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 vibrant 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. South Africa encourages investment that develops manufacturing of goods for export.

South Africa is starting to emerge 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. Since assuming office in February 2018, South Africa’s new president, Cyril Ramaphosa, has committed to improving the investment climate. The early steps he has taken are encouraging, but the challenges are enormous. At a minimum, South Africa will need to strengthen economic growth and stabilize public finances in order to reverse the credit downgrades by two of the three global ratings agencies. Other challenges include: making state-owned enterprises (SOEs) profitable rather than recipients of government bail-outs; weeding out widespread corruption; reducing violent crime; tackling labor unrest; improving basic infrastructure and government service delivery; creating more jobs (unemployment is approximately 27 percent); and increasing the supply of high-skilled labor.

In dealing with the legacy of apartheid, South African laws, policies, and reforms seek to produce economic transformation to increase the economic 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 including performance requirements for government procurement such as equity stakes and localization. Following the adoption of a resolution at the December 2017 conference of the African National Congress, investors are watching closely how the government will implement land reform initiatives and what Parliament will decide as a result of its review of the constitution and the issue of expropriation of land without compensation.

Despite these uncertainties and some important structural economic challenges, South Africa is a destination conducive to U.S. investment; the dynamic business community is highly market-oriented and the driver of economic growth. President Ramaphosa aims to attract at least USD 100 billion in investment over the next five years. South Africa offers ample opportunities, and continues to attract investors seeking a comparatively low-risk location in Africa from which to access the continent with the fastest growing consumer market in the world.

Table 1

Measure	Year	Index/Rank	Website Address
TI Corruption Perceptions Index	2017	71 of 175	http://www.transparency.org/ research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business”	2017	82 of 190	http://www.doingbusiness.org/rankings
Global Innovation Index	2017	57 of 128	https://www.globalinnovation index.org/analysis-indicator
U.S. FDI in Partner Country (M USD, stock positions)	2015	USD 5,061	http://www.bea.gov/ international/factsheet/
World Bank GNI per capita	2015	USD 5,480	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. Virtually all business sectors are open to foreign investment. Certain sectors require government approval for foreign participation, including energy, mining, banking, insurance, and defense. Excepting those sectors, no government approval is required to invest, and there are few restrictions on the form or extent of foreign investment. The Department of Trade and Industry's (the dti) Trade and Investment South Africa (TISA) division provides assistance to foreign investors. In the past year, they 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 at the dti in Pretoria and online at http://www.gov.za/Invest%20SA%3AOnestopshop. An additional one-stop shop has opened at Dube Trade Port, which is a special economic zone aeropolis linked to the King Shaka International Airport in Durban. The dti actively courts manufacturing industries in which research indicates the foreign country 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 dti 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 dti publishes the "Investor's Handbook" on its website: www.dti.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. Some felt that the national-level government lacked a sense of urgency to support investment deals. 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 investment. Ministries often do not consult adequately with stakeholders before implementing laws and regulations. The draft Copyright Amendment Bill, the draft Intellectual Property Framework, the Protection of Investment Bill, the Expropriation Bill, and the stalled, yet pending, Private Security Industry Regulation Act (PSIRA) all contain provisions that could harm the interests of investors if enacted into law. Onerous paperwork required for people travelling internationally with children is an example of the unintended impact that bureaucratic procedures can have on investment. On the positive side, President Cyril Ramaphosa and his new c********et 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.

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. For example, the Private Security Industry Regulation Act (PSIRA), passed by Parliament but not signed by the president, requires 51 percent South African ownership and control of companies in the security industry. In 2017, the Broad-Based Black Socio-Economic Empowerment Charter for the South African mining and minerals industry which was mired in the courts as industry challenged it, required an increase to 30 percent ownership by black South Africans. The bill has since been retracted for revision. Similarly, 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 dti created an ownership equivalence program for multinational or foreign owned companies to allow them to score on the ownership requirements under the law, but the terms are onerous and restrictive. Currently eight multinationals participate in this program, most in the technology sector.

Other Investment Policy Reviews

The World Trade Organization carried out a Trade Policy Review for the Southern African Customs Union, in which South Africa accounts for over 90 percent of GDP, 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 fell from 74th in 2017 to 82nd in 2018. It ranks 136th for starting a business, where it takes an average, forty-five days. . South Africa ranks 147th of 190 countries on trading across borders, and the costs of importing are 55 percent higher than the costs of exporting.

In 2017, the dti launched a national InvestSA One Stop Shop (OSS) to simplify administrative procedures and guidelines for foreign companies wishing to invest in South Africa. The dti, 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, and finance and incentives, with a view to reducing lengthy bureaucratic procedures, reducing bottlenecks, and providing post-investment services. The virtual OSS web site is: http://www.gov.za/Invest%20SA%3AOnestopshop.

The Companies and Intellectual Property Commission (CIPC), a body of the dti, 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, and the largest outward direct investment is a gas liquefaction plant in Louisiana from energy and chemical company SASOL. There are some restrictions on outward investment, such as a R1 billion (USD 83 million) per year outward flow 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

2. Bilateral Investment Agreements and Taxation Treaties

Of South Africa’s 49 bilateral investment treaties (BITs), 35 never entered into force or were terminated. According to UNCTAD, fourteen agreements are still in force including with Russia, China, Cuba, and Iran, among others. The 2015 "Protection of Investment Act" replaces lapsed BITs and stipulates that "Existing investments that were made under such treaties will continue to be protected for the period and terms stipulated in the treaties. Any investments made after the termination of a treaty, but before promulgation of this Act, will be governed by the general South African law." It also provides that "the government may consent to international arbitration in respect of investments covered by the Act, subject to the exhaustion of domestic remedies." However, such "arbitration will be conducted between the Republic and the home state of the applicable investor." South Africa is not engaged in new BIT negotiations.

South Africa is a member of the Southern Africa Customs Union (SACU) which has a common external tariff and tariff-free trade between its five members (South Africa, Botswana, Lesotho, Namibia, and Swaziland). South Africa is generally restricted from negotiating trade agreements by itself because SACU is the competent authority. Nevertheless, South Africa has free trade agreements with the Southern African Development Community (SADC) including its 12 members; the Trade, Development and Cooperation Agreement (TDCA) between South Africa and the European Union (EU); EFTA-SACU Free Trade Agreement between SACU and the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway, and Switzerland; and the Economic Partnership Agreement (EPA) between the SADC EPA States (South Africa, Botswana, Namibia, Swaziland, Lesotho, and Mozambique) and the EU and its Member States. These agreements mainly cover trade in goods and provide preferential market access, though article 52 of the 1999 EU-TDCA covers investment promotion and protection.

South Africa also signed the SADC-EAC-COMESA Tripartite FTA which includes 26 countries with a combined GDP of USD 860 billion and a combined population of approximately 590 million people. This agreement also primarily covers trade in goods. South Africa is in negotiations aimed at creating an Africa-wide FTA.

The United States and South Africa signed a Trade and Investment Framework Agreement (TIFA) in 1999. The last TIFA discussions were held in 2015. The United States and SACU negotiated a Trade, Investment and Development Cooperation Agreement (TIDCA) in 2008.

The first U.S.-South Africa bilateral tax treaty eliminated double taxation and entered into force in 1998. In 2014, a new bilateral tax treaty was signed to implement the U.S. Foreign Asset Tax Compliance Act (FATCA).

As part of a broad set of tax increases, in 2018 the government raised, for the first time, the value added tax (VAT) by one percentage point to 15 percent. Tax increases – including the VAT increase, below-inflation adjustments to personal income tax brackets, higher estate and luxury goods duties, higher alcohol and tobacco excise duties, and an extra 52 cents per liter in fuel levies – are meant to generate an additional R36-billion (USD 3 billion) for the national coffers. The tax increases come alongside yet to be determined R85-billion (USD 7 billion) government expenditure cuts over the next three years to fund inclusive economic growth and social spending, from free higher education to health care and social protection. Taken together with an optimistic growth outlook, these interventions aim to stabilize public finances. According to then Finance Minister Malusi Gigaba, “these fiscal proposals will cause economic discomfort, but they are necessary to protect the integrity of the public finances.”

The South African Revenue Service (SARS) began collecting the health promotion levy – previously known as the sugar-sweetened beverages tax – in April 2018, almost one year after it was initially due to come into effect. The tax is meant to encourage the reduction in the consumption of sugar-sweetened beverages to deal with obesity and the epidemic of non-communicable diseases such as diabetes, which is cited as the second leading cause of death, after tuberculosis, among South Africans. The Treasury argued that taxes on foods high in sugar can be an important element in a strategy to address diet-related diseases.

3. Legal Regime

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.

Dispute Settlement

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.

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 55 out of 190 countries for resolving insolvency according to the 2018 World Bank Doing Business report.

4. Industrial Policies

Investment Incentives

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

12I 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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=45&subthemeid=26;
Agro-Processing Support Scheme (APSS): aims to stimulate investment by South African agro-processing/beneficiation (agri-business) enterprises.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=69&subthemeid=25;
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).
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=56&subthemeid=26;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=37&subthemeid=26;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=60&subthemeid=26;
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 dti.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=55&subthemeid=26;
Business Process Services (BPS): aims to attract investment and create employment opportunities in South Africa through offshoring activities.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=6&subthemeid=25;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=4&subthemeid=26;
Cluster Development Programme (CDP): aims to promote industrialization, sustainable economic growth and job creation needs of South Africa through cluster development and industrial parks.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=66&subthemeid=28;
Critical Infrastructure Programme (CIP): aims to leverage investment by supporting infrastructure that is deemed to be critical, thus lowering the cost of doing business.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=3&subthemeid=26;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=35&subthemeid=25;
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 in respect of activities aimed at developing export market for South African product and services and to recruit new foreign direct investment into South Africa.
https://www.thedti.gov.za/trade_investment/emia.jsp;
Foreign Film and Television Production and Post-Production Incentive: to attract foreign-based film productions to shoot on location in South Africa and conduct post-production activities.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=63&subthemeid=26;
Innovation and Technology Funding instruments: click on the link to see a graphic of the various funding instruments made available by the government.
https://www.thedti.gov.za/financial_assistance/Innovation_value_Chain.jsp;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=53&subthemeid=25;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=36&subthemeid=25;
Sector-Specific Assistance Scheme (SSAS): is a reimbursable cost-sharing incentive scheme with financial support granted to organizations supporting the development of industry sectors and those contributing to the growth of South African exports.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=8&subthemeid=26;
Shared Economic Infrastructure Facility (SEIF) - contact the Department of Small Business Development on 0861 843 384 (select option 2) or E-Mail: sbdinfo@dsbd.gov.za for more information.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=61&subthemeid=1;
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 specifically on the development phase, which begins at the conclusion of basic research and ends at the point when a pre-production prototype has been produced.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=48&subthemeid=8;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=67&subthemeid=1;
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.
https://www.thedti.gov.za/financial_assistance/financial_incentive.jsp?id=68&subthemeid=25.

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 dti. There are no exemptions from other laws or regulations, such as environmental and labor laws. The Manufacturing Development Board licenses IDZ enterprises in collaboration with the South African Revenue Service (SARS), which handles IDZ customs matters. IDZ operators may be public, private, or a combination of both. There are currently eight IDZs in South Africa: Coega IDZ, Richards Bay IDZ, Dube Trade Port, East London IDZ, Saldanha Bay IDZ, Maliti-A-Phofung SEZ, Musina SEZ, and at OR Tambo SEZ. For more detailed information on IDZs in South Africa please see: http://www.thedti.gov.za/industrial_development/sez.jsp.

In February 2014, the dti introduced a new Special Economic Zones (SEZs) Bill focused on industrial development. The Bill was subsequently passed, and the SEZs are in the process of being created. The SEZs are intended to encompass the IDZs but also provide scope for economic activity beyond export-driven industry to include innovation centers and regional development. 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.

Performance and Data Localization Requirements

Employment and Investor Requirements

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

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 200 thousand) and have at least R5 million (USD 400 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 US citizens use facilitation services to help navigate these processes.

Goods, Technology, and Data Treatment

The government does not require the use of domestic content in goods or technology and there are no restrictions on transmitting customer or other business-related data outside of South Africa.

Investment Performance Requirements

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.

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 illegal commercial photocopying, software piracy, and internet policy.

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 Department of Trade and Industry (the dti) must approve the royalty agreement. Patents are granted for twenty years - usually with no option to renew. Trademarks are valid for an initial period of ten years, 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). 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 significant progress has been made since 2001. Statistics on seizures are not available.

In August 2012, the Copyright Review Commission (CRC) released a report recommending amending laws to hold Internet Service Providers (ISPs) and Wireless Application Service Providers (WASPs) accountable for copyright violations occurring through the internet and to improve royalty collection. The 2013 Performers Protection Bill amended four pieces of intellectual property legislation to protect indigenous intellectual property. Intellectual property (IP) experts and rights holders have been concerned the legislation could undermine the ability of existing IP rights holders to protect their rights in court.

The most recent draft of South Africa’s Copyright Amendment Bill was published in May 2017 for stakeholder consultation. Subsequent to public hearings in 2017, Parliament decided that substantial amendments were necessary to the bill. Concerns centered on unprecedented user rights assigned in the bill, introduction of “fair use” principles, a provision for state-owned copyrights on government funded projects, and a 25-year life span of a copyright before it is returned to the original creator. Parliament created a technical committee of industry experts that will provide expertise as it redrafts the bill. Local law firms are under the impression that the redrafted bill may be promulgated in an entirely different form than the one tabled last year. Given the workload of the committee on trade and industry, stakeholders do not expect to see any movement on this bill until late 2018 or 2019.

In 2013, the government released a draft National Intellectual Property Policy that would inform the government’s approach to intellectual property and existing laws. The South African Government, led by the dti, held multiple rounds of public consultations since its introduction and the 2016 release of the IP Consultative Framework, the most recent of which was a multi-stakeholder consultation in 2017. The dti released the final Intellectual Property Policy of the Republic of South Africa Phase 1 in June, 2018.

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 dti 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; however, they are concerned 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 beginning stages of its formal processes to obtain parliamentary approval to implement 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.

Resources for Rights Holders

Economic Officer covering IP issues:

Juan Manuel Cammarano
Trade and Investment Officer
+27(0)12 431-4343
CammaranoJM@State.gov

For additional information about South Africa’s treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/. A list of attorneys for various South African districts can be found on the U.S. Mission Citizen Services page: https://za.usembassy.gov/u-s-citizen-services/local-resources/attorneys/.

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. After weak growth prospects and an increasing likelihood of downgrades by credit rating agencies shook investor confidence in late-2015, the government enhanced efforts to attract and retain foreign investors. The newly elected president, Cyril Ramaphosa, attended the World Economic Forum in Davos in January 2018 to promote South Africa as an investment destination.

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. 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 USD1 trillion and approximately 400 companies listed on the main and alternative board. 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 which 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 individuals 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. In 2017, South Africa’s WEF competitiveness rating for auditing and reporting fell from number one in the world, to number 30.

Money and Banking System

South African banks are well capitalized and comply with international banking standards. There are 19 registered banks in South Africa, of which 15 are branches of foreign banks. Thirty-one foreign banks have approved local representative offices. Four banks - Standard, ABSA, First Rand (FNB), and Nedbank - dominate the sector, accounting for over 80 percent of the country's banking assets, which total over USD 432 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 seventeenth 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 995 billion as of March 2018, with 388 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 Policies

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 15 percent of their retail assets in other countries.

Before accepting or repaying a foreign loan, South African residents must obtain SARB approval. The SARB must also approve the payment of royalties and license fees to non-residents when no local manufacturing is involved. When local manufacturing is involved, the dti must approve the payment of royalties related to patents on manufacturing processes and products. Upon proof of invoice, South African companies may pay fees for foreign management and other services provided such fees are not calculated as a percentage of sales, profits, purchases, or income.

Sovereign Wealth Funds

South Africa does not have a Sovereign Wealth 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 six of the approximately 700 SOEs that exist at the national, provincial and local levels: Alexkor (diamonds); Denel (military equipment); Eskom (electricity generation); South African Express Airways; South African Forestry Company (SAFCOL) (forestry); and Transnet (transportation). These six SOEs employ approximately 105,000 people. For other national-level SOEs, the appropriate c********et 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). South African Airways (SAA) was transferred in 2014 to control by the National Treasury.

Combined, South Africa’s SOEs posted a loss of R15.5 billion (USD 1.3 billion) in the 2014/2015 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. 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 recently signed 27 Independent Power Producer agreements to provide an additional 2,300 MW to the grid. In February 2018, S&P announced that it “lowered its long-term foreign and local currency issuer credit ratings on South Africa-owned utility ESKOM Holdings SOC Ltd. to ‘CCC+’ from ‘B-‘.

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 2017 S&P downgraded Transnet’s local currency rating from BBB- to BB+.

Direct aviation links between the United States and Africa are limited, but have expanded over the past few years. 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. 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 R5.2 billion (USD 433 million) in 2017 alone to repay creditors. New management at SAA, including a new board and CEO offer some hope that SAA will implement its turnaround plan, but the airline has a long journey to recover from mismanagement and six consecutive years of losses. During fiscal year 2016/2017, SAA lost R5.6 billion (USD 466 million).

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 April 2018, South Africa has initiated but not completed the migration. Until this process is finalized, South Africa will not be able to allocate the spectrum freed up by the conversion. Many of the issues stem from the confusion and infighting caused by the 2014 split of the Department of Communications into two departments—the Department of Communications (DOC) and the Department of Telecommunications and Postal Services (DTPS). The DOC is responsible for the migration and has oversight of the sector regulator, the Independent Communications Authority of South Africa (ICASA). DTPS is responsible for ICT policy.

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 all 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. The controversial nature of the bill is expected to delay passage and contribute to ongoing uncertainty in the sector.

Privatization Program

Although in 2015 and 2016 senior government leaders discussed allowing private-sector investment into some of the more than 700 SOEs and recently released a report of a presidential review commission on SOE which called for rationalization of SOEs, the government has not taken any concrete action to enable this. In the medium-term budget policy statement in October 2017, then-Finance Minister Malusi Gigaba said the South African government would sell a portion of its 39.3 percent stake in profitable state-owned telecommunications firm Telkom to raise money for cash-strapped SOEs, but the sale has not moved forward. 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.

8. Responsible Business Conduct

Responsible Business Conduct (RBC), is well-developed in South Africa, and is driven in part by the recognition that the private sector has an important role to play. 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 amendment’s compliance target is one percent of net profit after tax, 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.

9. Corruption

The Prevention and Combating of Corrupt Activities Act (PCCA) is the primary law governing anti-bribery and corruption prevention and enforcement in South Africa. It applies to both domestic and foreign organizations doing business in the country and covers corrupt activities relating to specific persons (like public officials); 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.

In response to widespread allegations of corruption in the previous administration, including accusations of state capture – the systemic corruption of the state's decision-making processes by private interests for their own benefit – the new Cyril Ramaphosa administration publicly denounced government corruption and vowed to tackle the scourge at all levels of government, including through a proposed lifestyle audits of officials that would expose individuals profiting from bribery, corruption, and public tender irregularities. Corruption charges were reinstated against former President Jacob Zuma in 2018 related to a USD 2.5-billion arms deal in the late 1990s. Since Ramaphosa’s ascent to party and national presidency, the Zuma-linked Gupta family, which owns interests in multiple industries from computer services to mining, was 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. The Open Budget Survey 2017 ranked South Africa number one (tied with New Zealand) for the most transparency in its budget process.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

South Africa signed the Anticorruption Convention on 9 Dec 2003 and ratified it on 22 Nov 2004. They 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.

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 2018, South Africa reported an unemployment rate decrease of 1.0 percentage point to 26.7 percent. However, labor force participation declined by 1.1 percentage points to 58.8 percent. The youth unemployment (ages 15-24) rate has hovered at or just over 50 percent since 2015. Approximately 3.1 million (29.7 percent) of the 10.3 million these South Africans were not in employment, education, or training. On a quarterly basis, employment in the informal sector increased in all industries with the exception of the trade (retail) industry.

There were 190 trade unions registered as of March 2018, down from the 2002 high of 504. According to the 2017 Fourth Quarter Labor Force Survey report from Statistics South Africa (StatsSA), 3.990 million workers belonged to a union. According to StatsSA, union membership increased by 141,000 from the fourth quarter of 2016 to the fourth quarter of 2017. 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.

The right to strike is protected under South Africa’s constitution and laws. While there were a number of strikes in 2017, particularly in the transport, retail, and mining sectors, the number of workdays lost to strikes in 2017 was the lowest since at least 1996. Strikes in 2017 were triggered in rank order by wages, grievances, and dismissals. Mining sector workers struck the most in 2017, followed by municipal and transport sector workers.

While layoffs and retrenchments are permitted for economic reasons, 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. Labor laws are not waived in order to attract or retain investment. Department of Labor-determined sectoral minimum wages already exist for vulnerable sectors, such as agriculture, domestic and security services; they are frequently reviewed and adjusted.

Collective bargaining is a cornerstone of the current labor relations framework. As of March 2018, the South Africa Department of Labor listed 38 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 2017, the average wage settlement was a 7.6 percent increase, on average 2.3 percent above inflation and up slightly from the average increase of 7.5 percent in 2016.

Major labor legislation includes:

As of April 2018, South Africa’s Parliament is debating a national minimum wage bill. The national minimum wage of R 20 / hour was to have come into effect on May 1, 2018, but public comment and parliamentary debate delayed its adoption. No firm date for passages is currently known. The draft law also proposes lower minimum wages for domestic workers (75 percent of the statutory minimum wage) and agricultural workers (90 percent of the statutory minimum wage).

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 dispute, and is required to certify an impasse in bargaining council negotiation 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 deal with 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 and minimum standards for overtime pay, annual leave, sick leave, and notice of termination. The Act also outlaws child labor. Further, it states that no employer may require or permit overtime except by agreement, and overtime may not be more than ten hours per week. 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, amended in 2014, prohibits employment discrimination and 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 Employment Equity Act 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. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) has an approximately USD 1.2 billion portfolio in South Africa with an additional USD 1 billion in the project pipeline. Since a 1993 agreement to facilitate OPIC programs, OPIC has invested in a number of funds supporting sub-Saharan Africa development, including the Africa Catalyst Fund (USD 300 million focused on small- and medium-sized enterprise development), Africa Healthcare Fund (USD 100 million focused on private healthcare delivery businesses), and ECP Africa Fund II, (USD 523 million, focused on telecommunications, oil and gas, power, transportation, agribusiness, media, financial services and manufacturing). Tailored products to support clean and renewable energy are a particular focus. OPIC opened an office in Johannesburg in 2013 to support investment to key African countries through its financing and risk mitigation instruments. Additional information on OPIC programs that involve South Africa may be found on OPIC's website: http://www.opic.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: South African Reserve Bank		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)	2017	USD 391,300	2016	USD 295,450	www.worldbank.org/en/country
Foreign Direct Investment	Host Country Statistical source: South Africa Reserve Bank		USG or International Statistical Source		USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country (USD, stock positions)	2016	USD 10,500	2016	USD 5,100	BEA
Host Country’s FDI in the United States (M USD, stock positions)	2016	USD 7,400	2016	USD 3,100	BEA
Total Inbound Stock of FDI as % host GDP	2016	2.2%	2016	1.73%	BEA

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	135,454	100%	Total Outward	175,636	100%
United Kingdom	51,988	38%	China	78,754	45%
Netherlands	28,921	21%	United Kingdom	18,053	10%
United States	9,251	7%	Mauritius	10,793	6%
German	6,745	5%	Netherlands	8,128	5%
China	5,678	4%	United States	6,455	4%
"0" reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total			Equity Securities			Total Debt Securities
All Countries	154,883	100%	All Countries	146,825	100%	All Countries	8,058	100%
United Kingdom	56,616	37%	United Kingdom	54,741	37%	United States	2,158	27%
Luxembourg	19,940	13%	Luxembourg	19,423	13%	United Kingdom	1,875	23%
United States	19,632	13%	United States	17,474	12%	Italy	1,024	13%
Ireland	17,340	11%	Ireland	16,814	11%	Ireland	526	7%
Germany	10,392	7%	Germany	10,366	7%	Luxembourg	517	6%

投资报告：2018年南非投资环境报告（英文版）