials exporters paid as much as one quarter less than exporters of finished products.  TNPA is a division of Transnet, a state-owned company that manages the country’s port, rail and pipeline networks.  In April 2012, Transnet launched its Market Driven Strategy (MDS), a R336 billion (USD 28 billion) investment program to modernize its port and rail infrastructure.  Transnet’s March 2014 selection of four OEMs to manufacture 1064 locomotives is part of the MDS.  This CAPEX is being 2/3 funded by operating profits with the remainder from the international capital markets.  In 2016, Transnet reported it had invested R124 billion (USD 10.3 billion) in the previous four years in rail, ports, and pipeline infrastructure.  In recent years ratings agencies have downgraded Transnet’s rating to below the investment-grade threshold. In November 2019 S&P downgraded Transnet’s local currency rating from BB+ to BB.

Direct aviation links between the United States and South Africa are limited to flights between Atlanta, New York (JFK), and Washington (Dulles) to Johannesburg and Newark to Cape Town.  The growth of low-cost carriers in South Africa has reduced domestic airfares, but private carriers are likely to struggle against national carriers without further air liberalization in the region and in Africa.  The launch of the Single African Air Transport Market, which is composed of 23 African Union member states including South Africa, in January 2018 demonstrates the potential for further cooperation on the continent.

In South Africa, the state-owned carrier, South African Airways (SAA), relies on the government for financial assistance to stay afloat and received back-to-back bailouts of R5 billion (USD 357 million) in 2018 alone to repay creditors.  That same year, the airline’s management requested a R21.7 billion (USD 1.55 billion) bailout from the government over three years to turn the company around. In 2019, however, creditors initiated business rescue proceedings, the equivalent of Chapter 11 bankruptcy, to restructure and salvage the airline after a crippling strike over wage increases left the airline’s finances in complete disarray. SAA last released its earnings for fiscal year 2017/2018, in which it lost R5.7 billion (USD 407 million) and brought the company’s cumulative losses since 2011 to a total of R23 billion (USD 1.65 billion).

The telecommunications sector in South Africa, while advanced for the continent, is hampered by regulatory uncertainty and poor implementation of the digital migration, both of which contribute to the high cost of data.  In 2006, South Africa agreed to meet an International Telecommunication Union deadline to achieve analogue-to-digital migration by June 1, 2015.  As of May 2020, South Africa has initiated but not completed the migration.  Until this process is finalized, South Africa will not be able to effectively allocate the spectrum freed up by the conversion.  The biggest development in 2019 was the unveiling of the Department of Communications and Digital Technologies (DCDT), which reintegrated the Department of Communications (DOC) and the Department of Telecommunications and Postal Services (DTPS) that had been split 2014.

In October 2016, DTPS released a policy paper addressing the planned course of action to realize the potential of the ICT sector.  The paper advocates for open access requirements that could overhaul how telecommunications firms gain access to and use infrastructure.  It also proposes assigning high-demand spectrum to a Wireless Open Access Network.  Some stakeholders, including state-owned telecommunications firm Telkom, agree with the general approach.  Others, including the major private sector mobile carriers, feel the interventions would curb investment while doing little to facilitate digital access and inclusion.  In November 2017, DTPS published a draft Electronic Communications Amendment Bill that would implement the ICT White Paper, but the Minister of Communications withdrew the bill in February 2019. Private industry and civil society had criticized the reach of the bill. The Minister stated that the DCDT would consult with relevant stakeholders to re-draft the bill before submitting it to Parliament.

Privatization Program

Although in 2015 and 2016 senior government leaders discussed allowing private-sector investment into some of the more than 700 SOEs and a recently released report of a presidential review commission on SOE that called for rationalization of SOEs, the government has not taken any concrete action to enable this. The CEO of SAA has stated that a fund-raising plan to sell a stake in SAA to an equity partner will be shelved until the airline can shore up its balance sheet. He announced the restructuring of the national carrier into three segments: international, regional, and domestic, but he has not articulated how that would occur in practice. SAA is currently in business rescue.

Other candidates for unbundling of SOEs / privatization are ESKOM and defense contractor Denel.

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.

11. Labor Policies and Practices

Since 1994, the South African government has replaced apartheid-era labor legislation with policies that emphasize employment security, fair wages, and decent working conditions. Under the aegis of the National Economic Development and Labor Council (NEDLAC), government, business, and organized labor are to negotiate all labor laws, with the exception of laws pertaining to occupational health and safety. The South African Constitution and South African laws allows workers to form or join trade unions without previous authorization or excessive requirements. Labor unions that meet a locally negotiated minimum threshold of representation (often, 50 percent plus one union member) are entitled to represent the entire workplace in negotiations with management. As the majority union or representative union, they may also extract agency fees from non-union members present in the workplace. In some workplaces and job sectors, this financial incentive has encouraged inter-union rivalries, including intimidation and violence, as unions compete for the maximum share of employees in seeking the status of representative union.

In February 2020, South Africa reported a year-on-year unemployment rate increase of 2.0 percentage points to 29.1 percent. However, labor force participation increased by 0.4 percentage points to 59.8 percent from 59.4 percent in 2019. The youth unemployment (ages 15-24) rate has hovered at or just over 50 percent since 2015. Approximately 3.3 million (32 percent) of the 10.3 million of these South Africans were not in employment, education, or training. On a quarterly basis, employment in the formal sector increased in all industries with the exception of professional employment and skilled agriculture. Due to a lag in data collection and reporting, the full effect on unemployment due to COVID-19 related business closures will not be reported until the anticipated September 2020 report, covering April – June 2020.

There are 205 trade unions registered with the Department of Labor as of February 2019 (latest published figures), up from 190 the prior year, but down from the 2002 high of 504. According to the 2019 Fourth Quarter Labor Force Survey (QLFS) report from Statistics South Africa (StatsSA), 4.071 million workers belonged to a union, an increase of 30,000 from the fourth quarter of 2018. Department of Labor statistics indicate union density declined from 45.2 percent in 1997 to 24.7 percent in 2014, the most recent data available. Using StatsSA data, however, union density can be calculated: The February 2020 QLFS reported 4.071 million union members and 13.868 million employees, for a union density of 29.4percent.

The right to strike is protected under South Africa’s constitution and laws. The law allows workers to strike due to matters of mutual interest, such as wages, benefits, organizational rights disputes, socioeconomic interests of workers, and similar measures. Workers may not strike because of disputes where other legal recourse exists, such as through arbitration. Although the number of workdays lost to strikes fell to 1.06 million in 2019, down from 1.95 million in 2018, the figure remains low in comparison to the 2005-2014 period in which every year but one (2008) saw lost workdays total at least 2.3 million. Layoffs and retrenchments are permitted for economic reasons, but they are subject to a statutory process requiring consultations between employers and labor unions in an effort to reach consensus.

Employers and employees are each required to pay one percent of workers’ wages to the national unemployment fund. The fund pays benefits based on reverse sliding scale of the prior salary, up to 58 percent of the prior wage, for up to 34 weeks.

There are robust labor dispute resolution institutions in South Africa, including the Commission for Conciliation, Mediation and Arbitration (CCMA), the bargaining councils, and specialized labor courts of both first instance and appellate jurisdiction.

Improved labor stability is essential for South Africa’s economic stability and development and vital to the country’s ability to continue to attract and retain foreign investment. The government of South Africa does not waive labor laws to attract or retain investment.

Collective bargaining is a cornerstone of the current labor relations framework. As of February 2019, the South Africa Department of Labor listed 39 private sector bargaining councils through which parties negotiate wages and conditions of employment. Per the Labor Relations Act, the Minister of Labor must extend agreements reached in bargaining councils to non-parties of the agreement operating in the same sector. Employer federations, particularly those representing small and medium enterprises (SMEs) argue the extension of these agreements – often reached between unions and big business – negatively impacts SMEs that cannot afford to pay higher wages. In 2019, the average wage settlement resulted in a 7.1 percent wage increase, on average 2.9 percent above the increase in South Africa’s consumer price index and down slightly from the average increase of 7.4 percent in 2018.

Major labor legislation includes:

As of January 1, 2019, South Africa has a national minimum wage of R20/hour, with lower rates for domestic (R16/hour) and agricultural (R 18/hour) workers. This rate is subject to annual increases as suggested by the 13-member National Minimum Wage Commission and as approved by parliament and signed by the president. Effective March 2020, the Commission raised the minimum wage by 3.8 percent, to R 20.76 for most workers. Domestic and agricultural workers received the same percentage raises.

In November 2018, President Ramaphosa signed an amendment to the Basic Conditions of Employment Act which provides benefits to new parents. Fathers may now claim ten days of paternity leave, whereas adoptive parents and commissioning parents in a surrogate motherhood agreement may now claim ten weeks of leave. South Africa’s Unemployment Fund funds this leave at the same rate for unemployment claims (see above) and not at the claiming employee’s wage rate.

The Labor Relations Act (LRA), in effect since 1995 with amendments made in 2014, provides fair dismissal guidelines, dispute resolution mechanisms, and retrenchment guidelines stating 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 disputes, and is required to certify an impasse in bargaining council negotiations before a strike can be called legally. The CCMA’s caseload currently exceeds what was anticipated; the South African Government provided the CCMA an additional USD 60 million to handle its caseload and any possible increase caused by the 2014 amendments to the LRA. Amendments to the LRA modify the regulation of temporary employment service firms, extend organizational rights to workplaces with a majority of temporary or fixed term contract workers, reduces the maximum period of temporary or fixed term contract employment to three months, establishes joint liability by temporary employment services and their clients for contraventions of employment law, and strengthens other protections for temporary or contract workers.

The Basic Conditions of Employment Act (BCEA), implemented in 1997 and amended in 2014, establishes a 45-hour workweek, standardizes time-and-a-half pay for overtime, and authorizes four months of maternity leave for women. No employer may require or permit an employee to work overtime except by agreement, and overtime may not be more than 10 hours a week. The law stipulates rest periods of 12 consecutive hours daily and 36 hours weekly and must include Sunday. The law allows adjustments to rest periods by mutual agreement. A ministerial determination exempted businesses employing fewer than 10 persons from certain provisions of the law concerning overtime and leave. Farmers and other employers can apply for variances from the law by showing good cause. The law applies to all workers, including workers in informal sectors, foreign nationals, and migrant workers, but the government did not prioritize labor protections for workers in the informal economy. The law prohibits employment of children under age 15 and prohibits anyone from requiring or permitting a child under age 15 to work. The law allows children under age 15 to work in the performing arts, but only if their employers receive permission from the Department of Labor and agree to follow specific guidelines. Amendments made in 2014 clarify the definitions of employment, employers, and employees to reflect international labor conventions, closing a loophole that previously existed in South African law between the LRA and the BCEA. The Act gives the Minister of Labor the power to set sectoral minimum wages and annual minimum wage increases for employees not covered by sectoral minimum wage agreements.

The Employment Equity Act of 1998 (EEA), amended in 2014, protects all workers against unfair discrimination on the grounds of race, age, gender, religion, marital status, pregnancy, family responsibility, ethnic or social origin, color, sexual orientation, disability, conscience, belief, political, opinion, culture, language, HIV status, birth, or any other arbitrary ground. The EEA further requires large- and medium-sized companies to prepare employment equity plans to ensure that historically disadvantaged South Africans, such as Blacks, South Asians, and Coloreds, as well as women and disabled persons, are adequately represented in the workforce. The EEA amendments increase fines for non-compliance with employment equity measures and have a new provision of equal pay for work of equal value. The Act prohibits the use of foreign nationals to meet employers’ affirmative action targets and relaxes the standards for parties in labor disputes to access the CCMA instead of going directly to the Labor Court.

More information regarding South African labor legislation can be found at: www.labour.gov.za/legislation 

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

The US International Development Finance Corporation (DFC) is the successor agency to the Overseas Private Investment Corporation (OPIC).  DFC is open for business in South Africa via an Investment Incentive Agreement signed by its predecessor agency OPIC in 1993.

As of March 31, 2020, DFC’s total exposure in South Africa was approximately USD 888 million.  DFC has a representative office in Johannesburg, South Africa to support financing and insurance of DFC transactions across sub-Saharan Africa, including South Africa.  DFC’s commitments in South Africa span a range of sectors, such as renewable energy, transportation, minerals and natural resources, and education.  Additional information on DFC programs that involve South Africa may be found on DFC’s website: http://www.dfc.gov.  

 

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $341.5 billion 2018 $368.3 billion www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $9.03 billion 2018 $7.6 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $15.9 billion 2018 $3.9 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP 2018 40.7% 2018 35% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: South Africa Reserve Bank (www.resbank.co.za ); Statistics South Africa (www.statssa.gov.za)

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 138,562 100% Total Outward 246,439 100%
United Kingdom 40,681 29.4% China 120,425 48.9%
The Netherlands 26,964 19.5% United Kingdom 23,556 9.6%
Belgium 13,339 9.6% Mauritius 20,613 8.4%
United States 9,013 6.5% United States 15,903 6.5%
Japan 7,944 5.7% Australia 8,343 3.4%
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries 160,517 100% All Countries 150,986 100% All Countries 9,531 100%
United Kingdom 60,770 37.9% United Kingdom 58,501 38.7% United Kingdom 2,269 23.8%
Ireland 23,780 14.8% Ireland 23,030 15.3% United States 1,593 16.7%
United States 18,283 11.4% United States 16,690 11.1% Italy 782 8.2%
Luxembourg 13,776 8.6% Luxembourg 13,214 8.8% Ireland 750 7.9%
Bermuda 7,661 4.8% Bermuda 7,661 5.1% Luxembourg 562 5.9%
Investment Climate Statements
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