VZCZCXRO7914
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0080/01 0151638
ZNR UUUUU ZZH
R 151638Z JAN 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 6997
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPCIM/CIMS NTDB WASHDC
RUCPDC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHJO/AMCONSUL JOHANNESBURG 8801
RUEHTN/AMCONSUL CAPE TOWN 6458
RUEHDU/AMCONSUL DURBAN 0583

UNCLAS SECTION 01 OF 06 PRETORIA 000080 
 
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 00000080  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 
 
PRETORIA 00000080  002.2 OF 006 
 
 
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.  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 
QAfrican 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 
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 
 
PRETORIA 00000080  003.2 OF 006 
 
 
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. 
 
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 
 
The Expropriation Act of 1975 (Act) and the Expropriation 
Act Amendment of 1992 entitle the government to 
expropriate private property for reasons of public 
necessity or utility.  The decision is an administrative 
one.  Compensation should be the fair market value of the 
property.  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. 
 
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.  The government has twice 
exercised its expropriation power.  It took possession of 
farms in Northern Cape Province and Limpopo in March 2007 
and December 2007 after negotiations with owners 
collapsed.  The government paid the owners the fair market 
value for the land in both cases. 
 
South Africa's Cabinet approved for submission to 
Parliament a new piece of legislation called the 
Expropriation Bill in March 2008.  The Expropriation Bill 
QExpropriation Bill in March 2008.  The Expropriation Bill 
sought resolve differences between the Act and the South 
African Constitution, which allows the government to 
expropriate land not just for reasons of public necessity 
but also for reasons that are "in the public interest." 
The bill is viewed as a government strategy to speed land 
redistribution; as of 2008, only 4.1 percent of total farm 
land had been redistributed under the government's land 
reform program.  In August 2008, the bill was withdrawn - 
and ultimately scrapped - in the face of criticism from 
 
PRETORIA 00000080  004.2 OF 006 
 
 
farmers and private sector groups that questioned its 
constitutionality.  A retooled version of the bill is 
expected to resurface in 2009. 
 
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 
(IDZ) 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 (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. 
 
DTI established the Film and Television Production Rebate 
Scheme to encourage foreign and domestic investment in the 
local film industry.  Eligible applicants may 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 (approximately $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 program are available at the DTI website at 
http://www.dti.gov.za/. 
 
South Africa's various provinces have development agencies 
that offer incentives to encourage investors to establish 
Qthat offer incentives to encourage investors to establish 
or relocate industry to areas throughout South Africa. 
The incentives vary from province to province and may 
include reduced interest rates, reduced costs for leasing 
land and buildings, cash grants for the relocation of 
physical plants and employees, reduced rates for basic 
facilities, railage and other transport rebates, and 
assistance in the provision of housing. 
 
The Industrial Development Corporation (IDC) is a self- 
financing, state-owned development that provides equity 
and loan financing to support investment in target 
sectors.  The IDC also provides credit facilities for 
 
PRETORIA 00000080  005.4 OF 006 
 
 
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 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.  In 
2008, the South African cabinet approved a new Automotive 
Production and Development Program (APDP) to replace the 
MIDP.  The APDP will aim to increase production in the 
auto sector to 1.2 million vehicles per year by 2020, with 
an associated deepening of components production.  The 
APDP is structured around a mix of high tariffs and tariff 
credits plus other incentives.  The new program updates an 
old program.  The old program included export incentives, 
whereas the new program includes production incentives. 
The new program epitomizes the government's relatively new 
commitment to industrial policy as a source of job 
creation and growth.  The government launched its National 
Industrial Policy Framework with an accompanying Action 
Plan in August 2007.  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 ten 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 is the dominant 
QOffice is a legislated monopoly. Telkom is the dominant 
fixed-line telephone operator and is 37 percent-owned by 
government.  Neotel is a second national operator that 
began limited business-only operations in October 2006 and 
is 30 percent government owned.  Neotel entered the 
business-to-business market in 2007 and has entered the 
residential market in selected areas.  InfraCo, a 100 
percent government-owned broadband provider, was formed 
using the fiber-optic networks of Eskom and Transnet in 
December 2006 and was approved for operations by 
Parliament in October 2007. 
 
The Competition Act of 1998 and subsequent amendments 
 
PRETORIA 00000080  006.2 OF 006 
 
 
address anticompetitive practices in both the private and 
public sectors.  The Competition Commission has 
demonstrated increasing capacity to implement competition 
policy.  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 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 SARB.  A royalty of up to four percent 
of the factory selling price is the standard approval for 
consumer goods.  A royalty of up to six percent will be 
approved for intermediate and finished capital goods. 
 
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 2006 and 2007.  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 2008, demonstrating the government's 
commitment to IPR enforcement.