INVESTMENT CLIMATE STATEMENT 2005 - SOUTH AFRICA

UNCLAS SECTION 01 OF 19 PRETORIA 000226

SIPDIS

DEPT FOR EB/IFD/OIA; AF/S TCRAIG; AF/EPS
USDOC FOR 4510/ITA/IEP/ANESA/OA/J DIEMOND
COMMERCE ALSO FOR HVINEYARD
TREASURY FOR GCHRISTOPOLUS, BRESNICK AND AJEWEL
DEPT PASS USTR FOR PCOLEMAN AND WJACKSON

E.O. 12958: N/A
TAGS: EINV KTDB EFIN ELAB ECON ETRD PGOV SF
SUBJECT: INVESTMENT CLIMATE STATEMENT 2005 - SOUTH AFRICA

REF: (A) 04 STATE 250356, (B) 04 STATE 141379


1. In response to reftel A, here is post's 2005 investment
climate statement for South Africa, chapter 6 of the next
Country Commercial Guide.


2. BEGIN TEXT

Chapter 6 Investment Climate Statement FY 2005

6.1 Openness to Foreign Investment

The government of South Africa (SAG) welcomes foreign
investment as a key driver for the country's economic
development and integration into the global economy. Its
macroeconomic management is sound. Investment policies that
promote openness and raise productivity and growth are key
objectives of the SAG. In 2004 the government announced a
goal of investment reaching 25 percent of GDP by 2014.
Moody's gave South Africa (SA) a sovereign debt rating of
Baa1, three steps into the investment grade, in January

2005. Standard & Poor and Fitch also rank South Africa at
investment grade. The SAG has liberalized trade and
developed its competitiveness by lowering tariffs,
abolishing most import controls, and reforming the
regulatory environment.

South Africa's record of political and macroeconomic
stability over the past decade has helped to create a
promising medium to long-term economic climate for local and
international firms in South Africa. South Africa, through
its Trade and Investment South Africa (TISA) promotion
agency, provides investment facilitation services for
inbound investors. While investment opportunities are
abundant in many sectors of the economy, the agency
concentrates on sectors which research has indicated a high
SA comparative advantage. The agency offers the following
services to international investors:

Information on sectors and industries;
Consultation on the regulatory environment;
Facilitation on investment missions;
Links to joint venture partners;
Information on incentive packages;
Assistance with work permits;
Logistical support for relocation.

The Department of Trade and Industry (DTI) published a
comprehensive guide for investors about the dynamics and
principles involved in the South African business
environment. (For the "Investor's Handbook" see
"publications" on web site: www.dti.gov.za)

v.za)

The government has created a number of incentives for the
potential investor in South Africa. All business sectors
are open to investors, no government approval is required,
and there are almost no restrictions on the form or extent
of foreign investment. For example, in his February 2001
budget speech, the Finance Minister announced an R3-billion
incentive package for investors in strategic industrial
projects. It entails tax allowances of either 50 or 100% of
an approved investment, and is managed through the Strategic
Industrial Project (SIP) program of the Department of Trade
and Industry (DTI). Up to June 2003, investments worth R3.2
billion have been approved for tax break allowances under
the SIP, a program aimed at companies that will invest more
than R50 million and will contribute to the growth,
development and competitiveness of specific industry
sectors. The program will run until July 2005.

In July 2004, the Department of Trade and Industry (DTI)
announced a new incentive to attract investment, both
foreign and domestic, in the film industry. It established
the Film and Television Production Rebate Scheme that allows
eligible applicants to receive a rebate of 15% of the
production expenditures for foreign productions and up to
25% for qualifying South African productions. Film projects
must have begun after April 1, 2004 and must reach a
threshold of 25 million Rand in order to qualify for the
rebate. Other requirements include 50% completion of the
principal photography in South Africa and a minimum of four
weeks photography time. Eligible productions include
movies, tele-movies, television series, and documentaries.
The maximum rebate for any project will be 10 million Rand
(approximately $1.5 million). Details on the entire scheme
are available at the DTI web site at www.dti.org.za.
To encourage investors to establish or relocate industry and
business to areas throughout South Africa, the country's
various regions (provinces) have development bodies that
offer incentives. These incentives, which vary from area to
area, include reduced interest rates, reduced rentals for
land and buildings, cash grants for relocation of plant and
employees, reduced rates for basic facilities, rail age and
other transport rebates and assistance in the provision of
housing.

The Minister of Trade and Industry expressed the
government's view on foreign investment as "...our sincere
hope to attract real and growing international investor
commitment to South Africa and, at the same time, to fully
capitalize on the opportunities to bring about dynamic
growth in our country. In so doing we hope to enhance
commercial and industrial development, while creating
sustainable employment and providing training for our vast
resource pool." He continued to say that since the
inception of the new democratic government in 1994, South
Africa has effectively adhered to discipline, predictable
economic fundamentals. Through this arduous process, South
Africans have developed a strong entrepreneurial culture,
keen to jointly develop the country with international
partners. From a geographic perspective, South Africa is
proud of the role to be played in facilitating and
supporting the development of the region, offering a wide
array of skills and technical understanding.

SA's policy and regulatory frameworks can, however, serve as
disincentives to new investment or impediments to the
profitability of firms already operating in SA. Several
foreign companies have in the past complained that South
Africa's immigration legislation and the application of the
law made it difficult to get work permits for their foreign
employees. In particular they indicated that unnecessary
delays, rejections of applications and limits (quotas) on
foreign workers in a given field call into question
potential investors' ability to staff their operations with
the necessary skills at a given time. It was argued that
the immigration legislation was a remnant from the apartheid-
era and did not take into account recent developments and
the opening up of the South African market. The SAG
acknowledged this problem and during 2001 introduced an
Immigration Bill that would create more categories of
permits for temporary residents. The legislation was
contentious. Parliament finally approved the legislation in
May 2002. Critics have charged that the Act, which was
intended to assist with the process of bringing more skilled
workers into SA, created uncertainty and confusion.

Companies have also complained about the introduction,
through a regulation in early 2003, of a 2% training levy on
the salaries of expatriates in order to enter the country
under an expedited visa procedure. The levy does not apply
to expatriates already resident in the country or to inter-
company transfers. Expatriates who enter the country under
the normal visa procedure are exempt from the levy, but the
normal process is complex and time consuming. The
government's decision to implement the levy-based system
through regulation rather than legislation has also been
controversial. A legal challenge to the regulations further
delayed the implementation of the new immigration
legislation and this created more uncertainty about the
effective handling of applications for visas.

In January 2004, President Mbeki signed into law the Broad-
Based Black Economic Empowerment (BBBEE) Act of 2003, the
legislation enacting the Black Economic Empowerment (BEE)
strategy. The Act directs the Minister of Trade and Industry
to develop a national strategy for BEE, issue BEE
implementing guidelines in the form of Codes of Good
Practice, encourage the development of industry specific
charters, and establish a National BEE Advisory Council to
review progress in achieving BEE objectives.

The Minister released three codes in December 2004 with
seven more due in early 2005. The recently released codes
address specific issues pertaining to the BEE Framework,
Equity Ownership, and Management and include a new generic
scorecard with suggested targets for areas such as equity
ownership, management, procurement, and equality in
employment. The codes are intended to harmonize existing
and future industry empowerment charters. Sectors that have
completed or are close to finalizing empowerment charters
for their respective industries include: accounting,
agriculture, chemical, cosmetics, clothing and footwear,
construction, engineering services, financial services,
forestry, health, information and communications technology
(ICT),liquid fuels, liquor, marketing, mining, property,
tourism, transport, and wine. The Minister is expected to
establish the National BEE Advisory Council early in 2005.

U.S. companies support the broad goals of South Africa's
Black Economic Empowerment (BEE) policies. They have
contributed to the positive transformation of the economy,
including through their employment and management practices,
and have significant programs that support historically
disadvantaged individuals (HDIs). They do have questions,
however, about some of the details of BEE proposals and how
they will be implemented. They have concerns about the lack
of clarity and consistency in the BEE rules. A major
concern is whether HDI equity ownership will become
mandatory and a cost of doing business with the South
African government. The Minister of Trade and Industry is
developing a statement on equity ownership for
multinationals to be included in the Code of Good Practice
on Equity Ownership, which is expected to address the
concerns of U.S. companies.

Poor or unclear regulations in key sectors, such as
telecommunications, are also disincentives to investment.
In instances where the regulator is weak and unable to
enforce its own regulations, foreign firms are placed in a
weaker competitive position compared to the national
operator, thereby affecting their profitability. Costs
associated with pursuing legal action to resolve disputes
also cut into the bottom line. Improvement is expected in
the telecoms industry, however, following the Communications
Minister's September 2004 announcement liberalizing much of
the telecoms environment by February 2005. As part of this
announcement, the regulator plans to allow value-added
network service (VANS) providers self-provide their own
facilities or lease telecommunications facilities from
private telecommunications network operator. In addition,
the regulator is proposing that licensees as well as VANS
could resell spare network capacity.

In contrast to domestic investors, foreign investors face
local borrowing restrictions imposed by exchange control
authorities. Such restrictions apply to `affected persons'
- companies or other bodies in which (1) 75% or more of the
capital assets or earnings may be used for payment to, or
for the benefit of, a non-resident, or (2) 75% or more of
the voting securities, voting power, power of control,
capital, assets or earnings are vested in, or controlled by,
any non-resident. No person in SA may provide credit to a
non-resident or "affected person" without exchange control
exemption. Non-residents and "affected persons," however,
may borrow up to 100% of the South African Rand value of
funds introduced from abroad and invested locally.
Additionally, the ability to borrow locally increases if
both residents and non-residents own the local enterprise.

The SAG has an official policy on the restructuring of state
assets, which include privatization as an accepted option.
There are four big parastatals, all at different levels of
privatization: Eskom (power generation and distribution),
Denel (defense),Transnet (transportation) and Telkom
(telecommunications). Eskom supplies nearly 94% of South
Africa's electricity, makes substantial profits and has a
turnover of nearly R30 billion per year. Transnet dominates
the transport sector and contributes more than 3% of South
Africa's GDP. It comprises 13 companies involved in multi-
modal transport and includes railways, an airline, ports and
a pipeline. Transnet has reported that they will keep only
four of its businesses

Prior to May 2002, South African legislation provided Telkom
a monopoly on certain international and fixed line
telecommunications services. The government is in the final
stages of completing the shareholder structure of a second
fixed-line operator, however, to compete with Telkom. In
2004, the U.S./Malaysia Thintana Consortium sold its 30
percent stake in Telkom, which it had acquired in 1997, for
nearly $2 billion.

Following national elections in April 2004, the Government
unveiled plans to restructure state-owned enterprises rather
than to proceed with privatization at this time in an effort
to support the administration's two major policy objectives
of reducing unemployment and creating economic growth.
Consequently, in 2005 the SAG estimates much lower proceeds
from the sale of state-owned assets than in previous years.
Since the completion of the Telkom deal, government has been
left with fewer sizeable state entities to privatize.
Internationally economic conditions are not favorable to
attract partners, especially in the airline industry.
Proceeds in 2005 are expected from the planned
"concessioning" of the Durban port container terminal.
Other anticipated deals are the sale of "non-core"
businesses unbundled from Transnet and Airports Company
South Africa (ACSA),which manages South Africa's nine
principal airports.

The medium-term privatization of smaller parastatals such as
Sentech (radio transmission),Safcol (forestry),the SA Post
Office, or in the case of Denel (Defense R&D and
manufacturing),a hoped-for partial buy-in by foreign
suitors, may also afford lucrative opportunities for foreign
participation.

6.2 Conversion and Transfer Policies

Exchange control in South Africa is administered by the
South African Reserve Bank's (SARB) Exchange Control
Department and through commercial banks that have been
designated as "authorized dealers" in foreign exchange. All
international commercial transactions must be accounted for
through authorized foreign exchange dealers. There is no
difficulty in obtaining foreign exchange. The financial
sector in South Africa is well developed and there are only
limited delays in the conversion and transfer of funds. The
spot turnover in the South African foreign exchange market
is substantial, reaching a daily average of $1 billion
during the month of May 2003.

There are no restrictions on foreign firms wishing to invest
in share capital. Investors are advised to ensure that the
share certificates are endorsed "non-resident" by an
authorized dealer in order to return disposal proceeds and
dividends to their country of origin. A record of funds
introduced into South Africa should be kept. For every
purchase of exchange, irrespective of the amount involved,
authorized dealers are required to report to the SARB
details of payments received from foreign partners by South
African residents.

In general there are no controls over the removal by non-
residents of investment income or capital gains. Repayment
of foreign loans by South African residents, however,
requires prior approval. Dividends may be paid to a non-
resident without the approval of the SARB. Dividends due to
a non-resident and paid pursuant to a de-registration or
liquidation are transferable against documentation
confirming this fact. All loans from outside the Common
Monetary Area to South African residents require prior
Exchange Control approval. Approval is normally granted
provided the minimum tenor of the loan is for a period of at
least one month and a market-related interest rate is
charged - that is up to prime plus 3% for South African
denominated loans and up to prime plus 2% for foreign
denominated loans which are not shareholder-related funds,
with shareholder's funds restricted to prime.

For every sale of foreign exchange, irrespective of the
amount involved, authorized dealers are required to report
to the SARB details of payments made to foreign parties by
South African residents. Royalties, license and patent fees
to non-residents, where no local manufacturing is involved,
require the approval of the SARB. Manufacturing royalties
(as opposed to sales/marketing royalties) are subject to
approval by the DTI, which will communicate its decision to
the licensee or the Exchange Control Department where
applicable, which will enable an approach to a bank directly
to transfer the royalty payments. Authorized dealers on
production of an invoice may pay current account payments,
such as management fees and other fees for services
provided, provided that such payments are not calculated as
a percentage of sales, profits, purchases or income.
Significant progress has been made in the liberalization of
exchange controls since 1994. The financial Rand mechanism
was abolished in 1995, removing most controls on non-
residents. In June 1997, controls on South African residents
were considerably relaxed, and virtually all controls on
current account transactions were removed. Resident private
individuals who are over 18 and South African taxpayers in
good standing have also been permitted to invest up to R500,
000 abroad since 1 July 1997. The limit has since increased
to R750, 000 per person.

On February 26, 2003 the Minister of Finance announced
further measures to relax exchange controls. The changes
included the increase of the allowance governing South
African corporations' use of South African funds to finance
new approved direct investment in foreign countries as well
as the unwinding of blocked assets. It was also announced
that dividends repatriated from foreign subsidiaries will in
future be eligible for an exchange control credit, which
will allow them to be re-exported for approved foreign
direct investments. Furthermore, the tax payable on foreign
dividends was also removed in instances where a South
African taxpayer has a meaningful interest in the foreign
subsidiary paying the dividend. New emigrants wishing to
exit more than the permitted R750, 000 from South Africa
will in future be allowed to apply to the Exchange Control
Department of the SARB to do so, subject to an exiting
schedule and an exit charge of 10% of the amount.

In October 2004, the Finance Minister announced in his
Medium Term Budget Policy Statement (MTBPS) the relaxation
of exchange rate controls for corporations. The rules had
limited offshore investments to R2 billion per project for
investments in Africa and R1 billion elsewhere, in addition
to 20 percent of the excess cost. With the new
announcement, the limits on outward investments by local
corporations and restrictions on the repatriation for
foreign dividends are removed as well as restrictions on
individuals to invest in foreign firms listed on the South
African exchanges. Even though there are no restrictions on
corporations' foreign direct investment, corporations will
still be required to apply to the Reserve Bank for approval.
Limits on pension funds, insurance companies, mutual funds
(unit trusts) and individuals are still in place but
expectations are that they will be removed soon. More
relaxed exchange controls facing corporations should help
the government's goal of investment reaching 25 percent of
GDP by 2014.


Further questions on exchange control can be addressed to:
South African Reserve Bank
Exchange Control Division
P.O. Box 427, Pretoria, 0001
Tel: (27)(12) 313-3911; Fax: (27)(12) 313-3785
www.reservebank.co.za

6.3 Expropriation and Compensation

There is no record of any expropriation or nationalization
of American investment in South Africa since 1924. Under
the Expropriation Act of 1975 and the Expropriation Act
Amendment of 1992, the State is entitled to expropriate
property for public necessity or public utility. The
decision to expropriate is an administrative one vested in
the State. Compensation is determined by the amount the
property would have been realized in an open market
transaction by a willing seller to a willing buyer.

Skewed ownership of productive assets in South Africa is
still one of the most visible legacies of apartheid. The
racially discriminatory property laws of the past resulted
in highly disproportionate patterns of land ownership. The
government's Land Reform for Agricultural Development
Program (LRAD) has been designed to expand the range of
support measures that will be available to previously
disadvantaged South African citizens to access land
specifically for agricultural purposes. The SAG recognizes
that market-based programs of state directed land
redistribution perform better than programs that are
operated exclusively by the public sector. The government
regularly confirms its commitment to ensuring the success of
this program and ensuring that individuals from historically
disadvantaged groups obtain access to land in a speedy and
orderly fashion. In cases where expropriation has taken
place, the landowner was fully compensated.
6.4 Dispute Settlement

South Africa is a member of the New York Convention of 1958
on the recognition and enforcement of foreign arbitration
awards, but is not a member of the International Center for
the Settlement of Investment Disputes. South Africa has an
objective system for enforcing property and contractual
rights. The government does not interfere in the court
system. South Africa applies its commercial and bankruptcy
laws with consistency. South Africa has signed various
investment agreements with a number of countries and
recognizes, and is recognized by, the International Chamber
of Commerce, which supervises the resolution of
transnational disputes. In 2004 some foreign companies
operating in the mining sector have suggested the
implementation of BEE policies may lead to investment
disputes.

6.5 Performance Requirements and Incentives

In September 2000, the Department of Trade & Industry (DTI)
announced that the manufacturing support schemes would be
replaced with a "six pack" of incentives consisting of the:

Small Medium Enterprise Development Program (SMEDP),
which offers manufacturing and tourism enterprises with
"significant expansions of their operations", tax-free cash
grants for two years, based on the cost of the investment in
land, buildings, machinery, equipment, and vehicles. A
maximum of R 3.05 million per year for enterprises with an
investment in qualifying assets of up to R 100 million.
Skills Support Programme (SSP) Skills Support Programme
(SSP) offers a maximum of 50% of the training costs, the
development of training curriculum and or land and buildings
related to training in order to encourage businesses to
introduce new and advanced skills to their workforce. This
grant will is payable for up to three years.
Critical Infrastructure Facility (CIF) supplements the
existing public or private sector infrastructure, by funding
a top-up grant between 9 and 30% of actual costs.
Industrial Development Zones (IDZ) consists of two
zones of operation: Customs secured area (CSA),and
industries and services corridor (ISC). A CSA is a delimited
area with entrance and exit points controlled by Customs
personnel. Each CSA has a dedicated customs office providing
inspection and clearance services, and a one-stop
op
administrative center to facilitate the approval and permit

processes. CSA-based enterprises are eligible for: duty-free
import of production-related raw materials and inputs; zero
rate on VAT for supplies procured from South Africa; and
right to sell into South Africa upon payment of normal
imported duties on finished goods. ISCs are industrial and
office park environments adjacent to CSAs, occupied by
service providers to CSA enterprises. The government first
designates areas suitable for IDZs. Prospective IDZ
companies then apply for permits to develop and operate an
IDZ.
Foreign Investment Grant (FIG) is open to foreign
investors (i.e. at least 50% foreign shareholding) located
outside SACU and/or the Southern African Development
Community (SADC). It offers up to 15% of the value of new
machinery and equipment (a maximum of R3 million per
entity),based on accepted relocation costs.
Strategic Investment Projects (SIP) offers a tax
x
allowance of up to 100% (a maximum allowance of R600 million
per project) on the cost of buildings, plant and machinery,
for strategic investments of at least R50 million.

In addition, the Industrial Development Corporation (IDC),a
self-financing, state-owned, development finance
institution, established in 1940, continues to provide
credit facilities to South African exporters. Aimed at
enabling them to offer competitive terms to foreign
purchasers, the credit facilities are still subject to a
South African local content requirement of at least 70%, and
the availability of export credit insurance cover. Local
content considerations are taken into account when comparing
tenders for government procurement purposes
The IDC also provides loan financing to the private sector
for the development of viable secondary manufacturing in its
target sectors and is often prepared to make an equity
investment or enter into joint ventures with foreign
investors.

There are several government-supported bodies that provide
technical assistance for new industries. These include the
Council for Scientific and Industrial Research (CSIR),a
multi-disciplinary research, development, and implementation
organization; Technifin, a government-owned firm financing
the commercialization of new technology and products; MINTEK
(formerly known as the Council for Mineral and Metallurgical
Technology); and the Council for Geoscience that fulfils the
role of a geological survey and undertakes geologically-
based investigations and services.

The SAG is not a member of the plurilateral WTO Government
Procurement Agreement (GPA). According to South African
government authorities, joining the GPA could limit South
Africa's objectives towards promoting small, micro, and
medium-sized enterprises and the "black economic
empowerment" (BEE) program.

The government procurement framework is still regulated
through the State Tender Board Act of 1968. However, South
Africa is trying to align the buying procedures of national,
provincial, local, and state-owned companies. As part of the
Public Finance Management Act Regulations of 1999, the state
and provincial tender boards ceased to exist on 31 March
2002, in order to devolve accountability to accounting
officers. Depending on their level of responsibility, the
accounting officers are now allowed to approve government
purchases up to a certain amount. There is also an
appointed independent ombudsperson to provide an interim
mechanism for quick and effective intervention on complaints
from businesses.

The basic principles for government procurement in South
Africa, in terms of socio-economic objectives, are set out
in the Constitution: procurement by an organ of State or any
other institution identified in national legislation must,
on the one hand, be "in accordance with a system which is
fair, equitable, transparent, competitive and cost-
effective," and, on the other hand, allow for categories of
preference and the protection, or advancement, of persons
disadvantaged by unfair discrimination, within a framework
to be prescribed by national legislation. Other principles
on which procurement must be based in South Africa are
accountability, and the just in time (JIT) delivery
principle.

Price preferences are taken into account for the purpose of
comparing tenders: the preferences are deducted from the
tender price after the tenders have been evaluated and
brought to a comparative basis. Price preferences, aimed at
promoting local manufacture, are based on such criteria as
use of the SABS (South African Bureau of Standards) mark and
locally manufactured electronic systems and components. The
preference is up to 10% if local content is more than 80%,
up to 10% for the use of locally manufactured electronic
systems and components, plus a minimum of 5% for local
design, provided that the two together do not exceed 10%,
and 2.5% for the use of products that carry the SABS mark.
Price preferences are generally cumulative.

The Preferential Procurement Policy Framework Act of 2000,
and amended draft regulations promulgated in November 2004,
stipulates that preferences will apply to all tenders,
irrespective of the amount. Preference points, calculated on
the basis of comparative and not tendered prices, may be
allocated within the following limits: an 80/20 point system
for tenders up to R1 million. A maximum of 80 points is
allocated to the lowest acceptable tender in terms of price;
higher price tenders receive fewer points. A maximum of 20
points is awarded to bidding firms who meet minimum industry
targets for ownership, management, procurement, and equal
employment of historically disadvantaged individuals (HDI).
For tenders above R1 million, a 90/10-point system is used
on the same basis. The contract must be awarded to the
bidder who scores the highest points, unless other
developmental objective criteria justify the award to
another bidder. An organ of State may be exempted from
provisions of the Framework Act if public or national
security interests justify such exemption, or if the likely
bidders are international suppliers. Foreign firms can only
bid through a local agent.

Parastatals also generally follow the government's
procurement policy. Eskom and Transnet have no preference
system, while Telkom grants preferences based on local
content. Any bidder for a parastatal contract, whose bid
contains imported content worth over $10 million, must
submit an "industrial participation" (IP) plan showing that
the bidder will invest in new or incremental business in
South Africa.

Under the National Industrial Participation Program (NIPP),
the seller must invest in a South African business to the
value of at least 30% of the value of the imported content
of the tender. The industrial policy of the Department of
Defense and the Armaments Corporation of South Africa
imposes an IP obligation on all defense purchases exceeding
$2 million; this obligation is known as "Defense Industrial
Participation" (DIP). Defense purchases exceeding $2 million
but less than $10 million require a DIP obligation of up to
50%, and defense purchases exceeding US$10 million require a
DIP obligation of at least 50%.

The NIPP, which became mandatory on 1 September 1996,
resembles an offset contract in the sense that goods and/or
services imported under the tender contract are partially
offset by exports of services, and, to a certain extent,
goods, during the period of fulfillment of the IP
obligation.

6.6 Right to Private Ownership and Establishment

Private property rights are strongly protected by South
African law. In general, all foreign and domestic private
entities are entitled to own business enterprises and engage
in profit-making activities. Private entities are allowed
freely to establish, acquire, and dispose of interests in
business enterprises. The acquisition of an existing
business enterprise is usually achieved through the purchase
of shares or assets. The securities regulation code applies
to public limited companies and to private companies with 10
or more shareholders, and capital and reserves in excess of
R5 million. If a stake of 30% or more is acquired, an offer
must be made to minority shareholders to acquire all their
shares at a price equal to the highest paid by the investor.

South Africa still has a number of sectors that are
dominated by state-owned enterprises. Eskom supplies nearly
94% of South Africa's electricity while state-owned Transnet
dominates the transport sector and contributes more than 3%
of South Africa's GDP. In 2004, Transnet unveiled a
strategy to focus solely on rail, port and oil pipeline
operations. All other companies previously administered by
Transnet, including South African Airlines (SAA),are being
discarded. Telkom, the fixed-line telephone operator,
continues to enjoy a monopoly on fixed-line
telecommunication services despite the end of legislative
protection in May 2002. A second national operator (SNO) is
close to resolving shareholder concerns and could be
licensed in early 2005. The South African Post Office still
enjoys a legislative monopoly on the delivery of mail.

South Africa's Competition Commission and Tribunal have
demonstrated an increased capacity to implement competition
policy effectively. The Competition Act of 1998 and its
1999 and 2000 amendments address anti-competitive mergers
and practices in both the private and public sectors. State-
owned enterprises that compete unfairly with the private
sector are being challenged with greater frequency.
Economic dominance by state-owned enterprises and previous
weak competition legislation could be partly to blame for
high concentration levels and business practices out of step
with the requirements of a competitive economy.

6.7 Protection of Property Rights
The South African legal system protects and facilitates the
acquisition and disposition of all property rights, such as
land, buildings and mortgages. Deeds of sales are
registered in the Deeds Office. Banks provide finance for
their clients to purchase a property through registering a
mortgage as security on the property.

All agreements relating to payment for the right to use know-
how, patents, trademarks, copyrights or other similar
property are subject to approval by the exchange control
authorities. A distinction is made between consumer goods
and capital goods. For consumer goods, a royalty of up to
4% of factory selling price is regarded as acceptable. For
intermediate and finished capital goods, a royalty of up to
6% will generally be approved.

Owners of patents and trademarks may license them, but when
this entails the payment of royalties to a non-resident
licensor, the royalty agreement must be approved by the DTI.
Patents are granted for 20 years - usually with no option to
renew. Trademarks (including service marks) are valid for
an initial period of 10 years and are renewable indefinitely
for further 10-year periods. The holder of a patent or
trademark must pay an annual fee to preserve its validity.

Literary, musical and artistic works, cinematographic films,
and sound recordings are eligible for copyright under the
Copyright Act of 1978. New designs may be registered under
the Designs Act of 1967, which grants copyrights for five
years.

The Counterfeit Goods Act was adopted to provide additional
protection to owners of trademarks, copyright and certain
marks under the Merchandise Marks Act of 1941. The 1997 Act
covers offenses related to counterfeit goods, including
possession of such goods. The Intellectual Property Laws
Amendment Act, adopted to amend the Merchandise Marks Act of
1941, the Performers' Protection Act of 1967, the Patents
Act of 1978, the Copyright Act of 1978, the Trade Marks Act
of 1993, and the Designs Act of 1993, aims to bring South
African intellectual property legislation fully in line with
the Trade-Related Aspects of Intellectual Property Rights
(TRIPS) Agreement. Amendments to the Patents Act of 1978
were also intended to bring it in line with TRIPS, and
provides for the implementation of the Patent Cooperation
Treaty (PCT),to which South Africa became a party in March

1999.

The International Intellectual Property Alliance continued
to note concerns about the piracy levels of optical discs,
which it estimated to be 40% in 2004. A local watchdog, the
SA Federation Against Copyright Theft (Safact),reported on
its website (www.safact.co.za) statistics on seizures of
counterfeit DVDs as well as a number of successful criminal
court cases against pirates in 2004, demonstrating an
increased commitment to IPR enforcement in 2004.

6.8 Transparency of the Regulatory System

Government promulgated the new International Trade
Administration Act in 2002. This Act established the
International Trade Administration Commission (ITAC) and is
responsible for tariff administration and trade remedies
(antidumping and countervailing measures). In terms of the
new Act, the Commission shall be responsible, among other
things, for investigating and evaluating applications with
regard to alleged dumping, or subsidized exports, safeguard
measures, and amendments of customs duties in the common
SACU area. The Commission is required to implement measures
to promote public awareness of the provisions of the new
Act.

In general, South Africa's Companies Act (1973) provides for
clear, transparent regulations concerning the establishment
and operation of businesses. Business organizations of more
than 20 persons that operate for gain must be registered as
a company under the Act. Foreign investors are organized
under the same rules and regulations as domestic firms, with
one exception: foreign companies that choose not to form a
firm in SA operate as "external companies." The legal
liabilities of an external company are not limited.

No government approval is required for foreign investors to
establish a new business in South Africa apart from the
approval required under the exchange control regulations.
The investor will be required to appoint a
consultant/auditor/legal advisor to register a company on
his/her behalf. The company should be registered within
21days; it should also register with the tax authority.

In South Africa there are no locations where a foreign-owned
business is prohibited or investment is officially
discouraged. The forms, which are to be filled by an
investor, are simple and understandable. The whole process
for foreign firms setting up in South Africa from beginning
to end on average may take six months, but if done through
Trade and Investment South Africa it can be finalized within
one month. Virtually all business activities are open to
foreign investors and there are generally no restrictions on
foreign investment. Restrictions would usually relate to a
particular industry and be applicable both to residents and
non-residents. Very few restrictions apply only to foreign
companies. For example, a foreign bank establishing a
branch in SA may be required to employ a certain minimum
number of local residents in order to obtain a banking
license and may be obliged to have a minimum capital base.
Restrictions also exist regarding the ownership of immovable
property by foreign companies. Foreign companies are
required to register as external companies before immovable
property may be registered in their names.

All businesses must obtain a business license from the local
authority, which is valid indefinitely unless the business
is relocated or acquired by a new owner. In general,
businesses must register with the local Regional Services
Council, Department of Labor, Workman's Compensation
Commissioner, the appropriate Industrial Council, the South
African Revenue Service, and the Department of Customs and
Excise.

6.9 Efficient Capital Markets and Portfolio Investment

South Africa's banks comply with international banking
standards and offer one of the most sophisticated banking
systems in the developing world. Customers have online, real-
time, nationwide access to bank accounts 24 hours a day, 365
days a year. South Africa's political transformation,
together with the relaxation of exchange controls and the
greater liberalization of African economies, has meant that
South Africa is now well positioned to provide global
services through its own banks' foreign offices as well as
the increasing presence of foreign bank representatives in
South Africa.

After a fairly turbulent first half year of 2002, which saw
the demise of a number of small and medium-sized banks,
stability returned to the sector. South African banks
remained well capitalized, and the average risk-weighted
capital-adequacy ratio for the sector increased to 12.6 per
cent at the end of December 2002, compared to 11.4% in 2001.
Growth in the total balance sheet moderated during 2002,
mainly as a result of a moderation in the growth of total
loans and advances. By the end of December 2002, the total
funds of banks - comprising capital, reserves, deposits and
loans - had increased by 4.8 per cent (measured over a
period of twelve months),to a level of R1.101 billion.
Concentration in the South African banking sector increased
noticeably during 2002, and the four biggest banks now
represent about 80 per cent of the total banking sector. The
participation of foreign banks in the local banking industry
decreased for the first time in six years, from 7.7 per cent
in 2001 to about 6.9 per cent of the total banking-sector
assets by the end of December 2002. South African banks
maintained adequate levels of liquidity despite liquidity
strains experienced by the system during the first half of

2002.

Oversight of South Africa's banks is the purview of the
South African Reserve Bank. The Bank Act of 1990 regulates
private banks. The SARB is nearing completion of meeting all
recommendations of the Basel Committee on Banking
Supervision. A variety of credit instruments are available
to the private sector, including bankers' acceptances, fixed
and variable rate securities, bonds, and equities. In May
1995, amendments to the Banks Act permitted foreign banks to
conduct banking operations via branches, ending the earlier
requirement that they establish subsidiaries. A complete
list of the registered banks, banking associations,
development banks, and related organizations that maintain a
presence in South Africa is available on an ABSA-sponsored
website at www.finforum.co.za/fininsts/bankdir.htm.
Any person, whether South African or foreigner, may control
a bank. There are three alternatives for conducting banking
operations in South Africa (all of which require prior
approval of the Registrar of Banks, who heads up the Bank
Supervision Division): a separate banking company, a branch
of an international bank or banking group, and a
representative office of an international bank. The criteria
for the registration of a bank are the same for domestic and
foreign investors. Foreign banks, however, are required to
include additional information with their application, such
as: foreign bank holding company resolution approving
proposed formation of the bank, a letter of "comfort and
understanding" from the foreign bank holding company, and a
letter of no objection from the foreign bank's home
regulatory authority.

The Financial Services Board (FSB) governs South Africa's
sophisticated non-bank financial services industry. The FSB
regulates insurance, pension funds, unit trusts (i.e.,
mutual funds),participation bond schemes, portfolio
management, and the financial markets. The financial
markets consist of:
The JSE Securities Exchange SA (www.jse.co.za)
The Bond Exchange of South Africa (www.bondex.co.za)

South Africa's financial markets are robust, liquid and well
developed. Turnovers remained brisk in 2002 to date. In the
bond market, for example, the value of turnover in a single
month is approximately equal to South Africa's annual gross
domestic product of one trillion Rand. Non-residents also
take a keen interest in these markets. In an average month
non-residents buy more than a R100 billion in bonds and R18
billion in shares on South African bourses. Although they
also are engaged in selling bonds and shares, often of a
roughly equal amount, some net inflow or outflow is recorded
from month to month. During the first half of 2002 non-
residents bought a net amount of R13 billion in shares and
bonds on the South African formal exchanges, and sold R17
billion during the third quarter. Further net sales in
n
October were followed by net purchases in November.

The JSE Securities Exchange is the 16th largest exchange
measured by capitalization in the world. At the end of 2002
the market capitalization stood at around $182 billion (R1.6
trillion) with a total of 472 firms listed. This is much
larger than all the exchanges in Africa combined. The JSE
Securities Exchange includes AltX, an exchange for small and
medium-sized companies launched in October 2003. AltX has
ten companies with a market capitalization of approximately
R1 billion. Early in 2005, the JSE plans to launch YieldX,
a trading platform for interest rate products. The JSE
Securities Exchange All Share Index broke through the 10,000
level during December 2001 when the Rand fell to record lows
against the U.S. dollar but in July 2003 it stood at 8,600.
The Index has since recovered with the strength of the Rand,
climbing back above 10,000 in 2004 and reaching nearly
13,000 by December 2004.


The Bond Exchange of South Africa (BESA) regulates the fixed-
interest securities market and is licensed under the
Financial Markets Control Act. Membership includes banks,
insurers, investors, stockbrokers, and independent
intermediaries. The bond exchange consists principally of
government bonds with some bonds from government parastatals
also available. There is a growing corporate bond sector,
however, as more companies seek to raise capital through
this mechanism.

The Financial Services Board continues to assess and
implement the recommendations of the International
Organization of Securities Commissions in order to bring the
non-banking financial services in line with international
best practices. There are presently discussions underway to
establish a single financial services regulator.
Financial services in South Africa are characterized by
extensive interlocking shareholding relationships between
the major banks and the large insurance companies. The
securities markets are well developed. Non-residents'
participation in the securities and stock markets has
increased sharply. The JSE began permitting foreign banks
and firms to join its registry in November 1995.

6.10 Political Violence

Political violence is not a major issue in South Africa.
Criminal violence, however, is high. National and
provincial governments have unveiled a number of programs
aimed at attacking crime in general, and South Africa is
working closely with donor countries to address this
problem.

6.11 Corruption

South African law provides for prosecution of government
officials who solicit or accept bribes. Penalties for
offering or accepting a bribe may include criminal
prosecution, monetary fines, and dismissal for government
employees, or deportation for foreign citizens. South Africa
boasts no fewer than ten agencies engaged in anti-corruption
activities. Some, like the Public Service Commission (PSC),
Office of the Public Protector (OPP),and Office of the
Auditor-General (OAG),are constitutionally mandated and
address corruption as only part of their responsibilities.
Others, like the South African Police Anti-Corruption Unit
and the Directorate for Special Operations (more popularly
known as "the Scorpions"),are dedicated to combating crime
and corruption. High rates of violent crime, however, are a
strain on capacity and make it difficult for South African
criminal and judicial entities to dedicate adequate
resources to anti-corruption efforts.

South Africa is not a signatory of the OECD Convention on
Combating Bribery. South Africa signed the UN Convention
against Corruption on December 9, 2003 and ratified it on
November 22, 2004. Transparency International South Africa,
an affiliate of Transparency International, has operated in
South Africa since 1997.

During the last few years, crime has been a far more serious
problem than either corruption or political violence and an
impediment to, and a cost of, doing business in South
Africa. The South African police forces have not been
effective or well accepted in many communities because of
their historical role in enforcing minority rule, their lack
of training, and internal crime and corruption within the
forces. The levels of crime, especially violent crime, are a
deterrent to attracting U.S. companies to South Africa.

New laws, such as the Promotion of Access to Information Act
signed into law in February 2000, have helped to increase
transparency in government in the last few years. The Public


Finance Management Act, which became effective on April 1,
2000, helped to raise the level of oversight and control
over public funds and improved the transparency of
government spending, especially with regard to off-budget
agencies and parastatals. Notwithstanding these efforts,
businesses complain about the lack of certainty and
consistency in interpreting and implementing some government
policies.

President Mbeki signed "The South African Prevention and
Combating of Corrupt Activities Act" (PCCAA) into law on
April 28, 2004. The PCCAA makes it more clear which
activities are considered graft. The act:

includes a list of codified corruption offenses related
to specific persons.

clearly defines that graft occurs between a "corruptor"
and a "corruptee."

declares that a bribe need not be monetary in nature,
nor need it be paid directly to the person who will be
undertaking the corrupt act.

bars the payment of bribes to foreign public officials
by South African citizens and firms.

provides a list of corruption-related offenses relating
ting
to specific matters in the public and private sectors.

allows for the investigation and seizure of
"unexplained wealth."

tasks the National Treasury to establish a register of
tender defaulters for corrupt individuals and firms.

obliges public officials to report any corrupt
activities.

prescribes strict penalties, including the possibility
of life imprisonment.

One shortcoming of the act is the failure to protect
whistleblowers against recrimination or defamation claims.

6.12 Bilateral Investment Agreements

South Africa has bilateral investment agreements with
Argentina, Austria, Belgium, Canada, Chile, the Czech
Republic, Finland, France, Germany, Greece, Mauritius, the
Netherlands, the Republic of Korea, Spain, Sweden,
Switzerland, Turkey, and the United Kingdom. A Trade,
Development, and Cooperation Agreement containing a Free
Trade Agreement (FTA) went into force between South Africa
ica
and the European Union on January 1, 2000, but it does not
have an investment chapter. Under the FTA, the EU is
committed to the full liberalization of 95% of South African
imports over a 10-year transitional period, while SA is to
liberalize 86% of EU imports over a 12-year transitional
period.

The U.S.-SA bilateral tax treaty, eliminating double-
taxation of business officials from one country working in
another was signed in February 1997 and became effective
January 1, 1998. Agreements Regarding Mutual Assistance
between the Customs Administrations of the United States and
South Africa came into force on August 1, 2001. The United
States and South Africa signed the Trade and Investment
Framework Agreement (TIFA) in February 1999, establishing a
Council on Trade and Investment consisting of
representatives of both governments. The council's last
meeting was held in February 2002. U. S. Trade
Representative Robert Zoellick visited South Africa in
February 2002 and January 2003 and met with his SACU
counterparts on both occasions. The United States and SACU
decided to pursue a Free Trade Agreement (FTA) and held six
rounds of negotiations since June 2003. The United States
is seeking an investment chapter in the FTA.

The rate of South African Normal Company Taxation applicable
to companies (other than small business corporations and
"employment companies" with financial years ending after 1
April 1999) is 30%. Prior to April 1999, the company tax
was 35% and prior to April 1994, the company tax rate was
40%. Companies are not entitled to any rebates except for
foreign royalty and foreign taxes paid. Companies are also
liable for secondary tax on companies (STC) at 12.5% in
respect of all dividends declared after 13 March 1996.
Close Corporations are treated as companies for taxation
purposes.

Beginning in January 2001, South Africa moved to a residence-
based income tax system. Taxes are levied on residents of
SA irrespective of where in the world the income is earned.
Although taxpayers are taxed on their worldwide income, some
categories of income and activities undertaken outside SA
are exempt from SA tax. External companies are taxed at a
flat rate of 35% on their South African source profits.
Effective October 1, 2001, SA also instituted a capital
gains tax. Individuals include 25% of net capital gains in
taxable income, and companies include 50% of capital gains
in taxable income. As a result, the effective capital gains
rate for individuals will vary from zero0 to 10.5% and the
rate for companies is 15%. SA also has a 14% value-added
tax (VAT). Exports are zero-rated and no VAT is payable on
imported capital goods.
To further encourage business investment, the Minister of
Finance in February 2003 made several proposals that will
offer tax relief to companies. These include:
The accelerated depreciation arrangements for
manufacturing assets, introduced as a temporary measure,
will be retained as a fixed element in the tax policy.
In keeping with practice in many other jurisdictions,
relief will be provided where business asset sale proceeds
are reinvested within 18 months.
Taxpayers will be allowed to claim losses from ordinary
revenue on the sale of devalued depreciable business assets
with short economic lives.
An accelerated four-year write-off period is proposed
for capital expenditure relating to research and development
in the field of natural and applied science.
A double deduction is introduced for the first R20, 000
of costs incurred in the start-up of new businesses. The
turnover limit for small businesses qualifying for a lower
company tax rate will be increased from R3 million to R5
million.

The government also introduced tax measures in 2003 to
to
encourage urban development. It announced that investment in
refurbishment or construction of buildings in certain urban
areas would receive special treatment. Taxpayers
refurbishing a building within designated zones will receive
a 20 per cent straight-line depreciation allowance over a
five-year period. Construction of new buildings within such
a zone will receive a 20 per cent write-off in the first
year and five per cent a year for a further 16 years. This
benefit will be available to owners as users of the building
or as lessors/financiers of these investments. A
complementary proposal extends tax advantages to public
benefit organizations that provide affordable housing to low-
income households in underdeveloped urban areas, as part of
a more comprehensive broadening of the list of activities
qualifying for tax-deductible donations. The Minister of
Finance also announced the scrapping of "a potentially
harmful tax practice" in the form of the International
Headquarter Company regime as the need for this exemption
was obviated by the removal of the foreign dividend tax.

6.13 OPIC and other investment insurance programs

The Overseas Private Investment Corporation (OPIC) supports,
finances, and insures U.S. overseas investment projects that
are financially sound. Its assistance contributes
significantly to the social and economic development of the
host country. OPIC aids U.S. investors through the
following four principal activities, which are designed to
promote overseas investment and reduce the associated risks:
Financing businesses through loans and loan guarantees.
Supporting private investment funds.
Insuring investment against a broad range of political
risks.
Engaging in outreach activities designed to inform the
American business community.

South Africa signed a bilateral investment incentive
ive
agreement with the United States in November 1993 with
respect to all of OPIC's programs. Today, OPIC backs a
number of investment funds focused on Sub-Saharan Africa
including the Africa Growth Fund ($25 million),the Modern
Africa Growth and Investment Fund ($105 million),and the ZM
Investment Fund ($120 million). OPIC also recently
established the $350 million Sub-Saharan Africa
Infrastructure Fund (SAIF) to target infrastructure projects
in all of Sub-Saharan Africa, including South Africa.

During 2003, OPIC helped the National Urban Reconstruction
and Housing Agency (Nurcha),a wholesale housing income
fund, to establish a scheme to lend directly to needy
contractors in a bid to ensure small developing contractors
have access to finance. Nurcha will use funds from the R200
million transaction to lend out R100 million this year to
fund projects, facilitating construction of about 24,000
affordable homes. The new scheme, which is intended to speed
up the delivery of affordable housing, will use
intermediaries to handle contractors' financial issues.
Previously the Nurcha Fund acted only as a guarantor for
loans from financial institutions to emerging contractors,
and the contractors had to handle their own finances.
Additional information is available at www.opic.gov. South
Africa is also a member of the World Bank's Multilateral
Investment Guarantee Agency (MIGA).

16.14 Labor

Since 1994, the South African Government has been
systematically removing the vestiges of the apartheid labor
system. The government is attempting to erect in its place
a labor market system that is characterized by employment
security, reasonable wages, and decent working conditions.
The new system, which was negotiated between government,
business, and organized labor under the aegis of the
National Economic Development and Labor Council (NEDLAC),
places a high value on worker rights and collective
bargaining between parties that are equally empowered.

The new labor dispensation rests on four legislative
pillars:

(1) The Labor Relations Act, in effect since November 1996,
is the cornerstone of the entire regulatory structure. It
enshrines both the right of workers to strike and also the
right of management to lock out workers and hire replacement
labor during a strike. The Act created the Commission on
Conciliation, Mediation, and Arbitration (CCMA). The
Commission currently has a caseload far in excess of that
which was originally projected because of the ease of access
to its services.
(2) The Basic Conditions Employment Act, implemented in
December 1998, establishes a 45-hour workweek and minimum
standards for overtime pay, annual leave, notice of
termination, and the like.
(3) The Employment Equity Act prohibits unfair employment
discrimination and requires large and medium employers to
prepare affirmative action plans to ensure that blacks,
women, and disabled persons are adequately represented in
the workforce.
(4) The Skills Development Act imposes a levy on employers
equal to 1.0% of payroll to be used for training programs
devised by industry-specific training authorities and
jointly administered by employer organizations and labor.

Many in business claim that the South African labor market
is over-regulated and have urged the government to scale
back some of the recently passed legislation. In response,
the Labor Minister proposed a number of amendments to the
labor laws, which were later, refined and agreed upon in an
informal business-labor body known as the Millennium Labor
Council (MLC). These amendments were passed by Parliament
in March 2002. In its 2002 Article IV Staff Report on South
Africa, released on 23 January 2003, the IMF noted that
conditions in the labor market had improved with the
introduction of legislation to streamline the arbitration
process and allow for more flexibility in employment.

According to the latest (March 2004) Labor Force Survey,
published by Statistics SA, the official unemployment rate
is 27.8%. This rate uses the International Labor
Organization (ILO) definition of unemployed, which excludes
persons who have not looked for work in the four weeks prior
to the interview.

There are about 3.3 million union members in South Africa,
composing 44% of the formal sector employment. Most union
members belong to affiliates of one of the three major union
federations: the Congress of South African Trade Unions
(COSATU),the Federation of Unions of South Africa (FEDUSA),
or the National Council of Trade Unions (NACTU). Although
COSATU, the largest federation with some 1.8 million
members, is formally allied with the ruling African National
Congress (ANC) and the South African Communist Party (SACP),
it often opposes the government on matters of economic
policy. One of COSATU's particular targets is governmental
efforts to privatize municipal services and state-owned
corporations. Striking is protected under South African
law, but, in general, labor militancy has been declining
since 1994.

16.15 Foreign Trade Zones/Free Ports

The DTI website states there are no foreign trade zones or
free ports in South Africa, though there are bonded
warehouses at various ports of entry. General rebates of
duty are available for specific situations, and duties may
be rebated on goods on re-export.

South Africa has what it terms "Industrial Development
Zones." They are fairly new as the first one was only
designated in 2001. The IDZ program and the regulations
were introduced in 2000. There are IDZs in Port Elizabeth
(Coega) and East London (both in Eastern Cape province),
Richards Bay (in KwaZuluNatal province) and Johannesburg
International Airport in Gauteng province. An IDZ is run by
an IDZ operator, which can be government-owned, privately
owned, or PPP (Public Private Partnership)- structured.
Customs control will be part of the IDZ operations and
handled by the South African Revenue Service (SARS).
Licensing of enterprises is part of the process and is
performed by the Manufacturing Dev Board as the adjudicating
authority in collaboration with SARS. The customs benefits
related to manufacturing or processing in the zone are duty-
free and VAT-suspension on imports and exports, provided
that the finished product is exported. Expedited services
and other logistical arrangements can be provided for SME
businesses or for new foreign direct investment. Co-funding
for infrastructure development is available. There are no
exemptions from other laws or regulations, such as
environmental and labor laws.

16.16 Foreign Direct Investment Statistics

Foreign direct investment (FDI) data is readily available in
South Africa, but published statistics vary depending on
their source and definition. Among the numerous
institutions that provide foreign investment data, the U.S.
Embassy in South Africa tends to rely mostly on the South
African Reserve Bank (SARB). The SARB statistics conform to
the IMF definition of FDI* and represent actual investment,
excluding announced but not completed, "intended"
investment. However, the SARB does not provide country-
specific figures that distinguish between actual new
investment flows and changes in investment stocks caused by
asset swaps, exchange rate adjustments, and mergers and
acquisitions. This situation makes it difficult to track
the United States' and other countries' FDI position in SA
on a yearly basis. Because SARB statistics only provide an
annual total for all the countries' flows combined,
observers also often consult more updated information
obtained from the South Africa-based firm "Business Map"
(BM). The latter offers fee-based services for a wide range
of investor-related data and analysis and may be contacted
via its web site at www.bmap.co.za.

(*FDI is generally defined as ownership of at least 10% of
the voting rights in an organization by a foreign resident
or several affiliated foreign residents, including equity
capital, reinvested earnings, and long-term loan capital.)

The following FDI statistics were drawn from the SARB's
September 2004 Quarterly Bulletin. The conversion exchange
rate used was that of the average for each year cited.



Table A: Average exchange rates used
1999 2000 2001 2002 2003
US$/Rand 6.11 6.94 8.60 10.52 7.56

Table B: Year-end stock of Foreign Direct Investment in
South Africa
1999 2000 2001 2002 2003
Rand (billion) 318.63 328.86 370.70 255.84 303.44
US$ (billion) 52.15 47.39 43.10 24.32 40.14

Table C: Year-end stock of South African Direct Investment
Abroad
1999 2000 2001 2002 2003
Rand (billion) 203.04 244.65 213.18 189.91 180.51
US$ (billion) 33.23 35.25 24.79 18.05 23.88

(Table D: GDP (in Rand billion at current prices) & FDI as a
percentage of GDP
1999 2000 2001 2002 2003
GDP 813.68 922.15 1020.01 1164.94 1251.47
FDI (%) 39.2 35.7 36.3 22.0 24.3

Table E: Year-end stock of FDI in South Africa by
region/country (in billions)
REGION/COUNTRY RAND RAND US$ US$
2002 2003 2002 2003
EUROPE - Total 211.2 245.8 20.1 32.5
UNITED KINGDOM 158.2 188.4 15.0
24.9
GERMANY 22.1 22.9 2.1
3.0
SWITZERLAND 6.0 6.1 0.6 0.8
NETHERLANDS 12.8 16.1 1.2
2.1
FRANCE 3.6 4.1 0.4
0.5
ITALY 1.4 2.0 0.1 0.3

N&S AMERICA - Total 25.1 32.1 2.4 4.2
USA 23.9 29.5 2.3 3.9

AFRICA - Total 5.5 4.7 0.5 0.6

ASIA - Total 13.9 20.5 1.3 2.7
MALAYSIA 7.1 10.0 0.7 1.3
JAPAN 3.4 7.1 0.3 0.9

OCEANIA - Total 0.2 0.4 0.0 0.1

-------------- --------------
-------------- ---
TOTAL 255.8 303.4 24.3 40.1
-------------- --------------
-------------- ---

Table F: Year-end stock of South African direct investment
abroad by region/country
REGION/COUNTRY RAND RAND US$ US$
2002 2003 2002 2003
EUROPE - Total 152.4 137.4 14.5 18.2
UNITED KINGDOM 45.5 44.1 4.3 5.8
LUXEMBURG 46.8 43.7 4.5 5.8
AUSTRIA 27.0 11.2 2.6 1.5
OTHER 33.0 38.4 3.1 5.1

N&S AMERICA - Total 24.8 17.0 2.4 2.2
USA 22.9 14.9 2.2
2.0

AFRICA - Total 14.2 15.8 1.4 2.1

ASIA - Total 4.4 3.5 0.4 0.5
OCEANIA - Total 7.0 6.8 0.7 0.9
-------------- --------------
-------------- -
TOTAL 202.8 180.5 19.3 23.9
-------------- --------------
-------------- -

Table G: Year-end stock of FDI in South Africa by industry
sector (Billions)

INDUSTRY RAND RAND US$ US$
2002 2003 2002 2003
Agriculture,
Forestry & Fishing 0.7 0.5 0.1 0.1
Mining 80.6 103.1 7.7 13.6
Manufacturing 67.3 75.4 6.4 10.0
Construction 1.9 1.9 0.2 0.3
Trade, Catering,
& Accommodation 13.3 13.4 1.3 1.8
Transport, Storage,
& Communication 10.1 22.0 1.0 2.9
Finance, Insurance,
Real Est. &
Business Services 81.6 86.6 7.8 11.5
Social services 0.4 0.4 0.0 0.1
-------------- --------------
-------------- --
TOTAL 255.8 303.4 24.3 40.1
-------------- --------------
-------------- --

Table H: FDI Flows into South Africa: Investment by
foreigners in undertakings in SA in which they have at least
10% of the voting rights - Capital movements 1995 to 2002 in
Rand billions (inflows)
1995 4.5
1996 3.5
1997* 17.6
1998 3.1
1999 9.2
2000 6.2
2001* 58.4
2002 8.0
2003 5.8

*The high inflow in 1997 was due to the 30% privatization of
Telkom while the jump in 2001 is the result of the Anglo
American/ De Beers transaction.

Table I: FDI flows: Investment by South Africans in
undertakings abroad in which they have at least 10% of the
voting rights - Capital movements 1995 to 2002 in Rand
billions (outflows)
1995 9.1
1996 4.5
1997 10.8
1998 9.8
1999 9.7
2000 1.9
2001 -27.4 (inflow - decrease in investment abroad))
2002 -4.2 (inflow- decrease of investment abroad)
2003 5.4

*2001 De Beers/ Anglo American transaction resulted in the
return of capital, previously invested abroad, to South
Africa

For 2003, the Business Map Foundation, a non-profit South
African based research organization and think tank, *
reported that during the first quarter, FDI inflows were
slow. However, during the second quarter, plans for a
number of noteworthy investments were announced. Daimler
Chrysler announced a R2 billion-expansion deal. This, plus
a R123 million investment in improving the facilities at two
Da Gama Textile plants, made Germany the leading investor by
country in this quarter. Japan was the second largest
investor in quarter 2, 2003 with Toyota announcing that it
is to invest a further R1.7 billion to enhance its exports.
South Africa has been confirmed as one of five worldwide
locations approved by Toyota Motor Corporation for the
production of a new generation light commercial vehicle. On
U.S. investment, the Ford Motor Corporation of South Africa
announced its intention to expand into a R280 million
project to refurbish its paint shop.

(* The Business Map definition of FDI includes mergers and
acquisitions, new investments, privatization, expansions
that result in new productivity capacity, and plans or
intentions to invest, i.e., commitments.)

The South African branch of Barclays Bank PLC announced on
July 2, 2003 that it had received about R470 million in
additional capital from the UK banking group. The capital
will be used to further grow its operations in this country
and to establish a local business structure capable of
supporting its customers who are growing their Pan African
operations, it said. Barclays South Africa branch, which
provides corporate and investment banking services, has over
the first six months of 2003 strategically positioned itself
to become a more prominent player in the South African
market. This is evident in the appointment of an
experienced team of corporate bankers focused on expanding
its corporate and investment banking unit as well as moving
the Barclays Africa headquarters from London to South
Africa.

BusinessMap set third quarter 2004 FDI at R27.8 billion, due
to Barclays Banks' plans to obtain a majority share in ABSA
bank. Investment by vehicle makers is forecast to reach a
five-year high of R3.5 billion in 2004 and South African
Breweries has committed themselves to a R5 billion
investment over the next five years. Other major companies
with ambitious investment plans include Sasol, with capital
spending peaking at R15 billion, PPC to add capacity worth
almost R1 billion with Eskom and Telkom expected to spend
R165billion to improve infrastructure.
Since 1994 many foreign firms have opened up (or re-opened)
offices in South Africa. It is estimated that there are
nearly 700 American companies (including subsidiaries and
joint ventures, local partners, agents, franchises and
representatives.) doing business in South Africa. The
second and third highest numbers of companies per country
are from Germany and the U.K. respectively.

Key investment industries in South Africa:

South Africa is a food self-sufficient country and the bulk
of the population's food needs are produced locally from raw
materials. South Africa's well developed food and beverages
industry has become a global player. Some of the major
international agro-processing companies that have a presence
in South Africa are: Unilever, Nestle, Coca-Cola, Danone,
Parmalat, Kellogg, HJ Heinz, Cadbury-Schweppes, Virgin Cola,
McCain Foods of Canada, Pillsbury, and Minute Maid.

The South African Automotive and Components industry is on a
growth path and is well placed for investment opportunities.

BMW, Ford, General Motors, Volkswagen, Daimler-Chrysler and
Toyota all have production plants in South Africa. .
General Motors / Opel is also intent on significant
investments in its Port Elizabeth plant.

Four major commercial banking groups who provide retail and
investment banking services dominate the South African
banking industry. The European, Malaysian and U.S. banks
that have banking licenses have so far concentrated on
corporate as opposed to retail banking. Foreign banks are
gaining market share by charging aggressive lending margins.

The chemical industry is the largest manufacturing sector of
the SA economy, accounting for some 5% of GDP. The country
is a world leader in the manufacture of synthetic fuel from
coal. Four oil refineries dominate the petroleum and
petrochemical industry plus the Sasol and Mossgass (PetroSA)
Fischer-Tropsch based operations. The rest of the chemical
manufacturing sector consists mainly of AECI, Sentrachem and
fertilizer plants.

The following companies have invested in excess of R1
billion in South Africa since 1994:

Table F: TOP FOREIGN COMPANIES INVESTED IN SOUTH AFRICA

Canada - Placer Dome
Denmark - AP Moller
France - Lafarge
Germany - BMW
Italy - Cirio (Del Monte)
Switzerland - Movenpick Hotels
UK - Billiton; Lonrho Plc, SA Breweries, Anglo
American
U.S. - Caltex; Coca Cola; Dow Chemicals; IBM;
Saudi Arabia - Oger

Other significant U.S. investors include: Ford, McDonalds,
Levi Strauss, Minute Maid, Nike, Salem, Silicon Graphics,
Microsoft, HP, Dell, Sara Lee, Caterpillar, Goodyear, Eli
Lilly, Fluor and General Electric.

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MILOVANOVIC