Business in SA-
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Foreign Investment Climate
Openness to Foreign Investment
South Africa offers an attractive climate for foreign investors. South Africa has a substantial market with significant growth potential, an economy steadily moving toward market orientation, access to other markets in Africa, well-
Investment has been spurred by a number of steps designed to make South Africa's markets more attractive to foreign investment. These include:
• reducing import tariffs and subsidies to local firms;
• eliminating the discriminatory non-
• removing certain limits on hard currency repatriation;
• halving the secondary tax on corporate dividends;
• lowering the corporate tax rate on earnings to 30 percent;
• allowing foreign investors 100 percent ownership.
Additionally, the government does not impose performance requirements on foreign companies, does not normally screen foreign investment, and does not require new investments to comply with specific requirements (although the Government encourages investments that strengthen, expand, or enhance technology in various industries). At the same time, South Africa's tariff system is complex and is subject to rapid change. Foreign companies also complain about delays or rejections in receiving work permits for some of their proposed expatriate employees.
The South African Government treats foreign investment essentially the same as domestic enterprise investment. Foreign firms receive national treatment for various investment incentives such as export incentive programs, tax allowances and other trade regulations. As the Government pushes ahead with plans to attract strategic equity partners for its large parastatal organizations, sensitivity to the concerns of foreign investors has become more pronounced.
The main area in which foreign investors are treated differently from domestic investors concerns local borrowing restrictions imposed by exchange control authorities. No person in South Africa may provide credit to a non-
• 25 percent or more of the capital assets or earnings may be utilized for payment to, or to the benefit of, a non-
• 75 percent or more of the voting securities, voting power, power of control, capital, assets or earnings are vested in, or controlled by, any non-
A company falling into the category of an "affected person" may only borrow up to a specified percentage of its total "effective capital" which mainly comprises issued shared capital, share premium accounts, reserves created from profits, inappropriate profits and approved shareholders' loans.
Normally, the maximum amount an "affected person" may borrow is 50 percent of the total "effective capital", plus an amount determined by the following formula: South Africa participation/non-
Currency Conversion and Transfer Policies
Investment South Africa (ISA; www.isa.co.za) -
During the Apartheid era, South Africa restricted investment abroad by its citizens through a stringent foreign exchange control regime. In 1994, the Government announced a long-
In general, there are no controls on the removal of investment income or capital gains by non-
Companies taking money out of South Africa must complete a Form A (available from authorized dealers) if the amount is in excess of the currently prescribed amount of R50,000 (US$8,333 as of July 1999).
Foreign firms may invest in share capital without restriction. In order to return disposal proceeds and dividends to their country of origin, foreign investors should ensure that their share certificates are endorsed "non-
Royalties, software license fees, and certain other remittances to non-
Additional information on exchange control regulations can be obtained from the South African Reserve Bank: http://www.resbank.co.za
South Africa is a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitral awards, but is not a member of the International Center for the Settlement of Investment Disputes (Washington Convention).
Performance Requirements and Incentives
South Africa does not impose performance requirements as a condition for establishing, maintaining or expanding investments, or for access to tax and investment incentives. However, investment in certain strategic sectors is contingent upon acceptance of informal sectoral "gentleman's agreements" aimed at assuring security of supply. For example, oil companies are required to purchase synthetic fuels at a specified formula price. The Government has identified the need to deregulate sectors governed by such informal agreements, including the transportation, energy, and telecommunications sectors to encourage investment and foreign participation in the economy.
By virtue of South Africa's membership in the World Trade Organization (WTO), SA is a signatory to the Trade-
While the SMMDP scheme follows a wide burst approach, some much more focused incentive schemas have been created. These aim at creating a whole new industry cluster or supporting an existing cluster with self-
The MIDP enables South African vehicle and component manufacturers to increase production runs and encourages rationalization of the number of models manufactured by way of exports and complementing imports of vehicles and components. With the MIDP scheme South African exporters of motor vehicles or motor vehicle components earn export credits which can be used to off-
The issue of Black Economic Empowerment (BEE) has assumed growing importance in the past five years. Government, for its part, has shown increasing interest in using its position, as both buyer and seller, to promote the economic empowerment of historically disadvantaged groups. Depending on the ministry involved, this interest has been reflected in varying degrees. In large-
Private Ownership Rights
Private property rights, whether foreign or domestic, are equally protected by law and the same opportunities exist for both foreign and domestic private entities. In general, all foreign and domestic private entities are entitled to own business enterprises and engage in profit-
Present Government policy is to refrain from competing with private entities in the private sector. The following firms enjoy a degree of protection through direct or indirect allowances from the Government which give them a financial advantage vis-
• ADE (diesel engines),
• SASOL (synthetic fuels and petrochemicals),
• IDC (industrial development corporation),
• CSIR (scientific and industrial research and marketing innovations),
• and the Central Energy Fund family of companies, including Mossgas, the Strategic Fuel Fund, and Soekor, the state oil exploration company.
In addition, Telkom (the state telecommunications company) enjoys a monopoly until the year 2002 on providing international and fixed line telecommunications services. If Telkom's strategic equity partners meet certain performance targets, the SAG will consider an extension of this monopoly until 2003. Transnet enjoys a monopoly on most transport and port services, and Eskom (the state electricity monopoly) operates as a non-
Protection of Property Rights
Property rights, including intellectual property, are protected under a variety of laws and regulations. South Africa has an independent judiciary under which any threat to property rights may be enforced without political interference.
Transparency of Regulatory System
In general, South Africa's Companies Act provides for clear, transparent regulations concerning the establishment and operation of businesses. Business organizations of more than 20 persons that operate for gain must be registered as a company under the Companies Act of 1973, which is based upon British company law. Foreign investments are organized under the same rules and regulations as domestic firms with one exception. Foreign companies that choose not to form a firm in South Africa operate as "external companies." External companies do not normally pay tax on undistributed profits, but share capital duty is based on the shares of the parent firm. The legal liabilities of an external company are not limited. Foreign investors may normally buy into local firms without limitation. Restrictions on foreign ownership in the 1990 privatization of ISCOR were an isolated case. No local equity requirements exist. In practice, foreign firms invite domestic participation when it is suitable for the business of the firm.
It is not necessary for any shares in a firm to be held by a South African resident. Shares of any denomination may be issued, and no-
All businesses must obtain a business license from the local authority, which is valid indefinitely unless the business is relocated or acquired by a new owner. In general, businesses must register with the local Regional Services Council, Department of Labor, Workman's Compensation Commissioner, the appropriate Industrial Council, the Receiver of Revenue, and the Department of Customs and Excise.
The maintenance and promotion of the Competition Act of 1979 provides for the prevention of, or control over, restrictive trade practices and monopoly situations. The Competition Board, which has power to investigate anti-
The South African Parliament recently passed a new Competition Act, based largely on the Canadian and British models of common law, which is to take effect Sept. 1, 1999, replacing the 1979 Act. The Bill creates a Competition Commission (replacing the Competition Board) to act as investigator and prosecutor of anti-
Under the Communications Law of 1996, a new regulatory authority for the telecommunications sector was created -
South Africa's tax, health, and safety laws and regulations are fairly unbureaucratic and transparent.
International Investment Agreements
South Africa has signed various investment agreements with many countries since 1994. South Africa's investment agreements that have entered into force include those with the U.S., Malaysia, the U.K., the Netherlands, Switzerland, the Republic of Korea, Germany, France, Cuba, Denmark, Austria, China, and Canada. South Africa has also signed many investment agreements that have not yet been ratified or entered into force, including those with Paraguay, Senegal, Mozambique, Italy, Iran, Mauritius, Sweden, Ghana, Argentina, Finland, Spain, Egypt, Chile, Greece, Russia, the Czech Republic, the Belgo-
Foreign Trade Zones
The Department of Trade and Industry has undertaken to implement a series of Industrial Development Zone (IDZ) Initiatives that aim to create environments conducive to export-
Foreign Investment Statistics
Foreign direct investment (FDI) data is readily available in South Africa, but published statistics vary widely depending on source. Among the various institutions that provide foreign investment data, the U.S. Embassy in South Africa tends to rely most heavily on the South African Reserve Bank (SARB), the Investor Responsibility Research Center (IRRC) -
Since 1994, direct investment abroad by South African multi-
The following statistics on foreign direct investment were drawn from the SARB's June 1999 Quarterly Bulletin. SARB statistics conform to the IMF definition of FDI and represent actual investment, excluding announced but not completed "intended" investment. The conversion exchange rate used was that of the average for each year cited.
Note: FDI is generally defined as ownership of at least 10 percent of the voting rights in an organization by a foreign resident or several affiliated foreign residents, including equity capital, reinvested earnings and long-
As a general principle, taxes are levied only on income derived from a source within or deemed to be within South Africa. This principle applies to resident and non-
Companies make provisional tax payments at six months after the beginning of the financial year, at the end of the financial year, and six months after the end of the financial year. Withholding taxes are imposed on interest and royalties remitted to non-
As a general principle, taxes are levied only on income derived from a source within or deemed to be within South Africa. This principle applies to resident and non-
On Oct. 1, 1996, South Africa introduced an incentive scheme as part of the Small/Medium Manufacturing Development Program (SMMDP). Incorporated entities as well as sole proprietors and partnerships (excluding trusts) qualify for the incentive package and may apply for assistance. Only "new, secondary" operations engaged in manufacturing as well as processing or assembly may be considered for incentives. A "new" operation refers to any entity registered after Oct. 1, 1996, and "secondary" refers to the manufacturing of final products. The incentive package provides for an establishment grant payable for three years on qualifying assets and a profit/output incentive payable for an additional year. The industrialist may also qualify for an additional two years profit/output incentive provided the industrialist can meet or exceed the labor remuneration to value added ratio of 55 percent measured in the fourth financial year. The SMMDP also provides a Productivity Improvement Program on merit and at the discretion of the Board.
Initial assistance is rendered in the form of a tax-
The tax free profit/output incentive is calculated as 25 percent of profit before tax (PBT), not to exceed the annual establishment grant as calculated above, up to a maximum amount of R315,000 (US$56,962 at the 1998 average exchange rate) per year, per undertaking, whichever is the lesser. To qualify for the fifth-
The incentive package also provides for a foreign investment grant up to a maximum value of US$50,000. This assistance is only provided with respect to an initial maximum investment of up to R3 million in qualifying assets per enterprise per project. No further assistance will be granted with respect to any future expansions of the project. The incentives are tax-
The South African tax system has changed from a source-
The principle taxes imposed in South Africa are direct and indirect taxes:
Direct Taxes include Income Tax, Secondary Tax on Companies (STC), Capital Gains Tax (CGT) and Donations Tax.
Indirect Taxes include Value Added Tax (VAT), Estate Duty, Stamp Duties, Transfer Duties, Excise and Customs Duties, Marketable Security Taxes, Regional Services Council Levies and Skills Development Levies.
For more information on taxation go to www.sars.gov.za
The JSE Securites Exchange was established in 1887. By the end of the 1990's, the Exchange had 668 listed companies.
The JSE Securites Exchange has two separate sections, effectively a second and third stock exchange, called the Venture Capital Market (VCM) and the Development Capital Market (DCM). The DCM, which was established in 1984, permits the listing of smaller companies on less onerous terms and at far less cost. The VCM, established in 1989, consists of joint ventures between listed and non-
South Africa today is one of the most sophisticated and promising emerging markets globally. The unique combination of a highly developed first-
Macro Economic Stability
The success of the first democratic election in 1994 put the economy on a growth path and created an environment favorable for both domestic and foreign investment. During the latter half of 1997 the world economy and especially emerging markets were negatively affected by the East Asian financial crisis. South Africa's economy was no exception and the economy grew by only 0.8 per cent in 1998 compared to 2.6 per cent in the previous year.
The economy recovered quite robustly after 1998 before world economic conditions began to deteriorate towards the end of 2000. The weakening of the international economy resulted in a slowdown in growth in South Africa during the first quarter of 2001 but the domestic economy picked up again in the second quarter of 2001. Exactly how the effects of the events of 11 September will impact on growth in the near future, remain to be determined. Much will depend on events in the US economy. However, South African trade is diversified across a range of products and markets, and has weathered adverse international conditions fairly well so far.
One of the greatest reasons why South Africa has become one of the most popular trade and investment destinations in the world is because we make sure that we can meet your specific trade and investment requirements. There are many lucrative possibilities arising from South Africa's wealth of natural resources and almost unlimited export and import opportunities.
Costs of doing Business
The costs of doing business in South Africa compares favorably to other emerging world markets. The costs for labor, land, rental, human resources, transportation and general living expenses do vary from province to province. Gauteng as the economic hub of South Africa is only marginally higher than the other provinces, yet it offers business amenities that have a world class standard.
South Africa possesses a large resource base of skilled, semi-
A strong network of universities and other tertiary education institutions is home to a host of leading international academics and researchers, with the majority of research and development in South Africa undertaken at the country's universities.
South Africa is one of the world's favorite emerging markets, offering investors sophisticated financial infrastructures and exceptional investment opportunities. The SA Reserve Bank (SARB) oversees the banking services industry in SA. The non-
The JSE Securities Exchange SA (JSE)
The SA Futures Exchange (Safex)
The Bond Exchange of SA (BESA)
The JSE is governed and licensed externally by the Stock Exchange Control Act of 1985. The Safex and BESA markets are governed by the Financial Marketers Control Act of 1989. The markets are self regulated internally.
Transport and Logistics Infrastructure
South Africa boasts one of the most modern and extensive transport infrastructures in Africa. This infrastructure plays a crucial role in the country's economy and is depended on by many neighboring states. Public company Transnet (a parastatal) is SA's main transport operator and is the holding company for SAA (airways), Spoornet (rail transport), Autonet (road transport), Pertronet (liquid petroleum), Portnet (port authority) and Fast Forwards (container shipments).
South Africa has huge mineral resources as follows:
80% of the world's reserves of manganese ore
56% of the world's reserves of platinum group minerals
35% of the world's reserves of gold and
68% of the world's reserves of chromium.
South Africa ranked in top position in the majority of the world mineral reserves and production, in 1999:
Where to Start
A good guide for investors about the dynamics and principles involved in the South African business environment is the Investor's Handbook Publication. The following factors are covered in this publication:
Entry and residence of foreign investors and expatriate labour
Foreign exchange control
Business entities and registration
Sources of finance for the foreign investor
Property and licenses including intellectual property, cellular licenses, banking licenses and prospecting and mining rights.
Site development including information about building permits, environment assessment, electricity, water and telephones
Importing and exporting which includes information about import permits, export permits, registration, customs, payment deferment, duty drawback, bonded warehouses, manufacturing under rebate, clearing agents
Tax Registration for Business which includes information on Tax Registration, Value Added Tax, Employee Tax, Regional Levies and Accounting policies.
Other relevant laws such as Competition Law, Environmental Law, Labor Laws, Recommendations for Investors.
Contact information for the Labor sector, National Investment Agencies and the Provincial Promotional Agencies
The following are a selection of the Investment Rules for the South African Business sector:
In the second half of 1998 a new Competition Law was finalized. It provides for approval of mergers if strict criteria are used, such as whether the new firm created would be dominant in its market, the effect of a merger and whether any other reasons in favor of the merger exist, such as efficiency or competition in international markets. The new law aims to strike a balance between certainty and flexibility by providing clear rules. Measures taken against anti-
Environmental legislation is receiving increasing attention in South Africa, with severe penalties under discussion in a proposed Environmental Bill for those found guilty of damaging the environment. The penalties could extend even to those who were directors of a company at the time the environmental damage was caused.
The main longstanding legislation affecting environmental issues are the Atmospheric Pollution Prevention Act, the Health Act and the Water Act. The Bill of Rights of the South African Constitution stipulates that everyone has the right to an environment that is not harmful to health or well-
Details on Labour Regulations can be found be found on http://www.labour.gov.za
For Exchange Control regulation, go to the Reserve Bank's site by clicking on www.resbank.co.za
For more information on Financial Regulations go to www.fsb.co.za
General information on investing in South Africa and the business environment.
Detailed information on sectors in SA for potential investors
Providing finance to explore investment opportunities in South Africa
Facilitating your company's investment
Facilitating direct government support in the form of incentives for your investment
Aftercare / ongoing contact and problem solving after your company invested in South Africa
The Competition Commission has a range of functions in terms of Section 21 of the Competition Act. These include investigating anti-
In taking these actions, the Commission must balance issues related to competition with the broader social and economic goals outlined in the Act, such as employment, international competitiveness, efficiency and technology gains, as well as the ability of small and medium sized businesses and firms owned or controlled by historically disadvantaged persons to compete.
In order to ensure the consistent application of the Act across sectors, the Commission may negotiate agreements with other regulatory authorities, participate in their proceedings and advise, or receive advice from, any regulatory authority.
The Competition Commission is independent but its decisions may be appealed to the Competition Tribunal and the Competition Appeal Court.
For more information on the Competition Commission, go to http://www.compcom.co.za
Industrial Development Zones
The Industrial Development Zone (IDZ) programme is one of many incentives offered by the dti to encourage international competitiveness of the South African based manufacturing sector.
IDZs will be purpose-
Government will license operators to develop and run the IDZs, provide enterprise support measures, minimize red tape and provide efficient services to enterprises within an IDZ.
For more information on various IDZs in South Africa, go to http://www.sdi.org.za/idz.html
Intellectual Property Rights
South Africa has a developed system of intellectual property law covering patents, industrial designs, copyright and trademarks. It is also a signatory to most of the international conventions in this field.
Environmental impact management should play a more significant role in all spheres of society. As determined in Schedule 4 of the Constitution of South Africa, 1996, the environment is a concurrent function of the relevant national and provincial departments. For the national and provincial environmental departments, a major role is inter alliances to set specific regulatory norms and standards for impact management and to ensure that individuals and organizations meet these.
South Africa is without doubt an exciting and dynamic place to do business. To continually grow our economy and to allow our country to prosper, Government plays a key role in providing investment infrastructure, incentives and support to business.
There are over 90 incentives, loans and rebates that the dti has designed to offer you, our customer, so that your business can achieve growth and together we can create a better life for all South Africans.
South Africa is a vast country covering 1,223,000 square kilometers. It is equivalent in size to Germany, France, Italy, Belgium and the Netherlands combined. It is the world's largest producer of:
South Africa as an investment host country offers a policy of openness which promotes Direct Foreign Investment (DFI). It is also favorable to enacting investment legislation, Industrial Development Zone legislation and making Investment incentives available.
Each of our nine provinces have their unique strengths to offer you specific investment sector opportunities. Quick overviews of these opportunities by province are listed below:
Beer & Malt
Pharmaceuticals (Generic & High Volume)
Ship Repair & Containerization
Wood, Wood Products & Furniture
Pipes & Tubes
Engineering & Metal Works
Wood & Wood Products
Leather Tanning & Finishing
THE FREE STATE
Farm Equipment & Machinery
Hotels, Resorts, & Casinos
Leather Tanning & Finishing
Tourism: Historical & Cultural
Tourism: Hotels & Resorts
Tourism: Game Lodges/Ecotourism
Tourism: Game Lodges & Nature Reserves
Granite Mining, Cutting & Polishing
Hotels & Resorts
South Africa is the engine of growth in Southern Africa and with its new global focus, strategic geographical location and world class infrastructure assets; it presents a highly competitive investment location.
For more information on the JSE Securities Exchange, see URL: http://www.jse.co.za/.
For information on Investing in South Africa visit: http://www.dti.gov.za.