Transparency of the Regulatory System
South African laws and regulations are generally published in draft form for stakeholder to comment, and legal, regulatory, and accounting systems are generally transparent and consistent with international norms.
The dti is responsible for business-related regulations. It develops and reviews regulatory systems in the areas of competition, consumer protection, company and intellectual property, as well as public interest regulation. It also oversees the work of national and provincial regulatory agencies mandated to assist the dti in providing competitive and socially responsible business and consumer regulations, to ensure a coherent, predictable and transparent legislative and regulatory framework, which facilitates easy access to redress and creates a fair and competitive business environment in South Africa. The dti publishes a list of Bills and Acts that govern the dti’s work at http://www.dti.gov.za/business_regulation/legislation.jsp .
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, using 207 full-time in-house technical evaluators and funded through the retention of registration fees. Despite its launch this year, the full staffing and implementation of SAPHRA is anticipated to take up to five years.
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.dti.gov.za/business_regulation/acts/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 provides 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.dti.gov.za/business_regulation/acts/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; and develop policies and instruments to address unfair trade practices between members; and also calls for harmonization of product standards and technical regulations.
SACU member States are working to develop the regional industrial development policy to harmonize competition policy and unfair trade practices. Progress is limited in general to customs related areas, mainly tariff and trade remedies. SACU has not harmonized non-tariff measures. Also, the 2002 SACU Agreement is limited to the liberalization of trade in goods and does not cover trade in services. In 2008, the SACU Council of Ministers agreed that new generation issues such as services, investment, and Intellectual Property Rights should be incorporated into the SACU Agenda. Work is ongoing. South Africa is generally restricted from negotiating trade agreements by itself, since SACU is the competent authority.
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 February 2018. 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.
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 now former 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 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. 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
Given the slow and mixed success of land reform in South Africa, in February 2018, South Africa’s National Assembly (Parliament) passed a motion to investigate a proposal to amend the constitution (specifically Section 25, the “property clause”) to allow for land expropriation without compensation (EWC). Parliament tasked a Constitutional Review Committee – made up of parliamentarians from various political parties – to report back by August 30 on whether to amend the constitution to allow EWC, and if so, how it should be done. A recommendation to amend would kick-off a protracted process including public consultations, parliamentary debates, and hearings before any draft legislation is introduced. Any change to the constitution would need a two-thirds majority (267 votes) to pass, and no single party has such a majority. The constitutional Bill of Rights, where Section 25 resides, has never been amended. There are politicians, think-tanks, and academics who argue that Section 25, as written, leaves the space for EWC in certain cases, while more radical factions in the government and populace want EWC implemented writ-large. There has been no case of EWC, so no case law exists to test Section 25. 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 labor tenants – blacks who exchanged free labor for access to farmland – in rural areas.
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.
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 equitable distribution. Certain provisions in the Green Paper have generated controversy such as proposed 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.
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 law inspired 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 government of South African. Under the MPRDA, investors who held pre-existing rights were granted the opportunity to apply for licenses provided they met the criteria, including the achievement of certain B-BBEE objectives. Amendments to the MPRDA passed by Parliament in 2014, but not yet signed into law by the president, 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 new investment in oil and gas because of the carried interest provisions. The private sector has strongly urged the government of South Africa to separate out petroleum from the bill. In February 2015, the bill was returned to the committee because of constitutional concerns over process and policy and it remains stalled.
The president has yet to sign into law amendments to the 2001 Private Security Industry Regulatory Act passed by the South Africa Parliament aimed at controlling national security risks associated with foreign investors. This bill requires 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 key-makers. 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 a concern that if the bill becomes law, other industries will ask for similar local ownership requirements.
In 2015, the Promotion of Investment Act became law and 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, 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.
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. The South African court will interpret the contract with the law of the country or jurisdiction provided for in the contract, however.
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. 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 ranks 55 out of 190 countries for resolving insolvency according to the 2018 World Bank Doing Business report.