VZCZCXRO7748
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0078/01 0151456
ZNR UUUUU ZZH
R 151456Z JAN 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6991
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHJO/AMCONSUL JOHANNESBURG 8795
RUEHTN/AMCONSUL CAPE TOWN 6452
RUEHDU/AMCONSUL DURBAN 0577

UNCLAS SECTION 01 OF 06 PRETORIA 000078 
 
DEPT FOR AF/S/; AF/EPS; EB/IFD/OMA 
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND 
TREASURY FOR TRINA RAND 
USTR FOR JACKSON 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD ELAB PGOV OPIC KTDB
USTR, SF 
 
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT SOUTH AFRICA 
(PART 1 OF 2) 
 
REF: 08 State 123907 
 
PRETORIA 00000078  001.2 OF 006 
 
 
¶1. (U) Summary.  In response to Ref A, this cable presents 
the first part of post?s two-part 2009 Investment Climate 
Statement for South Africa.  This is also Chapter 6 of the 
Country Commercial Guide for South Africa. 
 
¶2. (U) BEGIN TEXT 
 
Chapter 6 Investment Climate Statement FY2009 
 
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.  The Department of Trade 
and Industry?s (DTI) Trade and Investment South Africa 
(TISA) division provides assistance to foreign investors. 
The DTI 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"). 
Macroeconomic management was strong over the past decade, 
with reduced levels of public debt, generally low 
inflation, and a progression from a fiscal deficit to a 
fiscal surplus, and a consistently positive rate of 
economic growth.  The post-apartheid 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 foreign acquisitions in banking, 
telecommunications, tourism, and other sectors, foreign 
direct investment has fallen short of the government?s 
expectations.  South African banks are well-capitalized 
and have little exposure to sub-prime debt or other 
sources of financial contagion.  However, in the wake of 
the recent global financial turmoil, Standard & Poor?s 
(S&P) and Fitch downgraded their outlook on South Africa?s 
sovereign credit from ?stable? to ?negative? in late 2008, 
reflecting concerns that capital outflows could depress 
the rand and make it difficult for South Africa to finance 
its growing current account deficit. 
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 for immediate attention.  The Policy Framework 
anticipates initiatives in the form of tariff reductions, 
increased industrial financing, and additional incentives 
for investors. 
The Black Economic Empowerment (BEE) strategy is a 
government program to increase the participation in the 
Qgovernment program to increase the participation in the 
economy of historically disadvantaged South Africans.  BEE 
requirements are specified in the Codes of Good Practice, 
which were published in the Government Gazette in February 
¶2007.  The codes set forth best practices for employment 
equity, skills development, enterprise development, 
preferential procurement, equity ownership, 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. 
 
PRETORIA 00000078  002.2 OF 006 
 
 
companies had pressed for the right to use such "equity 
equivalent" mechanisms.  A firm's BEE ?score? will be 
considered by government departments when awarding 
contracts, and in some cases is a requirement for 
tendering.  While firms are not legally required to meet 
BEE criteria, they are less competitive for government 
tenders if they fail to meet the criteria.  The BEE Codes 
of Good Practice and other pertinent BEE legislation may 
be found on DTI's website: http://www.thedti.gov.za/. 
Some state-owned enterprises were privatized in the 1995- 
2004 period.  The government has been restructuring most 
of the remaining state-owned enterprises rather than 
proceeding with plans for privatization since 2004. 
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 
are being transferred back to the government.  Transnet 
transferred SA Express to the Department of Pubic 
Enterprises in 2008 and Transtel Telecom was sold to 
Neotel.  Transnet is also selling off Luxrail (The Blue 
Train), Autopax, a passenger bus operation, and the IT 
service subsidiary arivia.kom.  The Department of Minerals 
and Energy (DME) contracted with US power producer AES for 
a 1000 MW power project, but canceled the agreement when 
AES was unable to fulfill its contractual obligations. 
Other opportunities for private investment in the power 
sector are likely to follow 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 afford opportunities for 
foreign investment. 
6.2 Conversion and Transfer Policies 
The South African Reserve Bank?s (SARB) Exchange Control 
Department administers foreign exchange policy.  An 
authorized foreign exchange dealer, normally one of the 
large commercial banks, must handle international 
commercial transactions and report every purchase of 
foreign exchange, irrespective of the amount, 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 financed 
without resorting to excessive local borrowing); interest 
Qwithout 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). 
South African companies have been permitted to invest in 
other countries without restriction (although SARB 
approval/notification is still required) since 2004. 
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.  South African banks are permitted 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. 
 
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