SOUTH AFRICA
1
POLICY, PLANS AND PRIORITIES
Medium Term Strategic Framework: A Framework To Guide Government’s
Programme In The Electoral Mandate Period (2009 – 2014) July 2009 identifies the
creation of decent work as the primary objective of South Africa’s economic policy.
MTSF
The Department of Trade and Industry (DTI) Medium Term Strategic Framework
(MTSF) 2011-14 Vol. 1 and 2 states that among its objectives are:the dti will
strengthen trade and investment engagements at the bilateral level, as well as
advance the integration project in the Southern African Customs Union (SACU)
and consolidate gains made under the Southern African Development Community
(SADC) Free Trade Agreements (FTA). The Department will also expand its focus
on extending regional markets in Africa by pursuing the SADC-East African
Community (EAC)-Common Market for Eastern and Southern Africa (COMESA)
Tripartite FTA.
In recognition of the growing economies in the South, the dti will build on ongoing
economic and trade cooperation efforts with Brazil, Russia, India and China
through its membership of BRICS (Brazil, Russia, India, China and South Africa).
IPAP 2
Industrial Policy Action Plan 2010/11-2012/13 Feb 2010 (IPAP 2) is a three year
rolling plan, to be updated annually and with a 10-year outlook on desired
economic outcomes. IPAP 2 identifies activities to unlock potential in priority
sectors, and as it achieves these objectives, the focus will move to the next set of
sectors and interventions. A critical element of IPAP 2 is the implementation of
financial support, including the Automotive Production and Development
Programme, Clothing and Textile Production Incentive, Enterprise Investment
Programme (EIP) and other schemes, while strengthening the performance,
monitoring and evaluation of these schemes.
IPAP
2012/13 – 14/15
The Industrial Policy Action Plan 2012/13 – 14/15 is continuation of the IPAP2.
Therefore, successive iterations of IPAP seek to scale up key interventions over a
rolling three-year period, with a 10-year outlook on desired economic outcomes. It
provides an opportunity to take stock of the progress made and challenges
experienced since the commencement of the first IPAP in 2008. The plan
envisages to upscale efforts in sectors such as the green industries, agroprocessing, maetal fabrication, capital equipment and transport equipment.
New Growth Path
The Government released the framework of the New Economic Growth Path at the
end of 2010 presenting to the public a policy aimed at enhancing growth,
employment creation and equity. The policy’s principal target is to create five
million jobs over the next ten years. The centrepiece of the new growth path is a
massive investment in infrastructure and people through skills development,
together with smart government and better coordination with the private sector and
organised labour in order to achieve national goals.
Areas of priority are:
 Infrastructure development
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Development of the Green Economy
Intervention in the agricultural sector
In the mining sector to increase extraction and beneficiation
The re-industrialisation of South Africa by improving manufacturing
performance
The employment potential of the tourism sector and other high-level
services
2
INVESTMENT PROMOTION
2.1
Institutions
WTO Trade Policy Review SACU South Africa 2009 Annex 4 South Africa states
“The Department of Trade and Industry (DTI) is responsible for formulating and
coordinating the country's trade and industrial policies. However, other
departments and agencies also take important initiatives on trade and investment
policy, such as the Departments of Finance, Agriculture, Health, and Mineral and
Energy Affairs, as well as the South African Reserve Bank. The private sector is
quite instrumental in forwarding proposals and recommendations to the DTI,
through for example, the National Economic Development and Labour Council
(NEDLAC), the International Trade Administration Commission (ITAC), which
replaced the Board on Tariffs and Trade (BTT), and the Industrial Development
Corporation (IDC). The IDC and Parliamentary Committees continue to play a key
role in assisting the DTI in carrying out periodic reviews and assessments of trade
policies.”
DTI:
Strategic Objectives of DTI
 Facilitate transformation of the economy to promote industrial development,
investment, competitiveness and employment creation.
• Build mutually benefi cial regional and global relations to advance South Africa’s
trade, industrial policy and economic development objectives.
• Facilitate broad-based economic participation through targeted interventions to
achieve more inclusive growth.
• Create a fair regulatory environment that enables investment, trade and
enterprise development in an equitable and socially responsible manner.
• Promote a professional, ethical, dynamic, competitive and customer-focused
working environment that ensures effective and efficient service delivery.
 Promoting the co-ordinated and accelerated implementation of the
Government’s economic vision and priorities;
 Promoting direct investment and growth in the industrial and services economy,
with particular focus on employment creation;
 Raising the level of exports and promoting equitable global trade;
 Promoting broader participation, equity and redress in the economy; and
 Contributing to Africa’s development and regional integration within the New
Partnership for Africa’s Development (NEPAD).
The DTI website http://www.dti.gov.za/ provides access to a comprehensive range
of documents, information and application forms relating to investment, trade and
doing business in South Africa.
ITED: International Trade and Economic Division is a division of DTI that is
responsible for economic and trade relations, managing tariff regimes, investment
treaties and promoting regional integration through SADC and SACU.
TISA: Trade and Investment South Africa (TISA) is a division of DTI with three
business units, Investment Promotion and Facilitation, Export Development and
Promotion and International Operations. TISA is responsible for increasing and
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retaining the level of foreign and domestic direct investment, increasing South
Africa's capability and capacity to promote exports into targeted markets and
managing DTI’s network of foreign offices.
Provincial IPA: Eastern Cape Development Corporation, Free State Development
Corporation, Gauteng Economic Development Agency, Trade and Investment
KwaZulu-Natal, Trade and Investment Limpopo, Mpumalanga Economic Growth
Agency, Investing in the Northern Cape, Invest North West, Western Cape
Investment and Trade Promotion Agency. The role of these agencies is to
stimulate economic growth in a province through exports by established business
and attracting foreign investment through building an enabling environment. TISA
is working to coordinate national and provincial investment promotion activities.
IDC: Industrial Development Act, No. 22 of 1940 constitutes the Industrial
Development Corporation (IDC) to promote the establishment of new industries
and industrial undertakings, as well as the development of existing industries and
industrial undertakings. IDC provides equity, quasi-equity and medium term loan
finance to the private sector to promote industrial development and innovation.
DBSA: Development Bank of Southern Africa provides policy advice, planning,
programming and financing for infrastructure provision. It cooperates with the
private financial sector in support of local authority infrastructure needs, also
promoting public private partnerships.
The Department of Tourism http://www.tourism.gov.za:8001/default.aspx aims to
fulfill the national government's role towards creating the conditions for responsible
tourism growth and development by promoting and developing tourism, thereby
increasing job and entrepreneurial opportunities and encouraging the meaningful
participation of previously disadvantaged individuals. The focus will be on
facilitating the growth of the tourism industry by providing support to the public and
private sectors, and the broader community. There are also provincial tourism
promotion authorities.
Investment
TISA’s Investment Promotion and Facilitation responsibilities include:
 Identifying investment opportunities in South Africa
 Packaging investment opportunities
 Identifying potential investors
 Promoting investment opportunities
 Facilitating investment into and in South Africa
 Providing a dedicated after-care service
 Providing general information on investing in South Africa and the domestic
business environment
 Arranging inward and outward investment missions
 Facilitating funding and government support
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Over the next three years the focus of the Investment Promotion Unit in TISA is on
priority areas for attracting investment set out in IPAP 2, IPAP 2013/14 – 14/15 and
the New Growth Path. These include Advanced Manufacturing, Manufacturing,
Resource Industries, the Green Economy and the Services sectors.
The Investment Promotion Unit seeks investment with best multiplier effects in
terms of:
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Potential for Job Creation;
Economic development and geographic spread;
Support for the creation of other local industries and empowerment;
Unlocking competition;
Technology transfer, innovation and skills development; and
Environmentally-friendly industries.
China, India, Russia, Brazil, Japan, USA, Europe and the Middle East are targets
for seeking investors.
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TISA is coordinating and strengthening networks with Provincial and Local IPAs
and activities include:
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Promotion of investment opportunities;
Marketing of investment projects;
Information on investment sectors and industries;
Facilitation of investment missions, including travel itineraries;
Introduction of key stakeholders in private and public sectors;
Introduction to potential joint venture partners and BEE partnerships;
Consultation on regulatory environment;
Incentive packages;
Plant location and Industrial Development Zones;
Work permit applications;
 Relocation support;
 After-care service.
2.2
Enterprise
Investment
Programme (EIP)
Investment and Export Incentives
DTI administers the EIP, an investment incentive in the form of a grant designed to
stimulate investment growth in manufacturing and tourism. To justify the awarding
of a grant for any project, a funding gap analysis is applied to ensure a grant is only
approved where it will have an impact the timing, scale and quality of the project.
The analysis will focus on the level of post-investment debt in the balance sheet of
the entity, the execution of an investment project, the amount of debt incurred in
order to fund the investment project and the impact of the grant on the decision by
a foreign investor to locate the project in South Africa.
Projects in the following categories will not be required to indicate the existence of
a funding gap: (a) All projects below R (Rand) 5 million (€500,000); (b) New entities
not linked to an existing entity, where B-BBEE shareholding is greater than 50%.
The latter provision does not apply to a new project of an existing entity. This
excludes instances where: the majority shareholder of the entity has a similar
business to that of a start-up entity, such that if the shareholder had established
the start-up business under the auspices of its existing business, it would have
been defined as an expansion under the EIP rules and new projects not linked to
an existing entity, where more than 50% of the shares are owned by first-time
foreign investors in South Africa.
Manufacturing
Investment
Programme (MIP)
MIP aims to enhance the sustainability of manufacturing investment projects by
small enterprises and to support large-to-medium-sized investment projects in
manufacturing that would otherwise not be established without the grant. MIP
provides investment support to both local and foreign owned entities, by offering an
investment grant of up to 30% of the value of qualifying investment costs in
machinery, equipment, commercial vehicles, land and buildings, required for
establishing a new production facility; expanding an existing production facility; or
upgrading production capability in an existing clothing and textile production facility.
Investment projects of R5m (about €500,000) and below may qualify for an
investment grant equal to 30% of their total qualifying investment cost, payable
over a three (3) year period. Investment projects of above R5m may qualify for an
investment grant of between 15% and 30% of their qualifying investment costs,
calculated on a regressive scale and payable over a period of two years. This
investment grant cannot exceed R30m (about €3m).
Foreign investment projects may qualify for an additional grant for the cost of
transporting their qualifying machinery and equipment to South Africa. The
additional grant is the lower of 15% of the value of qualifying imported machinery
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and equipment or the actual transport costs of relocating qualifying new machinery
and equipment from abroad to a maximum of R10m (about €1m).
In all cases, grant payment is subject to the approved project achieving the
stipulated performance requirements of investment and employment creation. The
MIP incentive is offered in conjunction with other instruments already available
through the provisions of the Income Tax Act, No. 58 of 1962, which the
government is implementing to stimulate investment, including the accelerated
depreciation on investment assets, graduated tax rates applicable to small
enterprises and tax incentives applicable to research and development capital
expenditure.
Income Tax
Allowance Incentive
to Support
Greenfield and
Brownfield
Investment Projects
In
2010,
by
Regulation
No.
R.639
23
July
2010,
(http://www.dti.gov.za/12i/12i_Regulations.pdf ) under Section 12i of the Income
Tax Act 1962 http://www.dti.gov.za/12i/Section_12i_Income_Tax_Act.pdf, a tax
incentive was introduced to support Greenfield investments (i.e. new industrial
projects that utilise only new and unused manufacturing assets), as well as
Brownfield investments (i.e. expansions or upgrades of existing industrial projects).
Section 12i of the Income Tax Act is a tax allowance based on investment in new
manufacturing assets and training, provided to employees in the project. The 12i
Tax Incentive aims to accelerate economic growth in the industrial sector and
support the Industrial Policy Action Plan (IPAP 2), particularly in terms of job
creation, training and energy efficiency. The two components of the programme
comprise an investment allowance of up to a maximum of R900 million, and a
training allowance of up to a maximum of R30 million per project, dependent on
compliance with certain criteria. Both allowances are deductible from the taxable
income of the applicant company and reduces tax liability.
The objectives of the incentive programme are to support:
 Investment in manufacturing assets, to improve the productivity of the
South African manufacturing sector;
 Training of personnel, to improve labour productivity and the skills profile of
the labour force.
The incentive offers:
 R900 million in the case of any Greenfield project with a preferred status;
 R550 million in the case of any other Greenfield project;
 R550 million in the case of any Brownfield project with a preferred status;
 R350 million in the case of any other Brownfield project;
 An additional training allowance of R36 000 per employee may be
deducted from taxable income; and
 A maximum total additional training allowance per project, amounting to
R20 million, in the case of a qualifying project, and R30 million in the case
of a preferred project.
According to the point system, an Industrial Policy project will achieve 'qualifying
status' if it achieves at least five (5) of the total 10 points, and a 'preferred status' if
it achieves at least eight (8) of the total 10 points.
The investment must be:
 Greenfield project (new project);
 Brownfield project (expansion or upgrade); or
 Classified under 'Major Division 3: Manufacturing'.
The project should:
 Upgrade an industry within South Africa (via an innovative process, cleaner
production technology or improved energy efficiency);
 Provide general business linkages within South Africa;
 Acquire goods and services from small, medium and micro-sized
enterprises (SMMEs);
 Create direct employment within South Africa;
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Tourism Support
Programme (TSP)
Provide skills development in South Africa; and
In the case of a Greenfield project, be located within an Industrial
Development Zone (IDZ).
DTI administers a targeted incentive programme to support the development of
tourism enterprises that will stimulate job creation and encourage a geographic
spread of tourism investment. As tourism is highly concentrated in the metropolitan
(metros) areas of Johannesburg, Cape Town and eThekwini, projects located
within these metros are excluded from the programme unless the projects are in
marginalised areas within the metros. Marginalised areas are those with higher
than the national average unemployment rate.
The incentive programme offers a grant of up to 30% towards qualifying investment
costs for establishing and expanding existing operations in South Africa. The
incentive is available to South African and foreign-owned enterprises and is
provided for qualifying investment costs of furniture, equipment, vehicles, land and
buildings/ land improvements of up to R200 million (€20m).
The investment grant is capped at a maximum of R30m (€3m), calculated in
relation to the qualifying investment costs, as follows:
 Investment projects of R5m (€500,000) and below may qualify for investment
grants equal to 30% of their qualifying investment costs, payable over a three
year period.
 Investment projects of above R5m may qualify for an investment grant of
between 15% and 30% of their qualifying investment costs, calculated on a
regressive scale, and payable over a period of two years. This investment grant
cannot exceed R30m.
In all cases, grant payment is subject to the approved project achieving the
stipulated performance requirements of employment creation, B-BBEE, location
and investment.
The TSP is offered in conjunction with other instruments already available through
the provisions of the Income Tax Act, which the government has implemented to
stimulate investment, including the graduated tax rates applicable to small
enterprises, and the Tourism Enterprise Partnership http://www.tep.co.za/
at the Department of Tourism.
Automotive
Investment Scheme
(AIS)
The AIS provides investment support to light motor vehicle and automotive
component manufacturers. It is an incentive designed to grow and develop the
automotive sector through investment in new and / or replacement models and
components that will increase plant production volumes, sustain employment and /
or strengthen the automotive value chain.
The approved guidelines for the Automotive Investment Scheme (AIS) were issued
in May 2010. The AIS is a vital part of the Automotive Production and Development
Programme (APDP), which was to replace the Motor Industry Development
Programme (MIDP) in 2012. Both of these incentive programmes encouraged
investment in the local automotive sector. The AIS was to replace the MIDP's
Productive Assets Allowance (PAA), which lapsed in December 2009, ahead of the
launch of the APDP. The introduction of the AIS was delayed, as government and
the local automotive industry negotiated on details. In the meantime, DTI provided
guarantees to a number of companies announcing investment plans including
BMW South Africa. A budget allocation of R2.69 billion (about €277m) is to be
made available for the next three financial years, starting in 2010/11 and ending in
2012/13.
The AIS provides investment support to light motor vehicle and automotive
component manufacturers. It provides for a taxable cash grant of 20 percent (20%)
of the value of qualifying investment in productive assets approved by DTI. An
additional taxable cash grant of 5% - 10% may be available to projects that are
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found to be strategic by the DTI. A further taxable cash grant of 5% - 10% of the
value of qualifying investment in productive assets may be available to projects
that meet specified requirements. Projects will be evaluated on the following
economic benefit requirements: Investment in a new and/or replacement model,
tooling, value-added, employment creation / retention, increase in plant production
volumes by light motor vehicle manufacturers, increase in unit production per plant
by component manufacturers, and strengthening of the automotive supply chain.
The approved AIS grant is disbursed over a period of three years. Grant payment
is subject to an evaluation by the DTI to determine whether the project achieved
the stipulated performance requirements. The effective date of commencement of
the programme is 1 July 2009.
To be eligible to benefit from AIS the project must be undertaken by
 A manufacturer of specified light motor vehicles that is registered with the
International Trade Administration Commission (ITAC), in terms of Note 1 to
Chapter 98 of the Customs and Excise Act. An existing light motor vehicle
manufacturer must have achieved, or demonstrate that it will achieve, within
three years, a minimum of 50,000 annual units of production per plant, or a new
light motor vehicle manufacturer must demonstrate that it will achieve within
three years a minimum of 50,000 annual units of production per plant.
 A component manufacturer or a deemed component manufacturer must be part
of the original equipment manufacturer (light motor vehicle manufacturer)
supply chain. The component manufacturer must prove that (i) a contract is in
place and / or a contract has been awarded and /or a letter of intent has been
received for the manufacture of components to supply into the light motor
vehicle manufacturer supply chain locally and / or internationally, or (ii) after this
investment it will achieve at least 25% of total entity turnover or R10m annually
by the end of the first full year of commercial production, as part of a light motor
vehicle manufacturer supply chain locally and/or internationally.
Productive assets and investment costs that may qualify for AIS assistance include
owned buildings and / or improvements to owned buildings, or new, Second-hand,
refurbished and upgraded plant, machinery, equipment and tooling that satisfy
specified criteria and conditions.
Projects that benefit from other DTI capital investment incentives do not qualify for
assistance under the AIS.
Clothing and Textile
Competitiveness
Improvement
Programme (CTCIP)
The clothing and the textile sectors lag behind their international competitors in
terms of conversion efficiencies and other key indicators of world-class
manufacturing principles, of which quality, cost and delivery are the main drivers.
CTCIP builds capacity among manufacturers and in other areas of the apparel
value chain in South Africa, to enable them to effectively supply their customers. It
aims to grow South African-based clothing and textile manufacturers to enable
them to be globally competitive. Such competitiveness encompasses issues of
cost, quality, flexibility, reliability, adaptability and the capability to innovate. The
intervention includes activities relating to people, equipment, materials and
processes.
SMEs are required to form clusters to avail of the assistance in benchmarking,
supply chain intervention (for local or international markets) and value chain
integration where competitive advantages are identified. Large companies which
have the internal capacity to manage and develop may apply as an individual
applicant for assistance to improve competitiveness within the company and
seeking to adhere to global social, environmental and quality management
standards by securing accreditations that open supply opportunities. These
standards include the International Organisation for Standardisation (ISO) 14000
(environmental) and ISO 9001/2 (quality management).
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The incentive programme provides investment support to South African and
foreign-owned entities by offering a cost-sharing grant incentive of 75% of project
cost for cluster projects and 65% of project cost for company-level projects. These
incentives will not cover costs of machinery, equipment, commercial vehicles, land
or buildings in an existing clothing and textile production facility. The grant will
support the initiatives to improve competitiveness at qualifying companies through
the provision of 65:35 cost-sharing grants: 65% from the CTCP grant and 35%
from the company. Grant support for each company will be limited to a cumulative
ceiling of R2.5 million over the five-year period of programme implementation. The
cluster grant will support the development of clusters through the provision of 75:25
cost-sharing grants: 75% from the CTCP grant and 25% from the cluster
participants. Grant support for each approved partnership will be limited to a
cumulative ceiling of R25 million over the five-year period of programme
implementation. CTCIP is available for five years up to 31 March 2014.
Production Incentive
(PI)
The PI flows from the implementation, by DTI of customised sector programmes
(CSPs) for the clothing, textiles, footwear, leather and leather goods industries.
The CSPs are aimed at creating sustainable capabilities and employment in these
industries. The main objective of the CSPs is to assist industry in upgrading
processes, products and people to re-position it so it competes effectively against
other low-cost-producing countries. The PI consists of two components, namely an
upgrade grant facility and a facility consisting of an interest subsidy for working
capital for a limited period of time. Upgrade includes upgrading equipment,
developing people, improving manufacturing processes, optimising materials used,
or developing new products. An upgrade grant can also be used in conjunction with
the CTCIP. Companies qualifying for an upgrade grant have the option of using it
towards funding their own contribution of 25% or 35% required in terms of the
CTCIP, up to a maximum of 85% for SMEs and 75% for others.
Critical
Infrastructure
Programme (CIP)
CIP is a non-refundable scheme that covers between 10% and 30% of the total
development costs of the qualifying infrastructure. The cash grant is made
available to the approved beneficiary upon the completion of the infrastructure
project. Infrastructure for which funds are required is deemed to be 'critical': if the
investment would not take place without the CIP funding contribution; if the
infrastructure projects would be executed without the CIP contribution but it can be
proven that it would be of a smaller scale or lower quality or would be established
at a later stage than the period than when it was intended. CIP is an incentive for
projects that support infrastructure necessary for the establishment of investment
projects. The key objectives of the programme are to support competitiveness by
lowering business costs and risks. CIP provides targeted financial support for
physical infrastructure that will leverage strategic investment with positive impact
on the economy. It stimulates upstream and downstream linkages, taking into
account government priorities such as growth and employment, BEE, Integrated
Rural Development, Urban Renewal Strategies and Spatial Development. The
approved beneficiary will be reimbursed in two phases upon receipt of such claims
from the entity. Private sector enterprises, public sector enterprises (i.e. public
entities) and PPP are eligible for CIP.
Business Process
Out-sourcing and
Off-shoring
(BPO&O)
BPO&O investment incentive comprises an Investment Grant ranging between
R37,000 and R60,000 per seat and a Training Support Grant towards costs of
company specific training up to a maximum of R12,000 per agent. The incentive is
offered to local and foreign investors establishing projects that aim primarily to
serve offshore clients. The objective of the incentive is to attract BPO&O
investments that create employment opportunities. The grant is provided directly to
approved projects depending on the value of qualifying investment cost and
employment creation. The objective of the incentive is to attract BPO&O
investments that create employment opportunities. It may involve starting a new
operation or expanding an existing one to perform business process outsourcing
and off-shoring activities; and can include more than one physical location. It can
be a cost centre of an existing operation, a branch of an existing entity, a joint-
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venture between entities wherein at least one of the parties must be registered in
South Africa as a legal entity. By the end of its second year in operation the project
must be adding to the South African productive capacity for BPO&O to an extent
that it will establish an operation of at least 100 seats, and be creating at least 200
additional jobs, defined as full-time equivalents of 'agents' directly working on the
project. The project must operate activities classifiable as that of business process
outsourcing and off- shoring and must generate at least 90% of its revenue from
activities that service off-shore clients.
Sector Specific
Assistance Scheme
(SSAS)
SSAS is a reimbursable 80:20 cost-sharing grant whereby financial support is
granted to Export Councils, Joint Action Groups and Industry Associations. The
purpose is to enable the funding in respect of Generic Funding and Project
Funding for Emerging Exporters and non-profit business organisations in sectors
and sub-sectors prioritised by the DTI. The scheme comprises two sub-schemes,
Project Funding for Emerging Exporters and Generic Funding. The aims are to
develop an industry sector or new export markets, stimulate job creation, broaden
the export base, propose solutions to factors inhibiting export growth and promote
broader participation of black owned and SMMEs to the economy. SSAS assists
with export development costs - market research, consultancy fees and other
expenses, export promotion costs - consultancy fees and other expenses, product
development costs - consultancy fees and other expenses, company development
costs - consultancy fees and expenses towards installing or improving Quality
Management Systems. SSAS also provides service development consultancy fees
and other expenses and advertising and publicity (international).
The qualifying sectors are: Aerospace, Rail and marine, Agro-processing,
Automotive, Business Process Outsourcing services, Capital equipment and allied
services, Chemical allied industries, Creative industries, Electro-technical, Film
production, Metals and allied industries, Pre-qualified ICT services, Textile and
clothing and pre-qualified tourism services (only for investment purposes excluding
real estate agents). An applicant who receives funding from the DTI cannot apply
for this financial assistance.
Co-operative
Incentive Scheme
(CIS)
CIS is a 90:10 matching cash grant for registered primary co-operatives (a primary
co-operative consists of five or more members). It is an incentive for cooperative
enterprises in the emerging economy to acquire competitive business development
services and the maximum grant that can be offered to one co-operative entity
under the scheme is R300,000.
Film Production
Incentive
The Film Production incentive comprises the Foreign Film and Television
Production Incentive which aims to attract foreign-based film productions to shoot
on location in South Africa and the South African Film and Television Production
and Co-Production Incentive, which aims to assist local film producers in the
production of local content. The Film Production incentive is to increase local
content generation and improve location competitiveness for filming in South
Africa.
Foreign Film and Television Production Incentive is only available to foreignowned qualifying productions with Qualifying South African Production Expenditure
(QSAPE) of R12 million and above. The objective of the incentive is to encourage
and attract large budget films and television productions that will contribute towards
SA economic development and international profile and increase foreign direct
investment. An eligible applicant will be rebated a sum totalling 15% of the QSAPE
and the rebate is capped at R10 million. The incentive will run for a period of six
years up to 2014.
South African Film and Television Production and Co-Production Scheme provides
financial support for locally-owned productions and co-productions. It is available to
both South African productions and official treaty co-productions with a total
production budget of R2,5 million and above. It provides a rebate of 35 per cent for
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the first R6 million, and 25% for the remainder of the qualifying production
expenditure. The following formats are eligible: feature films, TV movies, TV drama
series, documentaries, animation and short form animations. The value of the
rebate for any qualifying production is capped at a maximum of R10 million.
In addition to the financial support provided through the new rebate incentives, a
number of other measures are being implemented as part of the broader sector
development strategy. These include capacity development for emerging
production companies, the development of writers and editors through the
enterprise development programme and the establishment of five pilot
programmes in different locations to address distribution infrastructure, local
content and audience expansion.
Black Business
Supplier
Development
Programme
(BBSDP)
BBSDP provides a matching grant to enterprises to assist black owned small
enterprises in improving competitiveness by upgrading managerial capabilities,
market development, quality improvement projects and the acquisition of
productivity enhancing technology.
Export Marketing &
Investment
Assistance Scheme
(EMIA)
The EMIA scheme is to partially compensate exporters for costs incurred in respect
of activities aimed at developing export markets for South African products and
services and to recruit new foreign direct investment into South Africa.
Individual Assistance includes Primary Export Market Research and Foreign Direct
Investment Research Scheme, Individual Inward-Bound Mission, Individual
Exhibitions and In-store Promotions.
Sector-Specific Assistance Schemes include Generic Funding, Project Funding,
Project Funding for Emerging Exporters, Group Assistance National Pavilions,
Outward-Selling Trade Missions, Outward Investment Recruitment Missions,
Inward-Buying Trade Missions, Inward Investment Missions.
Capital Projects
Feasibility
Programme
This programme is a cost-sharing scheme, providing a contribution to the cost of
feasibility studies that are likely to lead to projects outside RSA that will increase
local exports and stimulate the market for the RSA capital goods and services. It
provides an advance up to a maximum of 50% of study costs for projects outside
Africa and 55% for projects in Africa. Depending on the nature of the proposed
project, a period more or less than 18 months may be allowed for funds to be
sourced for the project.
The programme will attract higher levels of domestic and foreign investment,
strengthen the international competitiveness of SA business, create SA jobs,
stimulate project development in Africa and in particular SADC countries as well as
support NEPAD objectives, and promote linkages with and development of small,
medium and micro enterprises and black economic empowerment businesses.
Studies must be undertaken by SA companies.
Achieving local content of 50% in the feasibility study and project in terms of goods
and professional services is an aim but this percentage will remain at the discretion
of the Adjudication committee to be evaluated according to the following: the
applicant for the feasibility study/ service provider must be a South African
registered company, the feasibility study service provider must supply the
Adjudication committee with a certificate from an accredited institution evidencing
its B-BBEE Scorecard in line with the B-BBEE Codes of Good Practice and the
Scorecard must indicate a minimum score of 30% or such minimum score (in line
with the ECIC’s agreement between the ECIC and the Minister or the Director
General of Trade and Industry), the size of advance must fall within the range of R
100 000 to R5 million, which can be a maximum of 55% (for projects in Africa) and
50% (for projects outside Africa) of the total feasibility study costs. The advance
10
will then proportionally be reduced dependant on the proposed percentage of local
content
The scheme applies to new projects, expansion of existing projects and
rehabilitation of existing projects. All capital goods sectors are eligible for
programme funding. Projects can be situated anywhere in the world (excluding
South Africa), while projects in Africa will be encouraged. The project must have an
adequate chance of being declared a success. Additional motivating factors for the
study may include a positive impact on other development aspects, including
linkages with small, medium and micro businesses as well as linkages with black
economic empowerment businesses, and the time period within which the project
emanating from the study will be realised.
2.3
Industrial
Development Zones
(IDZ)
EPZs, Freeports and other Special
Economic Zones
An IDZ is a form of Special Economic Zone that contains a controlled Customs
Secured Area (CSA) where there is an exemption from duties, VAT and import
duty on machinery and assets. (Other forms of SEZ include export processing
zones (EPZs), free ports, enterprise zones and technology parks.) The IDZ
provides a location for the establishment of strategic investment projects. It
promotes and develops links between domestic and zone-based industries to
optimise use of existing infrastructure, generate employment and create
technology transfers and enables exploitation of resource-intensive industries.
Each IDZ offers direct links to an international port or airport, world-class
infrastructure, specially designed to attract tenants, suitability for export-oriented
production, dedicated customs support services to expedite excise inspection and
clearing, duty-free importation of production-related raw materials and inputs, a
zero rate of VAT on supplies procured from South African sources, import status
for finished goods which are sold into South Africa, Government incentive
schemes, reduced taxation and exemption for some activities/products, access to
the latest information technology for global communications. There are currently
five IDZs in the country, situated at Mafikeng, OR Tambo International Airport
(Johannesburg), Richards Bay, East London and Coega with the latter two being
fully operational. Coega was the first IDZ, established in 1996 with construction
beginning in October 2002. Government expenditure of about R8bn at Coega
includes a deepwater port, and upgrading rail and electricity facilities. The cost of
the East London IDZ was about R200m.
In addition to IDZs, the government intends establishing special economic zones
(SEZ). A Bill to this effect has been published and is currently for comment. The
SEZ policy will allow for the designation of different types of economic zones. At
the moment, the IDZs are export-orientated and therefore found near ports and
airports. However, SEZs would not necessarily have to be export-orientated and
could be based anywhere. SEZs allow for a broader range of activities, such as
science and technology parks.
2.4
Tax Incentives
South African Revenue Services (SARS) is responsible for tax incentives. The
Income Tax Act, 1962 contains specific tax incentives including:
Double taxation avoidance agreements to avoid the full taxation of same income of
certain persons, enterprises and property under the laws of two countries have
been entered into by South Africa with various countries. The National Treasury
11
announced in August 2010 that it proposes to seek renegotiation of some of these
treaties.
Depreciation may be claimed in respect of the cost of plant and machinery,
implements, utensils and other articles used for the purpose of trade. The
allowance generally consists of the amount by which the value of the asset has
diminished by reason of wear and tear or depreciation during the year and is
calculated according to the declining balance method.
Capital allowance write-off over 5 years at 20% per annum on a straight line basis
in respect of machinery and equipment used for the first time in a manufacturing or
similar process.
A wear-and-tear allowance is available annually for machinery and equipment,
which do not qualify for the 20% capital allowance. Rates are not prescribed and
are subject to the tax authorities that favour the diminishing balance method of
calculating wear and tear. However, in respect of non-manufacturing plant and
machinery, office equipment, furniture and motor vehicles the following rates are
normally granted: office equipment (10%), office furniture (10%) and motor vehicles
(20%).
Five percent depreciation allowance is allowed annually on cost of buildings (and
improvements) where the building is used in a manufacturing or similar process
and the building or improvement is commenced after 1 January 1989. There are
initial and annual depreciation allowances on ships and aircraft and special
depreciation allowances on hotel buildings and equipment.
Patents, copyright, trademarks, designs and other intellectual property acquiring
and developing costs incurred before October 29 1999 may be written off over the
expected life of such assets or 25 years, whichever is the shorter or if incurred after
October 29 1999 the allowance per year shall amount to 5% of the amount of the
expenditure connected with the use of an invention, patent trade mark, or copyright
or 10% of the amount of the expenditure connected to the use of any design.
Capital investment on buildings and equipment used exclusively for scientific
research and approved by the Council for Scientific and Industrial Research (CSIR)
may be written off, on a straight line basis, at the rate of 25% per year.
Employee housing may avail of special deductions and allowances for construction
costs.
Lease premiums paid for the use of land or buildings, plant and machinery, film
recordings or advertising matter connected therewith, patent, design, copyright or
similar property and any know-how connected with all of the above may be written
off over periods for which the right of use has been granted or 25 years, whichever
is shorter.
2.5
The International
Trade
Administration
Commission
International Trade & Export
Promotion
ITAC is a statutory body formed under The International Trade Administration Act
No 71 of 2002. The object of the Act is to foster economic growth and development
in order to raise incomes and promote investment and employment in RSA and
within the Common Custom Area by establishing an efficient and effective system
for the administration of international trade subject to the Act and the SACU
agreement. ITAC is to create an enabling environment for fair trade, through
efficient and effective administration of trade instruments, tariff investigations, trade
remedies, import and export control, and provide technical advice on trade matters
to DTI.
12
ITED Trade
Functions
International Trade and Economic Division of DTI functions:
 Negotiate trade rules for global integration, including those for market access
(reciprocal / non-reciprocal);
 Manage tariff regimes;
 Negotiate investment treaties:
 Establish and strengthen economic relations with dynamic economies in the
South (‘the new growth poles’) through established inter-governmental
platforms with trading partners (including proposed preferential trading
agreements with China and India);
 Consolidate trade relations with traditional markets in the North, to expand
exports, attract investment and leverage technology transfers through
established intergovernmental platforms (including Economic Partnership
Agreement / Trade and Development Cooperation Agreement with EU);
 Promote regional integration in SACU and SADC, as a platform for integration
into the global economy, through development integration that combines: trade
integration, policy coordination and sectoral co-operation.
TISA Trade
Functions
Trade and Investment South Africa (TISA) at DTI aims to increase export capacity
and support direct investment flows, through strategies for targeted markets and an
effectively managed network of foreign trade offices. South Africa will build on its
Market Diversification Strategy to stabilise exports to conventional markets and
increase export growth to markets such as Asia, Africa and the Middle East. TISA’s
focus is on high-growth markets such as Brazil, Russia, Zimbabwe, the Democratic
Republic of Congo (DRC), India and China. The Market Diversification Strategy is
complemented by a Product Diversification Strategy to focus on products higher up
the value chain in these priority markets.
Export Credit and
Foreign Investment
Insurance
Export Credit and Foreign Investments Insurance Act, No. 78 of 1957 promotes
trade with countries outside the Republic, by providing for the insurance on behalf
of the South African Government of contracts in connection with export
transactions, investments and loans or similar facilities connected with such
transactions. The Export Credit Insurance Corporation of South Africa (Pty) Ltd
(ECIC) provides export credit insurance for goods and services. Insurance cover is
provided for losses arising from political risk, expropriation, loss incurred due to
any action taken by the host government that prevents the conversion of a local
currency, war and civil disturbance, breach of contract, protracted default and
insolvency. The ECIC provides credit insurance for 2-10 years. Credit insurance
covers up to 90% of the contract value but it is contingent on a national content of
at least 50% of the export value.
South Africa offers subsidised medium term and long term loans to promote the
export of capital goods and services. Financing facilities offered by banks and
financial institutions, such as IDC, are enhanced by the credit insurance cover and
interest support from ECIC. This support enables exporters of capital goods and
services to offer extended credit facilities to foreign buyers by underwriting bank
loans and investments outside South Africa.
Imported goods bought by the Government must be shipped by vessels owned or
operated by South African shipping companies or approved shipping companies,
unless such arrangements result in higher costs or excessive delays. Exemptions
are granted at the discretion of the Tender Board.
All exporters are required to register with the South African Revenue Services
(SARS). Exporters must be registered with the Department of Trade and Industry
(DTI) to receive export incentives.
Trade Legislation
Customs and Excise Act (Act No. 912) 1964
13
Diamond Export Levy (Administration) Act (Act No. 14) 2007, Diamond Export Levy
Act (Act No. 15) 2007, Diamonds Act (Act No. 56) 1986, Diamonds Second
Amendment Act (Act No. 30)
2005
International Trade Administration Act (Act No. 71)
2003
Manufacturing Development Act, No. 187 of 1993 establishes the Manufacturing
Development Board, to provide for the establishment of programmes for
manufacturing development; and for incidental matters.
National Small Enterprise Act, No. 102 of 1996 provides for the establishment of
the Advisory Board and the Small Enterprise Development Agency; and provide for
guidelines to be followed by organs of state to promote small enterprise in South
Africa and incidental matters.
2.6
Minerals and
Petroleum
Development Act
and BBBE
Other Issues
The MPRDA 2002 defines broad based black empowerment as a social or
economic strategy, plan, principle, approach or act which is aimed at –
(a) Redressing the results of past or present discrimination based on
race, gender or other disability of historically disadvantaged
persons in the minerals and petroleum industry, related industries
and in the value chain of such industries, and
(b) Transforming such industries so as to assist in, provide for, initiate
or facilitate
(i) The ownership, participation in or the benefiting from existing or future
mining, prospecting, exploration or production operations;
(ii) The participation in or control of management of such operations;
(iii) The development of management, scientific, engineering or other skills of
historically disadvantaged persons;
(iv) The involvement of or participation in the procurement chains of
operations;
(v) The ownership of and participation in the beneficiation of the proceeds of
the operations or other upstream or downstream value chains in such
industries;
(vi) The socio-economic development of communities immediately hosting,
affected by the of supplying labour to the operations; and
(vii) The socio-economic development of all historically disadvantaged South
Africans from the proceeds or activities of such operations.
The MPRDA converted common law mineral rights by establishing that the
sovereignty of the State over resources and places the State as the custodian of
mineral resources. Together with the Mining Charter there is an aim for increased
ownership of mining by historically disadvantaged persons through equitable
access to resources. There is a target of 26% ownership of mining assets for
historically disadvantaged persons by 2014 and employment equity and BEE
procurement requirements. The Mining Charter was reviewed and amended in
September 2010.
BEE Act and BBBEE
The Black Economic Empowerment (BEE) Act, No. 53 of 2003, establishes a legal
framework for BEE and empowers the Minister for Trade and Industry to issue
Codes of Good Practice and Transformation Charters and establishes the BEE
Advisory Council. The Broad Based BEE (B-BBEE) Codes of Good Practice
February 2007 is an implementation framework and institutional mechanisms were
established for the monitoring and evaluation of B-BBEE.
Broad-Based Black Economic Empowerment (B-BBEE) is to advance economic
transformation and enhance the economic participation of black people in the
South African economy. The BEE Unit at DTI works through equity and
empowerment policies and strategic interventions, to ensure that the economy is
restructured, to enable the meaningful participation of black people, women and
rural or under-developed communities in the mainstream economy, with a positive
14
impact on employment, income redistribution, structural re-adjustment and
economic growth.
“Black people” is defined in the BEE Act as a generic term which means Africans,
Coloureds and Indians and this definition is qualified by BBEE Code of Code of
Good Practice Schedule 1 issued under Section 9(1) of BBEE Act as including only
natural persons who are citizens of RSA by birth, descent or naturalisation (a)
occurring before the commencement date of the Constitution of RSA Act 1993, or
(b) occurring after the commencement date of the Constitution but who, without the
Apartheid policy would have qualified for naturalisation before then.
There is a generic BEE Scorecard which measures empowerment progress in
direct empowerment through ownership and control of enterprises and assets,
human resource development and employment equity, and indirect empowerment
through preferential procurement and enterprise development.
The Codes of Good Practice include measures of:








Ownership: effective ownership of enterprises by black people.
Management Control: effective control of enterprises by black people.
Employment Equity: initiatives intended to achieve equity in the workplace.
Skills Development: the extent that employers carry out initiatives designed to
develop the competencies of black employees.
Preferential Procurement: the extent that enterprises buy goods and services
from BEE compliant suppliers as well as black owned entities.
Enterprise Development: the extent to which enterprises carry out initiatives
contributing to enterprise development.
Socio-Economic Development: the extent to which enterprises carry initiatives
contributing to socio-economic development.
Qualifying Small Enterprises: the extent to which enterprises carry out
contributions made by qualifying small enterprises.
The Codes of Good Practice are binding on all state bodies and public companies,
and the government is required to apply them when making economic decisions on
procurement, licensing and concessions, public-private partnerships, and the sale
of state-owned assets or businesses. Private companies must apply the codes of
good practice if they want to do business with any government enterprise or organ
of state whether they wish to tender for business, apply for licenses and
concessions, enter into public-private partnerships, or buy state-owned assets.
Companies are encouraged to apply the codes of good practice in their interactions
with one another, since preferential procurement will affect most private companies
throughout the supply chain.
The preferential procurement policy is used to enhance the participation of
historically disadvantaged individuals and the government hopes to influence the
promotion of enterprises located in specific provinces, regions, municipalities and
rural areas to uplift and empower communities.
A business with a turnover of less than R5 million (€500,000) is classified as an
Exempt Micro Enterprise (EME), is not required to complete a scorecard, may
acquire an exemption certificate giving Level 4 or Level 3 status as a contributor to
B-BBEE, while a customer of an EME can claim at least 100% of its procurement
spend with the EME towards its own B-BBEE scorecard.
A business with a turnover of more than R5 million and less than R35 million is
classified as a Qualifying Small Enterprise (QSE) and is measured on the best four
out of the seven sections of the BEE Scorecard.
15
DTI growth strategy includes a focus on broadening participation, equity and
access to redress for all economic citizens, particularly those previously
marginalised.
National Empowerment Fund Act 1998 created a trust to hold equity stakes in
state-owned enterprises and other private enterprises on behalf of historically
disadvantaged persons. The NEF Corporation manages the trust in order to:
(a). Provide historically disadvantaged persons with the opportunity to, directly and
indirectly, acquire shares,
(b). Encourage and promote savings, investment and meaningful economic
participation by historically disadvantaged persons,
(c). Promote and support business ventures pioneered and run by historically
disadvantaged persons.
Local Content and
Participation
Local content and substantial transformation requirements are an integral part of
some of South Africa trade policies. They are an instrument of industrial policy to
encourage investment, especially from overseas, and production of certain goods,
including by SMEs. Local content considerations are taken into account when
comparing tenders for government procurement purposes, granting some
incentives, providing export credit insurance, and using the "Proudly South Africa"
logo.
Under the National Industrial Participation Programme 1996, which is managed by
DTI, all government purchases or lease contracts (goods, works, and services) are
subject to an industrial participation (IP) obligation. Any contract having an
imported content equal to or exceeding US$10 million is subject to an IP obligation.
No contract can be awarded to a bidder who has not satisfied this requirement.
This obligation requires the seller / supplier to engage in commercial or industrial
activity equal to or exceeding 30% of the imported content of total goods
purchased under the government tender, with the exception of defence related
contracts. In the case of defence contracts, an additional 50% on the imported
content (referred to as DIP – Defence IP) is required. The obligation may take the
form of investments, joint-ventures, sub-contracting, licensee production, export
promotion, sourcing arrangements, and research and development collaboration.
Bidders must submit their projects, which should be beneficial to the South African
economy, to the Industrial Participation Secretariat at DTI for approval before
implementation. Projects are evaluated by two committees. One assesses the
technical merit of the proposal and determines whether it meets the DTI's and the
industry's objectives, and the other ensures adherence to the principles of the
NIPP. Any company is free to object to a decision, and a project can be
reconsidered based on new information.
16
3
ACCESS AND ADMISSION OF
FOREIGN INVESTORS
3.1
Foreign Investment & Capital
Mobility
There is no general screening or review process for foreign investment in RSA, but
foreign investment is subject to exchange control policy and regulations (see
http://www.reservebank.co.za/internet/Publication.nsf/LADV/E9C6A4DE319A518D
422577700045F090/$File/Q_R.pdf). Non-residents that comply with exchange
control policy and regulations may invest in South Africa with evidence that the
transaction is at arm’s length and at fair market related prices, financed by the
introduction of foreign currency, rands from a non-resident account, or local
financial assistance to non-residents or an “affected person”. The proceeds of a
sale or redemption of assets owned by a non-resident may be remitted from South
Africa, or used in the Common Monetary Area (Republic of South Africa, Lesotho,
Namibia and Swaziland), for investment and other purposes and credited to a nonresident account.
By regulations made under the Currency and Exchanges Act (Act No. 9 of 1933)
the Minister for Finance has delegated powers and functions in implementing and
administering exchange rate policy to the Financial Surveillance Department of the
SA Reserve Bank. The Minister for Finance has appointed eligible banks to be
Authorised Dealers in foreign exchange. Their function is to assist the Financial
Surveillance Department in administering exchange control. All applications to the
Financial Surveillance Department have to be made through an Authorised Dealer.
Rulings, issued by the Financial Surveillance Department, set out the authorities
granted to Authorised Dealers and the rules and procedures to be followed by the
Authorised Dealers in dealing with day-to-day matters relating to exchange control.
These are amended as required and supplemented by Circulars. The Rulings are a
technical handbook for use by the Authorised Dealers, containing authorities,
instructions and conditions applicable to the wide range of transactions that they
may undertake on behalf of their clients.
A South African registered entity that is 75% or more foreign controlled is an
“affected person” and is restricted in the amount it may borrow from South African
lenders. A company that is wholly owned by non-residents may borrow up to 300%
of total shareholder investment for use in the business. Effective capital for
shareholder investment includes paid-up equity capital, preference shares,
undistributed earned profit, shareholders’ loans from abroad and, in some cases
shareholders trade credit. Where there is South African as well as non-resident
ownership additional sums may be borrowed.
Non-residents who are in possession of a valid work permit are considered to be
South African residents for the duration of the permit and are not subject to the
borrowing restrictions on a non-resident without a permit.
Royalites, licence and patent fees and management fees to non-residents may be
approved where they meet the relevant conditions.
The B-BBEE Codes of Good Practice require that all entities operating in RSA
contribute towards the objectives of B-BBEE. Where MNCs have global practices
preventing them from complying with the ownership element of B-BBEE through
sale of shares to black South Africans, the codes make provision for the
recognition of Equity Equivalent (EE) contributions in lieu of sale of equity. Firms
are expected to invest the equivalent of 25% of the value of their investment in
South Africa over ten years in programmes that promote enterprise or human
17
development, sustainable growth, research and development or the accelerated
empowerment of black rural women and youth.
Financial flows are also subject to the Anti-Money Laundering Act 2001 and
Financial Intelligence Centre Act (Act No. 38) (anti-money laundering)
2001.
3.2
Foreign Investment Establishment,
Registering and Licensing
Processes
South Africa has removed almost all investment approval processes to focus on
data collection and monitoring via registration and reporting processes. There is no
limit on foreign ownership, except in banking and the media. When establishing a
business, a business licence is required to be obtained from the local authority.
The licence is valid indefinitely, except for businesses handling foodstuffs and
those where people gather, such as clubs or theatres, which require renewable
licences. There is a choice of entity through which a South African or foreign
investor may carry out business in South Africa. The choice is influenced by factors
that include limited liability, reporting requirements and tax efficiency.
Despite the ongoing liberalisation, two restrictions to foreign investment remain in
place in South Africa: (i) local minimum equity requirements for banks and
insurance companies; and (ii) businesses with non-resident ownership or control
equal to or greater than 75% are restricted as to the amount they may borrow from
local financial markets. In addition, a foreign bank establishing a branch may be
required to employ a minimum number of local residents to obtain a banking
licence, and to have a minimum capital base. Foreign companies are also required
to register as "external companies" before immovable property can be registered in
their name. With the exception of financial institutions, any foreign company may
establish a place of business in South Africa, and conduct its activities without
having to incorporate as a local entity. The establishment of a branch requires
registration as an "external company" within 21 days of establishment of a place of
business. Additional approval is required for a business entity that will be involved
in import and export activities.
The Companies Act (No. 711, of 2008) regulates the formation, conduct of affairs
and liquidation of companies in South Africa. There are five main types of
company:
 A private company referred to as a Pty (Proprietary Limited Company). A
private company must have at least one director and shareholder and
membership is restricted to 50. It cannot offer or transfer shares to the public.
Directors do not have to be South African residents or nationals.
 A public company that may offer shares to the public and is referred to as
Limited.
 A company not for gain is commonly referred to as a Section 21 company, e.g.
NGO's and religious and charity organisations.
 A foreign company, in a sector other than banking or insurance, may establish a
place of business and carry on activities in South Africa through a branch which
is registered as an external company under Section 32 of the Companies Act.
 An incorporated company which is registered by professionals e.g. attorneys
doctors and auditors, is a company where the directors remain jointly and
severally liable for debts, and is generally referred to as a Section 53(b)
company.
Further details on companies are available from Companies and Intellectual
Property Commission of South Africa (CIPC) www.cipc.co.za. A company and a
close corporation incorporated in South Africa are governed by the Companies Act
18
No 71 of 2008, which is based on English company law. The Act is administered by
the Commission. . The Act regulates the formation, conduct of affairs, and winding
up of companies and does not distinguish between companies owned by South
Africans or foreigners.
The steps involved in setting up a company include:
 Decide on the type of business entity e.g. a close corporation or company.
 Identify desired names for the entity and carry out a name search on CIPCs
website to ensure that a preferred name is not reserved by another enterprise.
 Reserve the entity name, by completing and submitting forms to CIPC.
 CIPC provides enterprise registration number.
 Apply for VAT number, income tax number, PAYE, SDL and UIF numbers from
SARS.
 Register logo as a trademark with CIPC.
 Ensure intellectual property has copyright and if the entity has a unique product
register a patent with CIPC.
Other forms of business entity include sole proprietor, partnership, Business of
Trading Trust or a contractual form of joint venture. An institutional form of joint
venture is usually a company with the parties in the joint venture holding shares in
the company.
Banking & Financial
Services
Banking and financial services are regulated by the Banks Act (Act No. 94) 1990,
Financial Institutions (Protection of Funds) Act (Act No. 28) 2001, Financial
Markets Control Act (Act No. 55) 1989, Financial Services Board Act (Act No. 97)
1990, Mutual Banks Act (Act No. 124) 1993, Stock Exchange Control Act (Act
No. 1) 1985 and Unit Trusts Control Act (Act No. 54)
1981.
Manufacturing
Manufacturing is subject to the Manufacturing Development Act (Act No. 187)
1993. Tourism is regulated by the Tourism Act (Act No. 72) 1993.
Mining & Petroleum
Mining and petroleum are regulated by the Mineral and Petroleum Resources
Development Act (MPRDA) (Act No. 28) 2002 and the Minerals and Energy Laws
Rationalisation Act (Act No. 47) 1994. The MPRDA Act provides that foreigners
and nationals have the right to apply for a prospecting right, mining permit,
reconnaissance permit, beneficiation right, exploration right, and / or mining right
as long as they comply with the requirements set out in the law. The law makes no
reservations for South African citizens but it empowers the Minister to give
preference to applications from historically disadvantage peoples when considering
applications received on the same date.
Diamonds & Precious
Metals
The South African Diamond and Precious Metals Regulator (SADPMR) regulates
the diamond and precious metals (gold and platinum-group metals) industries,
under the Diamond Act No. 56 of 1986 and the Precious Metals Act No. 37 of
2005. SADPMR administers, and controls the purchase, sale, beneficiation, import,
and export of diamonds. It also administers and controls the acquisition,
possession, smelting, refining, fabrication, use, and disposal of precious metals.
SADPMR issues licences, permits, and certificates for all activities related to
diamonds and precious metals. SADPMR ensures that all diamond dealers comply
with the Kimberley Process certification scheme.
Energy Sector
The National Energy Regulator of South Africa (NERSA) regulates petroleum, gas,
and electricity. It issues licences for building petroleum pipelines, and loading and
storage facilities, constructing and operating gas transmission, distribution, and regasification facilities, conversion of infrastructure, and trade in gas, and electricity
generation and distribution.
19
Communications
The Department of Communications (DoC) is responsible for policies and
legislation related to communications technology (ICT), ensuring reliable and
affordable ICT infrastructure, strengthening the Independent Communications
Authority of South Africa (ICASA), the regulator, enhancing the capacity of and
overseeing state-owned enterprises (SOEs), and meeting South Africa's
international ICT responsibilities.
The Electronic Communications Act No. 36 of 2005 is aimed at facilitating the
synergies between telecom, broadcasting, and information technologies services,
while promoting competition in the sector through inter alia, facilitating access to
networks. According to the Act, the Competition Act applies to the telecom
subsector. ICASA cooperates with the Competition Commission on any type of
investigation. ICASA regulates broadcasting, postal, and telecom services, issues
licences for providers, enforces compliance with rules and regulations, monitors
complaints and disputes brought against licensees, manages the frequency
spectrum; and protects consumers.
WTO (2009) states that “under its GATS specific commitments South Africa
committed to license a second telecommunications supplier no later than 1
January 2004, to compete against Telkom in long distance, data, telex, fax, and
private-leased circuit services. As a result, a second operator was licensed, but
Telkom continues to have a de facto monopoly over the network.”
3.3
Foreign Employment & Residence
The Department of Home Affairs website http://www.home-affairs.gov.za/ provides
access to all laws and regulations regarding immigration and work permits
including the Immigration Act 2002 as amended in 2004. Application forms are
available on-line.
General Work Permit: an employer must first attempt to employ a South African
citizen or resident by advertising in the national print media. If a suitable candidate
cannot be found, the position can be offered to a foreign national.
Quota Work Permit: for employment of highly skilled foreign nationals. Each year
the Government publishes a critical skills list setting out specific professional
categories and skills with a numerical quota. Where a job position is listed the
prospective employer does not have to advertise the position.
Exceptional Skills Work Permit: where an individual can show exceptional skills
and how these would be to the advantage of the South African economy.
Intra-Company Work Permit: An employer can apply for an intra-company
temporary residence work permit for key or senior employees if the employee is
required to work in South Africa and is being transferred from a branch, subsidiary
or affiliate abroad. This permit cannot be renewed and is limited to three years.
Business Permit: applies to owners of businesses who are investing in starting up
or acquiring a business in South Africa. An applicant must show that a feasibility
and viability study has been prepared and included in a substantive business plan.
The business must have a capitalisation of R2.5m (about €250,000), a commitment
to employ at least five South African citizens or residents, and an undertaking to
register with the South African Revenue Service (SARS).
3.4
Foreign Investor Access to Land
and Property Rights
There are no restrictions on property ownership by non-residents provided that
there is compliance with procedures, including the local registration of entities
registered outside of South Africa, and the appointment of a South African resident
public officer for a South African registered company owned by a non-resident. If a
non-resident purchases property with the intention of residing in South Africa for
20
long periods, then application should be made for permanent residency. Nonresidents may borrow up to 50% of the purchase price in South Africa, but must
transfer the other 50+% to South Africa from a recognised foreign bank.
Alienation of Land Act, No. 68 of 1981 regulates the alienation of land in certain
circumstances and provide for connected matters.
Private, State, Provincial, Municipal and Parastatal lands are potentially available
for development use with different application processes. Zoning for physical
planning is handled by local authorities generally in accordance with the National
Development Act. There is one process for the transfer of land and a good system
of land registration.
The Mineral and Petroleum Resources Development Act (MPRDA) regulates the
issuing of licenses for prospecting and exploration of minerals and rehabilitation of
land surface from prospecting and mining operations. Mineral rights are vested in
the State.
The Broad Based Socio-Economic Empowerment Charter for the Mining Industry
(Mining Charter) must be complied with to facilitate the entry of historically
disadvantaged South Africans into the mining sector.
4
FOREIGN INVESTMENT
OPERATIONS
4.1
Employment
The Department of Labour website http://www.labour.gov.za/ contains details and
guides to employment legislation including the following. Employment Equity Act
1998 prohibits all forms of unfair discrimination at work and required all enterprises
employing more than fifty employees to take affirmative action to bring about a
representative spread of designated groups in all occupations and organisational
levels within defined time periods. Labour Relations Act encourages and regulates
collective bargaining, sets up Commission for Conciliation Mediation and
Arbitration (CCMA) which is responsible for dispute resolution, the Labour Court
responsible for retrenchment etc and review of CCMA decisions and Labour
Appeal Court for appeals from decisions of the Labour Court. Basic Conditions of
Employment Act sets out minimum requirements for working hours, leave and all
other basic employment conditions.
4.2
Business Taxation
New enterprises file with SARS for income tax, value added tax (VAT), employee
tax – standard income tax on employees (SITE) and pay as you earn (PAYE).
Corporate income tax rate is 28% and there is also a 12.5% secondary tax
companies (STC) levied on declared dividends. Foreign resident companies that
earn income from a South Africa source face a tax rate of 33% as STC is not
payable by a foreign resident company.
Value Added Tax
VAT is levied on domestically produced and imported goods and services at a
standard rate of 14%. Exports, some basic foodstuffs (e.g. brown bread, maize
meal, eggs, milk, fruit, and vegetables), goods used or consumed for agricultural,
pastoral or other farming purposes (e.g. animal feed, seed, fertilizers, pesticides,
and animal remedies), fuels (lighting paraffin, diesel, and gasoline), and
international transport of goods and passengers are zero-rated. Goods and
services exempt from VAT include financial services, donated goods or services or
any other goods made or manufactured with donated inputs, the supply of
21
residential accommodation, educational services and transport services. VAT is not
payable on temporary imports and imports for export-processing. VAT is levied on
the domestic open-market value for goods and services produced in South Africa.
VAT is levied on the duty-inclusive free on board (fob) customs value of imports
(i.e. the fob customs value plus the amount of any non-rebated customs duty),
uplifted by 10%. The additional 10% is included to adjust for the customs valuation
on the fob value rather than the cost, insurance and freight (cif) value.
Export Levy
South Africa levies a diamond export levy on the value of exports of unpolished
diamonds to promote the development of the local economy, develop skills, and
create employment. Exports of unpolished diamonds are prohibited unless
undertaken by a producer, a manufacturer (synthetic diamonds), a dealer, or a
holder of an export permit. There are also export levies on citrus fruit (R 0.0213 per
kg) and wine (in bulk R 0.05 per litre and R 0.08 per litre otherwise).
Customs
Customs and Excise Act 91 of 1964 (C&E Act) customs duties levied by South
Africa in terms of the C&E Act are also levied by the other SACU member states.
The C&E Act consists of twelve Chapters, twelve Chapters to the Rules, ten
Schedules to the C&E Act and one Annexure. The latter includes South African
trade agreements with Zimbabwe and Malawi, a Free Trade Agreement with the
European Community, the Trade, Development and Cooperation Agreement
(TDCA) and the SADC Trade Protocol.
4.3
Environment, Physical Planning,
Health & Safety, Consumer
Protection
Environment
The National Environment Management Act No 107 of 1998 provides a legal
framework for environmental developments. An Environmental Impact Assessment
(EIA) is required in certain circumstances at national and provincial levels with
about 100 applications processed each year.
Consumer
Protection
Consumer Affairs (Unfair Business Practices) Act, No. 71 of 1988 provides for the
prohibition or control of certain business practices; and connected matters.
Consumer Protection Act No 68 of 2008 promotes a fair, accessible and
sustainable market place for consumer products and services and provides
effective means of redress for consumers. It establishes national norms and
standards for consumer protection, provides for improved consumer information,
prohibits unfair marketing and business practices, promotes responsible consumer
behaviour, promotes a consistent framework legislative and enforcement
framework relating to consumer transactions and agreements and forms the
National Consumer Commission.
National Credit
Regulator
The National Credit Regulator (NCR) was established as the regulator under the
National Credit Act No. 34 of 2005 (The Act) and is responsible for the regulation of
the South African credit industry. It is tasked with carrying out education, research,
policy development, registration of industry participants, investigation of
complaints, and ensuring the enforcement of the Act.
The Act requires the Regulator to promote the development of an accessible credit
market, particularly to address the needs of historically disadvantaged persons, low
income persons, and remote, isolated or low density communities.
The NCR is also tasked with the registration of credit providers, credit bureaux and
debt counsellors; and with the enforcement of compliance with the Act.
22
Standards
Standards Act, No. 8 of 2008 recognises the South Africa Bureau of Standards
(SABS) as the primary institution responsible for the development, promotion, and
maintenance of standardisation, and the provision of conformity assessment
services. SABS has the power to set, issue, amend, and withdraw standards.
SABS also furnishes reports and issues certificates in connection with
examinations, tests, analyses, calibrations, and any other assessments. The SABS
may levy fees for setting and issuing a standard and for services rendered in
connection with the provision of conformity assessment services. The SABS
develops and maintains South African national standards (SANS), at the request of
interested parties, and details the process to be used to set or amend them. South
African National Standards (SANS) are harmonised as far as possible with
international standards. There are over 440 technical committees and
subcommittees administered by the SABS to develop standards.
The regulatory function previously performed by the SABS is carried out by the
National Regulator for Compulsory Specifications (NRCS) established under the
National Regulator for Compulsory Specifications Act (NRCS Act) 2008 to
administer compulsory specifications. The NRCS Act provides the legal framework
for the administration of technical regulations, maintained in the interests of public
safety, health, and the environment.
The Agricultural Product Standards Amendment Act (Act No. 63 of 1998) is the
main law regulating the setting of standards for agricultural products. Standards
are set in consultation with the agriculture sector, consumer groups, and
international standards setting bodies (e.g. the FAO / WHO Codex Alimentarius
Commission, and various special advisory commissions under the World
Organisation for Animal Health (OIE)). A South African national standard in respect
of a product or service under the jurisdiction of the Agricultural Product Standards
Act, 1990, or the Liquor Products Act, 1989, can be set or amended following an
agreement between the SABS Board and the director-general of the department
responsible for agriculture.
Trade Metrology Act, No. 77 of 1973 consolidates and amends the law relating to
trade metrology, so as to ensure the accuracy of measuring instruments utilised in
trade, on the basis of national measuring standards.
4.4
Competition Policy & Law
Competition Act, No. 89 of 1998 provides for the establishment of a Competition
Commission of South Africa (CCSA) responsible for the investigation, control,
evaluation and prosecution of restrictive practices, abuse of dominant positions
and mergers, prohibitions on anti-competitive conduct. The CCSA has the right to
exempt firms from application of the Act. Exemptions are granted if the agreement
or practice contributes to export promotion, assisting SMEs and historically
disadvantaged persons to become competitive, stopping the decline of an industry
or protecting the stability of any industry designated by the Minister responsible for
that industry.
The Competition Tribunal of South Africa (CTSA) is responsible for adjudicating on
large mergers and all restrictive practices and acts as an appeal body for CCSA
decisions in regard to small and intermediate mergers and exemptions. The
Competition Appeal Court handles appeals from decisions of CTSA and is a
division of the High Court. The Act allows for exemptions from the provisions on
anti-competitive practices where such practices promote the ability of black owned
and black controlled enterprises to become competitive.
The National Energy Regulator of South Africa (NERSA) www.nersa.org.za
regulates petroleum, gas, and electricity and sets and approves utility charges.
23
Utilities (eg Sasol or Eskom) may not increase regulated rates or alter conditions of
service without NERSA's approval. NERSA ensures that access to petroleum
pipelines and loading and storage facilities is provided on the appropriate land,
promotes competition amongst petroleum pipelines users and gas industries, as
well as the optimal use of gas resources, and settles customer disputes. NERSA is
financed with public funds, levies charged to regulated industries, charges on
dispute resolution, and licence fees.
Telecommunications Act (Act No. 103) 1996
4.5
Monetary Policy, Foreign Exchange
and Foreign Investors
The South African Reserve Bank is the central bank established by Section 223 of
the Constitution and regulated by South African Reserve Bank Act (Act No. 90).
The primary object of the Reserve Bank is to protect the value of the currency in
the interest of balanced and sustainable economic growth. The Constitution
provides that the Reserve Bank must perform its functions independently and
without fear, favour or prejudice, but there must be regular consultation between
the Bank and the Cabinet member responsible for national financial matters, The
Reserve Bank is responsible for monetary policy and the Monetary Policy
Committee of the Reserve Bank determines interest rates. See Foreign Investment
and Capital Mobility above at 3.1. where the Minister responsible for finance has
delegated functions relating to foreign exchange flows to the Reserve Bank.
4.6
Public Procurement
Section 217(I) of the South African Constitution stipulates that contracts for goods
and services must be in accordance with a system that is fair, equitable,
transparent, competitive, and cost-effective. The Constitution also confers an
obligation for national legislation to set a framework providing for preferential
procurement to address the social and economic imbalances of the past.
Procurement in South Africa is regulated by the State Tender Act (Act No. 86 of
1968), the Public Finance Management Act of 1999, the Preferential Procurement
Policy Framework Act (PPPFA) of 2000, the Policy to Guide Uniformity in
Procurement Reform Processes in Government (a Framework for Supply Chain
Management), and the general Procurement Guidelines, which are supplemented
by individual Accounting Officer's Procurement Procedures. These apply to all
national and provincial departments. The National Treasury, through the Public
Finance Management Act of 1999, introduced norms and standards for
transparency and expenditure control measures, which should include best
practices to regulate financial management in the national and provincial spheres
of government. The Municipal Finance Management Act (MFMA) extends the
same principles to municipalities.
All procurement contracts must comply with the Preferential Procurement Policy
Framework Act (Act No. 5 of 2000) and implementing regulations which stipulate
that preferences must be applied to all tenders regardless of value. The Act
provides that the tender process is made more accessible to black people. Tenders
are unbundled into smaller tenders to allow smaller enterprises to tender. A point
system operates for the award of tenders with a combination of price and
preference for targeted groups. The preferences are aimed at supporting SMEs
and micro enterprises (SMMEs) and historically disadvantaged individuals (HDIs),
women, and physically handicapped people and promoting employment and
domestic production including in specific provinces and the rural areas. Preference
points are to be awarded on the basis of comparative prices not tender prices. For
tenders valued of less than R 500,000, there is an 80/20 split, with 80 points
24
awarded to the lowest price acceptable bid. A maximum of 20 points is awarded to
HDIs under the Black Economic Empowerment (BEE) programme depending on
ownership, management, and employment goals. Tenders valued over R 500,000
operate on the same basis except the split is 90/10. The contract is to be awarded
to the bidder with the highest points unless justified by other developmental
objective criteria. Exemption from provisions of the Framework Act might be
justified on grounds of public or national security interests. Foreign firms may only
bid through a local agent.
In 2009 the South African Treasury published a draft set of Preferential
Procurement Regulations which are intended to replace the 2001 Regulations
under the Act. The aim is to align preferential procurement with the approach to
Black Economic Empowerment under the Broad-Based Black Economic
Empowerment Act 53 of 2003. This process led to the amendment
of the Preferential Procurement Regulations as interim measures to align
themselves to the B-BBEE Codes of Good Practice.
Most government purchasing takes place through competitive bidding, on
invitations for tenders, published in the Government Tender Bulletin, on ministry
websites, and sometimes in local newspapers. Where the Tender Board considers
it "advisable", bidders are pre-screened to ensure that they can supply the goods
or services so that the tender offer is extended to suitable bidders. The Board
might consider that invitations to tender for specific supplies or services should be
limited to certain bidders. Potential bidders are evaluated in the light of the
requirements, and invitations are extended only to bidders found to be suitable. In
comparing tenders, the prices are brought to a comparative level by deducting
preferences and other benefits, adding delivery and other costs as applicable, and
bringing implied contract price adjustments into account. The Board awards price
preferences for local content, for products with the SABS marks, and other
preferences mandated by the Ministry of Finance. After prices have been brought
to a comparative level the lowest is normally chosen. When there are equal-price
tenders the Board's General Procedures stipulate the criteria to be followed,
including national content.
4.7
Intellectual Property
Intellectual property in South African is protected under the Companies Act of
No.71 of 2008. The Companies Act led to the establishment of a new institution,,
the Companies and Intellectual Property Commission. It furthermore led to the
transformation of three existing company law entities, namely the Take-over
Regulation Panel, the Financial Reporting Standards Council and the Companies
Tribunal
The main functions of the Commission are as follows:
• Register companies, co-operatives and intellectual property rights and maintain
such a register;
• Disclose information on its register;
• Promote education about, and awareness of, company and intellectual property
law;
• Promote compliance with the relevant legislation;
• Ensure the efficient and effective enforcement of relevant legislation;
• Monitor compliance with and contraventions of financial reporting standards, and
make recommendations in this regard; and
• Report to, conduct research for, and advise the Minister of Trade and Industry, on
matters of national policy relating to company and intellectual property law.
25
The Commission’s mandate can in short be defined as the administration of and
performance of all the powers and functions assigned to it by the said Companies
Act, 2008 (Act 71 of 2008), as well as Acts referred to in Schedule 4 of the Act.
{Section 185 (2) (d) and 187(1) referred}; and other agreements.
Within the domain of intellectual propery, the Commission functions within the
following Acts:
Patents Act, 1978 (Act 57
of 1978)
To consolidate the law relating to
patents for inventions and for the
rights of a patentee.
Patent Cooperation
Treaty (PCT), effective in
South Africa from 16
March 1999
To provide for functioning of the CIPC
as receiving, designated and elected
office in terms of PCT.
Trade Marks Act, 1993 (
Act 194 of 1993)
To consolidate the law relating to
trade marks and provide for the
registration of trade marks,
certification of trade marks and
collective trade marks, and the
protection of rights relating thereto.
Designs Act, 1993 (Act
195 of 1993)
To consolidate the law relating to
designs, provide for the registration of
designs and delineate the rights
pertaining thereto.
26
4.7.1
Copyright
Act, 1978
(Act 98 of
1978)
4.7.2
To regulate copyright in
respect of, inter alia,
artistic works, dramatic
works, computer
programmes, musical
and literary works.
4.7.3
Registration
of Copyright
in
Cinematogra
phy Films
Act, 1977
(Act 62 of
1977)
4.7.4
To provide for the
registration of copyright
in cinematograph films
and matters connected
therewith.
4.7.5
Merchandise
Marks Act ,
1941 (Act 17
of 1941)
(amended
2002)
4.7.6
To make provision
concerning the marking
of merchandise and of
coverings in or with
which merchandise is
sold and the use of
certain words and
emblems in connection
with business.
4.7.7
Intellectual
Property
Laws
Rationalizati
on Act ,1996
(Act 107 of
1996)
4.7.8
To provide for the
integration of Intellectual
property rights subsisting
in the ex- Transkei,
Bophuthatswana, Venda
and Ciskei states
(TBVCs) into the
national system, extend
the South African
intellectual property
rights legislation
throughout the Republic
and repeal certain
intellectual property
laws.
4.7.9
Counterfeit
Goods Act,
1997 (Act 37
of 1997)
4.7.10
To strengthen
prohibitions on trade in
counterfeit goods; confer
powers on inspectors
and the South African
Police Service (SAPS) to
enter and search
premises, with and
without a warrant; and
confer powers on
27
Customs and excise to
seize and detain
suspected counterfeit
goods.
4.7.11
Performer's
Protection
Act, 1967
(Act 11 of
1967)
Unauthorised Use of Emblems
Act, 1961 (Act 37 of 1961)
4.7.12
To provide for the
protection of the rights of
performers of literary
and artistic works
To provide for the continued operation of
certain laws relating to the use of certain
emblems and representations and extend the
scope of such laws.
For further information please refer to: www.cipc.co.za
4.8
Investment Protection and Dispute
Settlement
Constitution of the Republic of South Africa No. 108 of 1996
Section 3 Equality
(1) Everyone is equal before the law and has the right to equal protection and
benefit of the law.
(2) Equality includes the full and equal enjoyment of all rights and freedoms.
To promote the achievement of equality, legislative and other measures
designed to protect or advance persons, or categories of persons,
disadvantaged by unfair discrimination may be taken.
(3) The state may not unfairly discriminate directly or indirectly against anyone
on one or more grounds, including race, gender, sex, pregnancy, marital
status, ethnic or social origin, colour, sexual orientation, age, disability,
religion, conscience, belief, culture, language and birth.
(4) No person may unfairly discriminate directly or indirectly against anyone on
one or more grounds in terms of subsection (3). National legislation must
be enacted to prevent or prohibit unfair discrimination.
(5) Discrimination on one or more of the grounds listed in subsection (3) is
unfair unless it is established that the discrimination is fair.
Section 25 Property (1) No one may be deprived of property except in terms of law
of general application, and no law may permit arbitrary deprivation of property.
(2) Property may be expropriated only in terms of law of general application-(a) for a public purpose or in the public interest; and
(b) subject to compensation, the amount of which and the time and
manner of payment of which have either been agreed to by those
affected or decided or approved by a court.
28
(3) The amount of the compensation and the time and manner of payment
must be just and equitable, reflecting an equitable balance between the
public interest and the interests of those affected, having regard to all
relevant circumstances, including(a) the current use of the property;
(b) the history of the acquisition and use of the property;
(c) the market value of the property;
(d) the extent of direct state investment and subsidy in the acquisition
and beneficial capital improvement of the property; and
(e) the purpose of the expropriation.
(4) For the purposes of this section
(a). the public interest includes the nation’s commitment to land reform,
and to reforms to bring about equitable access to all South Africa’s
natural resources; and
(b). property is not limited to land.
(5) The state must take reasonable legislative and other measures, within its
available resources, to foster conditions which enable citizens to gain
access to land on an equitable basis.
(6) A person or community whose tenure of land is Iegally insecure as a result
of past racially discriminatory laws or practices is entitled, to the extent
provided by an Act of Parliament, either to tenure which is legally secure or
to comparable redress.
(7) A person or community dispossessed of property after 19 June 1913 as a
result of past racially discriminatory laws or practices is entitled, to the
extent provided by an Act of Parliament, either to restitution of that property
or to equitable redress.
(8) No provision of this section may impede the state from taking legislative
and other measures to achieve land, water and related reform, in order to
redress the results of past racial discrimination, provided that any
departure from the provisions of this section is in accordance with the
provisions of section 36 (1).
(9) Parliament must enact the legislation referred to in subsection (6).
Expropriation (Establishment of Undertakings) Act, No. 39 of 1951 provides for the
expropriation of land and the taking of the right to use land temporarily for, or in
connection with, the objects or undertakings of national importance.
Dispute Settlement
The legal and judicial system in South Africa is well developed. Disputes may be
resolved by arbitration. The Arbitration Act 1965 regulates arbitration and does not
distinguish between international or South Africa arbitration. The Act is not based
on the UNCITRAL Model Law although it has many similar provisions and is less
prescriptive than the model law. The High Court has jurisdiction to enforce awards.
4.9
International Agreements and
Obligations – Trade and other
Agreements, BITs, DTTs
WTO
South Africa is a founder member of the General Agreement on Tariffs and Trade
(GATT), which was replaced by World Trade Organisation (WTO), and is a
member of WTO since 1 January 1995.
SA-EU TDCA
SA – EU Trade Development and Cooperation Agreement (TDCA) 1999 signed in
Pretoria on 11 October 1999 aims, among other things, to establish a free trade
area over a 12 year period covering 90% of bilateral trade. The implementation of
this agreement is overseen by the Joint Co-operation Council which also functions
as a forum for overall dialogue between the EU and South Africa. South Africa,
while part of the ACP group of countries, was not party to the same preferential
trade arrangements granted to the ACP under the Cotonou Agreement (2000). For
the Economic Partnership Agreements (EPAs) which are the trade pillar of the
29
Cotonou Agreement, South Africa joined the negotiations with the SADC EPA
group in February 2007. 5 of the 7 countries in the SADC EPA Group have
initialled and are close to signing an interim or "stepping stone" EPA, South Africa
has opted not to join at this stage as its trade relations with the EU are governed by
the TDCA. RSA has stated that it is in favour of joining a full EPA in the future and
will continue to participate in negotiations with the goal of increasing regional
integration and boosting competitiveness of the SADC economies.
Other Trade
Agreements
WTO (2009) states that South Africa has bilateral trade agreements with Malawi
and Zimbabwe, and that it grants non-reciprocal preferential treatment on a
number of products from Mozambique. The 1964 trade agreement with Zimbabwe
(a member of COMESA and SADC) is subject to various conditions. The duty-free
regime or preferential tariff quotas apply to items including dairy products,
potatoes, birds, eggs, some cereals, oil seeds, and oleaginous fruits. Live horses,
asses, mules, cotton waste, and metal bedsteads are duty-free, and specified
types of woven fabrics of cotton are subject to concessionary tariff rates, when they
meet specified levels of Zimbabwean content (75% in most cases). Concessionary
customs duties are granted by Zimbabwe on certain products exported by South
Africa.
Under the 1990 agreement with Malawi (a member of COMESA and SADC), South
Africa allows duty-free imports to its market for all goods grown, produced or
manufactured in Malawi, subject to a minimum domestic value-added of 25%.
Preferential quotas apply to some products, such as tea (10,000 tonnes annually).
The agreement also contains anti-dumping and countervailing provisions.
South Africa products are eligible for non-reciprocal preferences, including lower
tariffs or preferential tariff quotas under the U.S. African Growth and Opportunity
Act (AGOA), and the GSP schemes of the EC, as well as of Canada, Japan,
Norway, Switzerland, and the United States.
SACU-USA TIDCA
SACU – USA Trade Investment Development Cooperation Agreement (TIDCA)
2008 provides that the Parties affirm their desire to promote an attractive
investment climate and to expand and diversify trade between SACU and the
United States. It establishes a Consultative Group on Trade and Investment
comprising representatives of each Party to work towards this objective. The
Consultative Group is to endeavour to conclude mutually beneficial trade and
investment enhancing agreements between the United States and SACU, such as
memoranda of understanding, mutual assistance agreements, and cooperation
agreements in areas of common interest;
 monitor trade and investment relations between SACU and the United States,
identify opportunities for expanding trade and investment, and identify relevant
issues affecting trade for further discussion.
 identify and work to remove impediments to trade and investment between
SACU and the United States;
 consider, as appropriate and as resources permit, trade capacity building
assistance and/or cooperation;
 promote increased contact between the private sectors in SACU and the United
States to facilitate the expansion of trade and investment; and
 seek the advice of the private sector and civil society, where appropriate, on
matters related to the Consultative Group’s work.
Announcement of
Intended Changes
RSA intends to enter Preferential Trade Agreements with India and China.
In August 2010 National Treasury announced that it is to renegotiate Double Tax
Agreements with low tax countries and to complete this exercise by 1 January
2013.
30
The Taxation Laws Amendment Bill 2010 proposes changes in taxation law to
promote the establishment of regional holding companies and regional investment
fund management in RSA that would invest and carry out activities outside of RSA.
DTI BIT Review 2009
In 2009 DTI published a review of Bilateral Investment Treaties. The review was
commenced because it was felt that, in the years after 1994, RSA had entered into
agreements that were unduly favourable to investors without safeguards to
preserve flexibility in a number of critical policy areas. The review suggests that the
RSA’s investment approach to both inward and outward FDI has not been informed
by a holistic policy perspective but rather a patchwork of general policy
considerations. The formal legal basis for FDI policy is scattered across various
line function departments that do not always coordinate policy interventions. It is
proposed that the legal basis for both inward and outward FDI be placed on a more
secure footing by developing an overarching policy on FDI with more direct
mechanisms for cooperation. A much closer link must be established between
investment promotion activities, industrial policy and trade policy.
The Review concluded that RSA should review its BIT practices, with a view to
developing a model BIT which is in line with its development needs, balancing the
need for investor certainty on the one hand, but also ensuring that its own
legitimate interests are not compromised. Further domestic legislative intervention
may be needed to ensure that such a balance is achieved.
See below list of BITs and DTTs
Other Agreements
and Laws
Convention on Agency in the International Sale of Goods Act, No. 4 of 1986 To
provide for the application in the Republic of the Convention on Agency in the
International Sale of Goods adopted by the International Institute of the United
Nations (UN) organisation, for the unification of Private Law.
Protection of Businesses Act, No. 99 of 1978 seeks to restrict the enforcement in
the Republic of certain foreign judgements, orders, directions, arbitration awards
and letters of request, and prohibit the furnishing of information relating to
businesses in compliance with foreign orders, directions or letters of request.
5
SADC RELATED ISSUES
The DTI Medium Term Strategic Framework 2009 states that South Africa plans to
play a leading role in efforts aimed at strengthening the SADC region. The focus in
the medium term will be:
 Contributing to political cohesion and strengthening governance and capacity in
the SADC, especially in the Secretariat, including deploying personnel to
strategic positions within the Secretariat;
 Promoting regional integration, including through SADC Protocols aimed at
improving security and stability, infrastructure, transport (surface, air and
maritime), public administration and other sectors; the coordinating of multisector plans, and harmonising industrial policies;
 Moving towards enhanced regional economic integration and address sources
of disagreement among members of SACU on issues such as trade policy and
revenue sharing;
 Operate the Project Preparation Development Fund (PPDF) as the first step
towards the SADC Development Fund;
 Ensuring the EPAs have a developmental agenda and support regional
integration;
 Combine the Review of the Trade Chapter of the SA-EU TDCA with the SADCEU EPA Negotiations;
 Active engagement with SADC member states to pursue the regional agenda
on governance and public administration.
31
South Africa, Angola, Botswana, the Democratic Republic of Congo (DRC), and
Namibia, signed a Memorandum of Understanding (MoU) on the Western Power
Corridor Project in October 2004. The MoU, under the auspices of NEPAD, is to
pilot the use of hydroelectric energy from the Inga rapids site to ensure a constant
supply of electricity in the SADC region. A joint venture company has been
established to study the project's viability, and to build, own, and operate the
infrastructure.
DTI A South Africa
Trade Policy &
Strategy Framework
May 2010
This Framework reviewed RSA trade policy and strategy, tariff reform and trade
performance since 1994 and recommended an approach on trade and tariff policy
and strategy and brings greater clarity to linkages with industrial policy.
Strategy Framework
and Regional
Integration
The key principles of South Africa’s strategy for global trade integration are set out
in the Framework. It states that “South Africa is deeply committed to development
integration in Southern Africa that combines trade integration with infrastructural
development and sectoral policy coordination. Our approach privileges the policy
interventions required to build regional productive capacity and infrastructure as
experience has demonstrated that the main barriers to increasing intra-regional
trade are often not tariffs. Despite significant liberalisation, there is no discernible
growth in intra-regional trade. As such, neither further liberalisation nor the
construction of customs unions will necessarily lead to increased, mutuallybeneficial and equitable, intra-regional trade. We will require purposeful
interventions that address underdeveloped production structures and develop
infrastructure and institutions across the region. Trade integration must therefore
be complemented by sectoral cooperation and greatly enhanced policy
coordination programmes to address real economy capacity constraints.”
South Africa Trade Policy and Strategy Framework states
“The regional agenda will also need to respond to the Economic Partnership
Agreements (EPAs) between the European Union (EU) and SADC
countries. As the EPAs will establish a series of different and sometimes
incompatible trade regimes between the EU and members of SADC, it is
likely to undermine deeper integration in Southern Africa. Member states of
SADC and SACU will need to respond collectively to this new challenge to
the region’s integration and development strategy.”
“South Africa has pursued regional arrangements in Southern Africa through
the SADC Trade Protocol and SACU, with the EU under the TDCA, through
the SACU-EFTA FTA and through the SACU-MERCOSUR preferential trade
agreement (PTA). We have learned important lessons that will inform our
future bilateral engagements. First, as compared to free trade agreements
(FTAs) more focused preferential trade agreements (PTAs) allows for a
more strategic integration process among developing countries. Second, it is
increasingly apparent that tariffs are not always the most important barrier
faced in foreign markets and hence negotiating outcomes must deal more
effectively with non-tariff barriers. Third, we will need to give attention to
forging mutually beneficial sectoral cooperation agreements that can support
South Africa’s broader development objectives. Further consideration should
be given to designing appropriate trade and economic arrangements that
suit our economic objectives. This should include an assessment of
investment treaties that impact on developmental policy space.”
“Importantly, our work on regional integration places emphasis on
developing supply-side capacity that will enable countries in the region to
diversify their economies as well as to take advantage of opportunities for
more dynamic and diverse exports. A more integrated development strategy
that includes Spatial Development Initiatives (SDIs), investment promotion
32
into the region, and region-wide industrial development linkages will give
strong effect to ‘developmental regionalism’ that South Africa pursues.”
DTI Functions and
Regional Integration
A function of ITED in DTI is to promote regional integration in SACU and SADC, as
a platform for integration into the global economy, through development integration
that combines: trade integration, policy coordination and sectoral cooperation:
 Common approach to SADC regional integration;
 Consolidate SADC FTA;
 Obtain approval of South African position paper on the establishment of the
Trilateral FTA (COMESA-EAC-SADC);
 Vision statement of South Africa within SACU resulting in an agreed South
African government strategy and the making of a decision on the future of
SACU - deeper integration or rollback;
 Implementation of cross-border infrastructure development projects, (Spatial
Development Initiatives (SDI)), and with approval by governments, conduct prefeasibility studies for Angola, Lesotho, Mozambique, Zimbabwe and Namibia.
Review of Bilateral
Investment Treaties
In a Review of Bilateral Investment Treaties July 2009, the DTI states
“In the SADC region the Protocol on Finance and Investment (FIP) creates a
framework for investment in the SADC region. This instrument seems only to
cater for inward FDI and does not cater for intra-SADC investment. There
seems to be little or no integration between the FIP and investment
protection and promotion policies followed by the RSA. Given the sizeable
intra-Africa investments made by RSA companies, the RSA ought to assess
how best such investments by its citizens may be safeguarded. Already the
issue of diplomatic protection has been raised in the context where no BIT
was in place to protect such interests. Different considerations apply in
situations where either inward or outward FDI is contemplated. This raises
some difficult questions with relation to the appropriate model for investment
protection since clearly different needs may be articulated by RSA
companies that invest in the African continent or elsewhere and investment
entering the RSA. Many countries, particularly developing countries who
seek to promote sustainable development, have an investment law which
regulates issues pertaining to sectoral interventions, incentives and the role
of an Investment Promotion Agency. Clear policy guidelines must inform
approaches to both inward and outward investment.”
Recommendations
on Emerging Trends
in BITs
The review also contains a legal analysis of various provisions found in BITs.
Policy recommendations are made with regard to the emerging legal trends
and issues that have come to dominate investment treaties.
“In respect of SADC, reference was made to the Protocol on Finance and
Investment (FIP), in particular to Annex 1 which deals with co-operation on
investment. The Annex aims to create the framework for broader FDI
promotion in the SADC and in some aspects emulates the provisions of a
typical BIT. The FIP has not been harmonised within current RSA treaty
making practice since it appears that standard clauses in RSA BITs differ
substantially from equivalent provisions to be found in the FIP. The effect of
the Annex appears to be that of promoting the SADC region as an attractive
destination for FDI and as such does not really cater for intra-SADC
investment, the latter being a factor which is directly relevant to the RSA in
respect of its de facto intra-African investment stance and the sizeable
investments which the RSA companies are making in SADC and Africa. In
this regard, the SADC desk has confirmed that the RSA has entered into five
BITs with states in the SADC and that there are several more being
negotiated. It was specifically indicated that these BITs were driven by the
RSA, largely influenced by private sector interest in SADC countries.”
33
Bilateral Investment
Treaties
Bilateral Investment Treaties 1 June 2010
RSA
Partner
Date of Signature
1. Algeria
24 Sept 2000
2. Angola
17 Feb 2005
3. Argentina
23 July 1998
4. Austria
28 Nov 1996
5. Belgium
and 14 Aug 1998
Luxembourg
6. Brunei Darussalam 14 Nov 2000
7. Canada
27 Nov 1995
8. Chile
12 Nov 1998
9. China
30 Dec 1997
10. Congo
1 Dec 2005
11. Congo DR
31 Aug 2004
12. Cuba
8 Dec 1995
13. Czech Republic
14 Dec 1998
14. Denmark
22 Feb 1996
15. Egypt
28 Oct 1998
16. Equatorial Guinea
17 Feb 2004
17. Ethiopia
1 Jan 2008
18. Finland
14 Sept 1998
19. France
11 Oct 1995
20. Germany
11 Sept 1995
21. Ghana
9 Jul 1998
22. Greece
19 Nov 1998
23. Iran
Islamic 3 Nov 1997
Republic
24. Israel
21 Oct 2004
25. Italy
9 June 1997
26. Korea, Republic of
7 July 1995
27. Libyan
Arab 14 June 2002
Jamahiriya
28. Madagascar
13 Dec 2006
29. Mauritius
17 Feb 1998
30. Mozambique
6 May 1998
31. Netherlands
9 May 1995
32. Paraguay
3 April 1974
33. Qatar
20 Oct 2003
34. Russian Federation 23 Nov 1998
35. Rwanda
19 Oct 2000
36. Senegal
5 June 1998
37. Spain
30 Sept 1998
38. Sweden
25 May 1998
39. Switzerland
27 June 1995
40. Tanzania UR
22 Sept 2005
41. Tunisia
28 Feb 2002
42. Turkey
23 June 2000
43. Uganda
8 May 2000
44. United Kingdom
20 Sept 1994
45. Yemen
1 Aug 2002
46. Zimbabwe
27 Nov 2009
47 signed including 7
with SADC members
Date of Entry into Force
1 Jan 2001
1 Jan 1998
14 Mar 2003
1 April 1998
7 Apr 1997
17 Sept 1999
23 April 1997
3 Oct 1999
22 June 1997
10 April 1998
5 Sept 2001
5 Mar 2002
16 Mar 1999
6 June 1997
7 Oct 1998
28 July 1998
1 May 1999
16 June 1974
12 April 2000
23 Dec 1999
1 Jan 1999
29 Nov 1997
27 May 1998
23 in force including 2 with
SADC members
34
Double Taxation
Agreement
Double Taxation Agreements RSA at 1 June 2010
RSA
Partner
Type of
Date of
Agreement
Signature
Date of
Entry into
Force
12 June 2000
21 Dec 1999
(amend
2008)
6 Feb 1997
29 Dec 2003
9 Oct 1998
20 April 2004
24 July 2006
27 Oct 2004
30 April 1997
7 Jan 2001
1.
2.
Algeria
Australia
Income & Capital
Income & Capital
28 April 1998
1 July 1999
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Austria
Belarus
Belgium
Botswana
Brazil
Bulgaria
Canada
China
Congo DR
Croatia
Cyprus
Czech Republic
Denmark
Egypt
Income & Capital
Not Specified
Income & Capital
Income & Capital
Income
Income
Income & Capital
Income
Income
Income & Capital
Income & Capital
Income & Capital
Income & Capital
Income
17.
Ethiopia
Income
18.
19.
20.
Finland
France
Gabon
Income & Capital
Income & Capital
Income
21.
22.
Germany
Germany
Income
Not Specified
4 Mar 1996
18 Dec 2002
1 Feb 1995
1 April 1977
8 Nov 2003
29 April 2004
27 Nov 1995
25 April 2000
29 April 2005
18 Nov 1996
26 Nov 1997
11 Nov 1996
21 June 1995
26 August
1997
17 March
2004
26 May 1995
8 Nov 1993
22 March
2005
25 Jan 1973
14 Feb 2003
23.
24.
25.
26.
Ghana
Hungary
Ireland
Ireland
Income & Capital
Income & Capital
Income & Capital
Income & Capital
2 Nov 2004
4 March 1994
7 Nov 1997
17 Mar 2010
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
Israel
Italy
Japan
Korea Republic of
Kuwait
Lesotho
Malawi
Malaysia
Malta
Mauritius
Mexico
Income & Capital
Income & Capital
Income & Capital
Income & Capital
Income
Income & Capital
Income & Capital
Not Specified
Income & Capital
Income & Capital
10 Feb 1978
16 Nov 1995
7 March 1997
7 July 1995
17 Feb 2004
24 Oct 1995
3 May 1971
29 July 2005
16 May 1997
5 July 1996
signed
38.
39.
40.
Mozambique
Namibia
Nigeria
18 Sept 2007
18 May 1998
29 April 2000
41.
42.
43.
Netherlands
New Zealand
Norway
Income
Income & Capital
Income & Capital
Gains
Income & Capital
Income & Capital
Income & Capital
28 Feb 1975
Will replace
21 when
ratified
23 April 2007
5 May 1996
5 Dec 1997
Will replace
25 when
ratified
27 May 1980
2 Mar 1999
5 Nov 1997
7 Jan 1996
25 April 2006
9 Jan 1997
2 Sept 1971
17 Mar 2006
12 Nov 1997
20 June 1997
Ratified in
RSA
19 Feb 2009
11 April 1999
5 July 2008
10 Oct 2005
6 Feb 2002
12 Feb 1996
28 Dec 2008
23 July 2004
12 Sept 1996
7 Nov 1997
8 Dec 1998
3 Dec 1997
21 Dec 1995
16 Dec 1998
4 Jan 2006
12 Dec 1995
1 Nov 1995
35
Double Taxation Agreements RSA at 1 June 2010
44. Oman
Income
9 Oct 2002
45. Pakistan
Income
26 Jan 1998
46. Poland
Income & Capital 10 Nov 1993
47. Romania
Income & Capital 12 Nov 1993
48. Rwanda
signed
49.
50.
51.
Seychelles
Slovakia
Sudan
Income & Capital
Income & Capital
26 Aug 1998
28 May 1998
signed
52.
53.
54.
55.
Swaziland
Sweden
Switzerland
Taiwan Province of
China
Tanzania UR
Thailand
Tunisia
Turkey
Uganda
Ukraine
United Kingdom
Income
Income & Capital
Income
Income & Capital
23 Jan 2004
24 May 1995
8 May 2007
14 Feb 1994
56.
57.
58.
59.
60.
61.
62.
29 Dec 2003
9 Mar 1999
5 Dec 1995
21 Dec 1995
Ratified in
RSA
29 June 2002
30 June 1999
Ratified in
RSA
8 Feb 2005
25 Dec 1995
27 Jan 2009
12 Sept 1996
Income
22 Sept 2005
15 June 2007
Income & Capital 12 Feb 1996
27 Aug 1996
Income & Capital 2 Feb 1999
10 Dec 1999
Income
3 March 2005 6 Dec 2006
Income
27 May 1997
9 April 2001
Not Specified
28 Aug 2003
29 Dec 2004
Income & Capital 4 July 2002
17 Dec 2002
Gains
63. United Kingdom
Inheritance
31 July 1978
Ratified
64. United States
Income & Capital 17 Feb 1997
28 Dec 1997
65. United States
Inheritance
15 July 1952
Ratified
66. Zambia
Income & Capital 22 May 1956
31 Aug 1956
67. Zimbabwe
Income & Capital 10 June 1965 3 Dec 1965
67 agreements / 62 partners including 12 SADC members, 65 income or income
and capital signed 59 in force
36
Sources included
Department of Trade and Industry (2007) National Industrial Policy Framework
http://www.dti.gov.za/nipf/niPF-3aug.pdf
Department of Trade and Industry (2009) Bilateral Investment Treaty Policy
Framework
Review
Government
Position
Paper
June
2009
http://www.dti.gov.za/ads/bi-lateral_policy.pdf
Department of Trade and Industry (2009) South Africa Investor’s Handbook 2009
http://www.dti.gov.za/publications/Investor_Handbook.pdf
Department of Trade and Industry (2010) A South African Trade Policy and
Strategy Framework May 2010 http://www.thedti.gov.za/TPSF.pdf
Department of Trade and Industry (2010) Industrial Policy Action Plan 2010/11 –
2012/13 February 2010 (IPAP 2) http://www.thedti.gov.za/ipap/IPAP20102013_18_FEB_2010.pdf
Department of Trade and Industry (2010) Medium Term Strategic Framework
2010-13
http://www.thedti.gov.za/publications.jsp?year=2010<&subthemeid=Department
of Trade and Industry Broad Based Black Economic Empowerment
http://www.dti.gov.za/bee/beehome.htm
Department
of
Trade
and
Industry
Export
http://www.thedti.gov.za/exporting/exportincentives.htm
Department
of
Trade
and
Industry
Investment
http://www.thedti.gov.za/offerings/Investment_Support.htm
South
Africa
Reserve
http://www.reservebank.co.za/
Bank
South
Africa
Revenue
Service
http://www.sars.gov.za/home.asp?pid=3906
Exchange
(2010)
Incentives
Incentives
Control
Manual
International
Treaties
The Presidency Republic of South Africa (2009) Together Doing More and Better
Medium Term Strategic Framework A Framework To Guide Government’s
Programme In The Electoral Mandate Period (2009 – 2014) July 2009
http://www.info.gov.za/view/DownloadFileAction?id=103901
UNCTAD (2010) Bilateral Investment Treaties and Double Tax Agreements
http://www.unctad.org/Templates/Page.asp?intItemID=2339&lang=1
(Significant differences were observed in the list of Double Tax Agreements on the
UNCTAD web site compared with the SARS website. The latter appeared to be
more accurate and comprehensive.)
WTO Trade Policy Review SACU-South Africa 2009 Annex 4 South Africa
WT/TPR/S/222/ZAF http://www.wto.int/english/tratop_e/tpr_e/s222-04_e.doc
National Consumer Commission. (2012) http://www.nccsa.org.za
Companies and Intellectual Propoerty Commission (2012) http://www.cipc.co.za
37