VZCZCXRO2103
RR RUEHDU RUEHJO
DE RUEHSA #0077/01 0150808
ZNR UUUUU ZZH
R 150808Z JAN 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 3143
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPARTMENT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC
RUEHJO/AMCONSUL JOHANNESBURG 7822
RUEHTN/AMCONSUL CAPE TOWN 5220
RUEHDU/AMCONSUL DURBAN 9490

UNCLAS SECTION 01 OF 11 PRETORIA 000077 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA; 
USTR FOR COLEMAN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD ELAB PGOV OPIC KTDB USTR SF
 
SUBJECT: 2008 INVESTMENT CLIMATE STATEMENT - SOUTH AFRICA 
 
REF:  07 State 158802 
 
¶1. (U) In response to Ref A, this cable presents post's 2008 
Investment Climate Statement for South Africa. This is also Chapter 
6 of the 2008 Country Commercial Guide for South Africa. 
 
¶2. (U) BEGIN TEXT 
 
Chapter 6 Investment Climate Statement FY 2008 
 
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. While this has resulted in 
several large acquisitions in banking, telecommunications, tourism, 
and other sectors, foreign direct investment has fallen short of the 
government's expectations. In January 2005, Moody's assigned South 
Africa a sovereign debt rating of Baa1, three steps into investment 
grade, and raised the outlook from stable to positive in June 2007. 
Standard and Poor's and Fitch also rank South Africa at investment 
grade. 
To alleviate high unemployment (25.5 percent as of March 2007), 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 $50 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. 
In August 2007, the DTI launched its National Industrial Policy 
Framework, and accompanying Industrial Policy Action Plan, to 
promote a more labor-absorbing and broader-based industrialization 
path in four lead sectors: capital or transport equipment; 
automotive; chemical, plastic fabrication and pharmaceuticals; and 
forestry, paper and furniture. Business process outsourcing, 
clothing and textiles, tourism, and biofuels were also identified 
Qclothing and textiles, tourism, and biofuels were also identified 
for immediate attention. The Policy Framework anticipates 
initiatives in the form of tariff reductions, increased industrial 
financing, and additional incentives for investors. 
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. 
In January 2004, President Mbeki signed 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, they are less competitive 
for government tenders if they do not. 
On December 6, 2006 cabinet approved Codes of Good Practice 
specifying BEE requirements. These codes deal with employment 
equity, skills development, enterprise development, preferential 
 
PRETORIA 00000077  002 OF 011 
 
 
procurement, and small and medium-sized enterprises. They also 
permit multinational corporations to score equity ownership "points" 
through the use of mechanisms not involving the transfer of equity 
if these mechanisms are approved by DTI and the multinationals have 
a global corporate policy of owning 100 percent of the equity in 
their subsidiaries. The American Chamber of Commerce and many 
individual U.S. companies had pressed for the right to use such 
"equity equivalent" mechanisms. These Codes were published in the 
Government Gazette in February 2007. 
A firm's BEE "score" will be considered by government departments 
when awarding contracts. The BEE Codes of Good Practice and other 
pertinent BEE legislation may be found on DTI's website: 
http://www.thedti.gov.za/. 
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 focusing on core sectors that support its 
freight transport and logistic business. Assets or businesses that 
are not part of this strategy are in the process of being sold to 
the private sector or being transferred back to the government. SA 
Express, Transnet's remaining aviation interest, will be transferred 
to the Department of Pubic Enterprises, Transtel Telecom was sold to 
Neotel, and the disposal of Luxrail (The Blue Train), Autopax, a 
passenger bus operation, and the IT service subsidiary arivia.kom 
are underway. The Department of Minerals and Energy (DME) has 
tendered and awarded a preferred bidder status to AES for a 1000 MW 
power project. Other opportunities for private investment in the 
power sector are likely to follow with the DME's announced policy to 
grant up to 30 percent of new energy projects to the private sector. 
The planned privatization of smaller parastatals, such as Safcol 
(forestry) and, in the case of Denel (Defense), with partial buy-ins 
by foreign suitors of Denel subsidiaries, also afforded 
opportunities for foreign investment. 
6.2 Conversion and Transfer Policies 
The Exchange Control Department at the South African Reserve Bank 
(SARB) administers foreign exchange policy. An authorized foreign 
exchange dealer, normally one of the large commercial banks, must 
handle international commercial transactions and report every 
purchase of foreign exchange, irrespective of the amount, that is 
received by South African residents or companies. As a rule, there 
are only limited delays in the conversion and transfer of funds. 
Non-residents may freely transfer capital into and out of South 
Africa, although transactions must be reported to authorities. 
Non-residents 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. 
South African subsidiaries and branches of foreign companies are 
considered to be South African residents, and, are subject to 
exchange control by the SARB. South African companies may, as a 
general rule, freely remit the following to non-residents: 
repayment of capital investments; dividends and branch profits 
(provided such transfers are made out of trading profits and are 
Q(provided such transfers are made out of trading profits and are 
financed without resorting to excessive local borrowing); interest 
payments (provided the rate is reasonable); and payment of royalties 
or similar fees for the use of know-how, patents, designs, 
trademarks or similar property (subject to prior approval of SARB 
authorities). 
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 (approximately $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 
 
PRETORIA 00000077  003 OF 011 
 
 
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 a U.S. 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. As of 2006, only 4.1 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 more proactive land acquisition strategies to 
accelerate redistribution. In several restitution cases, the 
government has initiated proceedings to expropriate white-owned 
farms after courts ruled that the land had been seized from blacks 
during apartheid and the owners subsequently refused court-approved 
purchase prices. In most of these cases, the government and owners 
have reached agreement prior to any final expropriation actions. 
However, in March 2007, the government took possession of a farm in 
Northern Cape Province after negotiations collapsed. As required by 
South African law, the government paid the previous owners the fair 
market value for the land, which had been established by independent 
auditors. This marked the first time the government has exercised 
its expropriation power in a restitution or redistribution case. 
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 Bank's 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 (approximately 
$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 
Qimport 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 (approximately $86 million) per project) on the cost of 
buildings, plant and machinery, for strategic investments of at 
least R500 million (approximately $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 (approximately $435,000) to manufacturers with 
assets of less than R100 million (approximately $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 
 
PRETORIA 00000077  004 OF 011 
 
 
be R10 million (approximate $1.4 million). Details on the entire 
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 costs 
for leasing 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 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. 
The DTI has indicated that the MIDP would be sustained beyond 2012. 
 
In August 2007, the government launched its National Industrial 
Policy Framework with an accompanying Action Plan. As noted above in 
Section 6.1, the Policy Framework provides for import tariff 
reductions, tighter competition legislation, increased industrial 
financing, and an improved incentive scheme for investors in 
specific industrial sectors. 
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 railways and ports. The 
South African Post Office is a legislated monopoly. Telkom, 37 
QSouth 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 entered the business-to-business market in 
2007 and plans to enter the residential market. InfraCo, a 100 
percent government-owned broadband provider, was formed using the 
fibreoptic networks of Eskom and Transnet in December 2006 and 
approved for operations by Parliament in October 2007. 
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 in recent years against state-owned enterprises 
that compete unfairly or otherwise abuse their dominant position. 
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 
 
PRETORIA 00000077  005 OF 011 
 
 
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 in the South 
African Reserve Bank. 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 growing number of 
successful criminal cases, including imposition of prison sentences, 
against pirates in 2007, 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 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 
Qforeign-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. 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. As of early 2008, Standard is 
awaiting government approval of the sale of 20 percent of its equity 
to the International Commercial Bank of China. 
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: 
 
PRETORIA 00000077  006 OF 011 
 
 
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 nineteenth largest exchange measured by market 
capitalization in the world. As of December 2007, market 
capitalization stood at $842 billion with a total of 456 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 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 in an attempt to control or 
stabilize the level of criminal violence. 
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 lack 
of 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 
Qtransparency 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 National 
Prosecuting Authority's 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 recently identified hundreds of civil servants 
alleged to have improperly received state housing subsidies. The SAG 
took administrative action to recover these subsidies. 
According to Transparency International's 2007 Corruption 
Perceptions Index, the perception of corruption in South Africa 
substantially improved, although the public perception of widespread 
official corruption, particularly in the police and the Department 
of Home Affairs, continued. South Africa 2007 Index ranking was 43 
out of 179 countries and was the second 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 00000077  007 OF 011 
 
 
between South Africa and the European Union on January 1, 2000, but 
it does not contain an investment chapter. South Africa, as part of 
SACU, is currently in negotiations for trade agreements with 
Mercosur and India. 
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 Investment and Development 
Cooperation Agreement or "TIDCA"). An agenda for the U.S.-SACU TIDCA 
will be defined in 2008. 
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), which intends 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. Net proceeds from a 
$300 million investment pool will be used to purchase medication for 
HIV-positive South African homeowners holding HLGC guaranteed 
mortgages. 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. 
Labor militancy rose sharply in 2007, with over 12.6 million 
workdays lost to strikes over the first nine months of 2007, as 
inflation accelerated to 7 percent, and food price inflation hit 
11.3 percent in August 2007. By comparison, only 2.9 million 
workdays were lost to strikes for all of 2006. As of March 2007, 
total trade union membership was approximately three 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 has opposed President Mbeki's policies on 
issues of economic and health policy. COSATU is also opposed to 
Qissues of economic and health policy. COSATU is also opposed to 
efforts to privatize government services and state-owned 
corporations. 
According to the March 2007 Labor Force Survey (LFS), the official 
unemployment rate was 25.5 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 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 
 
PRETORIA 00000077  008 OF 011 
 
 
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 enjoys substantial popularity among workers and 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. It 
outlaws child labor. 
-- 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 
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 
Qdevelopment 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. An IDZ in Mafikeng is expected to be approved by Cabinet in 
¶2008. 
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 
 
PRETORIA 00000077  009 OF 011 
 
 
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 
            2002  2003  2004  2005  2006 
Rand/US$   10.52  7.56  6.45  6.36  6.77 
Table B: Year-end Stock of Foreign Direct Investment in South Africa 
 
                 2002   2003   2004   2005   2006 
Rand (billion)  255.84 303.55 355.09 489.32 611.72 
US$ (billion)    24.33  40.14  55.05  76.94  90.36 
Table C: Year-end Stock of South African Direct Investment Abroad 
   2002   2003   2004   2005   2006 
Rand (billion) 189.91 180.51 216.66 232.93 354.25 
US$ (billion)   18.06  23.87  33.59  36.62  52.33 
Table D: GDP (in billion rands at current prices) and year-end FDI 
Stock as a percentage of GDP 
  2002    2003     2004     2005      2006 
GDP   1,168.7  1,260.7  1,398.6  1,541.07  1,741.06 
FDI(%)  21.9     24.1     25.4      31.8      35.1 
Table E: Year-end stock of FDI in South Africa by region/country 
(billions) 
REGION/COUNTRY   RAND  RAND    US$    US$ 
                     2005  2006   2005   2006 
EUROPE - Total      436.3  535.6  68.6   79.1 
UNITED KINGDOM      350.5  440.3  55.1   65.0 
GERMANY              29.9   34.1   4.7    5.0 
NETHERLANDS          14.1   22.1   2.2    3.3 
SWITZERLAND          10.6   12.3   1.7    1.8 
FRANCE                7.7    9.2   1.2    1.4 
ITALY                 1.2    2.9   0.2    0.4 
N&S AMERICA (total)  33.8   51.2   5.3    7.6 
USA                  31.2   37.4   5.1    5.5 
AFRICA (total)        4.0    4.1   0.6    0.6 
ASIA (total)         14.3   19.8   2.3    2.9 
MALAYSIA              2.4    2.4   0.4    0.4 
JAPAN                 9.9   14.7   1.7    2.2 
OCEANIA (total)       0.8    1.0   0.1    0.1 
--------------------------------------------- -------- 
TOTAL               489.3  611.7  76.9   90.36 
--------------------------------------------- -------- 
Table F: Year-end Stock of South African Direct Investment Abroad by 
Region/Country (billions) 
REGION/COUNTRY     RAND  RAND   US$    US$ 
                      2005   2006   2005   2006 
EUROPE - Total       189.1  238.8   29.7   35.3 
UNITED KINGDOM        70.9   79.8   11.1   11.8 
LUXEMBURG             74.8  106.4   11.8   15.7 
AUSTRIA               18.0   22.3    2.8    3.3 
OTHER                 25.4   30.3    4.0    4.5 
N&S AMERICA (total)   16.3   23.7    2.6    3.5 
USA                   14.4   21.7    2.3    3.2 
AFRICA (total)        19.1   59.1    3.0    8.7 
ASIA (total)           1.5   25.8    0.2    3.8 
OCEANIA (total)        6.8    6.8    1.1    1.0 
--------------------------------------------- --- 
TOTAL                232.9  354.3   36.6    52.3 
--------------------------------------------- --- 
Table G: Year-end Stock of FDI in South Africa by Industry Sector 
(billions) 
 
INDUSTRY      RAND  RAND   US$   US$ 
                     2005  2006  2005   2006 
Agriculture, 
Forestry & Fishing    0.7   0.9   0.1    0.1 
Mining              168.3 250.4  26.5   37.0 
Manufacturing       136.0 165.4  21.4   24.4 
Construction          2.0   2.0   0.3    0.3 
Trade, Catering,     14.7  16.2   2.3    2.4 
QTrade, Catering,     14.7  16.2   2.3    2.4 
& Accommodation 
Transport, Storage,   9.4  13.8   1.5    2.0 
& Communication 
Finance, Insurance, 157.6  162.5  24.8  24.0 
Real Estate & 
Business Services 
Social services       0.5   0.5   0.1    0.1 
--------------------------------------------- ---------- 
TOTAL               489.2 611.7  77.0   90.4 
--------------------------------------------- ---------- 
 
PRETORIA 00000077  010 OF 011 
 
 
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 (R billions): 
2001* 58.4 
2002 8.0 
2003 5.6 
2004 5.2 
2005* 42.3 
2006 -3.6 
*The high inflow in 2001 was due to the DeBeers/Anglo American 
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 (R billions): 
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 
2006 45.5 
*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. 
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 J: Top Foreign Companies Invested In South Africa 
Australia - BHP Billiton 
Canada - Placer Dome 
Denmark - AP Moller 
France - Lafarge 
Germany - BMW 
India - Tata 
Italy - Cirio (Del Monte) 
Switzerland - Movenpick Hotels 
U.K. - Lonrho Plc, SA Breweries, 
Anglo American, Barclays, Vodafone, 
British Petroleum, Old Mutual, Virgin 
U.S. - Caltex; Coca Cola; Dow Chemicals; 
General Motors, Ford, Pioneer Energy, CSX, Timkin 
Saudi Arabia - Oger 
UAE - Victoria and Alfred Waterfront 
This is an illustrative listing of companies that have invested in 
QThis is an illustrative listing of companies that 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 
 
 
 
PRETORIA 00000077  011 OF 011 
 
 
BOST