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RUCPCIM/CIMS NTDB WASHDC
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UNCLAS SECTION 01 OF 13 PRETORIA 000171 
 
SIPDIS 
 
DEPT FOR AF/S, AF/EPS, EB/IFD/OIA/NHATCHER 
USDOC FOR 4510/ITA/MAC/AME/OA/JDIEMOND, SMATHEWS 
TREASURY FOR OAISA/BCUSHMAN, DBRESNICK 
DEPT PASS USTR FOR EDUNLOP, PCOLEMAN, WJACKSON 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB OPIC USTR PGOV SF
SUBJECT: SOUTH AFRICA: 2006 INVESTMENT CLIMATE 
STATEMENT 
 
REF: (A) 05 STATE 201904 (B) 05 PRETORIA 0226 
 
¶1. (U) In response to Ref A, this cable presents post's 
2006 Investment Climate Statement for South Africa. 
This is also Chapter 6 of the 2006 Country Commercial 
Guide for South Africa. 
 
¶2. (U) BEGIN TEXT 
 
Chapter 6 Investment Climate Statement FY 2006 
 
6.1   Openness to Foreign Investment 
 
The government of South Africa is open to foreign 
investment, which it views as a means to drive growth, 
improve international competitiveness, and provide 
access to foreign markets.  Virtually all business 
sectors are open to foreign investors.  No government 
approval is required, and there are almost no 
restrictions on the form or extent of foreign 
investment.  Trade and Investment South Africa (TISA), 
a division of the Department of Trade and Industry 
(DTI), provides assistance.  The agency concentrates on 
sectors which research has indicated that the country 
has a comparative advantage.  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.  DTI publishes 
the "Investor's Handbook" on its website: 
www.dti.gov.za (see "publications"). 
 
Over the past decade, macroeconomic management has been 
strong, resulting in a strengthened rand and a 
consistently positive rate of economic growth.  Since 
1994, the government has sought to liberalize trade and 
enhance international competitiveness by lowering 
tariffs, abolishing most import controls, undertaking 
some privatization, and reforming the regulatory 
environment.  The government would have liked to have 
experienced more foreign direct investment during this 
time, but it did not materialize.  Several large 
acquisitions in the banking and telecommunications 
sectors promise to change this for 2006 and beyond, but 
are not likely to add much to the government's primary 
goal of increasing employment.  In January 2005, 
Moody's assigned South Africa a sovereign debt rating 
of Baa1, three steps into investment grade.  Standard 
and Poor's and Fitch also rank South Africa at 
investment grade. 
 
To alleviate very high unemployment (26.5%), the 
government has focused on quickening the pace of 
economic growth and job creation.  Given steady 
domestic investment and the relative lack of foreign 
direct investment, the government has become convinced 
that the public sector must take the lead by investing 
in the nation's deteriorating infrastructure.  State 
owned enterprises plan to invest more than $25 billion, 
mainly on transportation infrastructure and energy, 
over the next three years.  Other key elements of the 
government's new Accelerated and Shared Growth 
Initiative (ASGI), to be unveiled in February 2006, 
include labor market reform, improved delivery of 
public services, skills development, a revamped 
industrial policy, and support to small business. 
 
A 2005 survey of South African business sponsored by 
the World Bank and the Department of Trade and Industry 
queried domestic and foreign firms about South Africa's 
investment climate.  Constraints most often mentioned 
were the lack of skilled labor, the strong rand 
limiting exports, labor relations, and crime.  A 2005 
survey conducted by the American Chamber of Commerce in 
South Africa re-enforced these views.  While supporting 
the need for affirmative action, most foreign investors 
acknowledge that the lack of clarity surrounding the 
application of Black Economic Empowerment has had a 
dampening effect on their plans to further invest in 
South Africa. 
 
PRETORIA 00000171  002 OF 013 
 
 
 
Black Economic Empowerment has been at the center of 
business-government relations for the past several 
years.  In January 2004, President Mbeki signed into 
law the Broad-Based Black Economic Empowerment Act of 
2003, the legislation enacting the Black Economic 
Empowerment (BEE) strategy, a program to increase the 
participation in the economy of previously 
disadvantaged South Africans.  The Act directed the 
Minister of Trade and Industry to develop a national 
strategy for BEE, issue implementing guidelines in the 
form of Codes of Good Practice, encourage the 
development of industry specific BEE charters, and to 
establish a National BEE Advisory Council to review 
progress on BEE.  While firms are not legally required 
to meet BEE criteria, in practice they are less 
competitive if they do not. 
 
On November 1, 2005, the Department of Trade and 
Industry released the final version of the "Framework 
for Measurement" and the first two "Codes of Good 
Practice."  The first two Codes of Good Practice deal 
with how firms can comply with targets for BEE equity 
ownership and BEE management.  The Framework identified 
seven criteria to be measured by means of a scorecard 
with specific targets and scoring rules.  These 
included the percentage to which blacks own, manage, 
and work in an enterprise as well as targets for 
training black South Africans, purchasing supplies from 
BEE compliant firms, and assisting the development of 
black-owned business. 
 
All firms must have their BEE compliance audited 
annually by an accredited verification agency, and be 
assigned a BEE compliance status based upon its BEE 
performance.  A firm's BEE status will factor into the 
award of government contracts, and contributes to the 
BEE compliance status of a firm's customers. 
 
On December 20 2005, DTI released drafts of the 
remaining codes for public comment.  These codes deal 
with employment equity, skills development, enterprise 
development, preferential procurement, small and medium 
sized enterprises, as well as guidelines on the 
transfer of equity to BEE firms/individuals for 
multinationals.  Only after all the Codes of Good 
Practice are in final form will the Minister of Trade 
and Industry promulgate them together in the government 
Gazette according to Section 9(1) of the BEE Act 53 of 
¶2003.  BEE Codes of Good Practice and other pertinent 
BEE legislation may be found on DTI's website: 
www.dti.gov.za. 
 
Poor or unclear regulations in key sectors, such as 
telecommunications, has sometimes acted as a 
disincentive to investment.  In instances where the 
regulator is weak and unable to enforce its own 
regulations, foreign firms may find themselves at a 
disadvantage to domestic companies.  Costs associated 
with pursuing legal action to resolve disputes can cut 
into the bottom line. 
 
Following national elections in April 2004, the 
government unveiled plans to restructure most remaining 
state owned enterprises rather than proceed with plans 
for privatization.  Nevertheless, in the short to 
medium-term, the government expects to sell a number of 
non-core businesses owned by Transnet (transportation), 
such as the Airports Company South Africa (ACSA), which 
manages South Africa's nine principal airports. 
Transnet also expects to enter into a concession for 
the operation of a container terminal at the Port of 
Durban.  The planned privatization of smaller 
parastatals, such as Sentech (radio transmission), 
Safcol (forestry) and, in the case of Denel (Defense), 
a hoped-for partial buy-in by foreign suitors may also 
afford opportunities for foreign participation in the 
medium-term. 
 
6.2   Conversion and Transfer Policies 
 
 
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The Exchange Control Department at the South African 
Reserve Bank (SARB) administers foreign exchange 
policy.  Authorized foreign exchange dealers, normally 
one of the large commercial banks, must handle 
international commercial transactions and report every 
purchase of foreign exchange, irrespective of the 
amount, that is received by South African residents or 
companies.  As a rule, there are only limited delays in 
the conversion and transfer of funds. 
 
Foreign investors may purchase local securities without 
restriction.  To facilitate repatriation of capital and 
profits, foreign investors should make sure that an 
authorized dealer endorses their share certificates as 
"non-resident."  Foreign investors should also be sure 
to maintain an accurate record of investment. 
 
For South African residents and companies, the 
government has made significant progress in 
liberalizing the foreign exchange regime.  Since 2004, 
South African companies may invest in other countries 
without restriction (although SARB 
approval/notification is still required) and South 
African individuals may freely invest in foreign firms 
listed on South African stock exchanges.  Individual 
South African taxpayers in good standing may invest up 
to R750,000 (app. $115,000) in other countries.  In 
October 2005, the government announced that South 
African banks would be able to commit up to 40 percent 
of their domestic capital in other countries, but only 
20 percent outside Africa.  In addition, mutual and 
other investment funds may now 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. 
 
Further questions on exchange control may be addressed 
to: 
 
  South African Reserve Bank 
  Exchange Control Department 
  P.O.  Box 427, Pretoria, 0001 
  Tel: +27 (0) 12 313-3911; Fax: +27 (0) 12 313-3197 
  Website: www.reservebank.co.za 
 
6.3   Expropriation and Compensation 
 
Under the Expropriation Act of 1975 and the 
Expropriation Act Amendment of 1992, the government is 
entitled to expropriate private property for reasons of 
public necessity or utility.  The decision is an 
administrative one.  Compensation should be the price 
that the property would have realized in an open market 
transaction.  There is no record, dating back to 1924, 
of an expropriation or nationalization of an American 
investment in South Africa. 
 
Racially discriminatory property laws during apartheid 
resulted in highly disproportionate patterns of land 
ownership in South Africa.  As a result, the post 
apartheid government has committed to redistributing 30 
percent of the country's farm land to black South 
Africans by 2014.  Thus far, only 4 percent of total 
farm land has been redistributed under the government's 
land reform program.  The government has embarked on 
market-based land reform, but wants to speed 
redistribution.  In 2005, the government indicated that 
it was willing to use its power to expropriate land 
should farm owners refuse court approved purchase 
 
PRETORIA 00000171  004 OF 013 
 
 
prices.  Shortly thereafter, the government initiated 
proceedings to expropriate a white owned farm after the 
owner refused the court approved purchase price.  The 
owner has appealed to the courts. 
 
6.4   Dispute Settlement 
 
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 
International Center for the Settlement of Investment 
Disputes.  South Africa recognizes the International 
Chamber of Commerce, which supervises the resolution of 
transnational disputes.  South Africa applies its 
commercial and bankruptcy laws with consistency and has 
an independent, objective court system for enforcing 
property and contractual rights. 
 
6.5   Performance Requirements and Incentives 
 
DTI offers six investment incentives for manufacturing. 
Foreign Investment Grants may provide up to 15 percent 
of the value of new machinery and equipment to a 
maximum of R3 million (app. $500,000) per entity for 
relocation to South Africa.  Industrial Development 
Zones provide duty-free import of production-related 
materials and zero VAT on materials sourced from South 
Africa, along with the right to sell into South Africa 
upon payment of normal imported duties on finished 
goods.  The Skills Support Program provides up to 50 
percent of training costs and 30 percent of worker 
salaries for a maximum of three years to encourage the 
introduction of advanced skills.  The Strategic 
Investment Project program offers a tax allowance of up 
to 100 percent (a maximum allowance of R600 million 
(app. $100 million) per project) on the cost of 
buildings, plant and machinery, for strategic 
investments of at least R50 million (app. $85 million). 
The Critical Infrastructure Facility supplements funds 
up to 30 percent of the development costs of qualifying 
infrastructure projects.  The Small and Medium 
Enterprise Development Program offers a tax free grant 
of up to R3.05 million (app. $500,000) to manufacturers 
with assets less than R100 million (app. $15 million) 
for a maximum of three years.  The first two years the 
grant is based on the investment in operating assets 
and the third year on the level of employment 
generated. 
 
In July 2004, DTI announced an incentive to encourage 
investment, both foreign and domestic, in the local 
film industry.  It established the Film and Television 
Production Rebate Scheme that allows eligible 
applicants to receive a rebate of 15 percent of the 
production expenditures for foreign productions and up 
to 25 percent for qualifying South African productions. 
Film projects must have begun after April 1, 2004 and 
must reach a threshold of R25 million (app. $4 million) 
to qualify for the rebate.  Other requirements include 
50 percent completion of the principal photography in 
South Africa and a minimum of four weeks photography 
time.  Eligible productions include movies, tele- 
movies, television series, and documentaries.  The 
maximum rebate for any project will be R10 million 
(app. $1.5 million).  Details on the entire scheme are 
available at the DTI website at www.dti.gov.za. 
 
To encourage investors to establish or relocate 
industry to areas throughout South Africa, the 
country's various provinces have development agencies 
that offer incentives.  These vary from province to 
province and may include reduced interest rates, 
reduced rental cost for land and buildings, cash grants 
for the relocation of plant and employees, reduced 
rates for basic facilities, rail age and other 
transport rebates, and assistance in the provision of 
housing. 
 
The Industrial Development Corporation, a self- 
financing, state-owned development finance institution 
that reports to DTI, provides equity and loan financing 
 
PRETORIA 00000171  005 OF 013 
 
 
to support investment in target sectors.  It also 
provides credit facilities for South African exporters. 
 
Several government-supported bodies provide technical 
assistance to industry.  The Council for Scientific and 
Industrial Research provides multi-disciplinary 
research and development for industrial application. 
Technifin is a government-owned corporation which 
finances the commercialization of new technology and 
products.  MINTEK develops mining and mineral 
processing technology for company application.  The 
Council for Geoscience undertakes geological surveys 
and services related to minerals exploration. 
 
Under the National Industrial Participation Program, 
foreign companies winning large tenders must invest at 
least 30 percent of the value of the imported content 
of the tender.  The Department of Defense and the 
Armaments Corporation of South Africa impose an 
obligation of up to 50 percent on all defense purchases 
exceeding US$2 million, and an obligation of at least 
50 percent on purchases exceeding US$10 million. 
 
The government initiated the Motor Industry Development 
Program (MIDP) in 1995 to restructure the South African 
automotive industry over a period of twelve years.  The 
program was deigned to encourage local manufacturing by 
means of a duty rebate scheme on imported vehicles and 
component parts, to be phased out over the life of the 
program.  In 2002, the Minister of Trade and Industry 
extended the program from 2007 to 2012.  Import duties 
and duty rebates will continue to decline over this 
extended period.  The import duty on built-up light 
vehicles will fall to 25 percent and the import duty on 
original equipment components will fall to 20 percent by 
¶2012. 
 
6.6   Right to Private Ownership and Establishment 
 
The right to private property is protected under South 
African law.  All foreign and domestic private entities 
may freely establish, acquire, and dispose of 
commercial interests.  The securities regulation code 
requires that an offer to minority shareholders be made 
when 30 percent shareholding has been acquired in a 
public company that has at least 10 shareholders and 
net equity in excess of R5 million. 
 
State owned enterprises dominate a number of key 
sectors in South Africa.  Eskom supplies 94 percent of 
South Africa's electricity.  Transnet operates the bulk 
of the nation's rail, port, and air transportation. 
The South African Post Office is a legislated monopoly. 
Telkom, still 37 percent owned by government, is the 
sole fixed-line telephone operator (a second operator 
was licensed in December 2005). 
 
The Competition Act of 1998 and subsequent amendments 
address anticompetitive practices in both the private 
and public sectors.  The Competition Commission has 
demonstrated increasing capacity to implement 
competition policy effectively.  There have been more 
frequent challenges against state owned enterprises 
that compete unfairly in recent years. 
 
6.7   Protection of Property Rights 
 
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 provide 
finance for the purchase of property by registering the 
mortgage as security. 
 
Owners of patents and trademarks may license them 
locally, but when a patent license entails the payment 
of royalties to a non-resident licensor, 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 
and thereafter renewable for ten-year periods.  The 
 
PRETORIA 00000171  006 OF 013 
 
 
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. 
For consumer goods, a royalty of up to four percent of 
factory selling price is standard.  For intermediate 
and finished capital goods, generally a royalty of up 
to six percent will be approved. 
 
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 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.  Amendments to the Patents 
Act of 1978 were also intended to bring South Africa 
into line with TRIPS, to which South Africa became a 
party in 1999, and provides for the implementation of 
the Patent Cooperation Treaty. 
 
The International Intellectual Property Alliance 
reported an increase in border seizures of pirated 
goods, as well as increased police raids in the optical 
disc market during 2005.  A local watchdog, the South 
African Federation Against Copyright Theft reported on 
its website (www.safact.co.za) statistics on seizures 
of counterfeit DVDs as well as a number of successful 
criminal court cases against pirates in 2005, 
demonstrating the government's commitment to IPR 
enforcement. 
 
6.8   Transparency of the Regulatory System 
 
In general, the Companies Act of 1973 provides for 
transparent regulations concerning the establishment 
and operation of businesses.  Under the Act, for-profit 
businesses employing more than 20 persons must register 
as a company within 21 days.  The same rules apply to 
foreign companies, with the exception that foreign 
companies may elect to operate as an "external company" 
(with no limit on legal liabilities).  In general, 
businesses must also register with the local Regional 
Services Council, Department of Labor, Workman's 
Compensation Commissioner, the appropriate industry 
council, and the South African Revenue Service.  In 
addition, all businesses must obtain an operating 
license from local authorities.  The validity of an 
operating license is indefinite unless a business is 
sold or relocated.  Forms to be filled out by investors 
are straightforward.  The process takes six months on 
average, but can be done in one month through Trade and 
Investment South Africa, a division of DTI. 
 
Virtually all business activities are open to foreign 
investors.  The government does not prohibit or 
officially discourage a foreign-owned business from 
locating in a particular region of the country. 
Restrictions that apply to a particular industry apply 
to both domestic and international investors. 
Exceptions exist in the areas of banking and defense. 
For example, a branch of a foreign bank may be required 
to employ a certain number of South Africans and 
locally maintain a minimum capital base to obtain a 
banking license.  In addition, a foreign company must 
register as an external company before immovable 
property can be registered in their names. 
 
6.9   Efficient Capital Markets and Portfolio 
Investment 
 
PRETORIA 00000171  007 OF 013 
 
 
 
South Africa's banks are well-capitalized and comply 
with international banking standards.  Non-performing 
loans as a percentage of total loans and advances was 
1.6 percent as of June 2005.  Six of the thirty-five 
banks in South Africa are foreign owned and fifteen are 
branches of foreign banks.  The "Big Four" (Standard, 
ABSA, First Rand, and Nedcor) dominate the sector, 
accounting for almost 85 percent of the country's 
banking assets, which total over $240 billion.  In 
2005, the government approved Barclays' acquisition of 
ABSA, the first of the Big Four to become foreign 
owned.  (Technically it is the second.  Old Mutual, 
which moved its primary listing from the Johannesburg 
to the London Stock Exchange in 1999, owns Nedcor.) 
 
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: 1) a separate company, 2) a 
branch, or 3) a representative office.  The criteria 
for the registration of a bank are the same as for 
domestic banks.  Foreign banks, however, 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 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, 
pension funds, unit trusts (i.e., mutual funds), 
participation bond schemes, portfolio management, and 
the financial markets.  The JSE Securities Exchange is 
the sixteenth largest exchange measured by market 
capitalization in the world.  As of November 2005, 
market capitalization stood at $514 billion with a 
total of 364 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 increasingly private corporations.  More 
information on financial markets may be obtained from 
the JSE Securities Exchange SA (website: www.jse.co.za) 
and the Bond Exchange (website: 
www.bondexchange.co.za). 
 
Foreign investors deemed "affected persons" must obtain 
SARB approval to borrow amounts greater than R20,000 
(app. $3,100).  "Affected persons" are defined as 
companies or other bodies in which (1) 75 percent or 
more of the capital assets or earnings may be used for 
payment to, or for the benefit of, a non-resident, or 
(2) 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-resident.  No 
person in South Africa may provide credit to a non- 
resident or "affected person" without an exchange 
control exemption.  Non-residents and "affected 
persons," however, may borrow up to 100 percent of the 
South African Rand value of funds introduced from 
abroad and invested locally.  Additionally, the ability 
to borrow locally increases if both residents and non- 
residents own the local enterprise. 
 
6.10  Political Violence 
 
Political violence is no longer a serious issue in 
South Africa, but criminal violence remains high. 
National and provincial governments have pursued a 
number of programs to control criminal violence and 
levels of most violent crimes have stabilized or fallen 
in recent years. 
 
6.11  Corruption 
 
 
PRETORIA 00000171  008 OF 013 
 
 
South African law provides for prosecution of 
government officials who solicit or accept bribes. 
Penalties for offering or accepting bribes include 
criminal prosecution, fines, dismissal (for government 
employees), and deportation (for foreign citizens). 
The South African Prevention and Combating of Corrupt 
Activities Act of 2004 clarified what should be 
considered as corruption and allows for the 
investigation and seizure of "unexplained wealth."  The 
act also obliges public officials to report corrupt 
activities, prescribes strict penalties, including the 
possibility of life imprisonment, and tasks the 
National Treasury to create a register of corrupt 
individuals and firms that will not be allowed to 
submit bids on government tenders.  One shortcoming of 
the Act is the provision of protection for 
whistleblowers. 
 
New laws, such as the Promotion of Access to 
Information Act signed into law in February 2000, have 
helped to increase transparency in government in the 
last few years.  The Public Finance Management Act, 
which became effective on April 1, 2000, has helped to 
raise the level of oversight and control over public 
funds and improved the transparency of government 
spending, especially with regard to off-budget agencies 
and parastatals. 
 
At least ten agencies are engaged in fighting 
corruption.  Some, like the Public Service Commission 
(PSC), Office of the Public Protector and Office of the 
Auditor-General are constitutionally mandated.  The 
South African Police Anti-Corruption Unit and the 
Directorate for Special Operations (popularly known as 
the Scorpions) have dedicated units to combat 
corruption.  In a much celebrated case, the National 
Prosecuting Authority indicted former Deputy President 
Jacob Zuma on charges of corruption in 2005.  The trial 
is set to take place in 2006. 
 
According to the 2004 Institute for Security Studies' 
"National Victims of Crime Survey," which drew from a 
nationally representative sampling of South African 
households, petty corruption - mainly bribery - was the 
second-most experienced crime in South Africa after 
burglary.  According to Transparency International's 2005 
Corruption Perceptions Index, South Africa ranked 46 out 
of 158 and was third least corrupt in Africa. 
 
South Africa is not a signatory of the OECD Convention 
on Combating Bribery, but is a signatory of the UN 
Convention against Corruption.  Transparency 
International maintains an office in South Africa. 
 
6.12  Bilateral Investment Agreements 
 
South Africa has bilateral investment agreements with 
Argentina, Austria, Belgium, Canada, Chile, the Czech 
Republic, Finland, France, Germany, Greece, Mauritius, 
the Netherlands, the Republic of Korea, Spain, Sweden, 
Switzerland, Turkey, and the United Kingdom.  A Trade, 
Development, and Cooperation Agreement went into force 
between South Africa and the European Union on January 
1, 2000, but it does not contain an investment chapter. 
 
In 2003, the United States initiated free trade 
negotiations with the Southern African Customs Union 
(including South Africa, Botswana, Lesotho, Namibia, 
and Swaziland) with the goal of concluding an agreement 
that would include a chapter on investment.  Seven 
negotiating rounds have been held, but much work 
remains. 
 
Agreements regarding mutual assistance between the 
customs administrations of the United States and South 
Africa became effective on August 1, 2001.  The U.S.- 
South Africa bilateral tax treaty eliminating double- 
taxation became effective on January 1, 1998. 
 
6.13  OPIC and Other Investment Insurance Programs 
 
 
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In 1993, South Africa signed an investment incentive 
agreement with the United States to facilitate Overseas 
Private Investment Corporation (OPIC) programs.  To 
date, OPIC has invested in a number of investment funds 
supporting sub-Saharan Africa development, including 
the Africa Growth Fund ($25 million), the Modern Africa 
Growth and Investment Fund ($105 million), and the ZM 
Investment Fund ($120 million).  OPIC also established 
the $350 million Sub-Saharan Africa Infrastructure Fund 
(SAIF) to fund infrastructure projects in sub-Saharan 
Africa.  OPIC helped the National Urban Reconstruction 
and Housing Agency (NURCHA) to establish a $31 million 
scheme to lend to small contractors for the 
construction of affordable houses.  In 2004, OPIC 
entered into an agreement with the Homeloan Guarantee 
Company (HLGC) to fund low-income home loans for HIV- 
positive South Africans.  The pilot program for this 
project was initiated in 2005.  Additional information 
on OPIC programs that involve South Africa may be found 
on OPIC's website: www.opic.gov. 
 
South Africa is also a member of the World Bank's 
Multilateral Investment Guarantee Agency. 
 
6.14   Labor 
 
The right to strike is protected under South African 
labor law.  Although labor militancy has declined since 
1994, the number of work days lost to strikes has risen 
to 2.2 million as of September 2005.  As of 2003, total 
trade union membership was approximately 3.3 million 
persons, or roughly 42 percent of the economically active 
population employed in the formal sector.  Most union 
members belong to affiliates of the three major union 
federations: the Congress of South African Trade Unions 
(COSATU), the Federation of Unions of South Africa 
(FEDUSA) or the National Council of Trade Unions (NACTU). 
Although COSATU, the largest of the federations, is 
allied with the African National Congress (ANC) and the 
South African Communist Party (SACP), it often opposes 
the government on issues of economic and health policy. 
COSATU is opposed to efforts to privatize government 
services and state-owned corporations. 
 
According the March 2005 Labor Force Survey (LFS), the 
official unemployment rate is 26.5 percent.  This rate 
uses the International Labor Organization (ILO) 
definition of unemployment, which excludes persons who 
have not actively sought employment during the previous 
four weeks.  To help counter unemployment and contribute 
to economic growth, the government has shifted 
substantial resources to skills development, and 
undertaken a growth and employment policy. 
 
South Africa has no country-wide minimum wage, but the 
Minister of Labor has issued determinations that set a 
minimum wage for certain occupations where collective 
bargaining is not common.  These include domestic 
workers, farm workers, taxi-drivers, and retail 
employees.  In addition, the Minister can apply 
collective bargaining agreements to firms that did not 
participate in negotiations. 
 
Since 1994, the South African Government has systemically 
sought to remove all vestiges of apartheid labor 
legislation.  In its place, the government has sought to 
install a labor market characterized by employment 
security, reasonable wages, and decent working 
conditions.  Under the aegis of the National Economic 
Development and Labor Council (NEDLAC), government, 
business, and organized labor negotiated all labor laws, 
with the exception of laws pertaining to occupational 
health and safety.  NEDLAC negotiations placed a high 
value on worker rights and collective bargaining. 
 
Major labor legislation includes the following: 
 
-- The Labor Relations Act, in effect since November 
1996, enshrines the right of workers to strike and of 
management to lock out workers.  The Act created the 
Commission on Conciliation, Mediation, and Arbitration 
 
PRETORIA 00000171  010 OF 013 
 
 
(CCMA) which can conciliate, mediate, and arbitrate in 
cases of labor dispute, required to certify an impasse in 
bargaining council negotiation before a strike can be 
legally called.  The CCMA currently has a caseload in 
excess of what was anticipated. 
 
-- The Basic Conditions of Employment Act, implemented in 
December 1998, establishes a 45-hour workweek as well as 
minimum standards for overtime pay, annual leave, and 
notice of termination. 
 
-- The Employment Equity Act prohibits unfair employment 
discrimination and requires large and medium-sized 
employers to prepare affirmative action plans to ensure 
that black African, women, and disabled persons are 
adequately represented on the workforce. 
 
-- Occupational Health and Safety Act, last amended in 
1993, provides for occupational health and safety 
standards and gives the Department of Labor the right to 
inspect the workplace.  For the mining industry, the 
Inspector of Mines provides regulatory oversight under 
the Mine Health and Safety Act. 
 
-- The Skills Development Act imposes a levy on employers 
equal to one percent of the payroll that is to be used 
for training programs devised by industry-specific 
training authorities.  Employers who provide job skills 
training can claim back much of their contribution from 
government. 
 
Companies have complained about the introduction, 
through a regulation in early 2003, of a two percent 
training levy on the salaries of expatriates in order 
to enter the country under an expedited visa procedure. 
The levy does not apply to expatriates already resident 
in the country or to inter-company transfers. 
Expatriates who enter the country under the normal visa 
procedure are exempt from the levy, but the normal 
process is complex and time consuming.  The 
government's decision to implement the levy-based 
system through regulation rather than legislation has 
also been controversial.  A legal challenge to the 
regulations further delayed the implementation of the 
new immigration legislation and this created more 
uncertainty about the effective handling of 
applications for visas. 
 
Despite amendments to some of the above labor laws passed 
in 2002, business argues that over regulation of the 
labor market has constrained employment and contributed 
to the rise in unemployment.  On the other side, trade 
unions argue that employers evade labor legislation 
through the use of labor brokers who supply casual 
workers.  Other areas of contention revolve around the 
application of wage structures to all firms in an 
industry, whether or not firms participated in wage 
negotiations, and complex requirements and appeal 
procedures for the dismissal of workers. 
 
6.15  Foreign Trade Zones/Free Ports 
 
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 into South Africa upon payment of normal 
imported 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.  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's operators may be public, 
private, or a combination of both.  IDZs are currently 
located near Port Elizabeth at Coega, in East London, 
Richards Bay, and at Johannesburg International 
Airport. 
 
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6.16  Foreign Direct Investment Statistics 
 
Foreign direct investment (FDI) data is readily 
available in South Africa, but published statistics 
vary depending on their source and definition.  Among 
the numerous institutions that provide foreign 
investment data, the U.S. Embassy in South Africa 
relies mostly on the SARB.  SARB statistics conform to 
the IMF definition of FDI (i.e., 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-term loan 
capital.) and represent actual investment, excluding 
announced but not completed "intended" investment. 
However, the SARB does not provide country-specific 
figures that distinguish between actual investment 
flows and changes in investment stocks caused by asset 
swaps, exchange rate adjustments, and mergers and 
acquisitions.  This makes it difficult to track the 
United States' and other countries' FDI position in 
South Africa on an annual basis. 
 
Because SARB statistics only provide an annual total 
for all the countries' flows combined, observers also 
often consult more updated information obtained from 
the South Africa-based firm "Business Map" (BM).  The 
latter offers fee-based services for a wide range of 
investor-related data and analysis (website: 
www.businessmap.co.za). 
 
The following FDI statistics were drawn from the SARB's 
December 2005 Quarterly Bulletin.  The conversion 
exchange rate used was that of the average for each 
year cited. 
 
Table A: Average Exchange Rates 
 
                2000    2001    2002    2003    2004 
Rand/US$        6.94    8.83   10.52    7.56    6.45 
 
Table B: Year-end Stock of Foreign Direct Investment in 
         South Africa 
 
                2000    2001    2002    2003    2004 
Rand (billion) 328.86  370.70  255.84  303.55  355.09 
US$ (billion)   47.42   41.96   24.33   40.14   55.05 
 
Table C: Year-end Stock of South African Direct 
         Investment Abroad 
 
                2000    2001    2002    2003    2004 
Rand (billion) 244.65  213.18  189.91  180.51   216.66 
US$ (billion)   35.28   24.13   18.06   23.87    33.59 
 
Table D: GDP (in billion rands at current prices) and 
         Year-end FDI Stock as a percentage of GDP 
 
           2000     2001     2002     2003     2004 
GDP       922.1  1,020.0  1,168.8  1,257.0  1,386.7 
FDI (%)    35.7     36.3     21.9     24.1     25.6 
 
Table E: Year-end stock of FDI in South Africa 
         by region/country (billions) 
 
REGION/COUNTRY      RAND   RAND     US$    US$ 
                    2003   2004    2003   2004 
EUROPE - Total      245.8  301.0   32.5   46.7 
UNITED  KINGDOM     188.4  228.0   24.9   35.3 
GERMANY              22.9   25.8    3.0    4.0 
SWITZERLAND           6.1    6.4    0.8    1.0 
NETHERLANDS          16.1   16.2    2.1    2.5 
FRANCE                4.1    6.5    0.5    1.0 
ITALY                 2.0    2.1    0.3    0.3 
N&S AMERICA (total)  32.1   34.1    4.2    5.3 
USA                  29.5   31.2    3.9    4.8 
AFRICA (total)        4.7    4.2    0.6    0.7 
ASIA (total)         20.5   15.2    2.7    2.4 
MALAYSIA             10.0    2.4    1.3    0.4 
JAPAN                 7.1    7.4    0.9    1.1 
 
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OCEANIA (total)       0.4    0.5    0.1    0.1 
 
--------------------------------------------- -------- 
TOTAL               303.4  355.1  40.1    55.1 
--------------------------------------------- -------- 
 
Table F: Year-end Stock of South African Direct 
         Investment Abroad by Region/Country 
         (billions) 
 
REGION/COUNTRY       RAND    RAND    US$    US$ 
                     2003    2004   2003   2004 
EUROPE - Total      137.4   165.5   18.2   25.7 
UNITED KINGDOM       44.1    65.0    5.8   10.1 
LUXEMBURG            43.7    51.1    5.8    7.9 
AUSTRIA              11.2    16.7    1.5    2.6 
OTHER                38.4     2.2    5.1    0.4 
N&S AMERICA (total)  17.0    17.5    2.3    2.7 
USA                  14.9    15.3    2.0    2.4 
AFRICA (total)       15.8    23.6    2.1    3.7 
ASIA (total)          3.5     3.2    0.5    0.5 
OCEANIA (total)       6.8     6.8    0.9    1.1 
--------------------------------------------- -------- 
TOTAL               180.5   216.7   23.9   33.6 
--------------------------------------------- -------- 
 
Table G: Year-end Stock of FDI in South Africa 
         by Industry Sector (billions) 
 
INDUSTRY             RAND    RAND      US$      US$ 
                     2003    2004     2003     2004 
Agriculture, 
 Forestry & Fishing   0.5     0.7      0.1      0.1 
Mining              103.1   111.6     13.6     17.3 
Manufacturing        75.4   111.4     10.0     17.3 
Construction          1.9     2.0      0.3      0.3 
Trade, Catering,     13.4    14.5      1.8      2.3 
 & Accommodation 
Transport, Storage,  22.0    14.1      2.9      2.2 
 & Communication 
Finance, Insurance,  86.6   100.2     11.5     15.5 
 Real Estate & 
 Business Services 
Social services       0.4     0.5      0.1      0.1 
--------------------------------------------- ---------- 
TOTAL               303.4   355.1     40.1     55.1 
--------------------------------------------- ---------- 
 
Table H:  FDI Flows into South Africa: 
 
Investment by foreigners in undertakings in South Africa 
in which they have at least 10% of the voting rights: 
 
2000   6.2 
2001* 58.4 
2002   8.0 
2003   5.6 
2004   5.2 
 
*The high inflow in 2001 was due to the Anglo 
American/DeBeers transaction. 
 
Table I:  FDI Flows out of South Africa: 
 
Investment by South Africans in undertakings abroad in 
which they have at least 10% of the voting rights: 
 
2000   1.9 
2001 -27.4 (inflow - decrease in investment abroad) 
2002  -4.2 (inflow - decrease of investment abroad) 
2003   4.3 
2004   8.7 
 
*2001 De Beers/ Anglo American transaction resulted in 
the return of capital, previously invested abroad, to 
South Africa. 
 
Since 1994 many foreign firms have opened or re-opened 
offices in South Africa.  There are an estimated 700 
American companies (including subsidiaries, joint 
ventures, local partners, agents, franchises, and 
 
PRETORIA 00000171  013 OF 013 
 
 
representative offices) doing business in South Africa. 
The second and third highest numbers of companies per 
country are from Germany and the U.K., respectively. 
 
Key Investment Industries in South Africa: 
 
South Africa is a food self-sufficient country.  The bulk 
of the population's food needs are supplied locally.  In 
certain instances, South African food and beverage 
companies have become global players.  Major 
international agro-processing companies with a presence 
in South Africa include Unilever, Nestle, Coca-Cola, 
Danone, Parmalat, Kellogg, HJ Heinz, Cadbury-Schweppes, 
Virgin Cola, McCain Foods of Canada, Pillsbury. 
 
The chemical industry is the largest manufacturing sector 
in the South African economy, accounting for 5 percent of 
GDP.  The country is a world leader in the manufacture of 
synthetic fuel from coal.  In addition to Sasol and 
PetroSA Fischer-Tropsch based synthetic fuel operations, 
four oil refineries dominate the petroleum and 
petrochemical industry.  The rest of the chemical 
manufacturing sector consists mainly of AECI, Sentrachem, 
and fertilizer plants. 
 
Four major commercial banking groups that provide retail 
and investment banking services dominate the South 
African banking industry.  The European, Malaysian, and 
U.S. banks with banking licenses have so far concentrated 
on corporate rather than retail banking.  Foreign banks 
have gained market share by offering competitive lending 
rates. 
 
The South African automotive and components industry 
includes Ford, General Motors, Volkswagen, Bavarian Motor 
Works, Daimler-Chrysler, Nissan, and Toyota, all of which 
benefit from the Motor Vehicle Development Program and 
have production plants in South Africa. 
 
Table F: Top Foreign Companies Invested In South Africa 
 
Canada       - Placer Dome 
Denmark      - AP Moller 
France       - Lafarge 
Germany      - BMW 
Italy        - Cirio (Del Monte) 
Switzerland  - Movenpick Hotels 
U.K.         - Billiton; Lonrho Plc, SA Breweries, 
               Anglo American, Barclays, Vodafone, 
               British Petroleum, Old Mutual 
U.S.         - Caltex; Coca Cola; Dow Chemicals; 
               General Motors, Ford 
Saudi Arabia - Oger 
 
These companies have invested in excess of R1 billion in 
South Africa since 1994. 
 
Other significant U.S. investors include: McDonalds, Levi 
Strauss, Nike, Silicon Graphics, Microsoft, HP, Dell, 
Sara Lee, Caterpillar, Goodyear, Eli Lilly, Johnson and 
Johnson, Proctor & Gamble, Fluor, CitiGroup, IBM, and 
General Electric. 
 
END TEXT 
 
TEITELBAUM