Transparency of the Regulatory System
South African laws and registrations are generally published in draft form for stakeholder comment, and legal, regulatory, and accounting systems are generally transparent and consistent with international norms.
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 will vary by industry, and businesses will need to adjust their operations accordingly. The legislation for the Consumer Protection Act can be found at: www.dti.gov.za/ccrdlawreview/DraftConsumerProtectionBill.htm
The implementing regulations can be found at: www.dti.gov.za/ccrd/cpa_regulations.htm .
International Regulatory Considerations
South Africa is a member of the Southern Africa Customs Union (SACU) and the Southern Africa Development Community (SADC). SACU has a common external tariff and supposedly tariff-free trade between its five members, while SADC is a 15-member free trade agreement. South Africa is generally restricted from negotiating trade agreements by itself, since SACU is the competent authority. In general, South Africa hews to European standards or UK standards where those differ. They are a member of the World Trade Organization (WTO) and attempt to notify all draft technical regulations to the Committee on Technical Barriers to Trade (TBT).
Legal System and Judicial Independence
South Africa has a mixed legal system of Roman-Dutch civil law, English common law, and customary law. The independence of the judiciary is widely lauded, and has been demonstrated in the past years through rulings against President Zuma or individuals close to him.
Laws and Regulations on Foreign Direct Investment
Currently there are no limitations on foreign ownership, although the Private Security Industry Regulation Act (PSIRA) which has passed Parliament and is awaiting presidential signature to become law, has a clause requiring 51 percent ownership and control by South Africans in private companies in the security industry. President Zuma also announced in his State of the Nation Address (February 2017) that he will soon launch a land reform bill that restricts foreign ownership, and will convert foreign-owned land to long-term leases. The Broad-Based Black Economic Empowerment (B-BBEE) policy, requires levels of company ownership by Black South Africans in order to achieve government tenders and contracts.
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
Expropriation and Compensation
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. There is no record, dating back to 1924, of an expropriation or nationalization of a U.S. investment in South Africa. 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.
Racially discriminatory property laws during apartheid resulted in highly distorted patterns of land ownership in South Africa. In 2011, South Africa tabled a “Green Paper” on land reform to address these distortions. The Green Paper’s “three pillars” include a land management commission, a land valuation-general and a land rights management board with local management committees. These would keep track of land sales, ensure proper record keeping, and “facilitate productive land usage and an equitable land distribution.” Certain provisions in the Green Paper have generated controversy such as proposed “severe limitations” on private land ownership, particularly foreign ownership, the powers granted to a proposed “valuer-general” to assist the Department of Rural Development and Land Reform in assessing the fair value of land, the proposed Commission’s powers to invalidate title deeds and confiscate land, and the state’s right to intervene regarding the use of land. President Zuma suggested that private land ownership will be limited to 12,000 hectares (roughly 30,000 acres) and that no foreigners would be allowed to own land in his State of the Nation address in February 2015. While details about these proposed policies remain hazy and are not yet law, it is an indication of the direction of government policy, and has already caused some investors to cancel potential deals. The Finance Minister planned the creation of the Office of a Valuer-General will be funded in the FY 2015-16 fiscal year, but this office remains to be initiated.
In March 2014, the Parliament passed the Restitution of Land Rights Amendment Bill, which reopens the window for persons or communities disposed of their land after 1913, due to past discriminatory laws and policies to lodge claims for their properties. President Zuma signed the bill on July 1, 2014. As expected, the bill inspired some significant new claims for restoration of property seized during colonization or under the Apartheid government.
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 South African government. Under the MPRDA, investors who held pre-existing rights were granted the opportunity to apply for licenses provided they met certain criteria, including the achievement of certain BEE objectives. Amendments to the MPRDA passed by Parliament in 2014, but not signed into law by President Zuma, grant the state de facto expropriation rights for projects in the minerals and petroleum sectors; they also grant broad discretionary powers to the person of the Minister to restrict exports and prices for commodities the Minister deems strategic. While seemingly written for the mining sector, the bill’s inclusion of petroleum could complicate, if not obviate, new investment in oil and gas because of the carried interest provisions. The South African government has been strongly urged to separate out petroleum from the bill. In February 2015 the bill was returned to committee because of constitutional concerns over process and policy and currently remains stalled in committee.
In February 2014, the South Africa Parliament passed amendments to the 2001 Private Security Industry Regulatory Act aimed at controlling national security risks associated with foreign investors. President Zuma had not signed the bill into law as of March 2017. This bill would require at least 51 percent domestic ownership of foreign-owned private security companies, possibly including not only private security services providers, but also security equipment manufacturers and service providers like locksmiths and keymakers. The forced ownership transfer requirements likely would be found in violation of South Africa’s commitments under the General Agreement on Trade in Services (GATS). There is concern that passage of the bill with the local ownership requirement would lead other industries to ask for similar provisions.
In December 2015, President Zuma signed the Promotion of Investment Act into law, to put the rights of foreign and domestic investors on an equal footing. The Act provides the government the option to expropriate property at a price lower than market value based on a formulation in the Constitution termed “just and equitable compensation.” This considers market value with discounts based on the current use of the property, the history of the acquisition, current use of the property, and the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property. The Act also allows the government to expropriate under a broad range of policy goals, including economic transformation and correcting historical grievances.
ICSID Convention and New York Convention
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 Africa is a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards, but is not a member of the World Bank’s International Center for the Settlement of Investment Disputes. South Africa recognizes the International Chamber of Commerce, which supervises the resolution of transnational 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. South Africa’s new Companies Act also provides a mechanism for Alternative Dispute Resolution. 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.
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 subsequent 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. 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 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 has a World Bank rank of 74 in the 2016 Doing Business report.