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Doing Business In South Africa: A Country Commercial Guide for U.S. Companies

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2004. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

• Chapter 1: Doing Business In South Africa• Chapter 2: Political and Economic Environment• Chapter 3: Selling U.S. Products and Services• Chapter 4: Leading Sectors for U.S. Export and Investment• Chapter 5: Trade Regulations and Standards• Chapter 6: Investment Climate• Chapter 7: Trade and Project Financing• Chapter 8: Business Travel• Chapter 9: Contacts, Market Research and Trade Events• Chapter 10: Guide to Our Services

Chapter 1: Doing Business In South Africa

• Market Overview• Market Challenges• Market Opportunities• Market Entry Strategy

Market Overview Return to top

Welcome to the South Africa Country Commercial Guide (CCG)! This guide presents a comprehensive look at South Africa’s commercial environment, using economic, political and market analysis. South Africa is by far the largest economy on the African continent with an estimated 2004 GDP of $171 billion. It has a well-developed physical and financial infrastructure that is comparable to OECD standards. Its service sector is well established and growing and the economy is by and large well managed. Industrial productivity is rising.

• The population numbers 45 million in an area almost twice the size of Texas. • South African imports in 2003 came primarily from Germany 16.6%, United

Kingdom (UK) 8.5%, United States (U.S.) 8.2%, Japan 5.9%, China 5.9%, Saudi Arabia 5.2%, and France 5%.

• The biggest foreign investor on a dollar basis is the UK; however, since 1994, the United States has made the largest number of investments.

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• The economic sectors consist of agriculture: 3.8%, industry: 31%, services: 65.2%

• The national retail consumption patterns reflect the bipolar nature of the economic status of its citizens, ranging from basic needs (e.g., condensed milk) to high-end capital goods (e.g., SUV’s).

With the passage of the African Growth and Opportunity Act (AGOA), and the current negotiations for a United States-South African Customs Union Free Trade Agreement, there will be increased opportunities for American business looking to enter or expand their presence. Additionally, over the past four years, South Africa has further integrated into the global trading system by concluding free trade agreements (FTA) with:

• the European Union, by far the largest trading partner of South Africa, and • its neighbors in the Southern Africa Development Community (SADC),

The Southern African Customs Union (SACU) agreement with Botswana, Namibia, Lesotho, and Swaziland, first entered in 1910, has also been recently renegotiated and agreed to by all members. The continued growth in GDP for over ten years has increased the attraction of South Africa as an investment and marketing platform. Extensive structural reforms have spurred a boom in the services industry as well as in merchandise exports. Structural reforms in general have also increased the economy’s diversification and openness, bolstering its resilience to external shocks.

Ten years after the watershed 1994 democratic elections, South Africa continues to maintain a stable political environment. This underpins:

• the government’s market-oriented economic policies, and • steady progress towards restructuring state assets. • At the same time, the strengthening nature of the bilateral U.S.-South Africa

relationship is based upon a business-like approach to practical issues.

Market Challenges Return to top

South Africa’s business environment includes several socio-economic challenges. Issues facing both government and business are:

• The specter of HIV/AIDS is affecting all facets of business. • Unemployment remains high, and the lack of job creation is a key structural

problem. • Strong protection of employee rights is playing a role in the slow rate of foreign

direct investment. • The Black Economic Empowerment (BEE) policies on redressing historically

disadvantaged communities continue to evolve. • U.S. firms entering this market must contend with a typically mature market with

well-established, mainly European competition.

Market Opportunities Return to top

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Opportunities for U.S. exporters and investors in South Africa reflect the growth of its consumer base and its efforts to upgrade and develop its infrastructure to match and further fuel its economic growth. Factors benefiting U.S. exporters include:

• a very strong retail environment expected to last for at least two years, and • a currency that has increased in value to the trade weighted basket by 17

percent since December 2003 and now again favors many manufactured imports.

• U.S. branded goods are gaining market share. • South African Government-owned corporatized parastatal utilities such as

ESKOM (energy) and TRANSNET (transportation) are set to increase new capital expenditure to $20 billion over the next five years.

• The awarding to South Africa of the 2010 FIFA World Cup Soccer championship is expected to result in $350 million in improvements and investment projects.

In general, the best prospects for exports are in capital goods, though opportunity exists in a wide range of consumer products and services as well. Of particular note are:

• Airport/Ground Support Equipment • Telecommunications Equipment • Electric Power Systems • Medical Equipment • Automotive Parts/Service Equipment • Pollution Control Equipment, and • Healthcare Services

Market Entry Strategy Return to top

Because the South African market is sophisticated, entry should be well planned and factor in:

• a very skewed demographic income distribution pattern, where ten percent of the population earns 45 percent of national income.

• The majority of consumer demand is very price sensitive. • Distribution issues where the large retail centers are spread over only five

metropolitan regions. • A judicious selection of one of three low-risk entry strategies: representation,

agency or distributorship. (Note: any local partner should be BEE compliant). • The entrenched bias of a conservative market that sticks to known suppliers

requires sustained market development. • South Africa is the pre-eminent stepping-stone for developing most sectors in

sub-Saharan Africa. The marketing mix should anticipate this medium-term option.

In addition to this Country Commercial Guide, the Commercial Service office in Johannesburg offers many services to assist you in developing your market entry strategy and throughout your export experience in South Africa. For a detailed

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description of these services please refer to the end of the first section of Chapter 3: Selling U.S. Products and Service.

Return to table of contents

Chapter 2: Political and Economic Environment

For background information on the political and economic environment of the country, please click on the link below to the U.S. Department of State Background Notes. http://www.state.gov/r/pa/ei/bgn/2898.htm

Return to table of contents

Chapter 3: Selling U.S. Products and Services

• Using an Agent or Distributor• Establishing an Office• Franchising• Direct Marketing• Joint Ventures/Licensing• Selling to the Government• Distribution and Sales Channels• Selling Factors/Techniques• Electronic Commerce• Trade Promotion and Advertising• Pricing• Sales Service/Customer Support• Protecting Your Intellectual Property• Due Diligence• Local Professional Services• Web Resources

Using an Agent or Distributor Return to top

One of the first steps which an exporter may wish to take in locating an agent or distributor in South Africa is to contact the U.S. Department of Commerce and to register for one of the many services specifically designed to meet the needs of U.S. client companies. South Africa offers foreign suppliers a wide variety of methods to distribute and sell their products, including using an agent (also known as a Commission Sales Representative or CSR) or distributor. A list of these services is available at the end of this section.

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In South Africa, the terms "Agent" and "Distributor" have a very specific meaning: Agents work on a commission basis after obtaining orders from customers; distributors buy, carry stock and sell products directly to customers. Agents often distribute durable and non-durable consumer goods, as well as some industrial raw materials. They may be particularly appropriate when products are highly competitive and lack a large market. It is common to appoint a single agent capable of providing national coverage either through one office or a network of branch offices. In addition to their role as the local representatives of U.S. exporters, agents should be able to handle the necessary customs clearances, port and rail charges, documentation, warehousing, and financing arrangements. Local agents representing foreign exporters, manufacturers, shippers, or other principals outside South Africa who export goods to South Africa, are fully liable, under South African import control law, for all regulations and controls which are imposed on the foreign exporters. Local agents are required to register with the Director of Import and Export Control of the Department of Trade and Industry. It is important for a U.S. exporter to maintain close contact with the local agent to track changes in importing procedures and to ensure that the agent is effectively representing the sales interest of the exporter. Typical commission rates for CSRs in South Africa depend upon the contract concluded and upon the representative’s responsibility. This can range from 3 percent to 25 percent commission per concluded transaction. Companies sometimes pay a retainer fee plus costs plus an incentive scale on deals. Distributors who buy for their own account and carry a wide range of spares often best handle capital equipment, and also handle commodities such as chemicals, pharmaceuticals, and brand new products on an exclusive basis. Leading distributors often have branches throughout South Africa and sell to both wholesalers and retailers. In some cases, the distributor is also the principal with sub-agents or a major user of the products. When appointing a South African distributor, U.S. exporters should take care to find out if the distributor handles a competing product. It has happened that major South African corporations whose holding companies market products competing directly with American products have approached some U.S. exporters. In South Africa’s competitive marketplace, it is essential that the U.S. exporter provide adequate servicing, spare parts, and components, as well as qualified personnel capable of handling service inquiries. In most cases, after sales service should be available locally since potential delays often lead purchasers to seek alternative suppliers. The Commercial Service has found that the most successful ventures entered into by U.S. companies are those where there has been thorough market research prior to engaging on a search for agents or distributors. Once contacts are established, it is often advisable to visit South Africa since firsthand knowledge of the market and society is an advantage. Such a visit provides an opportunity for a personal appraisal of the prospective agent or distributor. U.S. exporters should carefully investigate the reputation and financial references of a potential agent or distributor and establish a clear agreement delineating the responsibilities of both the exporter and the agent.

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The Commercial Service in South Africa offers a number of business facilitation services, including:

• Customized Market Analysis (CMA): This is an in-depth, qualitative assessment of how a product or service may sell in the market. It follows a Commercial Service standard format, which covers a core set of market factors and allows for specialized questions. What is the size of the market in question and does the product or service have sales potential in the market? Who are the major competitors? What are the best channels for getting my product to market? Who are potential agents, distributors, licensees, or joint venture partners? What are the prices for comparable products? Are there any tariff or non-tariff barriers to selling in this market? The report is a blend of analysis from original research and a rich resource of contact details for the relevant sectors.

• Market Profile Reports (MPR): Developed to assist exporters in exploring the potential of their particular market in South Africa. The service provides up to 8 hours of targeted market research at a set fee, and may address a number of the client’s most pressing concerns as well as providing a list of potential agents/distributors.

• International Partner Search (IPS): Previously known as the Agent Distributor Service (ADS), this service is designed to provide a list of qualified potential agents/distributors for U.S. companies. The IPS assists US firms in obtaining interested and qualified overseas representatives, agents or distributors for their services or products. We will screen possible agents, distributors, joint venture partners, manufacturer’s representatives, franchisees, or licensees and then directly contact the top prospects to review your firm’s product line and marketing objectives, identifying up to five qualified, reputable and interested prospects. IPS reports are prepared specifically for the US client who ordered the report. The information contained within the report will not be revealed to other sources without approval of the overseas officer who prepared the report.

• Flexible Market Research (FMR): This service provides flexibility to structure any market research request to suit your unique marketing needs. This product is popular for those in search of important details about regulatory structure, public procurement procedures, and an outline of certain industry sectors, to name but a few examples.

• Contact Lists: For vetted clients of the Commercial Service who do not engage in "spam" activities, we offer a unique resource of contact information from a database library which draws from three resources: a country wide client relationship management database, a small number of popular directories (e.g., U.S. companies in South Africa) that are constantly updated, and a selective number of industry specific outreach lists. Our databases are kept fresh from an average of 25 trade event activities and an equal number of direct marketing campaigns per year.

• Platinum Key Service (PKS): Through the Platinum Key Service, U.S. businesses can attain comprehensive customized support on a range of issues on which the company needs longer-term, sustained assistance. The service is solution-orientated and tailored to the client’s needs through a mutually agreed upon scope of work. The service can include a range of issues including, but not limited to, identifying markets, launching products, developing major project opportunities and providing government tender support, helping to reduce market access barriers and assistance on regulatory or technical standards matters.

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• Gold Key Matchmaking Service (GK): Our Gold Key service provides US business representatives with a customized program of pre-screened local appointments in the Southern Africa market. Up to four appointments will be scheduled per day with potential agents, distributors or end users, as required. To prepare for a successful Gold Key, we need your company literature by courier and a statement of objectives at least three weeks prior to arrival. We also offer a Video Gold Key Service, which is the same quality service as our Gold Key Service without the cost of airfare and other travel expenses.

• International Company Profile (ICP): The International Company Profile (ICP) helps U.S. companies evaluate potential business partners in South Africa by providing a detailed report on those companies which have been personally visited by a Trade Specialist or Commercial Officer of the U.S. Commercial Service. Clients can request answers to detailed questions about South African companies on a variety of issues and receive expert advice from our Commercial Specialists about the relative strength of the firm in its market and its reliability. Financial data may be available for an additional cost.

• Single Company Promotion: Depending on your requirements, we offer the following services, which will be charged for accordingly. Services include venue hire, invitations, audio-visual equipment, a targeted audience of potential clients, and media outreach.

• Business Facilities: The CS Johannesburg has an impressive facility, located in the heart of the most vibrant business district of the city. This is a visible symbol of the U.S. Government’s commitment to expanding trade and investment into Africa.

• Videoconferencing Facilities: Use our state-of-the-art Polycom videoconferencing equipment for access to potential customers all over the world. Videoconferencing equipment can be rented on an hourly basis, or can be combined with your business appointments (e.g., Gold Key Service) or product presentation services to guarantee an effective, professional and beneficial program.

• Digital Video Conferencing: In order to arrange meetings or conferences without the cost of travel expenses, we offer a Digital Video Conferencing (DVC) facility. Our DVC facilities are some of the most cost effective in the country, and allow our clients to host their long distance meetings or conferences from the comfort of our offices.

• Office Rental Service: For approved clients who merely seek a venue to entertain clients, the US Commercial Service can make available an elegantly decorated multi-purpose or boardroom facilities. Our multi-purpose room can seat 80 people theatre style, two of our boardrooms can seat eight and the larger boardroom can seat twelve. Refreshments can be arranged upon request as well as the use of our audio-visual equipment.

For additional information, please refer to the website www.ussatrade.co.za or e-mail the office at: Johannesburg.office.box@mail.doc.gov.

Establishing an Office Return to top

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The Companies Act of 1973, which is administered by the Registrar of Companies, regulates the formation, conduct of affairs, and liquidation of all companies. The act makes no distinction between locally owned or foreign-owned companies. Companies may be either private or public. Foreign companies establishing subsidiaries in South Africa must register the subsidiary in accordance with the act. Foreign companies may establish a local branch office in South Africa by registering the branch as an "external company" with the Registrar of Companies. Any nonresident or foreign company must register within 21 days of establishing an office in South Africa. Government approval is not required for registration, and there is no requirement that a percentage of share capital be held locally. The branch company, within six months after the end of its financial year, must file annual financial statements with the Registrar. Branch profits remitted to a foreign firm’s headquarters are not subject to withholding tax. The legal liabilities of a branch are not limited to only its South African assets. There are three forms of business enterprises in South Africa: Private Companies (Pty), Public Companies (Ltd) and Close Corporations (CC). Each has its own set-up and reporting requirements as detailed below. Private Companies: A locally registered private company, identified by the words "Proprietary Limited" (Pty) in its title, is a common form to carry on operations as a subsidiary of another, foreign, company. Private companies may have up to 50 shareholders, but cannot offer shares to the public or transfer them, and are not required to have a minimum subscription. Private directors need not lodge with the Registrar a written consent, and they need not be South African nationals or residents of South Africa. The registration of a company is established by filing the following information with the Registrar of Companies: a certified copy of the Memorandum and Articles of Association; the registered address; the name and address of the company’s local auditor; and a share capital duty receipt. Private companies are not subject to the statutory meeting and reports requirements of public companies and do not have to lodge their annual financial statements with the Registrar. Public Companies: Public companies, designated by the word “Limited” or letters "Ltd" in the title, are formed to raise funds by offering shares to the public; therefore, there is no limit on the number of shareholders in a public company. Public companies are required to file annual financial statements and reports with the Registrar of Companies. For public companies that issue a prospectus, proof must be submitted to the Registrar that each director has paid full price for the shares, and the number of shares issued equals the stated minimum subscription. For public companies with share capital, the following must be forwarded to the Registrar: a director's statement that capital is adequate for business operation; particulars of the directors and officers; and proof that the annual duty has been paid. A public company may not commence operations until receipt of the Registrar's certification. Close Corporations: Close corporations, designated by the letters "CC" after their names, are a form of business organization unique to South Africa. They can only be organized by natural citizens of South Africa and are limited to a maximum of ten persons. Close corporations are subject to fewer registration and operating regulations than companies and have been instrumental in encouraging a low-entry threshold entrepreneurial culture in South

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Africa. This form of legal person is currently under review, and may be changed during the course of 2005. For more information on company formation and registration contact: Companies and International Property Registration Office PO Box 429, Pretoria, 0001 International Tel No: +27 (0)11 254 9405 International Fax No: +27 (0)11 254 9406 Email Address: contactcentre@cipro.gov.zahttp://www.cipro.co.za

Franchising Return to top

Recent years have seen the popularity of franchising increase significantly, emerging in South Africa as an effective way to conduct and grow successful businesses. Franchising also plays an important role in furthering the development of small and medium businesses. Job creation, poverty alleviation, economic growth and black empowerment rank high on the South African government’s agenda. Franchising, with its advantages of skill transfer, start-up support and ongoing operational assistance, is emerging as a preferred type of business to address these problems. Business format franchising in particular, is a proven concept offering potential opportunities for interested firms. According to the Franchise Association of Southern Africa (FASA), the number of franchise systems has grown by at least 29 percent over the past twelve months, with service-orientated franchises making the greatest impact. The 22,825 operational franchising outlets contributed 10.7 percent of South African GDP in 2004, approximately R129.1 billion (US$21.5 million). By far the largest franchise sector in South Africa is the petroleum sector, representing approximately 40 percent of total turnover of the franchise industry. Significant increases in the number of franchises are found in the following industries: cellular communication, real estate, building office and home services and consumer goods retailers. Additional information can be found at: Franchise Association of Southern Africa (FASA) Postnet Suite 267, Private Bag X30500, Houghton 2041 Tel: +27 (0) 11 484 1285; Fax: +27 (0)11 484 1291 Mr. Nic Louw (Executive Director) www.fasa.co.zafasa@faso.co.za

Direct Marketing Return to top

Solid growth for the direct marketing industry can be expected over the next ten years, as long as marketing plans include strong emphasis on clear cut information campaigns,

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almost to the point of pre-empting consumer questions and introducing appropriate solutions all in one effective customized direct marketing package. Direct marketing channels in South Africa include

• direct email selling - such as Internet viral campaigns (where one email user would nominate “friends” to participate in a promotional campaign and to his/her own benefit hand-over the email addresses of friends and colleagues),

• direct selling channels - such as the independent agent or distributor system, and • Internet marketing – which has also grown rapidly as more South African

consumers are now feeling comfortable handing over banking details etc. and ordering from non-brick and-mortar companies.

For more information on Direct Marketing in South Africa contact: Marketing Federation of SA (MFSA) JSE Building 17 Diagonal Street Newtown Johannesburg 2000 Tel: +27 (0)11 832 3500 Website: http://www.mfsa.co.za

Joint Ventures/Licensing Return to top

When a company is interested in entering into a foreign licensing agreement to manufacture a product in South Africa, the South African licensee must submit an application to the Industrial Development Branch of the Department of Trade and Industry. The Department of Trade and Industry, in turn, will make a recommendation to the South African Reserve Bank (SARB). Exchange control regulations stipulate that SARB’s Exchange Control Section must approve the payment of royalties. When a licensing agreement involves no manufacturing, the request for exchange control approval is sent directly to SARB. Royalty fees are based on percentage of total ex-factory sales, with a maximum of four percent for consumer goods and six percent for intermediate and final capital goods. Down payments will not be approved unless actual costs of transferring tangible technology items are incurred. Minimum or annual payments are not acceptable to SARB. Exchange approval will normally be granted for an initial period of five years. Contract conditions involving obligatory purchasing and pricing agreements or requiring the licensee to sole source articles from the licensor are prohibited. Additional information on licensing regulations can be obtained from: Department of Trade and Industry Directorate: Innovation and Technology: Chief Director: Dr. J. Potgieter Private Bag X84, Pretoria, 0001 Tel: +27 (0)12 310-9839 Fax:+27 (0)12 322 3632 Email: johanp@dti.pwv.gov.za

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www.dti.pwv.gov.za/dtiweb/dtiwww/index.html

Selling to the Government Return to top

Government purchasing is a significant factor in the South African economy. Nearly all such purchasing (at all three levels of government) is done through competitive bidding on invitations for tenders, which are published in an official state publication, the State Tender Bulletin (http://www.dti.gov.za/tender/bulletins.htm), and sometimes in leading newspapers. Although the purchasing procedures of the central government and parastatal institutions favor products of local manufacturers, an overseas firm is not precluded from bidding if the firm has an agent in South Africa to act on its behalf. As a general practice, payment is made to the local agent. Central Government Procurement South Africa has changed its government procurement to a “Supply Chain Management” process in order to streamline the buying procedures of national, provincial, local, and state-owned companies. As part of the Public Finance Management Act Regulations of 1999, procurement accountability has now devolved to “accounting officers”. Depending on their level of responsibility, the accounting officers are allowed to approve government purchases up to a certain amount. 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 national legislation. Other principles on which procurement must be based in South Africa are accountability and the just in time (JIT) delivery principle. Purchases are generally by competitive tender for project, supply and other contracts. Bidders generally need not pre-qualify, but the ability of bidders to supply goods or render a service generally is examined. Foreign firms can bid through a local agent. The due date for a bid is usually at least twenty-one days from the publication of the notice. As a general practice, however, a lead-time of thirty to forty-five days is allowed. Bids for government tenders must be on a basis of all costs included to the specified delivery point. Bids on tenders are to be addressed as indicated in the tender document and must be lodged in a sealed envelope with the tender number, due date and name and address of the tender on the outside. Black Economic Empowerment (BEE) A pivotal consideration with the government and parastatal procurement process is that manufacturers or suppliers to government qualify as BEE (Black Economic Empowered) partners. These criteria aim at quantifying the contribution by these partnerships to empower previously disadvantaged individuals (i.e., Black, Coloured, and Indian) according to a varying mix of the following parameters:

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• Black Ownership • Black Management • Percentage of Black Skilled Personnel • Procurement from Black/BEE suppliers • Skills Development Initiatives • Other BEE Initiatives (e.g., social responsibility) • Enterprise Development initiatives for Black businesses

Note that in BEE legislation, the term “Black” is used generically to refer to Blacks, Coloureds, or Indians with South African citizenship.

For different industry sectors there are different score cards that serve as the test for qualifying as a supplier to government. Suppliers who do not meet some mix of these criteria have little recourse on other objective technical grounds (price, product, delivery, etc.) to redress perceived irregularities. Public Private Partnerships (PPP) Closely linked to the BEE aspects, is the increasing attention that the SA Government and its parastatals are giving to Public Private Partnerships (PPP). This mode of outsourcing the operational responsibility to a qualifying PPP entity seems set to become a preferred alternative to government procurement. It allows primarily for a variety of leasing options, but also for purely buying a service from a private entity. This mode of business implies less risk for government due to a significantly reduced capital investment requirement, a predictable expenditure model (linked to the fee structure payable to the service provider) while at the same time allowing BEE entities to benefit from traditional government operations. The SA Department of Finance (Treasury) administers the government procurement process. South African Treasury Communication Unit Private Bag X115 Pretoria 0001 Tel: +27 (0)12 315 5944 http://www.treasury.gov.za

Offsets and Counter-Trade: In 1996, the government approved the Industrial Participation Program (IPP), which mandates a counter-trade/offset package for all state and parastatal purchases of goods, services, and lease contracts in excess of US$10 million. Under the program all bidders on government and parastatal contracts who exceed the imported content threshold must also submit an Industrial Participation package worth 30 percent of the imported content value. The bidder then has seven years to discharge the Industrial Participation obligation. Non-performance of the contract is subject to a penalty of five percent of the outstanding Industrial Participation obligation. These IPP requirements

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have been issued with the tender documentation of all government and parastatal tenders since September 1996 and are overseen by the Industrial Participation Secretariat of the Department of Trade and Industry. Parastatals: Parastatals, local authorities, and major private buyers such as the mining houses must follow similar practices to the central government. Parastatal procurement is guided by and bound to the schedule of local content preference. Local government purchases are increasingly significant and also involve overseas bidding. With the establishment of nine new provincial governments in South Africa, the prospects for additional government procurement below the central government-level are significant, even though strict budgetary restraints are in place here. Opportunities exist with the four large South African parastatals: Telkom (Telecommunications), Denel (Defense R&D and manufacturing), Eskom (Electricity generation, transmission and distribution) and Transnet (national airline, railways, road transport and ports). The US$20 billion new infrastructure investments announced in October 2004 by Transnet and Eskom will provide significant capital investment opportunities for U.S. suppliers. Furthermore, the medium-term privatization of these and other smaller parastatals such as Sentech (radio transmission), Safcol (forestry), the SA Post Office, or in the case of Denel, a hoped-for partial buy-in by foreign companies, may also afford lucrative opportunities for U.S. participation.

Distribution and Sales Channels Return to top

Approximately 90 percent of South Africa’s population is found in areas surrounding the cities of Johannesburg, Cape Town, Durban, Pretoria and Port Elizabeth, which represent the country’s major areas of economic activity and consumer markets. The distribution chain within a given industry varies, depending on the nature and type of equipment and/or products being imported. Consumer-oriented products, for example, are distributed by local subsidiaries or joint-venture partners to a fixed number of distributors who sell to wholesalers and/or retailers who in turn sell to end-users. There may be more middlemen within the chain, depending on the arrangement worked out by the original equipment manufacturer (OEM). In South Africa, each industry sector has but a handful of major distributors, but often hundreds of small players. Major players prefer an exclusive agent/distributor agreement with the foreign firm. Most South Africa imports are handled through the country’s largest airport in Johannesburg or through one of three of the country’s ports, Durban, Cape Town and Port Elizabeth. Major distribution points:

• Johannesburg The city of Johannesburg is the commercial and financial hub of South Africa. As the country's transportation hub, it is the center for all rail and road connections and has the

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country’s major international airport. Johannesburg is 456 miles from Durban and 954 miles from Cape Town. The headquarters of the National Ports Authority of South Africa (NPA) is also located in Johannesburg.

• Durban

Durban is the busiest port in Africa and its Durban Container Terminal is the largest and best equipped container terminal in the southern hemisphere. Durban’s location on the east coast of South Africa makes the terminal a pivotal hub for the whole of the Southern African region of the Indian and South Atlantic Oceans – serving trade routes linking North and South America with the Middle East, India, Asia and Australasia. The terminal also serves as a crucial interface for the distribution of cargoes between ocean carriers and the markets of South Africa, Botswana, Zimbabwe, Zambia and Zaire. On the landside, there is direct connection with surface transport via rail sidings and also speedy connection to South Africa’s trunk road network. The facility handles in excess of 80,000 containers per month.

• Cape Town

Cape Town’s terminal is ideally positioned as a hub terminal at the most southern point of Africa for cargo to South America and the Far East. West/East Africa cargo has grown substantially making the Cape Town Container Terminal the terminal of choice for transshipment cargo. The terminal currently has a maximum throughput of 420,000 container moves per annum.

• Port Elizabeth

The Port Elizabeth Container Terminal is one of the three specialized container-handling facilities along the South African coastline. It serves the immediate area of the Eastern Cape where its main business focuses on the needs and requirements of the motor vehicle and components industry. Motor vehicle components arrive in containers to be assembled into cars for local distribution and export. The terminal caters to the various agricultural products being exported in containers. The terminal offers value-added services in the form of storage, packing and unpacking of containers and logistics management. The Terminal has an annual throughput of 250,000 teu’s (twenty four equivalent units).

Selling Factors/Techniques Return to top

Most new products entering the South African market South African need extensive market research and mass advertising to identify potential customers’ buying patterns and preferences. This applies particularly to unknown brands as South Africans are very brand conscious. One way of launching a new product in South Africa is by exhibiting at a trade-specific trade show. Promotional “give-aways” are also very popular. An editorial and/or advertisement on a specialized trade publication will enhance the product’s awareness. Although South Africa has eleven official languages, promotional material is typically printed in English.

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A major phenomenon in South Africa has been the evolution of hypermarkets, which sell large quantities of almost all consumer goods on a self-serve basis. The hypermarkets, located in suburban shopping centers, have disrupted the traditional distribution chain by purchasing directly from manufacturers and bypassing the wholesaler. Their low margins achieve high turnover, thereby placing price pressure on all competing outlets.

Electronic Commerce Return to top

Approximately 80 percent of large companies, 45 percent of medium and 25 percent of small companies have web sites. Consumer response to electronic commerce has increased. While acceptance of B2C interaction has grown, South Africans still primarily use websites for information gathering rather than purchasing. Procurement and electronic bill presentation application are drivers of B2B electronic commerce because of their value-added capabilities. However, a recent market research conducted by Master Card found that as much as 80 percent of all B2B deals in South Africa are still not being done electronically. There has been growth though, in the travel, accommodation, and theatre ticketing industries, with over R22 billion (US$4 billion) worth of consumer transactions being completed electronically in 2004. The research also predicts that an increasing number of property and car purchasing decisions will be Web-influenced. Other key categories include banking, gambling and lotteries, event ticketing, electronic equipment, computer software, services, cellular phones, books, auctions, CD’s, music and video DVD’s.

Trade Promotion and Advertising Return to top

South Africa has a sophisticated advertising industry. Advertising agencies provide a full range of services and the majority of the larger agencies are subsidiaries of prominent international agency groups. Major media outlets include television, radio, newspapers and magazines, outdoor advertisements, cinema and the Internet. The deregulation of the airwaves has introduced more competition through a further independent television channel and independent radio stations. The five key players in South Africa’s advertising industry are the Association of Advertising Agencies (AAA) http://www.aaaltd.co.za; the Marketing Federation of South Africa (MFSA) http://www.mfsa.co.za; the two major media bodies, the National Association of Broadcasters (NAB) http://www.nab.org.za/ and the Print Media Association (PMA); and finally the Advertising Standards Authority of South Africa (ASASA) http://www.asasa.org.za, which regulates South African Advertising Standards. Advertising agencies in South Africa are no longer solely remunerated by clients on the commission system. Fee arrangements are becoming increasingly evident and specialist media buying companies are taking a growing market share of media purchases in South Africa. Customarily, the various media offer 16.5 percent commission to recognized advertising agencies provided payment is made within the stipulated 45-day period.

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Additional information can be obtained from the following associations. Marketing Federation of SA JSE Building 17 Diagonal Street Newtown Johannesburg 2000 Tel: +27 (0)11 832 3500 Website: http://mfsa.co.za

Association of Advertising Agencies (AAA) Executive Director: Nina de Klerk PO Box 2289, Parklands, 2121 Tel: +27 (0)11 781 2772; Fax: +27 (0)11 781 2797 Website: http://www.aaaltd.co.zaEmail: lia@aaaltd.co.za

Names and addresses of major advertising agents, newspapers, magazines, market research companies, and public relations consultants along with their current rates, can be found in the Advertising and Press Annual of South Africa available from: The National Publishing Company (Pty) Ltd. IHS South Africa Managing Director Tim Gray PO Box 8147, Johannesburg, 2000 Tel: +27 (0)11 835 2221; Fax: +27 (0)11 835 2631 Email: natpub@lia.co.zaWebsite: http://www.natpub.co.za

Several trade exhibition firms operate in South Africa. The Exhibition Association of Southern Africa (EXSA) provides an overview of the Exhibitions and Trade Shows being held in South Africa and can be found at: http://www.exsa.co.za. You can also visit the Commercial Service South Africa’s website at http://www.buyusa.gov/southafrica/for links to upcoming trade events and business service providers. The U.S. Commercial Service in South Africa can assist you in promoting your products/services through our Single Company Promotion program where we would invite a targeted audience to a presentation by your company. We also offer promotional opportunities on our website through our “Featured U.S. Exporters” program. Please visit our website at http://www.buyusa.gov/southafrica/ for additional information on these promotional services.

Pricing Return to top

Prices are generally market-determined, with the exception of petroleum products, certain agricultural goods and prices administered by parastatals (government owned firms) such as the South African Post office and Telkom. Provisions of the Sales and Service Matters Act (previously known as the Price Control Act) set marking requirements and stipulate that prices cannot be evaded through auction sales. The act also requires that persons offering goods or services for resale keep and retain records

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for possible recall, indicating purchase costs, manufacturing costs, and selling prices. Changes in the fixed prices are published in the South African Government Gazette. SA applies a 14 percent Value Added Tax (VAT) (as opposed to General Sales Tax - GST) on all goods and services, except for some exempt, basic, staple diet items. Exports are zero-rated and no VAT is payable on imported capital goods. In Industrial Development Zones (IDZ) there is a VAT suspension on imports and exports, provided the finished product is exported. The SA Revenue Service (SARS), a division of the South African Department of Finance/Treasury, administers the VAT: SARS Private Bag X923 or P.O.Box 402 Pretoria 0001 Tel +27 (0)12 422 4000 Fax +27 (0)12 422 5181 www.sars.gov.za

Sales Service/Customer Support Return to top

Years of economic isolation, private sector and parastatal monopolies, collusion, and the lack of real competition in many sectors, have contributed, in general, to a lack of customer service in South Africa. As the market became open and therefore more competitive, South African consumers have become more and more aware of quality and service. Foreign companies that bring strong customer support systems to this market will still find themselves with a competitive edge. Consumers may direct queries and complaints to the South African National Consumers Union (SANCO), www.sanco.co.za

Protecting Your Intellectual Property Return to top

Property rights, including intellectual property, are protected under a variety of laws and regulations. South Africa has an independent judiciary under which any threat to property rights may be enforced without political interference. While South African IPR laws and regulations are largely in keeping with TRIPS (Trade Related Aspects of Intellectual Property), there are still concerns about widespread copyright piracy and trademark counterfeiting. The U.S. is working with the South African authorities to address these issues. The South African authorities seem keen to enforce a higher compliance with IPR laws and the SA Revenue Service (SARS) has been playing a prominent role in deterring imports of counterfeit goods. The U.S. and South African governments have held extensive consultations to clarify a section of the South African Medicines Act, which appeared to grant the Minister of Health broad powers in regard to patents on pharmaceuticals. The U.S. and South African governments reached an understanding that any action taken by the South

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African government will be compliant with TRIPS. A similar understanding was then reached between the pharmaceutical companies and the SA government. Additional information on South African rules and registration procedures for patents, trademarks, and copyrights can be obtained from: Department of Trade and Industry Trademarks, Patents, Design and Copyright Private Bag X84, Pretoria, 0001 Tel: +27 (0)12 310 8700/8707; Fax: +27 (0)12 323 4257/321 5025 www.cipro.gov.zaceciliap@cipro.gov.za

Due Diligence Return to top

Proper due diligence information should form the starting base for any business negotiation with South African concerns. U.S. companies should act prudently in completing due diligence reports prior to any proposed business deals. The Commercial Service can provide valuable background information on South African firms through our International Company Profile (ICP) service. Further information can be obtained by visiting our website at www.buyusa.gov/southafrica or contacting your local Export Assistance Center or the Commercial Service directly in Johannesburg (see contact numbers at the end of this guide).

Local Professional Services Return to top

For information on local business service providers for U.S. exporters to South Africa, please refer to the CS South Africa website: http://www.buyusa.gov/southafrica/en/bsp.html

U.S. companies seeking legal representation in South Africa should contact the Commercial Service office in South Africa for a list of local attorneys. For more specific information, please contact: Law Society of the Northern Provinces PO Box 1493, Pretoria, 0001 Tel: +27 (0)12 323-0400; Fax: +27 (0)12 323-2606

Web Resources Return to top

Association for Advertising and Communication – http://www.aaaltd.co.za

Advertising Standards Authority of SA – http://www.asasa.org.za

Companies and International Property Registration Office– http://www.cipro.co.za

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Exhibition Association of Southern Africa – http://www.exsa.co.za

Franchising Association of South Africa – http://www.fasa.co.za

Marketing Federation of South Africa – http://www.mfsa.co.za

Marketing Web – http://www.marketingweb.co.za

National Broadcasting Authority: http://nab.org.za

National Publishing Company – http://www.natpub.co.za

South African Consumer Union – http://www.sancu.co.za

South African Department of Trade and Industry (DTI) – http://www.dti.pwv.gov.za/dtiweb

Transunion ITC – http://www.transunionitc.co.za

U.S. Commercial Service South Africa – http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

Return to table of contents

Chapter 4: Leading Sectors for U.S. Export and Investment

• Agricultural Sector

Commercial Sectors • Airport/Ground Support Equipment (APG)• Telecommunication Equipment (TEL)• Electrical Power Systems (ELP)• Medical Equipment (MED)• Automotive Parts/Service Equipment (APS)• Pollution Control Equipment (POL)• Healthcare Services (HCS)

1. Airport/Ground Support Equipment

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Overview Return to top

South Africa has eleven principal airports, including four international facilities and hundreds of smaller regional and private airports. Johannesburg International Airport (JIA) is the air transport hub of Southern Africa, catering for over 13 million passengers each year and the busiest passenger airport in Africa. Various companies at JIA employ more than 18,000 people. In 2010 South Africa is hosting the World Cup Soccer and this, along with ongoing freight handling upgrades as well as the arrival of the Airbus A-380 will act as a major stimulus for airport development in South Africa. Growth in South Africa’s air transport sector has been forecast at approximately seven percent annually for the next six years, resulting in a US$444 market by 2011. The South African Airport/Ground Support Equipment Market 2002 (est.) 2003 (proj.) 2004 (proj.) 1 Total market size 220 324 340 2 Total local production 85 95 94 3 Total Exports 75 81 82 4 Total Imports 210 210 220 5 Imports from the US 68 79 84 Note: All figures in US$ millions. Above figures are unofficial estimates obtained from industry sources. 2002 Rand/Dollar exchange rate: US$1 = R10.52 2003 Rand/Dollar exchange rate: US$1 = R 8.00 2004 Rand/Dollar exchange rate: US$1 = R 6.50 Best Products/Services Return to top

The best prospects for U.S. exporters to take advantage of the infrastructure upgrades envisioned for the next five years will be:

• Ground support equipment, • Passenger transport vehicles, • Luggage handling vehicles and systems, • Cargo de-grouping and logistics, • Air traffic control, and • Instrument Landing Systems

Opportunities Return to top

The Airports Company of South Africa (ACSA) is considering a bond issue in 2005 to part-finance its capital investment plans to the value of approximately US$ 490 million (R 3.6 bn) for the five-year program. ACSA owns and operates SA's nine main airports and is embarking on a capital expenditure program to increase airport passenger capacity and efficiencies ahead of the 2010 Soccer World Cup. Since 2001, South African inbound tourism has shown consistent growth rates, and this development is expected to accelerate in the second half of this decade. A particular focus of the capital expenditure

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program is to be the airports in Kimberley, Bloemfontein and East London that will also host matches, apart from Durban, Cape Town and Johannesburg/Pretoria. The movement of international visitors, especially from Europe to SA, and the scattered match venues will impact ACSA with additional extensive, sustainable upgrading projects over the next five years. At Johannesburg International Airport yet another increase in the international passenger transfer facility is imminent and this will be integrated with the proposed Gautrain, the two-city high-speed rail link. The aprons at affected airports will also be increased to accommodate the new A380. A midfield cargo-handling center is still under consideration for possible construction by 2010. ACSA’s capital expenditure over the past five years amounted to about US$ 470 million (R 2.9bn), and US$ 655 million (R 4bn) over the last 10 years. ACSA is an important multiplier for U.S. companies wishing to gain access to the African airport market. Apart from the South African opportunities linked to ACSA, ACSA is already in involved in the management of Accra, Ghana IA. A number of African airports continue to seek ACSA's input to improve their infrastructure and service levels, such as Addis Ababa, Ethiopia. Resources Return to top

Airports Company South Africa (ACSA) PO BOX 75480 Gardenview 2047 Tel: +27 (0)11 453 9116 Fax: +27 (0)11 453 9353 Website: http://www.airports.co.za

Airport Africa 2005 An international exhibition is planned for October 2005. It will provide a forum for African airport role-players to meet with regional and international suppliers of products, services and technologies. Dates: 19 - 21 October 2005 Venue: Sandton Convention Centre

Johannesburg South Africa

Website: www.airportafrica.com

Aviation Companies Index of Southern Africa (AVDEX) Website: www.avdex.co.za

Commercial Aviation Association of Southern Africa (CAASA) P.O. Box 7283, Halfway House, 1685 Tel: +27 (0)11 805 0680 Fax: +27 (0)11 805 0599 Executive: Oliver Stratford, Chief Executive Officer Email: caasa@iafrica.comWebsite: www.caasa.co.zaAdditional Info: Commercial aviation interests group

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The U.S. Commercial Service point of contact in South Africa for aerospace is: Johan van Rensburg Commercial Specialist - Aerospace Johannesburg, South Africa Tel: +27 (0)11 778-4815 Fax: +27 (0)11 268-6102 Email: Johan.van.Rensburg@mail.doc.govWebsite: http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

2. Telecommunication Equipment (TEL)

Overview Return to top

South Africa’s telephone system is the best developed and most sophisticated on the African continent. Domestic systems consist of carrier-equipped open-wire lines, coaxial cables, microwave radio relay links, fiber-optic cable, radiotelephone communication stations and wireless local loops. The international system has two submarine cables and satellite earth stations (three Intelsat – one Indian Ocean and two Atlantic Ocean). Currently, the leading telecom player is still Telkom. Telkom presently enjoys a monopoly on fixed line services, (over five million main fixed lines are in use), long-haul carrier and international bearer status. The second national operator (SNO) license still not been awarded after a two-year bidding process, and the industry is confident that it will be awarded in 2005. A major milestone in the telecommunications sector in 2004, was the Minister of Communication’s liberalization announcement, with implication that VoIP (Voice over Internet Protocol) would become legal in February 2005. This long awaited announcement is a definite incentive to encourage more international companies to use South Africa as a base for their call centers as well as provides a possible destination for host outsourcing contracts.

The South African Telecommunications Market

2002 (est.) 2003 (proj.) 2004 (proj.) 1 Total market size 6.0 6.8 7.0 2 Total local production 2.8 3.2 3.6 3 Total Exports 0.25 0.28 0.31 4 Total Imports 1.90 2.2 2.5 5 Imports from the US 0.22 0.25 0.6 Note: All figures in US$ millions Above figures are unofficial estimates obtained from industry sources and include fixed lines, cellular and broadcasting equipment. Local equipment production includes foreign manufactured parts and components. Telecommunications equipment may also encompass certain types of components considered to be part of related Import

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Requirements and Documentation industry sectors, i.e. IT).

2002 Rand/Dollar exchange rate: US$1 = R10.52 2003 Rand/Dollar exchange rate: US$1 = R 8.00 2004 Rand/Dollar exchange rate: US$1 = R 6.50

Best Prospects/Services Return to top

U.S. suppliers/manufacturers will find a market for Voice Over Internet Protocol (VOIP) products, cellular phone products and smart card products.

Opportunities Return to top

U.S. suppliers of telecommunication products and equipment are well represented in South Africa, either by means of subsidiaries, branches, representatives, agents or distributors. Opportunities exist in niche markets where smaller U.S. companies have specialized technologies and value added consumer products. Since the announcement by the Minister of Communications that VoIP is to be legal from February 2005, a number of U.S. telecom firms have expressed interest in this market. Local service providers, technology vendors and consumers alike are excited at the prospect of a deregulated, open environment which should bring competition in the international Internet bandwidth supply chain and allow for substantial reduction of international and national calls. The smart card industry in particular, is poised for an unprecedented growth in South Africa. From 2005, all new credit and debit cards will be smart cards, requiring a rollout of at least 12 million smart cards over five years. The single biggest project, however, will be the new Home Affairs National Identification System (Hanis). Hanis will replace identity documents with about 30 million smart cards in the next five years. Similarly, Telkom and the mobile network operators are expected to add another 20 million cards in 2005. All pension payments handled by the social welfare department are also expected to move to a card system. Most telecommunications equipment is imported, and the major international manufacturers are well represented (Siemens, Alcatel, Nortel, Lucent, Motorola). Most players in this industry distribute imported equipment, and some have begun operating beyond South Africa.

Resources Return to top

FUTUREX 2005 Futurex is the new, single, unified and definitive event for the Information and Communications Technologies and Electronics (ICTE) industries; an exhibition ’Where ICTE and business connect’. A product of the integration of Computer Faire and Tel.com

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Africa - South Africa’s leading IT exhibition for the last 25 years and Africa’s premier international telecoms exhibition respectively. Dates: May 17-20, 2005 Venue: Sandton Convention Center, Johannesburg, South Africa Website: www.futurex.co.za

The U.S. Commercial Service point of contact in South Africa for ICTE is: Luisa D. Santos Commercial Specialist - ICT Johannesburg, South Africa Tel: +27 (0)11 778-4806 Fax: +27 (0)11 268-6102 Email: Luisa.D.Santos@mail.doc.govWebsite: http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

3. Electric Power Systems (ELP)

Overview Return to top

2002 2003 2004 (estimated) Total Market Size 37.63 38.8 40 Total Local Production 22.5 23.28 24 Total Exports 4.5 4.6 4.8 Total Imports 15 15 18 Imports from the U.S. 0.15 0.15 0.18 Note: Above figures are unofficial estimates obtained from industry sources All figures in US$ billions

2002 Rand/Dollar exchange rate: US$1 = R10.52 2003 Rand/Dollar exchange rate: US$1 = R 8.00 2004 Rand/Dollar exchange rate: US$1 = R 6.50 Coal is South Africa’s dominant source of electricity generation (the country is the 5th largest producer of coal in the world with proven reserves of 49.5 billion tons), followed by nuclear, pumped storage, hydro-, gas turbines and bagasse. Eskom, South Africa’s national power utility, has a capacity of around 39,800 MW and provides 95 percent of the country’s energy needs. Eskom owns 24 power stations, which are dotted around the South African landscape. The company and the Government have also embarked on an aggressive electrification campaign since 1994, and to date some 65 percent of houses now have access to electricity. Capacity is estimated to peak in 2007 and South Africa will require an additional 1,000MW of new capacity annually due to its energy intensive industries (mining and manufacturing). In other words, the predicted 4-5% per annum increase in energy consumption will require that South Africa consider new plants and alternative energy

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sources in the short- to medium term. South African energy supply will also remain a key consideration throughout the SADC countries. For a more comprehensive overview of this sector, please refer to http://general.rau.ac.za/sanea/chp1.htm

Best Prospects/Services Return to top

Refurbishment of turbines and equipment thereof Transmission equipment New Plant equipment and related systems (see opportunities below) Control equipment

Opportunities Return to top

The energy and electricity sectors offer good business opportunities for U.S. companies, particularly as Eskom plans to invest around $385 million over the next three years in plant upgrades and new technologies, specifically for the Camden, Grootvlei, and Komati Power Stations (previously mothballed). Further, the South African government plans to deregulate the sector by breaking the Eskom monopoly into individual generation, distribution and transmission companies and to develop Independent Power Producers within the short- to medium term. These distribution and transmission companies, termed REDS, are due to come online in June 2005, and will offer excellent opportunities with respect to plant build and upgrades, technology and skills, and technical assistance.

Most notably, the Department of Minerals and Energy (DME) is looking to introduce new power generation capacity as it is estimated that demand will exceed current capacity by 2008. The required power plant will be oil-fired open cycle gas turbines (CTGTs) operating as peaking plants (with the ability to convert to combined cycle plants at a later stage). Combined capacity will be for about 1000MW and DME is expected to invite proposals for either one or two power stations to be built. Currently, DME is inviting Expressions of Interest from Independent Power Producers, lenders, turnkey contractors, operations and maintenance contractors, fuel suppliers and insurers. For more information, please visit www.dme.gov.za

Resources Return to top

Department of Minerals & Energy www.dme.gov.za

Eskom www.eskom.co.za

South African Energy Profile 2003 South African National Energy Association Dr Chris Cooper Tel: +27 (0)11 489 2173 http://general.rau.ac.za/sanea/chp1.htm

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Power Generation World Africa 2005 March 01 – 02, 2005 Gallagher Estate Midrand Gauteng www.powergenerationworld.com/2005/power_ZA/

The U.S. Commercial Service point of contact in South Africa for energy is: Beki Ndimande Commercial Specialist - Johannesburg, South Africa Tel: +27 (0)11 778 4808 Fax: +27 (0)11 268 6102 Email: Beki.Ndimande@mail.doc.govWebsite: http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

4. Medical Equipment (MED)

Overview Return to topThe medical equipment and devices market is estimated at US$ 500 million. This represents approximately five percent of healthcare expenditure. Industry analysts estimate an annual growth rate of approximately 10 percent or more over the next three years. One of the priorities of the South African Government is to elevate the existing healthcare facilities to a high standard of healthcare delivery. The South African Medical Equipment and Devices Market 2002 (est.) 2003 (proj.) 2004 (proj.) 1 Total market size 500.00 534.21 571.83 2 Total local production 193.00 196.51 200.36 3 Total Exports 118.00 129.8 142.78 4 Total Imports 425.00 467.50 514.25 5 Imports from the US 148.75 163.63 179.99 Note: All figures in US$ millions. Above figures are unofficial estimates obtained from industry sources 2002 Rand/Dollar exchange rate: US$1 = R10.52 2003 Rand/Dollar exchange rate: US$1 = R 8.00 2004 Rand/Dollar exchange rate: US$1 = R 6.50 Year-on-year increase based on unofficial projected growth rate of approximately 10% on imports and exports and .75% on local production. Best Prospects/Services Return to top

Trade analysts foresee a continued acquisition of high-tech medical equipment, especially diagnostic imaging equipment, from the United States and other countries.

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Although most of the medical equipment imports come from Europe, the United States is rated as the leader in the supply of sophisticated and high-tech machinery. Based on the envisaged healthy market growth, U.S. companies are encouraged to consider a presence in the South African medical equipment industry. Opportunities Return to top

Industry analysts further suggest that U.S. companies should consider strategic long-term joint venture contracts with existing companies in the supply of medical equipment as opposed to finding local distributors or establishing new companies. They cited the following reasons as a basis for their recommendations:

- Medical equipment requires continuous back-up service that should be available on call

- Established companies have structures in place, which deal with after-sale service

- Substantial amounts of capital would have to be invested in stock to start earning returns on investments.

A number of large U.S. companies are already represented in this market. This offers various joint venture opportunities for smaller and medium size U.S. companies that have specialized technologies, which can be incorporated within the existing South African prospective partner operations. Resources Return to top

The South African Medical Devices Association Website: www.samed.co.za

Pan African Health 2005 The first African healthcare exhibition and conference incorporating the rest of Africa. The PAN AFRICAN HEALTH 2005 business-to-business trade exhibition is an invaluable forum geared to stimulate effective utilization of medical technology for sustainable healthcare delivery in Africa. Dates: 17 - 19 May 2005 Venue: Vodaworld

082 Vodacom Boulevard Vodavalley Midrand Johannesburg

Website: http://www.panafricanhealth.com

The U.S. Commercial Service point of contact in South Africa for medical equipment is: Felicity Nagel Commercial Specialist – Cape Town, South Africa Tel: +27 (0)21 421 4280 extension 2231 Fax: +27 (0)21 421 4269 Email: Felicity.Nagel@mail.doc.govWebsite: http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

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The South African Government exercises a decentralized health budget policy. This grants the provinces independent purchasing powers and allows them autonomy on capital decisions. Provincial procurement decisions are the responsibilities of the offices of the different provincial Members of the Executive Committee (MEC). Listed are the contact details of the procurement authorities in all nine provinces:

NOTHERN CAPE PROVINCIAL GOVERNMENT: Ms. Dipuo Elizabeth Peters, MEC for Health Tel: +27 (0)53 830 2000 Fax: +27 (0)53 833 1925 LIMPOPO PROVINCIAL GOVERNMENT: Mr. Sello Moloto, MEC for Health and Welfare Tel: +27 (0)15 295 7055 Fax: +27 (0)15 295 7068 FREE STATE PROVINCIAL GOVERNMNET: Ms. Anna Motsumi-Tsopo, MEC for Health Tel: +27 (0)51 405 5703 Fax: +27 (0)11 405 4608 Email: tsopoma@doh.ofs.gov.za

NORTH WEST PROVINCIAL GOVERNMENT: Dr. Molefi Sefularo, MEC for Health Tel: +27 (0)18 387 5277 Fax: +27 (0)18 384 2727 Email: petula@nwpg.org.za

GAUTENG PROVINCIAL GOVERNMENT: Dr. Gwen M. Ramokgopa, MEC for Health Tel: +27 (0)11 355 3540 Fax: +27 (0)11 838 4143 Email: malegwaler@gpg.gov.za

WESTERN CAPE PROVINCIAL GOVERNMENT: Mr. Piet Meyer, MEC for Health Tel: +27 (0)21 483 5417 Fax: +27 (0)21 483 4143 EASTERN CAPE PROVINCIAL GOVERNMENT: Dr. Monwabisi Bevan Goqwana, MEC for Health Tel: +27 (0)40 609-3700 Fax: +27 (0)40 635-0327 MPUMALANGA PROVINCIAL GOVERNMENT: Mr. Siphosezwe Masango, MEC for Health Tel: +27 (0)13 766 5078 Fax: +27 (0)13 766 5588 Email: nmabuza@nel.mpu.gov.za

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KWAZULU-NATAL PROVINCIAL GOVERNMENT: Dr. Zweli Lawrence Mkhize, MEC for Health Tel: +27 (0)33 395 2016/2298/2987 Fax: +27 (0)33 394 4505 Email: mkhizez@pixie.co.za

5. Automotive Parts/Service Equipment (APS)

Overview Return to top

South Africa is by far the dominant vehicle market on the African continent, with most of the major world brands represented by either their multinational source companies or by independent distributors. At present, the broader automotive industry represents the largest manufacturing sector in the South African economy and accounts for about 28 percent of the country’s manufacturing output. However, compared to industrialized countries, the local vehicle market is still relatively small.

2002 2003 2004 Total Market Size (sales) 600 650 707 Total Local Production 224 185 207 Total Exports 401 491 496 Total Imports 376 465 500 Imports from U.S. 30 42 36

Note: All figures in US$ millions Above figures are unofficial estimates obtained from industry sources. Imports and exports based on South African statistics for products under harmonized tariff code 8708. 2002 Rand/Dollar exchange rate: US$1 = R10.52 2003 Rand/Dollar exchange rate: US$1 = R 8.00 2004 Rand/Dollar exchange rate: US$1 = R 6.50

The assemblers in South Africa are similar to those in the rest of the world, i.e., they hold a strong position in the total industry. The major assemblers include: BMW South Africa; Daimler Chrysler; General (Delta) Motor Corporation; Toyota; Ford Motor Company; Nissan; Volkswagen; Fiat, Renault, and Volvo. Medium & heavy commercial assemblers include: Iveco South Africa, MAN Truck & Bus S.A.; Scania South Africa (Pty) Ltd; Erf South Africa and Tyco Truck Manufacturers. There are over 1,000 retail dealers representing the different franchises, with high standards of sales and after-sales support facilities. Record vehicle sales reflect booming domestic economic conditions. It bodes well for the automotive industry’s future contribution to gross domestic product, which measured 6.4 percent in 2003. Medium and heavy commercial vehicle sales grew 36 percent and 22 percent respectively. Industry experts state that 2004 could go down in the record books as the best year to date for the South African new vehicle market (previously

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1981’s 453,541 units) following record sales in November 2004. Industry sources estimate that assemblers will produce between 60-80 thousand vehicles per model by 2005. The South African component and OEM market’s five-year outlook is very positive, which reflects world economic conditions. The number of cars manufactured locally will increase two-fold – almost doubling the local content. With this increase in volume, it could become viable to manufacture a whole new range of components and sub-components. International patents tie up a large part of the local component industry. A majority of these international connections have decided to source certain products from South Africa and do reciprocal imports. The automotive manufacturing and supplier industry employs 90,000 people and has fixed investments of over US$4 billion. The total automotive turnover in South Africa, including sales and servicing, amounts to US$20 billion annually. Best Prospects/Services Return to top

The United States, behind Germany and Japan, is the third largest exporter of parts and components into South Africa. Top ten imports include: automotive tooling; engine parts; tires; stitched leather seat components; gauges/instrument parts; brake parts; transmission shafts; catalytic converters; and lighting equipment.

Opportunities Return to top

Due to the South African motor industry’s capability to supply increasingly sophisticated parts to the international market, there are niche market opportunities for U.S. companies to export to South Africa, which include the aforementioned best products and automotive accessories. Successful foreign involvement is centered, however, on partnerships with local firms in the form of joint ventures. Component manufacturers seek contact with foreign partners for market access, technology, process know-how, production rationalization and joint venture benefits.

Under the Motor Industry Development Program (MIDP) export complementation scheme, component exports qualify for Import Rebate Credit Certificates (IRCCs) which can be used to offset customs duty on automotive imports. For example, if a local manufacturer exports vehicles worth US$ 10 billion, of which 50 percent were locally produced, the manufacturer can then import vehicles duty-free to the value of US$ 5 billion. Many component makers have arrangements for these credits with the local assembly plants that they supply. A trend, which has increased since 2002, is OEM preference for doing business with component makers who are subsidiaries of, or have strong ties with major international suppliers. Consequently, independent South African companies are forming links with the leading foreign players.

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Resources Return to top

The Department of Trade and Industry South Africa

Tel. +27 (0)12 394 9500 Fax. +27 (0)11 394 2166

http://www.dti.gov.za/

National Association of Automobile Manufacturers of South Africa (NAAMSA)

Tel. +27 (0)12 323 2980 Fax. +27 (0)12 323 32323

http://www.naamsa.co.za/

National Association of Automotive Component and Allied Manufacturers (NAACAM)

Tel. +27 (0)11 454 0250 Fax. +27 (0)11 454 0320

http://www.naacam.co.za/

The U.S. Commercial Service point of contact in South Africa for the automotive sector is: Jaisvir Sewpaul Commercial Specialist – Cape Town, South Africa Tel: +27 (0)21 421 4280 extension 2227 Fax: +27 (0)21 421 4269 Email: Jaisvir.Sewpaul@mail.doc.govWebsite: http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

6. Pollution Control Equipment (POL)

Overview Return to top

General environmental issues have not historically been a high priority for South Africa, perhaps with the exception of mining and water access related concerns. However, national legislation introduced in the last few years forces companies to think more seriously about the impact of their operations on the environment and to develop plans to address environmental issues.

Until recently, South Africa lacked an effective system for regulating and controlling pollution caused by inadequate waste management and disposal. In 1999 the National Waste Management Strategy was published which focuses on implementation strategies and action plans. There are 750 landfill sites in South Africa, including 8 commercial hazardous sites and 24 non-commercial sites (the latter are typically owned by large, waste-generating firms. Of these 750, only 52 percent are licensed - the Department of Water Affairs and Forestry (responsible for landfill site permits) are prioritizing the largest and most dangerous sites.

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Hazardous waste is the biggest issue; at present there are no hazardous waste incinerators (only medical waste is incinerated) and such waste is co-disposed along with domestic waste after treatment. A small amount is encapsulated. South Africa has a total waste production of 52 million tons per year (2 million of which is defined as toxic –1 million industrial and 1 million from the mining sector).

South Africa is a high emitter of carbon dioxide, since 90 percent of electricity is generated from coal fired power stations. South Africa has an abundance of low quality cheap coal, which is high in sulphur content. Power stations are not presently scrubbing coal to remove sulphur since this would raise the price of electricity beyond the reach of most consumers.

Best Products/Services Return to top

The key sub-sectors that are featured in this report and offer the most opportunities for American companies are:

• waste management, • water pollution control and monitoring, • recycling, and • air pollution control and monitoring.

Opportunities Return to top

Waste Management

Landfill site management has created problems for local government, and there are at least 15 municipal councils considering public private partnerships in waste management. Most of these plans focus on designating areas for the creation of down-stream value-added products that have commercial value from the various waste sources are currently under development. From the municipal solid waste, organic compost and fertilizer will be created for the local agricultural market as well as the untapped export markets in the Middle East. The wood and glass waste will be made into various composites such as decking and textiles.

Implementation of these plans is expected in the near term but opportunities exist for U.S. products and service providers.

Water

The disposal of sludge and marine outfall are the two key areas that offer opportunities within the wastewater sub-sector. South Africa’s municipal water departments are looking at downstream value-added technologies for sludge treatment. A beneficial use for sludge is in fertilizer/compost products for agriculture and or in the making of bricks.

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Monitoring technology to measure the accumulative effects of deep-sea outfalls in the deposition zones is an additional commercial opportunity.

Recycling

Although South Africa is among the world’s best collectors of used metal beverage cans, and also has a good track record in glass and plastics recycling (the tonnage of glass recycled in 1999 was 104,550; 115,000 tons of plastics were recycled in the same year), opportunities exist for modernizing and expansion of recycling infrastructures.

Air

The City of Durban implemented the first air quality-monitoring program as a pilot program for the country. The remainder of the country also plans to implement similar programs.

Resources Return to top

Department of Environmental Affairs and Tourism - www.environment.gov.za

Department of Trade and Industry - www.dti.gov.za

Department of Water Affairs and Forestry - www.dwaf.gov.za

Water Research Commission - www.wrc.org.za

The U.S. Commercial Service point of contact in South Africa for environmental technologies is: Laurie Kohrs Commercial Specialist – Durban, South Africa Tel: +27 (0)31 305 7600 Fax: +27 (0)31 305 7610 Email: Laurie.Kohrs@mail.doc.govWebsite: http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

7. Healthcare Services (HCS)

Overview Return to top

South Africa spends approximately 8.5 percent of its GDP on health care (an equivalent of over US$ 10 billion). The delivery of health care services (HCS) to a population of over 43 million is managed by two systems:

- The public health care system, which is mainly government subsidized and serves the bulk of the population, and

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- The private health care system, which is administered by health insurance schemes and serves the smaller population that can afford medical aid cover.

Although classified as a middle-income country, South Africa’s healthcare delivery still exhibits major disparities. The middle and upper income consumers are offered services comparable with the best in the world, while millions in the lower income bracket are without access to even the most basic services. According to some healthcare analysts, the public healthcare sector serves 38 million people, while the private sector is responsible for only 7 million. Yet, US$4.86 billion (R31.6-bn) is spent on the public sector while US$ 6.67 billion (R43.3-bn) is spent on the private sector. The SA Government’s overriding challenge is to bring prosperity to the majority of citizens who still remain poor and without access to quality healthcare. The government also acknowledges that the movement of healthcare professionals from the public sector to the private sector and to jobs overseas is a problem. To this end the Department of Health implemented the scarce skills strategy program that uses incentives to retain skilled personnel and to encourage them to work in under-serviced regions (like rural areas). The program, implemented in 2003 at a cost of US$ 385 million (R2.5-bn), will run over three years. Because highly skilled professional personnel are key to the delivery of good health care, implementation of the scarce skills strategy continues to be priority in health. Best Products/Services Return to top

South Africa continues to offer immediate and long-term opportunities for the U.S. companies with the right products, services, resources and commitment to the market.Some industry analysts perceive an increase in technology and skills transfer, high-tech medical equipment acquisitions in Medium Term Budget (MTB) targeted hospitals and clinics. Opportunities Return to top

In addition to addressing staffing problems with a program of incentives, the government is also investing in improving the existing infrastructure. In the 2003 MTB, ten hospitals were targeted for upgrading. In the 2004/5 MTB this program of hospital revitalization is being rolled out to 26 more hospitals, at a cost of US$0.52 billion (R3.4-bn). Although there has been significant improvements in the general provision of health care in South Africa, a multitude of challenges still remain that provide U.S. companies with market opportunities:

- Hospital planning and management skills; - Upgraded management systems; - Strengthening the health information system including rehabilitation of hospital

inventory. Industry analysts believe that U.S. companies have opportunities in the provision of information technology software and hardware. They also cite staff training for information technology systems as another possibility for U.S. expertise.

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Resources Return to top

Department of Health - www.doh.gov.za

Pan African Health 2005 The first African healthcare exhibition and conference incorporating the rest of Africa. The PAN AFRICAN HEALTH 2005 business-to-business trade exhibition is an invaluable forum geared to stimulate effective utilization of medical technology for sustainable healthcare delivery in Africa. Dates: 17 - 19 May 2005 Venue: Vodaworld

082 Vodacom Boulevard Vodavalley Midrand Johannesburg

Website: http://www.panafricanhealth.com

Health Systems Trust - www.hst.org.za

The U.S. Commercial Service point of contact in South Africa for healthcare services is: Felicity Nagel Commercial Specialist – Cape Town, South Africa Tel: +27 (0)21 421 4280 extension 2231 Fax: +27 (0)21 421 4269 Email: Felicity.Nagel@mail.doc.govWebsite: http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

Agricultural Sectors Return to top

The Republic of South Africa (RSA) has a market-oriented economy and is a net exporter of agricultural products. It has a highly diversified agribusiness sector and is self sufficient in primary foods with the exceptions of wheat, oilseeds and rice. The farm sector is competitive in many products, particularly horticultural products such as wine, fresh fruits, and vegetables.

Over the last five years the United States has exported an average of 165 million dollars per year of agricultural, fish and forestry products to South Africa. Bulk agricultural commodities such as wheat, course grains and rice have been exported in substantial quantities in recent years. However, American rice may no longer be competitive in the South African market due to its high price. 2003 and 2004 U.S. wheat exports to South Africa were unusually high (about $50 million per year) due to poor wheat crops in competing countries, a newfound preference for U.S. hard red winter wheat, and a favorable exchange rate. Intermediate agricultural products such as planting seeds are an important export to South Africa, and animal fats have also shown consistent and substantial growth over the past five years. A variety of high-value products such as almonds, cultivated ginseng root, canned salmon, Kentucky bourbon, frozen food preparations, and sauces have shown consistent growth over the last five years and represent important opportunities for U.S. exporters.

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USDA’s Foreign Agricultural Service in Pretoria prepares more than 50 reports each year on the agricultural situation by commodity sector in South Africa. Some reports highlight opportunities for U.S. farm exports. For U.S. exporters of agricultural products please start with the Exporter Guide for South Africa (GAIN# SF4030) at http://www.fas.usda.gov/gainfiles/200408/146107213.pdf

For other sector reports please look at “Attache reports” off the main FAS website: www.fas.usda.gov

If you are an exporter of U.S. agricultural products, please feel free to contact AgPretoria for further information at the following address: Foreign Agricultural Service U.S. Embassy Pretoria, South Africa Tel: +27-12-431 4235 Fax: +27-12-342 2264 Email: agpretoria@fas.usda.gov

Overview: Grains Return to top

Market development opportunities in the over 40 countries of sub-Saharan Africa pose many challenges to a grain exporter. The market is small, the end users are often widespread, political instability and the lack of infrastructure hinders market development, and the sheer number of countries means that it is difficult to craft a uniform strategy for market development in the region. However, South Africa is the dominant economic engine of the South African Development Community (SADC), which is comprised of 14 countries in the southern Africa region.

South African Grain Market Value in million Dollars FY 2002 FY 2003 FY 2004 Total Market Size Total Local Production 12.1 million tons 11.2 million tons 11.5 million tons Total Exports $145 million $163 million $105 million Total Imports $295 million $365 million $472 million Imports from the U.S. $65 million $38 million $99 million (Data Source: World Trade Atlas

Food prices are a sensitive issue in South Africa, especially for the 35 million, predominantly poor blacks that make up 85% of the population. Food prices have become a political issue, and the government has set up a 'watchdog' agency to monitor the basic prices of staples like bread, maize-meal, and rice. For this reason South African millers have become very price sensitive grain buyers. Corn is the staple food but is in good supply, and very little is imported. As the South African grain supply and demand situation changes weekly, for the most accurate up-to-date information please read one of FAS/Pretoria’s South African Grain and Feed reports, which are updated monthly at: http://www.fas.usda.gov/scriptsw/attacherep/default.asp

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Best Product: Wheat Return to top

South Africa is the only country in the region with significant wheat production, about 2 million metric tons (MMT) of wheat per year. Production has been sporadic over the past ten years because of changing weather conditions. The official January 2005 wheat crop estimate, issued for the 2004 wheat crop, was 1.73 MMT an increase of 200,000 MT from the previous year. Annual wheat consumption in South Africa is about 2.7 MMT, or about 60 kg per capita, the highest in the sub-Saharan region. Its population is growing by 1.7% annually, and there is a rapid urbanization of South Africa’s major cities. Wheat Trade ($ million) FY2002 FY2003 FY2004 Exports 28.6 14.6 13.3 Imports 53.7 106.5 190.0 Imports from the USA 7.2 6.5 78.8 South Africa, with a population of over 40 million people, is a growing market and has one of the largest economies in Africa. With annual wheat consumption of 2.7 MMT compared with average production of 2.0 MMT, means annual wheat imports of 700,000 MT per year for own use, plus the wheat imported through the SA transport system for its neighbors. Opportunities Return to top

Contact U.S. Wheat Associates Cape Town office for current opportunities in the SA market for U.S. wheat. www.uswheat.org Resources Return to top

U.S. Wheat Associates has an office in Cape Town South Africa. They would be happy to help any company interested in purchasing or exporting U.S. wheat. They can be contacted at: InfoCapeTown@uswheat.org Return to table of contents

Overview: Hides and Skins Return to top

FY 2002 FY 2003 FY 2004 Total Market Size N/A N/A N/A Total Local Production 3.5 million hides 3.55 million hides 3.6 million hides Total Exports $162.3 million $172.9 million $188.7 million Total Imports $70.3 million $87.7 million $117.0 million Imports from the U.S. $1 million $1 million $13.6 million (Data Source: World Trade Atlas)

Many automobile companies (Ford, GM, Volkswagen, BMW, and Daimler-Chrysler, to name a few) have production plants in South Africa and are major consumers of leather. Leather car seats for BMW and Mercedes Benz are also produced for export.

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Best Product: Cattle Hides Return to top

Opportunities Return to top

There are opportunities to supply high-quality raw cattle hides for processing into leather for seats and car interiors. Resources Return to top

Contact the FAS office in Pretoria for assistance exporting to South Africa at: AgPretoria@usda.gov

Overview: Seeds Return to top

South Africa sources seed from other countries to replicate and multiply before exporting. South African seed imports mainly consist of grass seeds, followed by forage plants, vegetables and alfalfa. The United States is South Africa’s major seed supplier for herbaceous plants, Lucerne, Rye grass, flower seeds, vegetables, sugar beets, Kentucky blue grass, Beet seed (not sugar), clover and Fescue seed. In 2004, seed imports from the United States are expected to equal about 1,500 MT, more than double the 568 MT imported in 2003. The drought last year that affected major production areas will also mean increased seed imports in 2005. Research and development plays a major role in the seed industry. Contributions towards research by the seed industry increased by about 5% in 2004. Lack of sufficient water for irrigation is the main concern for both winter and summer grain crops.

2002 2003 2004 (estimated) Total Market Size N/A N/A N/A Total Local Production (MT) 154,100 93,741 93,700 Total Exports (MT) 8,464 5,700 5,700 (Jan-Oct=2,640) Total Imports (MT) 2,209 2,779 4,000 (Jan-Oct= 3,578) Imports from the U.S. (MT) 121 568 1,500 (Jan-Oct=1,269) (Source: South African Department of Agriculture)

Best Products Return to top

In the 03/04 annual report, the General Manager of the South African seed industry reported growth in the turnover of about US $200 million, primarily by winter and summer grain crops (69%), vegetables (20%), pasture and forage species (9%), and flowers (2%).

Opportunities Return to top

Many American companies sell seeds in South Africa and/or license their seed technology to South African seed companies, several of which have wide distribution

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across Africa. Opportunities for seed sales range across many product sectors such as cotton, grain, grass, oilseeds, and vegetables. The South African Government approves certain biotech events, and farmers are growing biotech cotton, corn, and soybean varieties. Resources Return to top

If you are interested in exporting U.S. planting seeds to South Africa, please take a look at the South African National Seed Organization website: www.sansor.co.za Then, if you have further questions, please contact the FAS office at: AgPretoria@usda.gov

Overview: Wood Products Return to top

In millions of Dollars FY 2002 FY 2003 FY 2004 Total Market Size N/A N/A N/A Total Local Production N/A N/A N/A Total Exports $314.9 million $463.8million $481.9million Total Imports $126.6 million $174.7million $214.9 million Imports from the U.S. $22.3 million $24.6 million $24.0 million (Data Source: World Trade Atlas) Best Product: Wine Barrels, and Staves for Barrels Return to top

Import data shows that South African imports of wine barrels have increased steadily over the past three years. Malaysia and France have benefited the most from this increase, however the weak dollar compared to the euro gives an opportunity for U.S. exporters to capture greater market share. Also, as South Africa does not produce white oak, it must import all of its wine barrels and staves.

Millions of Dollars FY 2002 FY 2003 FY 2004 Malaysia 20 27 40 France 13 20 23 United States 20 23 22 The World 113 151 180

(Data Source: South African Revenue Service)

Currently 110,200 hectares of vines producing wine grapes are under cultivation in South Africa over an area some 800 kilometers in length. White varieties constitute 55% of the plantings for wine, with Chenin Blanc plantings comprising 20% of the total. Red varieties account for 45% of the national vineyard. The most widely planted red variety is Cabernet Sauvignon, accounting for 15% of the total. Shiraz now accounts for 9%, while Pinotage, which is indigenous to South Africa, and Merlot each represent 7%.

Opportunities Return to top

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Market research shows that winemakers may remain loyal to a particular oak stave manufacturer in order to maintain product consistency, so it might be wise to link up with a winemaker who is expanding production and establishing new wine labels. Resources Return to top

The South Africa Wine Association might be willing to put oak stave manufacturers in touch with wine producers. Please look at the website: www.wosa.co.za for more information.

Overview: Almonds Return to top

Since South Africa does not produce almonds it must import enough to meet its needs. Best Product: Almonds Return to top

Total Market Size FY 2002 FY 2003 FY 2004 Total Local Production None None None Total Exports 0 0 0 Total Imports $2.0 million $3.2million $4.6 million Imports from the U.S. $2.0 million $2.5million $3.8million (Data Source: World Trade Atlas)

The United States is South Africa’s major source of almonds with a market share of about 82.6% valued at US$ 3.8 million in FY2004 and 78.4% valued at US$2.53 million in FY2003. Opportunities Return to top

The South African baking industry uses almonds in a similar way as the U.S. baking industry. Resources Return to top

Contact FAS/Pretoria at AgPretoria@usda.gov, and we can put you in touch with the South African Chamber of Baking (at this time they had not completed their website: www.sacb.co.za)

Overview: Distilled Spirits

Over the last few years, a wide range of new imported products has become available in the market. South African tastes and preferences are becoming more sophisticated and the average consumer is increasingly expecting a wide range of products on retail shelves. Traditionally, the South African distilled spirits consumer has preferred Scotch whisky and brandy. Recent trends indicate that consumers are turning to new and innovative distilled spirits. Openness to new products and increasing disposable income helps create a positive climate for the sale and promotion of U.S. distilled spirits. However, price sensitivity rather than brand loyalty rules the consumer's purchasing behavior. The per capita GDP of the South African

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consumer is $2,520. Initially, imported American distilled spirits might appeal mainly to the high-end consumer who can afford higher-end distilled spirits. Assisted by the strong Rand against the dollar, the South African appetite for American spirits has grown over the last three years. U.S. exports of distilled spirits to South Africa increased from $4.1 million in FY2002 to $5.7 million in FY2003 and $13.5 million In FY2004. The free trade agreement currently being negotiated between the United States and the South African Customs Union, which includes South Africa, will liberalize the South African economy by decreasing tariffs on most products. The current South African tariff on U.S. distilled spirits is 5% ad valorem. The reduction in tariffs under the FTA should eventually decrease the cost of American distilled spirits to the consumer, creating greater opportunities for U.S. exports to South Africa.

Distilled Spirits

FY 2002 FY 2003 FY 2004 Total Market Size N/A N/A N/A Total Local Production N/A N/A N/A Total Exports $27.8million $29.5million $29.5million Total Imports $65.6million $91.1million $119.9million Imports from the U.S. $4.1million $5.7million $13.5million (Data Source: World Trade Atlas Best Products: Bourbon Return to top

In FY2003, the U.K. held 85% of the whisky market share while the United States held only 6.6%. However, the United States increased whisky exports to South Africa in FY2004 and has seen an annual growth over the past 5 years by an average of 21% per year. This growth may be due, in part, to a South African preference for successfully promoted American branded products (Jack Daniels, for example). This preference should help other American products be more competitive in South Africa and may lead to the growth of other American-branded, high-value distilled spirits. Distilled spirit marketers might wish to target the expanding black middle and upper classes since this group likely has fewer loyalties to the competition, Scotch and brandy.

Opportunities Return to top

Resources Return to top

The Distilled Spirits Council of the United States can help U.S. distillers with market information and advice on how to export to South Africa (http://www.discus.org/)

Overview: Seafood Return to top

South Africa imported fish and seafood products worth $58 million in FY 04. This mainly consisted of crustaceans ($19 million) other seafood (squid), $15 million and fish meat,

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$20 million. Although small, imports of fish and seafood products from the United States have been increasing steadily over the past two years. In FY2004 South Africa saw an increase of $2 million in imports from the US from $700,000 in 2003 to $2.7 million. Categories, which have shown the most growth is other seafood (0307) from $17,000 to $1.2 million and frozen fish ($666,000 in 2003 to $1.4 million in 2004). Fish and seafood products require import permits to be imported into South Africa. Import Licensing is handled by the Director of Imports and Exports Control of following Departments: Department of Agriculture, Directorate of Veterinary Services; Department of Health, Directorate of Food Control; South African Bureau of Standards; and South African Health Officials, commonly known as Port Health Officers. It’s easiest to let experienced S. African seafood buyers take care of these import permits. Best Product: Canned Salmon & other specialty fish return to top

South Africa is a net exporter of seafood, but canned salmon imports have been increasing and this trend is expected to continue. South Africa is following worldwide trends and moving away from the consumption of red meat in favor of fish and poultry. Local production is insufficient to meet the demand for products such as shrimp and prawns, tuna, horse-mackerel, snoek and pilchards.

FY 2002 FY 2003 FY 2004 Total Market Size (tons) 88,117 91,031 84,041 Total Local Production Total Exports $259.5 million $342.0million $400.4 million Total Imports $25.5 million $40.3million $57.8 million Imports from the U.S. $566,000 $713,000 $2,729,000 Sources: Global Trade Atlas, BMI Food Pack

Opportunities Return to top

Rather than the traditional consumption of canned tuna and pilchards, we observe some growth in demand for canned salmon. The United States enjoys a dominant position in the canned salmon market holding a market share of 88%, United Kingdom and South Korea each have 4%, followed by China (3%), and Canada (1%). For shrimp and prawns, horse-mackerel and snoek, demand is for frozen products. Resources Return to top

FAS/Pretoria can put potential exporters of U.S. seafood products in touch with canned salmon and other seafood importers. Please email us at: AgPretoria@usda.gov

Return to table of contents

Chapter 5: Trade Regulations and Standards

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• Import Tariffs• Trade Barriers• Import Requirements and Documentation• U.S. Export Controls• Temporary Entry• Labeling and Marking Requirements• Prohibited and Restricted Imports• Customs Regulations and Contact Information• Standards• Trade Agreements• Web Resources

Import Tariffs Return to top

As a result of the Uruguay Round, South Africa has significantly reduced its number of tariff lines and bound most (95 percent) tariffs to World Trade Organization (WTO) binding levels. It has cut back tariff lines from the 80 different levels of the past to eight levels ranging form zero to 30 percent with a few exceptions – notably in clothing and textiles and for motor industry manufactures. The general trend has been for tariffs to be reduced to encourage industries to become more competitive and also to reduce cost structures. In spite of these reforms, however, South Africa’s tariff schedule remains complex and can create uncertainty for businesses that import goods frequently.

The dutiable value of goods imported into South Africa is calculated on the f.o.b. price in the country of export, in accordance with the GATT Customs Valuation Code. The value for customs duty purposes is the transaction value—the price actually paid or payable. In cases where the transaction value cannot be determined, the price actually paid for similar goods, adjusted for differences in cost and charges based on distance and mode of transport, is regarded as the transaction value. If more than one transaction value is determined, the lowest value applies. Alternatively, a computed value may be used based on production costs of the imported goods. In the case of related buyers and sellers, the transaction value will be accepted if, in the opinion of the Commissioner for Customs, the relationship does not influence the price, or if the importer shows that the transaction value approximates the value of identical or similar goods imported at or about the same time.

Dutiable weight for the assessment of specific duties is the legal weight of merchandise, plus the weight of the immediate container in which the product is sold, unless specified otherwise in the tariff.

The value-added tax (VAT) is 14 percent. VAT is payable on nearly all imports. However, goods imported for use in manufacturing or resale by registered trades may be exempt from VAT.

Specific excise duties are levied on tobacco, tobacco products and petroleum products. Duties on alcoholic beverages are set at fixed percentages of the retail prices. Ad valorem excise duties are levied on a range of “up market” consumer goods. The statutory rate is currently 10 percent except that most office machinery, as well as motorcycles, has a duty of five percent. In the 2003 Budget, the Minister of Finance, reduced the ad valorem excise duties on new motor vehicles and repealed ad valorem duties on computer equipment. Various provisions for rebate of duty exist for specific materials used in domestic manufacturing. The importer must consult the relevant

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schedules to the Customs and Excise Act to determine whether the potential imports are eligible for rebate duty.

Trade Barriers Return to top

South African companies began submitting a larger number of antidumping petitions during the past five years. The board on Tariffs and Trade (now the ITAC) said that the increase in petitions had been expected as a result of tariffs being phased down. Previously formula duties and even high rates of ad valorem or specific duties were sometimes used to counter dumping. Due to South Africa’s WTO binding commitments and tariff policy, however, this practice is no longer followed.

The South African International Trade Administration Commission (ITAC) came into operation in June 2003, replacing the Board on Tariffs and Trade. It has been tasked with establishing an efficient and effective system for the administration of trade. ITAC’s responsibilities include: · Tariff Investigations - The ITAC administers tariff-related programs, including the Motor Industry Development Program (MIDP) and the Duty Credit Certificate System (DCCS). Interested parties are entitled to approach ITAC with specific requests for tariff assistance. · Trade Remedies - The ITAC deals with antidumping and countervailing duties and safeguards. The safeguards procedures were introduced in August 27, 2004, but have not yet been applied. The regulations are expected to provide greater transparency and certainty, and

contribute to greater efficiency during conducting investigations.

Import Requirements and Documentation Return to top

Import Permits Each year DTI publishes a list of goods requiring import permits in an annual Import Control Program, which covers imports from any country. The Directorate of Import and Export Control with the DTI administers the issuance of permits, though for some imports additional and prior authorization may be required from other departments. Most new goods are exempt from import control measures but all used goods, second-hand goods, waste and scrap are subject to import control measures. A phytosanitary certificate is required for the importation of lard, bacon, ham, hides and skins, animal hair and bristles and honey products. The other products that require import permits include: fish and fish products, residues, petroleum products, ozone-depleting chemicals, firearms and ammunition, gambling equipment, and radioactive chemical elements. According to the DTI the purpose of the remaining import control measures is to enhance control for environmental health and security reasons, and for safety and quality compliance. Imports of second hand goods are prohibited in order to protect the local industries of SACU.

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Documentation

• For customs purposes in South Africa, one negotiable and two non-negotiable copies of the Bill of Lading are required. The bill of lading may be made out either "straight" or "to order".

• A declaration of Origin Form DA59 is to be used in cases where a rate of duty lower than the general rate is claimed and, also, for goods liable to anti-dumping or countervailing duty. It is a prescribed form with stipulated format, size and content. This form does not require Chamber of Commerce certification. One original signed copy of the form must be attached to the original commercial invoice covering goods, which require such a declaration.

• Four copies and one original Commercial Invoice are required. Suppliers must give in their invoices all data necessary for the importer to make a valid entry and for the South African customs to determine value for duty purposes. Invoices from suppliers will not be accepted as satisfying the requirements of the customs regulations unless they state, in addition to any proprietary or trade name of the goods a full description of their nature and characteristics together with such particulars as are required to assess the import duty and to compile statistics.

• One copy of the insurance certificate is required. Follow the importer’s and/or insurance company’s instructions in other matters.

• Three copies of the Packing List are required. Data contained in this document should agree with that in other documents.

U.S. Export Controls Return to top

South African "listed" items are those that appear on the Department of Commerce Control List. These require a license to be exported to South Africa based on the Export Control Classification Number and the Country Chart. These items are detailed on the following U.S. Department of Commerce’s Bureau of Industry and Security website: www.gpo.gov/bis/ear/ear_data.html

The Country Chart, which includes South Africa, is in Part 738. The Commerce Control List is in Part 774; there are 10 categories that can be pulled up as separate files.

Temporary Entry Return to top

South Africa has a variety of mechanisms to facilitate the temporary importation of mostly commercial goods and services. 1. Carnet Entry (also known as ATA Carnet) South Africa is a member of the ATA Convention (see: http://www.atacarnet.com/ata-carnet-info.htm). Typically, the following goods are eligible to qualify for Carnet entry:

1. Commercial samples; 2. Goods for international fairs and exhibitions, and 3. Professional equipment (including tools and instruments, but not goods for

processing or repair).

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The exporter must provide a letter stating that the exporter/carnet holder authorizes the customs clearance agent to clear the shipment on its behalf and may deliver to the consignee addressed therein. This letter from the carnet holder is to accompany the carnet document. SARS will not process carnet clearance without this letter. No duty or VAT is payable on carnet shipments. On export the same carnet is used.

2. Temporary Entry The shipping agent both in the United States and its correspondent customs clearance agent in South Africa must be notified that a shipment is only intended to remain in South Africa for a limited period. The customs clearance process will include a "Provisional Payment” (PP) that is valid for a period of six months; however the shipment must be exported within this time. If export is to take longer - a formal extension request must be submitted to the SA Revenue Service (SARS – Customs and Excise) before the six-month period has expired. On import, the serial numbers of all the goods must be indicated on the documentation (invoices from shipper) the shipment will be stopped by customs for examination - customs will verify the serial numbers & endorse the documentation. On export - the same procedure is followed so as to verify that the same goods are leaving the country. The PP will cover any customs duty and VAT applicable to shipment – after export this PP is then liquidated by means of submitting the import & export documentation and requesting the refund. 3. Repair and Return Entry The shipping agent both in the United States and its correspondent customs clearance agent in South Africa must be notified that the shipment in question is for repairs, or a return shipment for repairs performed in the United States. On export, the serial numbers are to be stated on invoices, examination will be done by SARS. On import, serial numbers are to be stated on invoices, examination will be done by SARS. No duty is payable as duty was paid on the first import into the country. VAT is however payable on repair costs only - even through value of goods are declared to SARS as well. The above is in accordance with SARS rebate item 409.04 - in order to make use of this rebate item the importer must comply with the following provisions.

1. Goods are returned to original exporter - no change of ownership 2. The essential characteristics of product remains the same - no alterations made

to goods - just repaired 3. Goods exported under customs supervision with export documents DA550 &

DA65 must be produced at time of import clearance 4. The goods must be identifiable - serial numbers on goods

If these provisions cannot be met the importer will have to enter the goods as a Duty Paid (DP) clearance (as a new import - not previously exported), i.e. the full value must be declared, this consists of the export value plus any cost of repair. If the goods are repaired under warranty the cost of repair will not be dutiable, provided the importer can prove the following,

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1. the duty was paid on first importation of the goods in question (again by use of serial numbers);

2. the warranty is in force at time of re-importation; 3. all criteria in terms of rebate item 409.04 are complied with, and 4. that warranty agreement is available for customs if they call for it

Labeling and Marking Requirements Return to top

South Africa has a well-developed regulatory standards environment that oversees the labeling and marking regime. The South African Bureau of Standards (and its accredited divisions and agents) as the national standards, homologation and accreditation authority, oversees labeling and marking in the following specification categories:

1. Environmental 2. Automotive 3. Engineering 4. Medical, and 5. Chemical

An exhaustive listing of the relevant technical specifications by product is given at http://www.sabs.co.za/ (see Commercial Services). Imports into South Africa have to be specifications compliant for that given product or the relevant application. If an imported product does not bear a quality or standards’ specification marking, the importer will finally be liable for the quality of the product. Established importers will therefore want to divest themselves of this liability by ensuring the product under discussion is specifications compliant and bears the relevant standards’ marking. The marking and labeling often revolve around the five categories listed above to ensure consumer and environmental protection. Often the importer will insist that the foreign manufacturer affixes these ex-works. Only in exceptional cases will the importer, wholesaler or retailer at the bulk break stage be prepared to affix these labels and markings. It is common practice for retailers to insist that imported technical goods carry safety instructions or other user guide in the English language. English user instructions are often supplemented by diagrams, pictures or diagrams. While liability laws and conventions in South Africa are not as onerous as in the United States, the retailer, wholesaler and importer are all desirous to reduce to a minimum their liability. South African legal practice follows the precepts of both English Commercial Law, as well as Roman Dutch civil law. It is also common practice for the user instructions to reflect the official South African service agent for the product, and less often, the importer of the product. This user instruction will also indicate the warranty aspects.

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Prohibited and Restricted Imports Return to top

1. The importation of, inter alia, the following goods into South Africa is prohibited: • Narcotic and habit-forming drugs in any form. • Fully automatic, military and unnumbered weapons, explosives and fireworks. • Poison and other toxic substances. • Cigarettes with a mass of more than 2 kg per 1,000. • Goods to which a trade description or trade mark is applied in contravention of

any Act, (for example counterfeit goods). • Unlawful reproductions of any works subject to copyright. • Prison-made and penitentiary-made goods. An exhaustive list of prohibited imports appears under: http://www.sars.gov.za//ce/prohibited_goods/imports.pdf

Certain goods may only be imported provided the U.S. exporter is in possession of the necessary authority/permit. If exporters are in any doubt whether the importation of other goods is restricted, please contact the Commercial Service in South Africa. 2. Examples of restricted goods are listed here: • Certain foodstuffs, • Petroleum products, • Armaments, • All second hand goods, • Endangered species of plants or wild life, whether live or dead, including

any parts of and articles made from them, • Plants and plant products, such as seeds, flowers, fruit, honey, margarine

and vegetables oils, • Animals, birds, poultry and products thereof, for example dairy products, butter

and eggs, and • Medicine. An exhaustive list of restricted imports appears under: http://www.sars.gov.za//ce/prohibited_goods/imports.pdf

Import licenses are required for restricted items products specified in Schedule 1 of the Import Control Regulations Act as amended in August 1992. In recent years, the list of restricted goods requiring import permits has been reduced and restrictions relate principally to goods that have the potential to be harmful in some way. Importers must possess an import permit prior to the date of shipment. Failure to produce a required permit could result in the imposition of penalties. The permit is only valid in respect of the goods of the class and country specified. It is non-transferable and may only be used by the person to whom it was issued. Import permits are valid only for the calendar year in which they are issued. Import permits required for specific categories of restricted goods are obtainable from the Director of Import and Export Control at the Department of Trade and Industry.

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Department of Trade and Industry Import Control Private Bag X84 Pretoria 0001 www.dti.gov.za

Telephone: +27 (0)12 310 9791 Fax: +27 (0)12 310 9899

Customs Contact Information Return to top

The South African Revenue Services, a division of the South African Department of Finance/Treasury administers import duties and controls. The latter are implemented in consultation with the SA Department of Trade and Industry. SARS - Customs and Excise - Johannesburg Postal Address- Customs and Excise Private Bag X21, Marshall Town Johannesburg 2107 Tel: +27 (0)11 241 5500 Fax: +27 (0)11 834 6526 http://www.sars.gov.za/

Standards Return to top

• Overview• Standards Organizations• Conformity Assessment• Product Certification• Accreditation• Publication of Technical Regulations• Labeling and Marking

Overview Return to top

The South African Bureau of Standards (SABS) is the South African government agency responsible for standards. SABS enjoys the distinction of being the only administrative structure of its kind in sub-Saharan Africa. In recent years SABS has undergone a major overhaul. The Standards Act of 1993 called for SABS to assume a more international outlook. Departments within SABS include Small, Medium, and Micro Enterprises (SMME) Development, as well as South African Standards, Quality Assurance, Accreditation and Metrology (SQAM). SABS is accredited nationally by the South African Accreditation System (SANAS), and is recognized internationally by Netherlands-based Raad voor Accreditatie (RvA). SABS belongs to both the International Organization of Standardization (ISO) and the International Electrotechnical Commission (IEC). Accordingly, it issues pharmaceutical and industrial standards that conform to those of the ISO.

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All SABS standards are in the process of being renamed as South African National Standards (SANS). This change is being carried out to make the numbering system simpler and more understandable. The conversion will be a lengthy one and will not be completed until the year 2007. The Government Gazette of November 8, 2002, has the full listing of new numbers (http://thor.sabinet.co.za/html/gaz index.html). SABS’ strict adherence to the ISO could be a source of concern for U.S. companies hoping to do business in South Africa. As previously mentioned, SABS received its accreditation from the RvA, a co-signatory to the EAC agreement. Subsequently, SABS follows the standards of the ISO, the IEC and the European Committee for Standardization (CEN) while not automatically recognizing those produced in the United States. In practice, U.S. companies have been able to comply with South African standards when importing goods into South Africa. Based on a survey of U.S. firms already established in South Africa, the standards put forth by SABS have not been a major issue

The standards issued by the SABS are in accordance with the Environmental Conservation Act and are enforced on all imports and exports. All foreign companies establishing themselves in South Africa need to have their Environmental Management System (EMS) certified. This certification needs to be updated every year in order to ensure that the company is observing South African standards.

The Directorate of Plant Health and Quality within the National Department of Agriculture (http://www.nda.agric.za) is responsible for setting standards for certain agricultural and agricultural-related products. These standards cover aspects such as composition, quality, packaging, marketing, and labeling as well as physical, physiological, chemical, and microbiological analyses.

The Standards Act 29 of 1993 gave SABS the power to involve itself in the regulatory area of consumer protection. However, SABS regulations are sometimes lax. As of 2004 only 72 of SABS’ approximately 5000 standards are mandatory. Manufacturers have the choice to pay SABS to test and approve their products. This option is rarely exercised. Though SABS possesses the right to terminate the sale of products if it receives enough complaints, there have been very few cases of this happening.

Standards Organizations Return to top

List of South African standards organizations

a. South African Bureau of Standards (SABS)

Representatives from SABS have stated that they have no plans to recognize any U.S. standards in the near future. Any product with a medical claim must be registered by the MCC before it can be distributed in South Africa. Industrial goods are a different matter. A sizable number of companies surveyed reported that their products needed to undergo modifications in order to satisfy SABS standards. As indicated earlier, these alterations, though time-consuming, do not result in unacceptable cost implications. U.S. products delivered onto the market are able to compete with competitors. With regard to consumer protection, recent reports indicate that SABS will take a tougher line on companies that violate mandatory standards. Other proposed reforms would impose Organization for Economic Co-operation and Development (OECD) standards in South Africa. While this may not always be strictly enforced, the possibility of more stringent consumer protection regulation is something that companies need to take into account.

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website: http://www.sabs.co.za

b. Council for Scientific and Industrial Research (CSIR) – research organization aiming to promote economic growth in southern Africa. website: http://www.csir.co.za

c. Engineering Council of South Africa (ECSA) – statutory body focused on promoting high standards of engineering work. website: http://www.ecsa.co.za

d. National Department of Agriculture (NDA) – government agency responsible for setting standards for certain agricultural and agricultural-related products. website: http://www.nda.agric.za

e. Department of Health – government organization that aims at increasing the quality of medical care in South Africa. website: http://www.doh.gov.za

Conformity Assessment Return to top

The following is a list of South African organizations involved in conformity assessment a. SABS- South African organization involved in standards. website: http://www.sabs.co.za

b. Human Science Research Council (HSRC) – works with NGOs, international development agencies, and the government on large-scale, social-scientific projects. It is also involved in the homologation of academic standards. website: http://www.hsrc.ac.za

c. Medicines Control Council (MCC) – body that regulates medicine in South Africa. website: http://www.mccza.com

Product Certification Return to top

Important points concerning product certification: a. Electrical products need to receive Electromagnetic Interference (EMI) certification. b. A mutual recognition agreement (MRA) exists between the Engineering Council of South Africa (ECSA) and the Accreditation Board for Engineering and the Accreditation Board for Engineering and Technology, Inc. (ABET) in the United States. c. All medicines must be certified by the MCC d. Electromedical products, such as x-rays, need certification from the Radiation Control Council, a directorate of the Department of Health website: http://www.doh.gov.za/index.html

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Accreditation Return to top

The following is a list of organizations involved in accreditation in South Africa:

a. South African National Accreditation System (SANAS) – Organization that awards official recognition that laboratories, certification bodies, inspection bodies, proficiency testing scheme providers and good laboratory practice (GLP) test facilities possess the capability to carry out certain tasks. Electronic equipment must be tested at labs accredited by SANAS. website: http://www.sanas.co.za

b. International Laboratory Accreditation Cooperation (ILAC) – International body that determines whether laboratories are able to perform specific tasks. website: http://www.ilac.org

c. International Accreditation Forum (IAF) – Accreditation organization whose members are required to maintain high standards when accrediting companies. website: http://www.iaf.nu

Publication of Technical Regulations Return to top

All proposed and final technical regulations are published in the Government Gazette (website: http://thor.sabinet.co.za/html/gaz index.html).

Labeling and Marking Return to top

Important points on labeling/marking:

a. Labeling/marking is not an issue for industrial and pharmaceutical imports provided this is in English. South Africa follows the Harmonized System (HS) and belongs to the Southern African Customs Union (SACU); an organization that permits goods to be exchanged practically unhindered amongst the member states; South Africa, the principal administrator and revenue collector, Lesotho, Swaziland, Botswana and Namibia. b. In January 2004, the South African government issued new regulations mandating the labeling of genetically modified food products under certain circumstances, including when allergens or human/animal proteins are present, and when a GM food product differs significantly from a non-GM equivalent. The new rules also required validation of enhanced-characteristic (for example: “more nutritious”) claims for GM food products. The regulations did not address labeling claims that products are GM-free. For more information, see: http://www.doh.gov.za/department/foodcontrol/docs/explain.html.

Trade Agreements Return to top

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There is duty-free trade between South Africa and the other four countries (Botswana, Lesotho, Namibia, and Swaziland) comprising the Southern African Customs Union (SACU). The Southern African Development Community (SADC) Free Trade Agreement should also allow duty-free trade among the 14 countries of the region when it comes into full effect. The EU-SA Trade and Development Cooperation Agreement, which came into effect in 2000, will result in substantially free trade between South Africa and the EU by 2008. The United States and SACU held six rounds of negotiations for a free-trade agreement between June 2003 and June 2004. Following a meeting of U.S. and SACU trade ministers in December 2004 at Walvis Bay, Namibia, both sides aim to continue the talks in 2005. Traders are subject to exchange control approval, administered by the South African Reserve Bank. The Department of Trade and Industry (DTI) is empowered to regulate, prohibit or ration imports to South Africa in the national interests but most goods may be imported into South Africa without any restrictions. As a matter of government policy, the South African Government is aiming to open its market still further in order to increase trade and to develop more competitive domestic industries. Pursuant to the International Trade Administration Act of 2002, South Africa recently established a modern and independent regulator of international trade for the entire SACU, the International Trade Administration Commission (ITAC).

Web Resources Return to top

Bureau of Industry and Security - www.gpo.gov/bis/ear/ear_data.html

ATA Convention - http://www.atacarnet.com/ata-carnet-info.htm

South African Bureau of Standards - http://www.sabs.co.za/

Department of Trade and Industry - www.dti.gov.za

International Marketing Council - http://www.southafrica.info/

South African Revenue Services - http://www.sars.gov.za/

Directorate of Plant Health and Quality/National Department of Agriculture - http://www.nda.agric.za

Council for Scientific and Industrial - http://www.csir.co.za

Engineering Council of South - http://www.ecsa.co.za

National Department of Agriculture - http://www.nda.agric.za

Department of Health - http://www.doh.gov.za

Human Science Research Council - http://www.hsrc.ac.za

Medicines Control - http://www.mccza.com

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South African National Accreditation - http://www.sanas.co.za

International Laboratory Accreditation Cooperation - http://www.ilac.org

International Accreditation Forum - http://www.iaf.nu

U.S. Commercial Service South Africa – http://buyusa.gov/southafrica/en or http://www.ussatrade.co.za

Return to table of contents

Chapter 6: Investment Climate

• Openness to Foreign Investment• Conversion and Transfer Policies• Expropriation and Compensation• Dispute Settlement• Performance Requirements and Incentives• Right to Private Ownership and Establishment• Protection of Property Rights• Transparency of Regulatory System• Efficient Capital Markets and Portfolio Investment• Political Violence• Corruption• Bilateral Investment Agreements• OPIC and Other Investment Insurance Programs• Labor• Foreign-Trade Zones/Free Ports• Foreign Direct Investment Statistics• Web Resources

Openness to Foreign Investment Return to top

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,

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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) 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

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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,

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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. In a recent survey of American companies operating in South Africa, U.S. firms raised 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. However, the Minister of Trade and Industry assured the U.S. Embassy that equity ownership is not a condition of doing business with the South African government and 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

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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.

Conversion and Transfer Policies Return to top

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

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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 SARB for approval. Limits on pension funds, insurance companies, mutual funds (unit trusts) and individuals are still in place but expectations

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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

Expropriation and Compensation Return to top

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.

Dispute Settlement Return to top

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.

Performance Requirements and Incentives Return to top

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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 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 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.

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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

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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.

Right to Private Ownership and Establishment Return to top

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.

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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.

Protection of Property Rights Return to top

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.

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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.

Transparency of Regulatory System Return to top

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

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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.

Efficient Capital Markets and Portfolio Investment Return to top

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

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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 October were followed by net purchases in November. The JSE Securities Exchange is the 14th largest exchange measured by capitalization in the world. In November 2004 the market capitalization stood at around $ $428.6 billion with a total of 403 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.

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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.

Political Violence Return to top

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. 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.

Corruption Return to top

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, but it has applied to join the Working Group On Bribery, a pre-requisite for signing the Convention. The OECD is reviewing South Africa's application in 2005. 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. 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

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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 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.

Bilateral Investment Agreements Return to top

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 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

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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 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

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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.

OPIC and Other Investment Insurance Programs Return to top

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 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).

Labor Return to top

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

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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.

Foreign-Trade Zones/Free Ports Return to top

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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.

Foreign Direct Investment Statistics Return to top

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

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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 1 020.01 1 164.94 1 251.47 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

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• 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.

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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

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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

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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.

Web Resources Return to top

Department of Trade and Industry - http://www.dti.gov.za/

South African Reserve Bank - http://www.resbank.co.za/

SA Federation Against Copyright Theft - http://www.safact.co.za/

U.S. Embassy - http://pretoria.usembassy.gov/ U.S. Department of State --- http://www.state.gov

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Return to table of contents

Chapter 7: Trade and Project Financing

• How Do I Get Paid (Methods of Payment)• How Does the Banking System Operate• Foreign-Exchange Controls• U.S. Banks and Local Correspondent Banks• Project Financing• Web Resources

How Do I Get Paid (Methods of Payment) Return to top

South African importers utilize most of the standard payment methods available in international commerce. The most commonly used are:

• Cash in Advance: the buyer pays for goods in advance and money is transferred from the buyer’s account to the seller’s account in the currency of the Pro Forma Invoice. (Lowest Risk)

• Letters of Credit (LC), also known as Commercial or Documentary Credits. This form protects both buyer and seller against non-payment, and is issued by a bank on behalf of an importer in favor of a beneficiary, typically the exporter. If the exporter is concerned about the reliability of the importer only, he/she should use an irrevocable LC. If the exporter is also concerned about the standing of the issuing bank and/or the standing of the importer's country, he/she should use a confirmed irrevocable credit. In South Africa all credits issued are subject to exchange control regulations and in limited cases a South African import permit. South African exchange control regulations stipulate that payment of imports may be effected only by authorized banks against submission by their customers of documentary proof that the goods were imported into South Africa as evidenced by invoices and shipping documents stamped by South African customs. An exception is, inter alia, when South African banks have opened documentary import letters of credit in favor of foreign exporters. Payment in those instances may be effected against presentation by the exporter of invoices and shipping documents to the foreign negotiating bank before the goods have arrived in South Africa (but after they have left the United States). If credit is available, payment will take place upon presentation of documents. Payment can be made via transmission or airmail depending on the reimbursement clauses. The advising bank should, if possible, be the same bank as the exporter's bank. If the exporter's bank is unknown the South African bank will advise the credit through a correspondent bank known to it in the US and, if possible, in the exporter's city. (Low Risk)

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• Bank Collections and Bills of Exchange: whereby the exporter initiates through the banking system the collection of money owed to him by the buyer. (Medium risk)

• Open Account: the seller relies entirely on the buyer/importer to make payment as stipulated under a contract of sale (high risk)

• Sales on Consignment: the seller sends goods prior to payment, but retains ownership of the goods until the buyer sells the goods to the end-user. The buyer is then expected to pay for the goods (highest risk)

• International Money Transfers: used to transfer cash between the different countries’ banks in different currencies. Two methods are used - Teletransmission or telegraphic transfers (TT’s), or S.W.I.F.T. (Society for Worldwide Interbank Financial Telecommunication). (Low risk)

American exporters should offer quotations based on the f.o.b. value at the port of export. As a general rule, such quotations should also include a statement of the actual charges for freight and insurance plus any additional charges to the port of delivery. Quotations are usually in terms of the currency of the country of origin. The terms of payment for imported goods vary according to the type of buyer and the buyer's access to capital. Large organizations such as the government or mining companies tend to transact business on a sight-draft basis, while small companies tend to operate on documents against acceptable terms. Payment between 80 and 120 days after acceptance is most common, but terms may vary between 30 and 180 days. For larger orders of capital equipment, longer terms are often required. It is advisable to ship on a letter of credit, sight letter of credit, or 30-day letter of credit basis that the importer can use as a negotiating instrument to expedite the payment transfer. The payment transfer can be affected within 24 to 48 hours after the importer presents a valid import permit and proper documents to his or her bank.

How Does the Banking System Operate Return to top

South Africa's well-developed banking system resembles Britain's system rather than that of the United States. It consists of three key elements: the South African Reserve Bank (the country's central bank), private sector banks (commercial banks, merchant banks, and general banks), and mutual banks. South African banks hold the first six places amongst the top 100 banks on the continent of Africa.

Five large banks dominate the South African banking landscape – Standard Bank of South Africa, Nedcor Bank, ABSA (Amalgamated Bank of South Africa), FirstRand Bank and Investec Bank – accounting for around 90 percent of banking services throughout South Africa. In toto, there are approximately 70 foreign banks operating in South Africa, either via representative offices, branches, subsidiaries or joint ventures with local companies. International banks in the country have focused on offshore lending (where they have a competitive advantage as a result of their low overheads and their ability to raise funds at comparatively favorable rates), as well as treasury activities for corporate and clients and government. Banking assets have enjoyed continued growth and are currently valued at an estimated US$103.1 billion (2003).

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All banks offer a comprehensive range of products and services through extensive branch and electronic banking infrastructures, serve a wide customer base and have the characteristics of universal banks. The demand for banking services in South Africa is high. There are roughly 22 million adult South Africans, around 10 percent of who have checking accounts, 15 percent have card-based facilities and 40 percent have transmission or savings accounts that are accessible via ATMs. Based on population numbers, South Africa does not appear to be over-banked, as one branch exists for approximately every 9,500 persons. However, a large portion of the population does not have access to normal banking services and uses only a few products. Many Black South Africans tend to save outside the formal banking sectors, and choose to save in co-operative savings institutions called stokvels. Excluding the non-banked segment of the population, it is estimated that there is one branch for every 3,200 persons. E-commerce financial services, i.e. banking and share dealing on-line are doing well in the local market and it is projected that this segment will continue to rise.

Although the services sector has, in the past, focused on the mid- to high income population, Government pressure, namely through the Financial Services Charter, as well as demand from the lower-income population, means that the banks are joining the smaller micro-lenders and are increasingly incorporating the lower end of the market into their strategies. Mortgage loans, credit cards and store account cards are also enjoying increased popularity.

Foreign-Exchange Controls Return to top

Exchange controls are currently administered by the South African Reserve Bank’s (SARB) Exchange Control Department through commercial banks that are authorized to deal in foreign exchange. All international commercial transactions must be accounted for through these "authorized foreign exchange dealers." Beginning in March 1997, the Finance Ministry announced phased-in measures to relax foreign exchange controls, including doubling foreign firms' access to local credit, increasing retention of offshore income, and increased ceilings on foreign investment holdings of local financial institutions. The South African government recognizes that further relaxation of exchange controls and the restructuring of the financial system are important preconditions for South Africa’s greater participation in the globalization process. Its commitment to the gradual lifting of exchange control is well known. The Minister of Finance on February 26, 2003 announced the further relaxation of foreign exchange controls. All inquiries of an exchange control nature should be directed at an authorized foreign exchange dealer, who will, if required, refer the matter to the Exchange Control Department of the SARB. For more information, please refer to www.reservebank.co.za South African Reserve Bank (SARB): Mr. A.M. Bruce-Brand Head, Exchange Control Department PO Box 8432, Pretoria, 0001 Tel: +27 (0) 12 313 3911; Fax: +27 (0)12 313 3771

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A list of authorized dealers in foreign exchange can also be found on the Internet at www.resbank.co.zaMaxine.hlaba@resbank.co.za When South African authorized dealers of foreign exchange open documentary import letters of credit in favor of foreign exporters, payment is effected against presentation by the exporters of invoices and shipping documents to the foreign negotiating bank prior to the arrival of goods in South Africa. Foreign currency payments for imports may only be made against the following documents of title:

• Marine/Ocean Bill of Lading – covering multimodal transport or port-to-port shipment Multimodal Transport Document

• Air waybill/Air Transport Document • FIATA Forwarder’s Certificate of Receipt • Post receipt • Certificate of Posting

Courier’s Dispatch Note or Air Waybill • House Air Waybill • House Bill of Lading • Arrival notifications issued by Ellerman and Bucknall (Pty) Limited, Safmarine

Limited, and the Transatlantic Shipping Agency (Pty) Limited, and Nedloyd Agency Cies SA (Pty) Limited.

Foreign exchange may be provided for advance payments not exceeding 33 1/3 percent of the ex-factory cost of capital goods to be imported provided that: 1) the South African banker is satisfied from the production of documentary evidence supplied by the overseas manufacturer that the order would otherwise be refused, 2) that such payment is normal in the trade concerned. For advance payments exceeding 33 1/3 percent the importer has to obtain specific approval from the Exchange Control Department of the South African Reserve Bank. The first shipment from a new supplier, the lack of availability of the imported equipment, or its superior quality to what is available in South Africa, are all examples of conditions for proper justification. Foreign exchange may also be provided on a cash-with-order basis to cover the cost of permissible imports up to an amount of R50,000, but authorized dealers must satisfy themselves by the subsequent production of the usual documentary evidence that the exchange provided has been used for the purposes stated and that the goods have been imported into the Republic. Prior Exchange Control approval is required for amounts exceeding R50,000. Authorized dealers must in due course insist upon the presentation to them of original bills of entry import or local parcel post receipts as evidence that goods, in respect of which transfers have been affected in terms of the above rules, have been received in South Africa. Such documents will also be boldly stamped "Exchange Provided." The date of the exchange transaction should be inserted under the stamp and, in the event of a part payment; the amount concerned should be stated. Customers are advised to retain the stamped documents for at least two years for inspection purposes. South African importers are allowed to obtain foreign exchange to meet import payments for goods consigned by air on a cash-on-delivery basis before the goods are cleared

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through customs. The documentation required for this transaction is a copy of the respective air waybill bearing an original stamp with the words "For Exchange Control Purposes Only" and dated and signed by a member of the South African Association of Freight Forwarders (www.saaff.org.za).

U.S. Banks and Local Correspondent Banks Return to top

• U.S. Banks with representative offices in South Africa: American Express Bank Ltd. Bank of America, National Association Bank of New York U.S. Banks with registered offices in South Africa: JP Morgan Citibank

• Banks in South Africa with Correspondent Worldwide Banking Arrangements

ABSA (with Chemical Bank) Standard Bank First National Bank Nedbank (with Bankers Trust, Chase Manhattan, Chemical Bank, Citibank, and Morgan Guarantee Trust) Bank of Taiwan (South Africa) Limited FirstRand Bank Limited First National Bank of Southern Africa Limited Mercantile Bank International Bank of Southern Africa - S.F.O.M. Limited Investec Bank Limited Rand Merchant Bank Limited Societe Generale South Africa Limited Standard Merchant Bank Limited The South African Bank of Athens Limited The Standard Bank of South Africa Ltd.

• Foreign Banks Represented in South Africa

Many foreign banks have targeted South Africa since 1994. These banks have established themselves either by means of foreign controlled registered banks, or by means of representative offices of foreign banks. For an up-to-date and comprehensive listing of all SA Reserve Bank registered banks, see: http://www.resbank.co.za/banks/banks.htm

Project Financing Return to top

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Sources of Project Financing in South Africa U.S. Trade and Development Agency (TDA) The U.S. Trade and Development Agency promotes economic development in developing countries by funding feasibility studies, consultants, training programs, and other project planning services. In Africa, TDA assists U.S. firms by identifying major development projects that offer large export potential and by funding U.S. private sector involvement in project planning. This, in turn, helps position U.S. firms for follow-on activities during the implementation phase of the project. TDA recently opened an office in Johannesburg, co-located at the Ronald H. Brown Commercial Center. For additional information contact: U.S. Trade and Development Agency Mr. Doug Shuster – Country Manager 15 Chaplin Road (cnr. Oxford); Illovo Tel: +27 (0)11 778 4804; Fax: +27 (0)11 268 6104 http://www.tda.gov/Email: Dshuster@ustda.gov

Development Bank of Southern Africa (DBSA) DBSA was originally formed in 1983 by the South African Government to fund development projects in the formerly "independent" black homelands of Transkei, Ciskei, Venda, and Bophuthatswana. Today DBSA is expected to play a major role in mobilizing and providing loan finance and technical assistance for major development projects in South Africa and in neighboring Southern African countries. DBSA membership is open to any country in Southern Africa. It functions as a "banker's" bank, providing soft loans to governments, local authorities, development corporations, and non-governmental organizations, which in turn make loans to individuals in bank-approved projects. DBSA's financial resources include share capital contributions from its members and loans obtained from financial markets. Grant aid from the South African Government comprises an important source of DBSA's funding. Mr. Mandla Gantsho Development Bank of Southern Africa PO Box 1234 Halfway House 1685, Midrand Tel: +27 (0)11 313 3911; Direct: +27 (0)11 313 3059 Fax: +27 (0)11 318 1626 mandlag@dbsa.org www.dbsa.org Industrial Development Corporation of South Africa, Ltd. (IDC): The IDC is a state-owned financial institution offering an extensive range of financing facilities to private sector entrepreneurs engaged in manufacturing industries in South Africa. Its mission is to assist in the financing of new and existing private sector enterprises so that industrial development takes place in South Africa according to sound business principles. IDC’s import finance scheme involves credit and guarantee facilities for local industrialists to finance the importation of capital goods and services. Impofin Limited (Pty) is a wholly owned subsidiary of IDC which can conclude line-of-credit agreements

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with banks in most of the supplier countries to South Africa to enable South African importers to purchase plant and equipment on extended credit terms. The IDC recently established a special Black Economic Empowerment Scheme to make its financing programs available to black South African enterprises, entrepreneurs, and employer organizations. The scheme can provide finance for the creation of a new enterprise, the expansion of an existing enterprise, and the acquisition of control or a significant stake in an existing enterprise. IDC PO Box 784055, Sandton, 2146 Tel: +27 (0)11 269 3000; Direct: 269 3717; Fax: +27 (0)11 269 3114 Acting Managing Director: Ms. Raisibe Morathi RaisibiM@idc.co.za www.mbendi.co.za/coid.htmwww.idc.co.za

Small Business Development in South Africa For a comprehensive listing of organizations in South Africa that support small and medium business development, please refer to the OPIC/Department of Commerce publication entitled Africa: A Guide to Business Finance for U.S. Firms. Additional information may be obtained from the United States Agency for International Development (USAID). USAID/South Africa PO Box 43, Groenkloof, 0027 Tel: +27 (0)12 452 2000; Fax: +27 (0)12 460 3177 Enterprise Development in Southern Africa The Southern African Enterprise Development Fund, a US$100 million USAID-sponsored project, promotes small-to-medium-sized enterprises throughout SA (http://usaembassy.southafrica.net). The Enterprise Development Unit of the University of the Western Cape also provides information on entrepreneurship and small business development in South Africa. Enterprise Development Unit Department of Management Head of Department: Mr. Goosaih Solomon University of the Western Cape Private Bag X17, Bellville, 7535 Tel: +27 (0)21 959 2240; Fax: +27 (0)12 959 3219 www.uwc.ac.za/ems/ems.htm

Multilateral Development Banks

• The African Development Bank Group

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The African Development Bank Group (AfDB), headquartered in Abidjan, Côte d'Ivoire (West Africa), is an international financial institution created by Africans in 1963 to promote the economic and social development of its member African countries. Due to the current situation in the host country the AfDB has temporarily relocated to Tunis, Tunisia until the political situation has normalized in Côte d'Ivoire. The Bank Group covers Africa exclusively, with its lending operations and non-lending development activities all centered on Africa. Founded with initial capital resources of $250 million, it has authorized capital today of over $24 billion. The bank is owned by its 77 member countries, 53 of which are African and 24 non-African. The United States joined the (AfDB) in 1983 after membership was opened to non-African countries and currently holds approximately 5.6 percent of shares outstanding. The AfDB is comprised of three institutions: the African Development Bank (ADB), the African Development Fund (ADF), and the Nigerian Trust Fund (NTF). Collectively, these institutions are known as the AfDB or Bank Group. The AfDB lends to creditworthy African member countries and the poorer African member countries. South Africa participates in the replenishment of ADF resources. ADF 9 was concluded in September 2002 to which South Africa will contribute R24 million. Additional information about the African Development Bank Group can be found on the Internet at www.afdb.org.

African Development Bank (Temporary Relocation to Tunis) Tel: +216 71 333 511; Fax: +216 71 351 933 E-mail: afdb@afdb.org African Development Bank (Statutory Headquarters in Cote D’Ivoire) Tel: +225 20 204 444; Fax: +225 20 204 959 E-mail: afdb@afdb.org

• The World Bank GroupSouth Africa was a founding member of the International Bank for Reconstruction and Development (IBRD) in 1944. It joined the International Development Association (IDA) in 1960, the International Finance Corporation (IFC) in 1957, and the Multilateral Investment Guarantee Agency (MIGA) in 1994. Taking a lead role in private sector development in Africa is the International Finance Corporation (IFC), the private sector lending arm of the World Bank. IFC’s activities in South Africa target private sector development and job creation. The IFC has committed $83.5 million (of which $62.3 million disbursed) to South Africa. Activities focus on projects with a broader focus to benefit previously disadvantaged groups directly with SME project funding and indirectly through job creation, financing of infrastructure, and diversification of business ownership. Through its small project facility, the Africa Enterprise Fund (AEF), the IFC provides project financing ranging from US$100,000 to US$1.5 million, typically in the form of a loan (at market rates) or an equity investment. From 1953 to 1966 South Africa took out 11 loans from the World Bank – four for electricity projects and seven for transportation projects. The last of these loans was closed in 1968 and all amounts have been fully repaid. South Africa participates in the replenishment of IDA resources, its contribution to IDA 13 will be R83 million.

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IBRD/IDA: Primary objective of the Bank’s assistance to South Africa is to help reduce the apartheid legacy of poverty and inequality. The current portfolio includes the following projects:

• Industrial Competitiveness and Job Creation. Signed in July 1997, closing on March 31, 2004

• Cape Peninsula Bio-diversity Conservation Project (GEF). Signed in March 1998, closing on June 30, 200

• Maluti Drakensberg Conservation and Development Project (GEF). Signed in July 2002, closing on June 30, 2005

• Municipal Financial Management Technical Assistance Project. Signed in September 2002.

MIGA: In March 2002, MIGA opened a representative office in Johannesburg to support MIGA’s Africa Work Program for Southern and Eastern Africa. MIGA has issued guarantees for $13 million for three investments in the banking and manufacturing sectors in South Africa as well as guarantees for two investments by South African corporations in neighboring countries. Additional information is available on the Internet at www.worldbank.org, or contact: World Bank Resident Mission in South Africa/IBRD Section Chief of Mission: Ritva Reinekka P.O. Box 12629, Hatfield, 0028 Tel: +27 (0)12 431 3100; Fax: +27 (0)12 431 3135 IFC Section: PO Box 41283, Craighall, 2024 Tel: +27 (0)11 325 0720; Fax: +27 (0)11 325-0582 / 325 1901 U.S. Commercial Service Liaison Office at the World Bank Director/Business Liaison: Mr. William Center 1818 H. St., NW, Washington, DC 20433 Tel: (202) 458-0120; Fax: (202) 477-2967 E-mail: wcenter@worldbank.org Export-Import Bank This is an independent U.S. Government agency that helps finance the overseas sales of U.S. goods and services. In almost 70 years, Ex-Im Bank has supported more than $400 billion in U.S. exports. Ex-Im Bank’s mission is to create jobs through exports. It provides guarantees of working capital loans for U.S. exporters, guarantees the repayment of loans or makes loans to foreign purchasers of U.S. goods and services. Ex-Im Bank also provides credit insurance that protects U.S. exporters against the risks of non-payment by foreign buyers for political or commercial reasons. Ex-Im Bank does not compete with commercial lenders, but assumes the risks they cannot accept. It must always conclude that there is reasonable assurance of repayment on every transaction financed. To qualify for Ex-Im Bank support, the product or service must have

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significant U.S. content and must not affect the U.S. economy adversely. Ex-Im Bank supports the sale of U.S. exports worldwide, and will support the financing of the export of any type of goods or services, including commodities, as long as they are not military-related. For more information, please visit www.exim.gov

Web Resources Return to top

Export-Import Bank of the United States: http://www.exim.gov

Country Limitation Schedule: http://www.exim.gov/tools/country/country_limits.html

OPIC: http://www.opic.gov

Trade and Development Agency: http://www.tda.gov/

SBA’s Office of International Trade: http://www.sba.gov/oit/

USDA Commodity Credit Corporation: http://www.fsa.usda.gov/ccc/default.htm

U.S. Agency for International Development: http://www.usaid.gov

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Chapter 8: Business Travel

• Business Customs• Travel Advisory• Visa Requirements• Telecommunications• Transportation• Language• Health• Local Time, Business Hours and Holidays• Temporary Entry of Materials and Personal Belongings• Web Resources

Business Customs Return to top

Business customs in South Africa are generally similar to those in the United States and Western Europe. South African business people tend to dress conservatively, particularly the banking sector. However “smart-casual” clothing has become increasingly popular with executives in the IT and Tourism industries. Former President Mandela has, in a way, set a trend. Terminology used in business invitations etc, are:

• Black Tie (suit and tie or black tie) • Business (entails a jacket and tie)

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• Smart Casual (entails casual clothing with or without tie, but no jeans and no sneakers)

• Casual (includes jeans, but no shorts) Business cards are usually simple, including only the basics such as company logo, name, business title, address, telephone number, fax number, e-mail, and web-address. South Africans are also very punctual, and South African businesspeople make every effort to be on time for appointments. Appointments should be made in advance of a business call.

Travel Advisory Return to top

For the latest travel advisory, please click on the following link: http://travel.state.gov/travel/cis_pa_tw/cis/cis_1008.html

Visa Requirements Return to top

U.S. citizens traveling to South Africa require a valid passport. A visa is not required for regular passport holders on bona fide holiday or business visits for periods of up to 90 days or in transit. Visas are required, however, for extended stays, employment, study, and for diplomatic and official passport holders. Evidence of a yellow fever vaccination is necessary if arriving from an infected area. Information on South African visa requirements can be obtained prior to departure from the U.S. by checking with the South African Embassy in Washington, D.C. or the South African Consulates in New York, Chicago, and Beverly Hills. For information on visa requirements for other countries, contact the Embassy of the country you intend to visit, or a travel agent, or an U.S. Consular Officer. IMPORTANT NOTE: All travelers to South Africa should make sure that their passports contain at least two blank pages for stamps, otherwise they can be turned away and refused entry by South African immigration officials. U.S. Companies that require travel of foreign businesspersons to the United States should allow sufficient time for visa issuance if required. Visa applicants should go to the following links. State Department Visa Website: http://travel.state.gov/visa/index.html

United States Visas.gov: http://www.unitedstatesvisas.gov/

Telecommunications Return to top

South Africa has the largest and most developed telecommunications network (including fixed line, wireless, satellite and cellular technology) in the African continent. Public switched telecommunication services are provided by Telkom S.A. Cellular services are provided by three licensed cellular operators: Vodacom, MTN (Mobile Telephone

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Network)and Cell C. South Africa runs on the GSM cellular system. Vodacom launched the country’s first (3G) network. The rollout of ADSL in South Africa has proceeded smoothly with the service now available in the main metropolitan areas. However, there it is still limited to a monthly 3GB cap per subscriber.

Transportation Return to top

Travel to South Africa consists of arrival in the country by International airlines, to ultra modern Johannesburg International, or Cape Town International Airports. Major Air Carriers that fly from the United States to South Africa include Delta Airlines (http://www.delta.com), South African Airways (http://www.saa.co.za), and others. Historically limited seat capacity necessitates arranging for flights well in advance of actual travel to ensure availability of seats. In country there are several options of flying nationally, with prices for ticket ranging between low and very high depending on the carrier chosen: Low cost options include: Kulula.com - http://www.kulula.comOne Time Airlines – http://www.onetime.co.za

Middle and higher cost options: South African Airlines - http://www.saa.co.zaSouth African Airlink – http://www.saa.co.zaBritish Airways – http://www.ba.co.za

South Africa boasts one of the most modern and extensive transport infrastructure in terms of road, railway systems and sea ports on the African continent. Eighty percent of South Africans depend on public transport (two thirds travel by mini-bus taxi and the remaining one third by railway or by bus). Still, public transportation is, in most instances, not suitable for U.S. tourists or travelers, with the exception of private taxi companies that operate at very high cost to passengers. It is highly recommended that travelers to South Africa consider pre-arranging and making use of extensive car hire facilities, major car hire groups represented include Hertz (http://www.hertz.co.za), Avis Car Hire (http://www.avis.co.za) and local groups e.g. Budget Rent A Car (www.budget.co.za). South Africans drive on the left-hand side of the road and most major cities in South Africa have rather complicated one-way systems leading in and out of major areas. For confident drivers this should not pose a problem. To view U.S. Consulate information sheet on travel to South Africa browse to: http://travel.state.gov/travel/cis_pa_tw/cis/cis_1008.html

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Language Return to top

The African (black) and Asian populations speak a variety of languages and many also use English and Afrikaans. The white population speaks predominantly Afrikaans and English. Printed advertising directed at the nonwhite population is mostly in English; radio advertising is broadcast in nine African languages, and television advertising is conducted in five languages. African language advertising and broadcasting are expected to escalate to reach more black consumers. South Africa has 11 official languages. Based on the most recent data available, the respective percentages of the population speaking each of them are: Zulu (22.4%), Xhosa (17.5%), Afrikaans (15.1%), Pedi (9.8%), English (9.1%), Tswana (7.2%), Sotho (6.9%), Tsonga (4.2%), Swati (2.6%), Venda (1.7%), and Ndebele (1.5%). Languages used by the Asian population include Tamil (2%), Hindi (2%), Gujerati (2%), and Urdu.

Health Return to top

South African tap water is of the highest standards and can normally be used as is, however, if a traveler is not acclimatized to it or has a sensitive digestive system, it should be avoided. This warning covers all other applications of water such as ice and water for mouth rinsing after brushing teeth. Bottled water and canned drinks are readily available, flavored bottled water also proves very popular with travelers visiting South Africa. South Africa has world-class medical services and all major cities have modern well-equipped hospitals and ambulance services to assist all travelers in emergency situations. Travelers should familiarize themselves with emergency telephone numbers and the locations of nearest hospitals on arrival in the country. South Africa has several provinces where there is a threat of contracting malaria. Appropriate prophylactics taken well in advance of visiting these areas should limit the risk of falling ill. Self-protection actions should include use of mosquito repellant (all day), wearing of light long sleeved shirts and pants as well as socks and shoes from dawn and at night. Sleeping under a mosquito net or in a mosquito-proof room should also be considered. High-risk malaria provinces include: Mphumalanga Lowveld, Limpopo and Kwazulu-Natal Medium risk malaria areas include: Kozi Bay, Sodwana Bay, Mkuze Game reserve and St. Lucia Lake area. It is very important for travelers to realize that they may still contract malaria despite all precautionary measures, and if any flu-like symptoms such as headaches, fever, muscular and joint pains, sweating, shivering and attacks of nausea or diarrhea occur after a visit to one of these risk areas, or for up to six months after a visit, consult a physician as soon as possible.

South Africa also has endemic HIV/Aids and travelers should ensure that they are well aware of the associated risks and risk behavior.

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Local Time, Business Hours, and Holidays Return to top

Throughout the year, Standard Time in South Africa is two hours ahead of Greenwich Mean Time and seven hours ahead of Eastern Standard Time. Clocks are not advanced in the summer. Generally, business hours are weekdays from 8:00 a.m. to 1:00 p.m. and 2:00 p.m. to 4:30 p.m. Most offices observe a five-day week, but shops are generally open from 8:30 am to 1:00 p.m. on Saturdays. Banks are open weekdays from 9:00 a.m. to 3:30 p.m., and Saturdays from 8:30 a.m. to 11:00 a.m.

Local Holidays 2005 Holiday 2005 Day

New Year’s Day January 1 Saturday Human Right’s Day March 21 Monday Good Friday March 25 Friday Easter Sunday March 27 Sunday Family Day March 28 Monday Freedom Day April 27 Wednesday Worker’s Day May 1 Sunday (Monday taken) Youth Day June 16 Thursday National Women’s Day August 9 Tuesday Heritage Day September 24 Saturday Day of Reconciliation December 16 Friday Christmas Day December 25 Sunday Day of Goodwill December 26 Monday

Note: If a South African holiday falls on a Sunday the following Monday offices are closed. Note: U.S. Government offices in South Africa are closed on American legal holidays.

Temporary Entry of Materials and Personal Belongings Return to top

Travelers must declare all goods in their possession with the exception of personal clothing, essential toilet articles and used sporting equipment. In order to be free from declaration, these goods must be for the passenger's personal use and not intended as gifts or to be sold, exchanged, or traded. All articles, used or unused, carried by the visitor as presents or parcels for other persons, must be declared. There are no restrictions on the amount of Dollars that may be taken into South Africa. U.S. Dollars cannot be used in South Africa and must be converted into Rand by authorized foreign exchange dealers, hotels, commercial banks, and certain travel agencies. It is illegal to convey foreign currency to anyone else and Dollars may not be used in commercial or other private transactions. With a valid carnet, a visitor may enter South Africa with his automobile for a period not exceeding 12 months. An import duty will be charged on entry and rebated on departure. If a visitor wishes to sell his vehicle during his stay or upon departure, he must first obtain an import permit and pay the relevant duty.

Web Resources Return to top

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Avis Rent-A-Car – Http://www.avis.co.za

British Airways – http://www.ba.co.za

Budget Car Rental – http://www.budget.co.za

Delta Airways (code share with SAA) – www.delta.com

Hertz Rental Cars – http://www.hertz.co.za

Kulula.com Airlines – http://www.kulula.com

1 Time Airline – http://www.onetime.co.za

United States Consulate Visa information – http://travel.state.gov/Visa/index.html

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Chapter 9: Contacts, Market Research, and Trade Events

• Contacts• Market Research• Trade Events

Contacts Return to top

American Chamber of Commerce South Africa – http://www.amcham.co.za

Attorneys in South Africa – http://www.attorneys.co.za

Exhibition Association of Southern Africa – http://www.exsa.co.za

Internet based South African travel information – http://www.saeverything.co.za

http://www.travelsa.co.za, http://www.accomodation.co.za

Statistics South Africa – http://www.statssa.gov.za

South African Department of Trade and Industry – http://www.dti.gov.za

South African Government – http://www.gov.za

South African Internet search engines – http://www.aardvark.co.za,http://www.ananzi.co.za

Southern African Tourism Services Association – http://www.satsa.co.za

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United States Commercial Service in South Africa – http://www.ussatrade.co.za or http://www.buyusa.gov/southafrica/en

United States Consular Services in South Africa - http://pretoria.usembassy.gov/wwwhst1.html

United States Embassy, Pretoria - http://pretoria.usembassy.gov/

Market Research Return to top

To view market research reports produced by the U.S. Commercial Service please go to the following website: http://www.export.gov/marketresearch.html and click on Country and Industry Market Reports. Please note that these reports are only available to U.S. citizens and U.S. companies. Registration to the site is required, but free of charge.

Trade Events Return to top

Please click on the link below for information on upcoming trade events. http://www.export.gov/tradeevents.html

For more information on Trade fairs and events in South Africa visit Exhibition Association of Southern Africa – http://www.exsa.co.za

The U.S. Commercial Service supports several Industry related trade shows and exhibitions, offering various value added services for U.S. business travelers, for more information see: http://www.ussatrade.co.za

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Chapter 10: Guide to Our Services

The U.S. Commercial Service offers customized solutions to help your business enter and succeed in markets worldwide. Our global network of trade specialists will work one-on-one with you through every step of the exporting process, helping you to:

• Target the best markets with our world-class research • Promote your products and services to qualified buyers • Meet the best distributors and agents for your products and services • Overcome potential challenges or trade barriers

For more information on the services the U.S. Commercial Service offers U.S. businesses, please click on the link below.

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Return to table of contents

U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce’s Trade Information Center at (800) USA-TRADE , or go to the following website: http://www.export.gov

To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.