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UNCLAS SECTION 01 OF 14 PRETORIA 000142 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA 
USTR FOR COLEMAN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD KTDB SF
SUBJECT: 2007 INVESTMENT CLIMATE STATEMENT Q SOUTH 
AFRICA 
 
REF:  06 STATE 178303 
 
¶1. (U) In response to Ref A, this cable presents post's 
2007 Investment Climate Statement for South Africa. 
This is also Chapter 6 of the 2007 Country Commercial 
Guide for South Africa. 
 
¶2. (U) BEGIN TEXT 
 
Chapter 6 Investment Climate Statement FY 2007 
 
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 obtain 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 to foreign investors.  The agency 
concentrates on sectors in 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: http://www.thedti.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 like to have 
experienced more foreign direct investment during this 
time, but it did not materialize.  Several large 
acquisitions in the banking, telecommunications, and 
real estate 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 high unemployment (25.6 percent as of March 
2006), 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 is convinced that the 
public sector must take the lead by investing in the 
nation's inadequate infrastructure.  Under the 
government's new Accelerated and Shared Growth 
Initiative of South Africa (ASGISA), unveiled in 2006, 
state-owned enterprises plan to invest more than $25 
billion over the next four years, mainly on 
transportation infrastructure, telecommunication 
networks, and energy.  Other key elements of ASGISA 
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 businesses sponsored by 
the World Bank and DTI 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 reinforced 
these views.  Black Economic Empowerment has been at the 
center of business-government relations for the past 
several years.  While supporting the need for 
affirmative action, many foreign investors have 
commented that there was a lack of clarity surrounding 
the application of Black Economic Empowerment between 
 
PRETORIA 00000142  002.2 OF 014 
 
 
the time of announcement of the strategy until January 
¶2006.  This resulted in a dampening effect on their 
plans to further invest in South Africa during this 
period. 
 
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 historically 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 establish a National BEE Advisory 
Council to review progress on BEE targets.  While firms 
are not legally required to meet BEE criteria, in 
practice they are less competitive for government 
tenders if they do not. 
 
On December 6, cabinet approved Codes of Good Practice 
specifying BEE requirements.  These codes deal with 
employment equity, skills development, enterprise 
development, preferential procurement, small and medium 
sized enterprises, as well as separate guidelines on the 
transfer of equity to BEE firms/individuals for 
multinationals.  Earlier Codes dealing with black equity 
ownership and black management were released in 
November, 2005.  In December, the government also 
released a revised QscorecardQ with specific targets and 
rules for measuring empowerment.  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 businesses. 
The Codes approved on December 6 will be gazetted in 
early 2007. 
 
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 five Codes of Good Practice for public 
comment.  These codes deal with employment equity, 
skills development, enterprise development, preferential 
procurement, small and medium sized enterprises, as well 
as separate guidelines on the transfer of equity to BEE 
firms/individuals for multinationals.  On December 6, 
2006 the Cabinet approved the gazetting of Codes of Good 
Practice.  In early 2007, the government intends to 
gazette the codes after completion of the legal audit 
process.  BEE Codes of Good Practice and other pertinent 
BEE legislation may be found on DTI's website: 
http://www.thedti.gov.za/. 
 
Poor or unclear regulations in key sectors, such as 
telecommunications, have 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 of the 
remaining state-owned enterprises rather than proceed 
with plans for privatization.  Transnet (transportation) 
is considering the concessioning of several of 
SpoornetQs (rail freight) branch lines in its move to 
become solely a mainline operator.  Transnet also 
expects to enter into a concession for the operation of 
a container terminal at the Port of Durban.  The 
Department of Minerals and Energy has tendered for 1000 
MW from its Independent Power Producer projects.  Other 
opportunities for private investment in the power sector 
are likely to follow.  The planned privatization of 
smaller parastatals, such as Sentech (radio 
transmission), Safcol (forestry) and, in the case of 
 
PRETORIA 00000142  003.2 OF 014 
 
 
Denel (Defense), a hoped-for partial buy-in by foreign 
suitors, may also afford opportunities for foreign 
investment in the medium-term. 
 
6.2   Conversion and Transfer Policies 
 
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 in total (approximate 
$107,000) 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. 
 
SARB approval is also required for the sale of all forms 
of South African-owned intellectual property rights 
(IPR).  Approval is generally granted by SARB if the 
transaction occurs at arms length and at fair market 
value.  IPR owned by non-residents is not subject to any 
restrictions in terms of repatriation of profits, 
royalties, or proceeds from sales. 
 
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: http://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. 
 
 
PRETORIA 00000142  004.2 OF 014 
 
 
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.  As of 2005, only 3.1 percent of total 
farm land had been redistributed under the government's 
land reform program.  The government employs 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 prices.  Shortly 
thereafter, the government initiated proceedings to 
expropriate a white-owned farm after the owner refused 
the court-approved purchase price.  However, the case 
was settled prior to any court ruling.  To speed up the 
process, the new Minister of Agriculture and Land 
Affairs recently delegated decision-making on government 
purchases of farms to provincial land affairs 
commissioners, thereby eliminating a major barrier in 
the process, the Department of Land AffairsQ 
headquarters bureaucracy. 
 
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 World 
BankQs 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 (approximate $430,000) 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 import 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 development of 
advanced skills.  The Strategic Investment Project 
program offers a tax allowance of up to 100 percent (a 
maximum allowance of R600 million (approximate $86 
million) per project) on the cost of buildings, plant 
and machinery, for strategic investments of at least 
R500 million (approximate $70 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 (approximate $435,000) to 
manufacturers with assets of less than R100 million 
(approximate $14 million) for a maximum of three years. 
The first two years of 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 (approximate $3.6 
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 
(approximate $1.4 million).  Details on the entire 
 
PRETORIA 00000142  005.2 OF 014 
 
 
program are available at the DTI website at 
http://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, railage 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 
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 
(NIPP), foreign companies winning large government 
tenders exceeding $10 million must invest at least 30 
percent of the value of the imported content of the 
tender in South Africa.  The Department of Defense and 
the Armaments Corporation of South Africa imposed a one- 
time obligation under the QArms DealQ 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.  Future purchases, if any, will 
be subject to the general 30 percent obligation. 
 
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 designed 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, 
37 percent-owned by government, is the dominant fixed- 
line telephone operator.  A second national operator, 
Neotel, began limited business-only operations in 
October 2006 and is 30 percent government owned.  Neotel 
is expected to begin retail operations in the second 
quarter of 2007.  InfraCo, a 100 percent government- 
owned broadband provider, was formed in December 2006 
using the fiberoptic networks of Eskom and Transnet. 
 
The Competition Act of 1998 and subsequent amendments 
address anticompetitive practices in both the private 
 
PRETORIA 00000142  006.2 OF 014 
 
 
and public sectors.  The Competition Commission has 
demonstrated increasing capacity to implement 
competition policy effectively.  There have been more 
frequent challenges in recent years against state-owned 
enterprises that compete unfairly. 
 
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 
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 
the factory selling price is the standard approval.  For 
intermediate and finished capital goods, 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 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.  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 and 2006.  A local watchdog, the 
South African Federation Against Copyright Theft 
reported on its website (http://www.safact.co.za/) 
statistics on seizures of counterfeit DVDs as well as a 
number of successful criminal court cases against 
pirates in 2006, 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, the Department of Labor, the 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 
 
PRETORIA 00000142  007.2 OF 014 
 
 
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 
maintain a minimum local 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 
 
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.  In 2006, non-performing 
loans remained low, supporting banksQ willingness to 
extend credit.  Six of the 35 banks in South Africa are 
foreign-owned and 15 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 Stock Exchange to the London Stock Exchange 
in 1999, owns Nedcor.) 
 
The South African Reserve Bank (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 South African Banking Association 
at the following website: http://www.banking.org.za/. 
 
The Financial Services Board (FSB) governs South 
Africa's non-bank financial services industry (see 
website: http://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 eighteenth largest 
exchange measured by market capitalization in the world. 
As of October 2006, market capitalization stood at $579 
billion with a total of 387 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.  More information 
on financial markets may be obtained from the JSE 
(website: http://www.jse.co.za)and/ the Bond Exchange 
(website: http://www.bondexchange.co.za/). 
 
Foreign investors deemed "affected persons" must obtain 
SARB approval to borrow amounts greater than R20,000 
(approximate $2,900).  "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 
 
PRETORIA 00000142  008.3 OF 014 
 
 
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 continues to remain high 
in comparison to other developed countries.  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 
 
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.  The Special Investigating Unit (SIU) under 
the Presidency investigates corruption in government 
departments and in the process has identified civil 
servants who are now repaying the government for 
illicitly obtained income.  The SIU presently is 
investigating 400,000 people who might be fraudulently 
obtaining social grants and pensions from the 
government. 
 
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 
2006 Corruption Perceptions Index, South Africa ranked 
51 out of 163 and was the 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 
 
PRETORIA 00000142  009.2 OF 014 
 
 
between South Africa and the European Union on January 
1, 2000, but it does not contain an investment chapter. 
 
The United States began free trade agreement (FTA) 
negotiations with the five Southern African Customs 
Union (SACU) countries (including South Africa, 
Botswana, Lesotho, Namibia, and Swaziland) in June 2003, 
but active negotiations were ended in April 2006.  In 
lieu of a U.S.-SACU FTA, the United States and SACU 
agreed to negotiate a new type of agreement (called a 
Trade and Investment Cooperation Agreement or QTICAQ). 
An agenda for the U.S.-SACU TICA will be defined in 
early 2007. 
 
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 
 
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: http://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 had risen 
to 1.6 million as of the first half of 2006, exceeding 
the first half totals for the past 10 years.  The Labour 
Research Service reported a total of 102 strikes in 
¶2005.  As of March 2006, total trade union membership 
was approximately 2.9 million persons, or roughly 30 
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 to the March 2006 Labor Force Survey (LFS), 
the official unemployment rate is 25.6 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 
 
PRETORIA 00000142  010.2 OF 014 
 
 
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 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 
(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 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 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 
 
PRETORIA 00000142  011.2 OF 014 
 
 
 
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 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.  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.  IDZs are currently located at 
Coega near Port Elizabeth, in East London, Richards Bay, 
and at Johannesburg International Airport. 
 
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: 
http://www.businessmap.co.za/). 
 
The following FDI statistics were drawn from the SARB's 
December 2006 Quarterly Bulletin.  The conversion 
exchange rate used was the average exchange rate for 
each year cited. 
 
Table A: Average Exchange Rates 
 
          2000    2001    2002    2003    2004    2005 
Rand/US$  6.94    8.83   10.52    7.56    6.45    6.36 
 
Table B: Year-end Stock of Foreign Direct Investment in 
South Africa 
 
           2000    2001    2002    2003    2004   2005 
Rand 
(billion) 328.86  370.70  255.84  303.55  355.09 489.32 
US$ 
(billion)  47.42   41.96   24.33   40.14   55.05  76.94 
 
Table C: Year-end Stock of South African Direct 
Investment Abroad 
 
          2000    2001    2002    2003    2004    2005 
Rand 
billion) 244.65  213.18  189.91  180.51  217.90  232.93 
US$ 
(billion) 35.28   24.13   18.06   23.87   33.59   36.62 
 
Table D: GDP (in billion rands at current prices) and 
Year-end FDI Stock as a percentage of GDP 
 
       2000     2001     2002     2003     2004     2005 
 
PRETORIA 00000142  012.2 OF 014 
 
 
GDP   922.1  1,020.0  1,168.7  1,260.7  1,398.6  1,539.3 
FDI(%) 35.7     36.3     21.9     24.1     25.4     31.8 
 
Table E: Year-end stock of FDI in South Africa 
         by region/country (billions) 
 
REGION/COUNTRY       RAND   RAND    US$    US$ 
                     2004   2005   2004   2005 
EUROPE - Total      301.0  436.3   46.7   68.6 
UNITED  KINGDOM     228.0  350.5   35.3   55.1 
GERMANY              25.8   29.9    4.0    4.7 
SWITZERLAND           6.4   10.6    1.0    1.7 
NETHERLANDS          16.2   14.1    2.5    2.2 
FRANCE                6.5    7.7    1.0    1.2 
ITALY                 2.1    1.2    0.3    0.2 
N&S AMERICA (total)  34.1   33.8    5.3    5.3 
USA                  31.2   32.1    4.8    5.0 
AFRICA (total)        4.2    4.0    0.7    0.6 
ASIA (total)         15.2   14.3    2.4    2.2 
MALAYSIA              2.4    2.3    0.4    0.4 
JAPAN                 7.4    9.9    1.1    1.6 
OCEANIA (total)       0.5     .8    0.1    0.1 
 
--------------------------------------------- -- 
TOTAL               355.1  489.3   55.1   76.9 
--------------------------------------------- -- 
 
Table F: Year-end Stock of South African Direct 
         Investment Abroad by Region/Country 
         (billions) 
 
REGION/COUNTRY       RAND    RAND    US$     US$ 
                     2004    2005   2004    2005 
EUROPE - Total      165.5   189.1   25.7    29.7 
UNITED KINGDOM       65.0    70.9   10.1    11.1 
LUXEMBURG            51.1    74.8    7.9    11.8 
AUSTRIA              16.7    18.0    2.6     2.8 
OTHER                 2.2     2.1    0.4     0.3 
N&S AMERICA (total)  17.5    16.3    2.7     2.6 
USA                  15.3    14.4    2.4     2.3 
AFRICA (total)       23.6    19.1    3.7     3.0 
ASIA (total)          3.2     1.5    0.5     0.2 
OCEANIA (total)       6.8     6.8    1.1     1.1 
--------------------------------------------- ---- 
TOTAL               216.7   232.9   33.6    36.6 
--------------------------------------------- ---- 
 
Table G: Year-end Stock of FDI in South Africa 
         by Industry Sector (billions) 
 
INDUSTRY             RAND    RAND      US$      US$ 
                     2004     2005     2004    2005 
Agriculture, 
 Forestry & Fishing   0.7      0.7      0.1     0.2 
Mining              111.6    168.3     17.3    26.5 
Manufacturing       111.4    136.0     17.3    21.4 
Construction          2.0      2.0      0.3     0.3 
Trade, Catering,     14.5     14.7      2.3     2.3 
 & Accommodation 
Transport, Storage,  14.1      9.4      2.2     1.5 
 & Communication 
Finance, Insurance, 100.2    157.6     15.5    24.8 
 Real Estate & 
 Business Services 
Social services       0.5       .5      0.1     0.1 
--------------------------------------------- ------- 
TOTAL               355.1    489.2     55.1    77.0 
--------------------------------------------- ------- 
 
Table H:  FDI Flows into South Africa: 
 
Investment by foreigners in undertakings in South Africa 
in which they have at least 10 percent of the voting 
rights (billions): 
 
2000   6.2 
2001* 58.4 
2002   8.0 
2003   5.6 
2004   5.2 
2005* 39.8 
 
*The high inflow in 2001 was due to the Anglo 
 
PRETORIA 00000142  013.2 OF 014 
 
 
American/DeBeers transaction. 
*The inflow in 2005 was due to the Barclays/ABSA and 
Vodafone/Vodacom transactions. 
 
Table I:  FDI Flows out of South Africa: 
 
Investment by South Africans in undertakings abroad in 
which they have at least 10 percent of the voting rights 
(billions): 
 
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 
2005   5.9 
 
*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 600 
American companies (including subsidiaries, joint 
ventures, local partners, agents, franchises, and 
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 largely a food self-sufficient country, 
with imports of wheat, oilseeds, poultry and pork 
largely offset by exports of fresh fruits, vegetables, 
fruit juice, and wine.  The bulk of the population's 
food needs are supplied locally.  In certain instances, 
South African food and beverage companies have become 
global players, such as SAB Miller.  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, and Pillsbury. 
 
The chemical industry is the largest manufacturing 
sector in the South African economy, accounting for five 
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. 
 
The Standard, ABSA, First Rand, and Nedcor commercial 
banking groups provide retail and investment banking 
services and 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 
 
Australia    - BHP Billiton 
Canada       - Placer Dome 
Denmark      - AP Moller 
France       - Lafarge 
Germany      - BMW 
Italy        - Cirio (Del Monte) 
Switzerland  - Movenpick Hotels 
U.K.         Q 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 
 
 
PRETORIA 00000142  014.2 OF 014 
 
 
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 
 
BOST