S O U T H A F R I C A

1 P O L I C Y , P L A N S A N D P R I O R I T I E S

Medium Term Strategic Framework: A Framework To Guide Government’s Programme In The Electoral Mandate Period (2009 – 2014) July 2009 identifies the creation of decent work as the primary objective of South Africa’s economic policy.

The Department of Trade and Industry (DTI) Medium Term Strategic Framework (MTSF) 2011-14 Vol. 1 and 2 states that among its objectives are:the dti will strengthen trade and investment engagements at the bilateral level, as well as advance the integration project in the Southern African Customs Union (SACU) and consolidate gains made under the Southern African Development Community (SADC) Free Trade Agreements (FTA). The Department will also expand its focus on extending regional markets in Africa by pursuing the SADC-East African Community (EAC)-Common Market for Eastern and Southern Africa (COMESA) Tripartite FTA.

In recognition of the growing economies in the South, the dti will build on ongoing economic and trade cooperation efforts with Brazil, Russia, India and China through its membership of BRICS (Brazil, Russia, India, China and South Africa).

Industrial Policy Action Plan 2010/11-2012/13 Feb 2010 (IPAP 2) is a three year rolling plan, to be updated annually and with a 10-year outlook on desired economic outcomes. IPAP 2 identifies activities to unlock potential in priority sectors, and as it achieves these objectives, the focus will move to the next set of sectors and interventions. A critical element of IPAP 2 is the implementation of financial support, including the Automotive Production and Development Programme, Clothing and Textile Production Incentive, Enterprise Investment Programme (EIP) and other schemes, while strengthening the performance, monitoring and evaluation of these schemes.

The Industrial Policy Action Plan 2012/13 – 14/15 is continuation of the IPAP2. Therefore, successive iterations of IPAP seek to scale up key interventions over a rolling three-year period, with a 10-year outlook on desired economic outcomes. It provides an opportunity to take stock of the progress made and challenges experienced since the commencement of the first IPAP in 2008. The plan envisages to upscale efforts in sectors such as the green industries, agro-processing, maetal fabrication, capital equipment and transport equipment.

The Government released the framework of the New Economic Growth Path at the end of 2010 presenting to the public a policy aimed at enhancing growth, employment creation and equity. The policy’s principal target is to create five million jobs over the next ten years. The centrepiece of the new growth path is a massive investment in infrastructure and people through skills development, together with smart government and better coordination with the private sector and organised labour in order to achieve national goals.

Areas of priority are: Infrastructure development

1

MTSF

IPAP 2

IPAP 2012/13 – 14/15

New Growth Path

Development of the Green Economy Intervention in the agricultural sector In the mining sector to increase extraction and beneficiation The re-industrialisation of South Africa by improving manufacturing

performance The employment potential of the tourism sector and other high-level

services

2 I N V E S T M E N T P R O M O T I O N

2 . 1 I n s t i t u t i o n s

WTO Trade Policy Review SACU South Africa 2009 Annex 4 South Africa states “The Department of Trade and Industry (DTI) is responsible for formulating and coordinating the country's trade and industrial policies. However, other departments and agencies also take important initiatives on trade and investment policy, such as the Departments of Finance, Agriculture, Health, and Mineral and Energy Affairs, as well as the South African Reserve Bank. The private sector is quite instrumental in forwarding proposals and recommendations to the DTI, through for example, the National Economic Development and Labour Council (NEDLAC), the International Trade Administration Commission (ITAC), which replaced the Board on Tariffs and Trade (BTT), and the Industrial Development Corporation (IDC). The IDC and Parliamentary Committees continue to play a key role in assisting the DTI in carrying out periodic reviews and assessments of trade policies.”DTI: Strategic Objectives of DTI

Facilitate transformation of the economy to promote industrial development, investment, competitiveness and employment creation.

• Build mutually benefi cial regional and global relations to advance South Africa’s trade, industrial policy and economic development objectives.• Facilitate broad-based economic participation through targeted interventions to achieve more inclusive growth.• Create a fair regulatory environment that enables investment, trade and enterprise development in an equitable and socially responsible manner.• Promote a professional, ethical, dynamic, competitive and customer-focused working environment that ensures effective and efficient service delivery.

Promoting the co-ordinated and accelerated implementation of the Government’s economic vision and priorities;

Promoting direct investment and growth in the industrial and services economy, with particular focus on employment creation;

Raising the level of exports and promoting equitable global trade; Promoting broader participation, equity and redress in the economy; and Contributing to Africa’s development and regional integration within the New

Partnership for Africa’s Development (NEPAD).

The DTI website http://www.dti.gov.za/ provides access to a comprehensive range of documents, information and application forms relating to investment, trade and doing business in South Africa.ITED: International Trade and Economic Division is a division of DTI that is responsible for economic and trade relations, managing tariff regimes, investment treaties and promoting regional integration through SADC and SACU. TISA: Trade and Investment South Africa (TISA) is a division of DTI with three business units, Investment Promotion and Facilitation, Export Development and Promotion and International Operations. TISA is responsible for increasing and retaining the level of foreign and domestic direct investment, increasing South

2

Africa's capability and capacity to promote exports into targeted markets and managing DTI’s network of foreign offices. Provincial IPA: Eastern Cape Development Corporation, Free State Development Corporation, Gauteng Economic Development Agency, Trade and Investment KwaZulu-Natal, Trade and Investment Limpopo, Mpumalanga Economic Growth Agency, Investing in the Northern Cape, Invest North West, Western Cape Investment and Trade Promotion Agency. The role of these agencies is to stimulate economic growth in a province through exports by established business and attracting foreign investment through building an enabling environment. TISA is working to coordinate national and provincial investment promotion activities.IDC: Industrial Development Act, No. 22 of 1940 constitutes the Industrial Development Corporation (IDC) to promote the establishment of new industries and industrial undertakings, as well as the development of existing industries and industrial undertakings. IDC provides equity, quasi-equity and medium term loan finance to the private sector to promote industrial development and innovation.DBSA : Development Bank of Southern Africa provides policy advice, planning, programming and financing for infrastructure provision. It cooperates with the private financial sector in support of local authority infrastructure needs, also promoting public private partnerships.The Department of Tourism http://www.tourism.gov.za:8001/default.aspx aims to fulfill the national government's role towards creating the conditions for responsible tourism growth and development by promoting and developing tourism, thereby increasing job and entrepreneurial opportunities and encouraging the meaningful participation of previously disadvantaged individuals. The focus will be on facilitating the growth of the tourism industry by providing support to the public and private sectors, and the broader community. There are also provincial tourism promotion authorities.

TISA’s Investment Promotion and Facilitation responsibilities include: Identifying investment opportunities in South Africa Packaging investment opportunities Identifying potential investors Promoting investment opportunities Facilitating investment into and in South Africa Providing a dedicated after-care service Providing general information on investing in South Africa and the domestic

business environment Arranging inward and outward investment missions Facilitating funding and government support Over the next three years the focus of the Investment Promotion Unit in TISA is on priority areas for attracting investment set out in IPAP 2, IPAP 2013/14 – 14/15 and the New Growth Path. These include Advanced Manufacturing, Manufacturing, Resource Industries, the Green Economy and the Services sectors.

The Investment Promotion Unit seeks investment with best multiplier effects in terms of:

Potential for Job Creation; Economic development and geographic spread; Support for the creation of other local industries and empowerment; Unlocking competition; Technology transfer, innovation and skills development; and Environmentally-friendly industries.

China, India, Russia, Brazil, Japan, USA, Europe and the Middle East are targets for seeking investors.

TISA is coordinating and strengthening networks with Provincial and Local IPAs and activities include:

3

Investment

Promotion of investment opportunities; Marketing of investment projects; Information on investment sectors and industries; Facilitation of investment missions, including travel itineraries; Introduction of key stakeholders in private and public sectors; Introduction to potential joint venture partners and BEE partnerships; Consultation on regulatory environment; Incentive packages; Plant location and Industrial Development Zones; Work permit applications; Relocation support; After-care service.

2 . 2 I n v e s t m e n t a n d E x p o r t I n c e n t i v e s

DTI administers the EIP, an investment incentive in the form of a grant designed to stimulate investment growth in manufacturing and tourism. To justify the awarding of a grant for any project, a funding gap analysis is applied to ensure a grant is only approved where it will have an impact the timing, scale and quality of the project. The analysis will focus on the level of post-investment debt in the balance sheet of the entity, the execution of an investment project, the amount of debt incurred in order to fund the investment project and the impact of the grant on the decision by a foreign investor to locate the project in South Africa.

Projects in the following categories will not be required to indicate the existence of a funding gap: (a) All projects below R (Rand) 5 million (€500,000); (b) New entities not linked to an existing entity, where B-BBEE shareholding is greater than 50%. The latter provision does not apply to a new project of an existing entity. This excludes instances where: the majority shareholder of the entity has a similar business to that of a start-up entity, such that if the shareholder had established the start-up business under the auspices of its existing business, it would have been defined as an expansion under the EIP rules and new projects not linked to an existing entity, where more than 50% of the shares are owned by first-time foreign investors in South Africa.

MIP aims to enhance the sustainability of manufacturing investment projects by small enterprises and to support large-to-medium-sized investment projects in manufacturing that would otherwise not be established without the grant. MIP provides investment support to both local and foreign owned entities, by offering an investment grant of up to 30% of the value of qualifying investment costs in machinery, equipment, commercial vehicles, land and buildings, required for establishing a new production facility; expanding an existing production facility; or upgrading production capability in an existing clothing and textile production facility.

Investment projects of R5m (about €500,000) and below may qualify for an investment grant equal to 30% of their total qualifying investment cost, payable over a three (3) year period. Investment projects of above R5m may qualify for an investment grant of between 15% and 30% of their qualifying investment costs, calculated on a regressive scale and payable over a period of two years. This investment grant cannot exceed R30m (about €3m).

Foreign investment projects may qualify for an additional grant for the cost of transporting their qualifying machinery and equipment to South Africa. The additional grant is the lower of 15% of the value of qualifying imported machinery and equipment or the actual transport costs of relocating qualifying new machinery and equipment from abroad to a maximum of R10m (about €1m).

4

Enterprise Investment Programme (EIP)

Manufacturing Investment Programme (MIP)

In all cases, grant payment is subject to the approved project achieving the stipulated performance requirements of investment and employment creation. The MIP incentive is offered in conjunction with other instruments already available through the provisions of the Income Tax Act, No. 58 of 1962, which the government is implementing to stimulate investment, including the accelerated depreciation on investment assets, graduated tax rates applicable to small enterprises and tax incentives applicable to research and development capital expenditure.

In 2010, by Regulation No. R.639 23 July 2010, (http://www.dti.gov.za/12i/12i_Regulations.pdf) under Section 12i of the Income Tax Act 1962 http://www.dti.gov.za/12i/Section_12i_Income_Tax_Act.pdf, a tax incentive was introduced to support Greenfield investments (i.e. new industrial projects that utilise only new and unused manufacturing assets), as well as Brownfield investments (i.e. expansions or upgrades of existing industrial projects). Section 12i of the Income Tax Act is a tax allowance based on investment in new manufacturing assets and training, provided to employees in the project. The 12i Tax Incentive aims to accelerate economic growth in the industrial sector and support the Industrial Policy Action Plan (IPAP 2), particularly in terms of job creation, training and energy efficiency. The two components of the programme comprise an investment allowance of up to a maximum of R900 million, and a training allowance of up to a maximum of R30 million per project, dependent on compliance with certain criteria. Both allowances are deductible from the taxable income of the applicant company and reduces tax liability.

The objectives of the incentive programme are to support: Investment in manufacturing assets, to improve the productivity of the

South African manufacturing sector; Training of personnel, to improve labour productivity and the skills profile of

the labour force.

The incentive offers: R900 million in the case of any Greenfield project with a preferred status; R550 million in the case of any other Greenfield project; R550 million in the case of any Brownfield project with a preferred status; R350 million in the case of any other Brownfield project; An additional training allowance of R36 000 per employee may be

deducted from taxable income; and A maximum total additional training allowance per project, amounting to

R20 million, in the case of a qualifying project, and R30 million in the case of a preferred project.

According to the point system, an Industrial Policy project will achieve 'qualifying status' if it achieves at least five (5) of the total 10 points, and a 'preferred status' if it achieves at least eight (8) of the total 10 points.

The investment must be: Greenfield project (new project); Brownfield project (expansion or upgrade); or Classified under 'Major Division 3: Manufacturing'.

The project should: Upgrade an industry within South Africa (via an innovative process, cleaner

production technology or improved energy efficiency); Provide general business linkages within South Africa; Acquire goods and services from small, medium and micro-sized

enterprises (SMMEs); Create direct employment within South Africa; Provide skills development in South Africa; and In the case of a Greenfield project, be located within an Industrial

Development Zone (IDZ).

5

Income Tax Allowance Incentive to Support Greenfield and Brownfield Investment Projects

DTI administers a targeted incentive programme to support the development of tourism enterprises that will stimulate job creation and encourage a geographic spread of tourism investment. As tourism is highly concentrated in the metropolitan (metros) areas of Johannesburg, Cape Town and eThekwini, projects located within these metros are excluded from the programme unless the projects are in marginalised areas within the metros. Marginalised areas are those with higher than the national average unemployment rate.

The incentive programme offers a grant of up to 30% towards qualifying investment costs for establishing and expanding existing operations in South Africa. The incentive is available to South African and foreign-owned enterprises and is provided for qualifying investment costs of furniture, equipment, vehicles, land and buildings/ land improvements of up to R200 million (€20m).

The investment grant is capped at a maximum of R30m (€3m), calculated in relation to the qualifying investment costs, as follows:

Investment projects of R5m (€500,000) and below may qualify for investment grants equal to 30% of their qualifying investment costs, payable over a three year period.

Investment projects of above R5m may qualify for an investment grant of between 15% and 30% of their qualifying investment costs, calculated on a regressive scale, and payable over a period of two years. This investment grant cannot exceed R30m.

In all cases, grant payment is subject to the approved project achieving the stipulated performance requirements of employment creation, B-BBEE, location and investment.The TSP is offered in conjunction with other instruments already available through the provisions of the Income Tax Act, which the government has implemented to stimulate investment, including the graduated tax rates applicable to small enterprises, and the Tourism Enterprise Partnership http://www.tep.co.za/at the Department of Tourism.

The AIS provides investment support to light motor vehicle and automotive component manufacturers. It is an incentive designed to grow and develop the automotive sector through investment in new and / or replacement models and components that will increase plant production volumes, sustain employment and / or strengthen the automotive value chain. The approved guidelines for the Automotive Investment Scheme (AIS) were issued in May 2010. The AIS is a vital part of the Automotive Production and Development Programme (APDP), which was to replace the Motor Industry Development Programme (MIDP) in 2012. Both of these incentive programmes encouraged investment in the local automotive sector. The AIS was to replace the MIDP's Productive Assets Allowance (PAA), which lapsed in December 2009, ahead of the launch of the APDP. The introduction of the AIS was delayed, as government and the local automotive industry negotiated on details. In the meantime, DTI provided guarantees to a number of companies announcing investment plans including BMW South Africa. A budget allocation of R2.69 billion (about €277m) is to be made available for the next three financial years, starting in 2010/11 and ending in 2012/13.

The AIS provides investment support to light motor vehicle and automotive component manufacturers. It provides for a taxable cash grant of 20 percent (20%) of the value of qualifying investment in productive assets approved by DTI. An additional taxable cash grant of 5% - 10% may be available to projects that are found to be strategic by the DTI. A further taxable cash grant of 5% - 10% of the value of qualifying investment in productive assets may be available to projects that meet specified requirements. Projects will be evaluated on the following economic

6

Tourism Support Programme (TSP)

Automotive Investment Scheme (AIS)

benefit requirements: Investment in a new and/or replacement model, tooling, value-added, employment creation / retention, increase in plant production volumes by light motor vehicle manufacturers, increase in unit production per plant by component manufacturers, and strengthening of the automotive supply chain. The approved AIS grant is disbursed over a period of three years. Grant payment is subject to an evaluation by the DTI to determine whether the project achieved the stipulated performance requirements. The effective date of commencement of the programme is 1 July 2009.

To be eligible to benefit from AIS the project must be undertaken by

A manufacturer of specified light motor vehicles that is registered with the International Trade Administration Commission (ITAC), in terms of Note 1 to Chapter 98 of the Customs and Excise Act. An existing light motor vehicle manufacturer must have achieved, or demonstrate that it will achieve, within three years, a minimum of 50,000 annual units of production per plant, or a new light motor vehicle manufacturer must demonstrate that it will achieve within three years a minimum of 50,000 annual units of production per plant.

A component manufacturer or a deemed component manufacturer must be part of the original equipment manufacturer (light motor vehicle manufacturer) supply chain. The component manufacturer must prove that (i) a contract is in place and / or a contract has been awarded and /or a letter of intent has been received for the manufacture of components to supply into the light motor vehicle manufacturer supply chain locally and / or internationally, or (ii) after this investment it will achieve at least 25% of total entity turnover or R10m annually by the end of the first full year of commercial production, as part of a light motor vehicle manufacturer supply chain locally and/or internationally.

Productive assets and investment costs that may qualify for AIS assistance include owned buildings and / or improvements to owned buildings, or new, Second-hand, refurbished and upgraded plant, machinery, equipment and tooling that satisfy specified criteria and conditions.

Projects that benefit from other DTI capital investment incentives do not qualify for assistance under the AIS.

The clothing and the textile sectors lag behind their international competitors in terms of conversion efficiencies and other key indicators of world-class manufacturing principles, of which quality, cost and delivery are the main drivers. CTCIP builds capacity among manufacturers and in other areas of the apparel value chain in South Africa, to enable them to effectively supply their customers. It aims to grow South African-based clothing and textile manufacturers to enable them to be globally competitive. Such competitiveness encompasses issues of cost, quality, flexibility, reliability, adaptability and the capability to innovate. The intervention includes activities relating to people, equipment, materials and processes.

SMEs are required to form clusters to avail of the assistance in benchmarking, supply chain intervention (for local or international markets) and value chain integration where competitive advantages are identified. Large companies which have the internal capacity to manage and develop may apply as an individual applicant for assistance to improve competitiveness within the company and seeking to adhere to global social, environmental and quality management standards by securing accreditations that open supply opportunities. These standards include the International Organisation for Standardisation (ISO) 14000 (environmental) and ISO 9001/2 (quality management).

The incentive programme provides investment support to South African and foreign-owned entities by offering a cost-sharing grant incentive of 75% of project cost for cluster projects and 65% of project cost for company-level projects. These

7

Clothing and Textile Competitiveness Improvement Programme (CTCIP)

incentives will not cover costs of machinery, equipment, commercial vehicles, land or buildings in an existing clothing and textile production facility. The grant will support the initiatives to improve competitiveness at qualifying companies through the provision of 65:35 cost-sharing grants: 65% from the CTCP grant and 35% from the company. Grant support for each company will be limited to a cumulative ceiling of R2.5 million over the five-year period of programme implementation. The cluster grant will support the development of clusters through the provision of 75:25 cost-sharing grants: 75% from the CTCP grant and 25% from the cluster participants. Grant support for each approved partnership will be limited to a cumulative ceiling of R25 million over the five-year period of programme implementation. CTCIP is available for five years up to 31 March 2014.

The PI flows from the implementation, by DTI of customised sector programmes (CSPs) for the clothing, textiles, footwear, leather and leather goods industries. The CSPs are aimed at creating sustainable capabilities and employment in these industries. The main objective of the CSPs is to assist industry in upgrading processes, products and people to re-position it so it competes effectively against other low-cost-producing countries. The PI consists of two components, namely an upgrade grant facility and a facility consisting of an interest subsidy for working capital for a limited period of time. Upgrade includes upgrading equipment, developing people, improving manufacturing processes, optimising materials used, or developing new products. An upgrade grant can also be used in conjunction with the CTCIP. Companies qualifying for an upgrade grant have the option of using it towards funding their own contribution of 25% or 35% required in terms of the CTCIP, up to a maximum of 85% for SMEs and 75% for others.

CIP is a non-refundable scheme that covers between 10% and 30% of the total development costs of the qualifying infrastructure. The cash grant is made available to the approved beneficiary upon the completion of the infrastructure project. Infrastructure for which funds are required is deemed to be 'critical': if the investment would not take place without the CIP funding contribution; if the infrastructure projects would be executed without the CIP contribution but it can be proven that it would be of a smaller scale or lower quality or would be established at a later stage than the period than when it was intended. CIP is an incentive for projects that support infrastructure necessary for the establishment of investment projects. The key objectives of the programme are to support competitiveness by lowering business costs and risks. CIP provides targeted financial support for physical infrastructure that will leverage strategic investment with positive impact on the economy. It stimulates upstream and downstream linkages, taking into account government priorities such as growth and employment, BEE, Integrated Rural Development, Urban Renewal Strategies and Spatial Development. The approved beneficiary will be reimbursed in two phases upon receipt of such claims from the entity. Private sector enterprises, public sector enterprises (i.e. public entities) and PPP are eligible for CIP.

BPO&O investment incentive comprises an Investment Grant ranging between R37,000 and R60,000 per seat and a Training Support Grant towards costs of company specific training up to a maximum of R12,000 per agent. The incentive is offered to local and foreign investors establishing projects that aim primarily to serve offshore clients. The objective of the incentive is to attract BPO&O investments that create employment opportunities. The grant is provided directly to approved projects depending on the value of qualifying investment cost and employment creation. The objective of the incentive is to attract BPO&O investments that create employment opportunities. It may involve starting a new operation or expanding an existing one to perform business process outsourcing and off-shoring activities; and can include more than one physical location. It can be a cost centre of an existing operation, a branch of an existing entity, a joint- venture between entities wherein at least one of the parties must be registered in South Africa as a legal entity. By the end of its second year in operation the project must be adding to the South African productive capacity for BPO&O to an extent

8

Production Incentive (PI)

Critical Infrastructure Programme (CIP)

Business Process Out-sourcing and Off-shoring (BPO&O)

that it will establish an operation of at least 100 seats, and be creating at least 200 additional jobs, defined as full-time equivalents of 'agents' directly working on the project. The project must operate activities classifiable as that of business process outsourcing and off- shoring and must generate at least 90% of its revenue from activities that service off-shore clients.

SSAS is a reimbursable 80:20 cost-sharing grant whereby financial support is granted to Export Councils, Joint Action Groups and Industry Associations. The purpose is to enable the funding in respect of Generic Funding and Project Funding for Emerging Exporters and non-profit business organisations in sectors and sub-sectors prioritised by the DTI. The scheme comprises two sub-schemes, Project Funding for Emerging Exporters and Generic Funding. The aims are to develop an industry sector or new export markets, stimulate job creation, broaden the export base, propose solutions to factors inhibiting export growth and promote broader participation of black owned and SMMEs to the economy. SSAS assists with export development costs - market research, consultancy fees and other expenses, export promotion costs - consultancy fees and other expenses, product development costs - consultancy fees and other expenses, company development costs - consultancy fees and expenses towards installing or improving Quality Management Systems. SSAS also provides service development consultancy fees and other expenses and advertising and publicity (international).

The qualifying sectors are: Aerospace, Rail and marine, Agro-processing, Automotive, Business Process Outsourcing services, Capital equipment and allied services, Chemical allied industries, Creative industries, Electro-technical, Film production, Metals and allied industries, Pre-qualified ICT services, Textile and clothing and pre-qualified tourism services (only for investment purposes excluding real estate agents). An applicant who receives funding from the DTI cannot apply for this financial assistance.

CIS is a 90:10 matching cash grant for registered primary co-operatives (a primary co-operative consists of five or more members). It is an incentive for cooperative enterprises in the emerging economy to acquire competitive business development services and the maximum grant that can be offered to one co-operative entity under the scheme is R300,000.

The Film Production incentive comprises the Foreign Film and Television Production Incentive which aims to attract foreign-based film productions to shoot on location in South Africa and the South African Film and Television Production and Co-Production Incentive, which aims to assist local film producers in the production of local content. The Film Production incentive is to increase local content generation and improve location competitiveness for filming in South Africa.

Foreign Film and Television Production Incentive is only available to foreign- owned qualifying productions with Qualifying South African Production Expenditure (QSAPE) of R12 million and above. The objective of the incentive is to encourage and attract large budget films and television productions that will contribute towards SA economic development and international profile and increase foreign direct investment. An eligible applicant will be rebated a sum totalling 15% of the QSAPE and the rebate is capped at R10 million. The incentive will run for a period of six years up to 2014.

South African Film and Television Production and Co-Production Scheme provides financial support for locally-owned productions and co-productions. It is available to both South African productions and official treaty co-productions with a total production budget of R2,5 million and above. It provides a rebate of 35 per cent for the first R6 million, and 25% for the remainder of the qualifying production expenditure. The following formats are eligible: feature films, TV movies, TV drama

9

Sector Specific Assistance Scheme (SSAS)

Co-operative Incentive Scheme (CIS)

Film Production Incentive

series, documentaries, animation and short form animations. The value of the rebate for any qualifying production is capped at a maximum of R10 million.

In addition to the financial support provided through the new rebate incentives, a number of other measures are being implemented as part of the broader sector development strategy. These include capacity development for emerging production companies, the development of writers and editors through the enterprise development programme and the establishment of five pilot programmes in different locations to address distribution infrastructure, local content and audience expansion.

BBSDP provides a matching grant to enterprises to assist black owned small enterprises in improving competitiveness by upgrading managerial capabilities, market development, quality improvement projects and the acquisition of productivity enhancing technology.

The EMIA scheme is to partially compensate exporters for costs incurred in respect of activities aimed at developing export markets for South African products and services and to recruit new foreign direct investment into South Africa.

Individual Assistance includes Primary Export Market Research and Foreign Direct Investment Research Scheme, Individual Inward-Bound Mission, Individual Exhibitions and In-store Promotions.

Sector-Specific Assistance Schemes include Generic Funding, Project Funding, Project Funding for Emerging Exporters, Group Assistance National Pavilions, Outward-Selling Trade Missions, Outward Investment Recruitment Missions, Inward-Buying Trade Missions, Inward Investment Missions.

This programme is a cost-sharing scheme, providing a contribution to the cost of feasibility studies that are likely to lead to projects outside RSA that will increase local exports and stimulate the market for the RSA capital goods and services. It provides an advance up to a maximum of 50% of study costs for projects outside Africa and 55% for projects in Africa. Depending on the nature of the proposed project, a period more or less than 18 months may be allowed for funds to be sourced for the project.

The programme will attract higher levels of domestic and foreign investment, strengthen the international competitiveness of SA business, create SA jobs, stimulate project development in Africa and in particular SADC countries as well as support NEPAD objectives, and promote linkages with and development of small, medium and micro enterprises and black economic empowerment businesses. Studies must be undertaken by SA companies.

Achieving local content of 50% in the feasibility study and project in terms of goods and professional services is an aim but this percentage will remain at the discretion of the Adjudication committee to be evaluated according to the following: the applicant for the feasibility study/ service provider must be a South African registered company, the feasibility study service provider must supply the Adjudication committee with a certificate from an accredited institution evidencing its B-BBEE Scorecard in line with the B-BBEE Codes of Good Practice and the Scorecard must indicate a minimum score of 30% or such minimum score (in line with the ECIC’s agreement between the ECIC and the Minister or the Director General of Trade and Industry), the size of advance must fall within the range of R 100 000 to R5 million, which can be a maximum of 55% (for projects in Africa) and 50% (for projects outside Africa) of the total feasibility study costs. The advance will then proportionally be reduced dependant on the proposed percentage of local content

10

Black Business Supplier Development Programme (BBSDP)

Export Marketing & Investment Assistance Scheme (EMIA)

Capital Projects Feasibility Programme

The scheme applies to new projects, expansion of existing projects and rehabilitation of existing projects. All capital goods sectors are eligible for programme funding. Projects can be situated anywhere in the world (excluding South Africa), while projects in Africa will be encouraged. The project must have an adequate chance of being declared a success. Additional motivating factors for the study may include a positive impact on other development aspects, including linkages with small, medium and micro businesses as well as linkages with black economic empowerment businesses, and the time period within which the project emanating from the study will be realised.

2 . 3 E P Z s , F r e e p o r t s a n d o t h e r S p e c i a l E c o n o m i c Z o n e s

An IDZ is a form of Special Economic Zone that contains a controlled Customs Secured Area (CSA) where there is an exemption from duties, VAT and import duty on machinery and assets. (Other forms of SEZ include export processing zones (EPZs), free ports, enterprise zones and technology parks.) The IDZ provides a location for the establishment of strategic investment projects. It promotes and develops links between domestic and zone-based industries to optimise use of existing infrastructure, generate employment and create technology transfers and enables exploitation of resource-intensive industries.

Each IDZ offers direct links to an international port or airport, world-class infrastructure, specially designed to attract tenants, suitability for export-oriented production, dedicated customs support services to expedite excise inspection and clearing, duty-free importation of production-related raw materials and inputs, a zero rate of VAT on supplies procured from South African sources, import status for finished goods which are sold into South Africa, Government incentive schemes, reduced taxation and exemption for some activities/products, access to the latest information technology for global communications. There are currently five IDZs in the country, situated at Mafikeng, OR Tambo International Airport (Johannesburg), Richards Bay, East London and Coega with the latter two being fully operational. Coega was the first IDZ, established in 1996 with construction beginning in October 2002. Government expenditure of about R8bn at Coega includes a deepwater port, and upgrading rail and electricity facilities. The cost of the East London IDZ was about R200m.

In addition to IDZs, the government intends establishing special economic zones (SEZ). A Bill to this effect has been published and is currently for comment. The SEZ policy will allow for the designation of different types of economic zones. At the moment, the IDZs are export-orientated and therefore found near ports and airports. However, SEZs would not necessarily have to be export-orientated and could be based anywhere. SEZs allow for a broader range of activities, such as science and technology parks.

2 . 4 T a x I n c e n t i v e s

South African Revenue Services (SARS) is responsible for tax incentives. The Income Tax Act, 1962 contains specific tax incentives including:

Double taxation avoidance agreements to avoid the full taxation of same income of certain persons, enterprises and property under the laws of two countries have been entered into by South Africa with various countries. The National Treasury announced in August 2010 that it proposes to seek renegotiation of some of these treaties.

11

Industrial Development Zones (IDZ)

Depreciation may be claimed in respect of the cost of plant and machinery, implements, utensils and other articles used for the purpose of trade. The allowance generally consists of the amount by which the value of the asset has diminished by reason of wear and tear or depreciation during the year and is calculated according to the declining balance method.

Capital allowance write-off over 5 years at 20% per annum on a straight line basis in respect of machinery and equipment used for the first time in a manufacturing or similar process.

A wear-and-tear allowance is available annually for machinery and equipment, which do not qualify for the 20% capital allowance. Rates are not prescribed and are subject to the tax authorities that favour the diminishing balance method of calculating wear and tear. However, in respect of non-manufacturing plant and machinery, office equipment, furniture and motor vehicles the following rates are normally granted: office equipment (10%), office furniture (10%) and motor vehicles (20%).

Five percent depreciation allowance is allowed annually on cost of buildings (and improvements) where the building is used in a manufacturing or similar process and the building or improvement is commenced after 1 January 1989. There are initial and annual depreciation allowances on ships and aircraft and special depreciation allowances on hotel buildings and equipment.

Patents, copyright, trademarks, designs and other intellectual property acquiring and developing costs incurred before October 29 1999 may be written off over the expected life of such assets or 25 years, whichever is the shorter or if incurred after October 29 1999 the allowance per year shall amount to 5% of the amount of the expenditure connected with the use of an invention, patent trade mark, or copyright or 10% of the amount of the expenditure connected to the use of any design.

Capital investment on buildings and equipment used exclusively for scientific research and approved by the Council for Scientific and Industrial Research (CSIR) may be written off, on a straight line basis, at the rate of 25% per year.

Employee housing may avail of special deductions and allowances for construction costs.

Lease premiums paid for the use of land or buildings, plant and machinery, film recordings or advertising matter connected therewith, patent, design, copyright or similar property and any know-how connected with all of the above may be written off over periods for which the right of use has been granted or 25 years, whichever is shorter.

2 . 5 I n t e r n a t i o n a l T r a d e & E x p o r t P r o m o t i o n

ITAC is a statutory body formed under The International Trade Administration Act No 71 of 2002. The object of the Act is to foster economic growth and development in order to raise incomes and promote investment and employment in RSA and within the Common Custom Area by establishing an efficient and effective system for the administration of international trade subject to the Act and the SACU agreement. ITAC is to create an enabling environment for fair trade, through efficient and effective administration of trade instruments, tariff investigations, trade remedies, import and export control, and provide technical advice on trade matters to DTI.

International Trade and Economic Division of DTI functions:

12

The International Trade Administration Commission

ITED Trade Functions

Negotiate trade rules for global integration, including those for market access (reciprocal / non-reciprocal);

Manage tariff regimes; Negotiate investment treaties: Establish and strengthen economic relations with dynamic economies in the

South (‘the new growth poles’) through established inter-governmental platforms with trading partners (including proposed preferential trading agreements with China and India);

Consolidate trade relations with traditional markets in the North, to expand exports, attract investment and leverage technology transfers through established intergovernmental platforms (including Economic Partnership Agreement / Trade and Development Cooperation Agreement with EU);

Promote regional integration in SACU and SADC, as a platform for integration into the global economy, through development integration that combines: trade integration, policy coordination and sectoral co-operation.

Trade and Investment South Africa (TISA) at DTI aims to increase export capacity and support direct investment flows, through strategies for targeted markets and an effectively managed network of foreign trade offices. South Africa will build on its Market Diversification Strategy to stabilise exports to conventional markets and increase export growth to markets such as Asia, Africa and the Middle East. TISA’s focus is on high-growth markets such as Brazil, Russia, Zimbabwe, the Democratic Republic of Congo (DRC), India and China. The Market Diversification Strategy is complemented by a Product Diversification Strategy to focus on products higher up the value chain in these priority markets.

Export Credit and Foreign Investments Insurance Act, No. 78 of 1957 promotes trade with countries outside the Republic, by providing for the insurance on behalf of the South African Government of contracts in connection with export transactions, investments and loans or similar facilities connected with such transactions. The Export Credit Insurance Corporation of South Africa (Pty) Ltd (ECIC) provides export credit insurance for goods and services. Insurance cover is provided for losses arising from political risk, expropriation, loss incurred due to any action taken by the host government that prevents the conversion of a local currency, war and civil disturbance, breach of contract, protracted default and insolvency. The ECIC provides credit insurance for 2-10 years. Credit insurance covers up to 90% of the contract value but it is contingent on a national content of at least 50% of the export value.

South Africa offers subsidised medium term and long term loans to promote the export of capital goods and services. Financing facilities offered by banks and financial institutions, such as IDC, are enhanced by the credit insurance cover and interest support from ECIC. This support enables exporters of capital goods and services to offer extended credit facilities to foreign buyers by underwriting bank loans and investments outside South Africa.

Imported goods bought by the Government must be shipped by vessels owned or operated by South African shipping companies or approved shipping companies, unless such arrangements result in higher costs or excessive delays. Exemptions are granted at the discretion of the Tender Board.

All exporters are required to register with the South African Revenue Services (SARS). Exporters must be registered with the Department of Trade and Industry (DTI) to receive export incentives.

Customs and Excise Act (Act No. 912) 1964Diamond Export Levy (Administration) Act (Act No. 14) 2007, Diamond Export Levy Act (Act No. 15) 2007, Diamonds Act (Act No. 56) 1986, Diamonds Second Amendment Act (Act No. 30) 2005International Trade Administration Act (Act No. 71) 2003

13

TISA Trade Functions

Export Credit and Foreign Investment Insurance

Trade Legislation

Manufacturing Development Act, No. 187 of 1993 establishes the Manufacturing Development Board, to provide for the establishment of programmes for manufacturing development; and for incidental matters.National Small Enterprise Act, No. 102 of 1996 provides for the establishment of the Advisory Board and the Small Enterprise Development Agency; and provide for guidelines to be followed by organs of state to promote small enterprise in South Africa and incidental matters.

2 . 6 O t h e r I s s u e s

The MPRDA 2002 defines broad based black empowerment as a social or economic strategy, plan, principle, approach or act which is aimed at –

(a) Redressing the results of past or present discrimination based on race, gender or other disability of historically disadvantaged persons in the minerals and petroleum industry, related industries and in the value chain of such industries, and

(b) Transforming such industries so as to assist in, provide for, initiate or facilitate

(i) The ownership, participation in or the benefiting from existing or future mining, prospecting, exploration or production operations;

(ii) The participation in or control of management of such operations;(iii) The development of management, scientific, engineering or other skills of

historically disadvantaged persons;(iv) The involvement of or participation in the procurement chains of

operations;(v) The ownership of and participation in the beneficiation of the proceeds of

the operations or other upstream or downstream value chains in such industries;

(vi) The socio-economic development of communities immediately hosting, affected by the of supplying labour to the operations; and

(vii) The socio-economic development of all historically disadvantaged South Africans from the proceeds or activities of such operations.

The MPRDA converted common law mineral rights by establishing that the sovereignty of the State over resources and places the State as the custodian of mineral resources. Together with the Mining Charter there is an aim for increased ownership of mining by historically disadvantaged persons through equitable access to resources. There is a target of 26% ownership of mining assets for historically disadvantaged persons by 2014 and employment equity and BEE procurement requirements. The Mining Charter was reviewed and amended in September 2010.

The Black Economic Empowerment (BEE) Act, No. 53 of 2003, establishes a legal framework for BEE and empowers the Minister for Trade and Industry to issue Codes of Good Practice and Transformation Charters and establishes the BEE Advisory Council. The Broad Based BEE (B-BBEE) Codes of Good Practice February 2007 is an implementation framework and institutional mechanisms were established for the monitoring and evaluation of B-BBEE.

Broad-Based Black Economic Empowerment (B-BBEE) is to advance economic transformation and enhance the economic participation of black people in the South African economy. The BEE Unit at DTI works through equity and empowerment policies and strategic interventions, to ensure that the economy is restructured, to enable the meaningful participation of black people, women and rural or under-developed communities in the mainstream economy, with a positive impact on employment, income redistribution, structural re-adjustment and economic growth.

14

Minerals and Petroleum Development Act and BBBE

BEE Act and BBBEE

“Black people” is defined in the BEE Act as a generic term which means Africans, Coloureds and Indians and this definition is qualified by BBEE Code of Code of Good Practice Schedule 1 issued under Section 9(1) of BBEE Act as including only natural persons who are citizens of RSA by birth, descent or naturalisation (a) occurring before the commencement date of the Constitution of RSA Act 1993, or (b) occurring after the commencement date of the Constitution but who, without the Apartheid policy would have qualified for naturalisation before then.

There is a generic BEE Scorecard which measures empowerment progress in direct empowerment through ownership and control of enterprises and assets, human resource development and employment equity, and indirect empowerment through preferential procurement and enterprise development.

The Codes of Good Practice include measures of:

Ownership: effective ownership of enterprises by black people. Management Control: effective control of enterprises by black people. Employment Equity: initiatives intended to achieve equity in the workplace. Skills Development: the extent that employers carry out initiatives designed to

develop the competencies of black employees. Preferential Procurement: the extent that enterprises buy goods and services

from BEE compliant suppliers as well as black owned entities. Enterprise Development: the extent to which enterprises carry out initiatives

contributing to enterprise development. Socio-Economic Development: the extent to which enterprises carry initiatives

contributing to socio-economic development. Qualifying Small Enterprises: the extent to which enterprises carry out

contributions made by qualifying small enterprises.

The Codes of Good Practice are binding on all state bodies and public companies, and the government is required to apply them when making economic decisions on procurement, licensing and concessions, public-private partnerships, and the sale of state-owned assets or businesses. Private companies must apply the codes of good practice if they want to do business with any government enterprise or organ of state whether they wish to tender for business, apply for licenses and concessions, enter into public-private partnerships, or buy state-owned assets. Companies are encouraged to apply the codes of good practice in their interactions with one another, since preferential procurement will affect most private companies throughout the supply chain.

The preferential procurement policy is used to enhance the participation of historically disadvantaged individuals and the government hopes to influence the promotion of enterprises located in specific provinces, regions, municipalities and rural areas to uplift and empower communities.

A business with a turnover of less than R5 million (€500,000) is classified as an Exempt Micro Enterprise (EME), is not required to complete a scorecard, may acquire an exemption certificate giving Level 4 or Level 3 status as a contributor to B-BBEE, while a customer of an EME can claim at least 100% of its procurement spend with the EME towards its own B-BBEE scorecard.

A business with a turnover of more than R5 million and less than R35 million is classified as a Qualifying Small Enterprise (QSE) and is measured on the best four out of the seven sections of the BEE Scorecard.

DTI growth strategy includes a focus on broadening participation, equity and access to redress for all economic citizens, particularly those previously marginalised.

15

National Empowerment Fund Act 1998 created a trust to hold equity stakes in state-owned enterprises and other private enterprises on behalf of historically disadvantaged persons. The NEF Corporation manages the trust in order to:

(a). Provide historically disadvantaged persons with the opportunity to, directly and indirectly, acquire shares,

(b). Encourage and promote savings, investment and meaningful economic participation by historically disadvantaged persons,

(c). Promote and support business ventures pioneered and run by historically disadvantaged persons.

Local content and substantial transformation requirements are an integral part of some of South Africa trade policies. They are an instrument of industrial policy to encourage investment, especially from overseas, and production of certain goods, including by SMEs. Local content considerations are taken into account when comparing tenders for government procurement purposes, granting some incentives, providing export credit insurance, and using the "Proudly South Africa" logo.

Under the National Industrial Participation Programme 1996, which is managed by DTI, all government purchases or lease contracts (goods, works, and services) are subject to an industrial participation (IP) obligation. Any contract having an imported content equal to or exceeding US$10 million is subject to an IP obligation. No contract can be awarded to a bidder who has not satisfied this requirement. This obligation requires the seller / supplier to engage in commercial or industrial activity equal to or exceeding 30% of the imported content of total goods purchased under the government tender, with the exception of defence related contracts. In the case of defence contracts, an additional 50% on the imported content (referred to as DIP – Defence IP) is required. The obligation may take the form of investments, joint-ventures, sub-contracting, licensee production, export promotion, sourcing arrangements, and research and development collaboration. Bidders must submit their projects, which should be beneficial to the South African economy, to the Industrial Participation Secretariat at DTI for approval before implementation. Projects are evaluated by two committees. One assesses the technical merit of the proposal and determines whether it meets the DTI's and the industry's objectives, and the other ensures adherence to the principles of the NIPP. Any company is free to object to a decision, and a project can be reconsidered based on new information.

16

Local Content and Participation

3 A C C E S S A N D A D M I S S I O N O F F O R E I G N I N V E S T O R S

3 . 1 F o r e i g n I n v e s t m e n t & C a p i t a l M o b i l i t y

There is no general screening or review process for foreign investment in RSA, but foreign investment is subject to exchange control policy and regulations (see http://www.reservebank.co.za/internet/Publication.nsf/LADV/E9C6A4DE319A518D422577700045F090/$File/Q_R.pdf). Non-residents that comply with exchange control policy and regulations may invest in South Africa with evidence that the transaction is at arm’s length and at fair market related prices, financed by the introduction of foreign currency, rands from a non-resident account, or local financial assistance to non-residents or an “affected person”. The proceeds of a sale or redemption of assets owned by a non-resident may be remitted from South Africa, or used in the Common Monetary Area (Republic of South Africa, Lesotho, Namibia and Swaziland), for investment and other purposes and credited to a non-resident account.

By regulations made under the Currency and Exchanges Act (Act No. 9 of 1933) the Minister for Finance has delegated powers and functions in implementing and administering exchange rate policy to the Financial Surveillance Department of the SA Reserve Bank. The Minister for Finance has appointed eligible banks to be Authorised Dealers in foreign exchange. Their function is to assist the Financial Surveillance Department in administering exchange control. All applications to the Financial Surveillance Department have to be made through an Authorised Dealer. Rulings, issued by the Financial Surveillance Department, set out the authorities granted to Authorised Dealers and the rules and procedures to be followed by the Authorised Dealers in dealing with day-to-day matters relating to exchange control. These are amended as required and supplemented by Circulars. The Rulings are a technical handbook for use by the Authorised Dealers, containing authorities, instructions and conditions applicable to the wide range of transactions that they may undertake on behalf of their clients.

A South African registered entity that is 75% or more foreign controlled is an “affected person” and is restricted in the amount it may borrow from South African lenders. A company that is wholly owned by non-residents may borrow up to 300% of total shareholder investment for use in the business. Effective capital for shareholder investment includes paid-up equity capital, preference shares, undistributed earned profit, shareholders’ loans from abroad and, in some cases shareholders trade credit. Where there is South African as well as non-resident ownership additional sums may be borrowed.

Non-residents who are in possession of a valid work permit are considered to be South African residents for the duration of the permit and are not subject to the borrowing restrictions on a non-resident without a permit.

Royalites, licence and patent fees and management fees to non-residents may be approved where they meet the relevant conditions.

The B-BBEE Codes of Good Practice require that all entities operating in RSA contribute towards the objectives of B-BBEE. Where MNCs have global practices preventing them from complying with the ownership element of B-BBEE through sale of shares to black South Africans, the codes make provision for the recognition of Equity Equivalent (EE) contributions in lieu of sale of equity. Firms are expected to invest the equivalent of 25% of the value of their investment in South Africa over ten years in programmes that promote enterprise or human

17

development, sustainable growth, research and development or the accelerated empowerment of black rural women and youth.

Financial flows are also subject to the Anti-Money Laundering Act 2001 and Financial Intelligence Centre Act (Act No. 38) (anti-money laundering) 2001.

3 . 2 F o r e i g n I n v e s t m e n t E s t a b l i s h m e n t , R e g i s t e r i n g a n d L i c e n s i n g P r o c e s s e s

South Africa has removed almost all investment approval processes to focus on data collection and monitoring via registration and reporting processes. There is no limit on foreign ownership, except in banking and the media. When establishing a business, a business licence is required to be obtained from the local authority. The licence is valid indefinitely, except for businesses handling foodstuffs and those where people gather, such as clubs or theatres, which require renewable licences. There is a choice of entity through which a South African or foreign investor may carry out business in South Africa. The choice is influenced by factors that include limited liability, reporting requirements and tax efficiency.

Despite the ongoing liberalisation, two restrictions to foreign investment remain in place in South Africa: (i) local minimum equity requirements for banks and insurance companies; and (ii) businesses with non-resident ownership or control equal to or greater than 75% are restricted as to the amount they may borrow from local financial markets. In addition, a foreign bank establishing a branch may be required to employ a minimum number of local residents to obtain a banking licence, and to have a minimum capital base. Foreign companies are also required to register as "external companies" before immovable property can be registered in their name. With the exception of financial institutions, any foreign company may establish a place of business in South Africa, and conduct its activities without having to incorporate as a local entity. The establishment of a branch requires registration as an "external company" within 21 days of establishment of a place of business. Additional approval is required for a business entity that will be involved in import and export activities.

The Companies Act (No. 711, of 2008) regulates the formation, conduct of affairs and liquidation of companies in South Africa. There are five main types of company:

A private company referred to as a Pty (Proprietary Limited Company). A private company must have at least one director and shareholder and membership is restricted to 50. It cannot offer or transfer shares to the public. Directors do not have to be South African residents or nationals.

A public company that may offer shares to the public and is referred to as Limited.

A company not for gain is commonly referred to as a Section 21 company, e.g. NGO's and religious and charity organisations.

A foreign company, in a sector other than banking or insurance, may establish a place of business and carry on activities in South Africa through a branch which is registered as an external company under Section 32 of the Companies Act.

An incorporated company which is registered by professionals e.g. attorneys doctors and auditors, is a company where the directors remain jointly and severally liable for debts, and is generally referred to as a Section 53(b) company.

Further details on companies are available from Companies and Intellectual Property Commission of South Africa (CIPC) www.cipc.co.za. A company and a close corporation incorporated in South Africa are governed by the Companies Act No 71 of 2008, which is based on English company law. The Act is administered by

18

the Commission. . The Act regulates the formation, conduct of affairs, and winding up of companies and does not distinguish between companies owned by South Africans or foreigners.

The steps involved in setting up a company include:

Decide on the type of business entity e.g. a close corporation or company. Identify desired names for the entity and carry out a name search on CIPCs

website to ensure that a preferred name is not reserved by another enterprise. Reserve the entity name, by completing and submitting forms to CIPC. CIPC provides enterprise registration number. Apply for VAT number, income tax number, PAYE, SDL and UIF numbers from

SARS. Register logo as a trademark with CIPC. Ensure intellectual property has copyright and if the entity has a unique product

register a patent with CIPC.

Other forms of business entity include sole proprietor, partnership, Business of Trading Trust or a contractual form of joint venture. An institutional form of joint venture is usually a company with the parties in the joint venture holding shares in the company.

Banking and financial services are regulated by the Banks Act (Act No. 94) 1990, Financial Institutions (Protection of Funds) Act (Act No. 28) 2001, Financial Markets Control Act (Act No. 55) 1989, Financial Services Board Act (Act No. 97) 1990, Mutual Banks Act (Act No. 124) 1993, Stock Exchange Control Act (Act No. 1) 1985 and Unit Trusts Control Act (Act No. 54) 1981.

Manufacturing is subject to the Manufacturing Development Act (Act No. 187) 1993. Tourism is regulated by the Tourism Act (Act No. 72) 1993.

Mining and petroleum are regulated by the Mineral and Petroleum Resources Development Act (MPRDA) (Act No. 28) 2002 and the Minerals and Energy Laws Rationalisation Act (Act No. 47) 1994. The MPRDA Act provides that foreigners and nationals have the right to apply for a prospecting right, mining permit, reconnaissance permit, beneficiation right, exploration right, and / or mining right as long as they comply with the requirements set out in the law. The law makes no reservations for South African citizens but it empowers the Minister to give preference to applications from historically disadvantage peoples when considering applications received on the same date.

The South African Diamond and Precious Metals Regulator (SADPMR) regulates the diamond and precious metals (gold and platinum-group metals) industries, under the Diamond Act No. 56 of 1986 and the Precious Metals Act No. 37 of 2005. SADPMR administers, and controls the purchase, sale, beneficiation, import, and export of diamonds. It also administers and controls the acquisition, possession, smelting, refining, fabrication, use, and disposal of precious metals. SADPMR issues licences, permits, and certificates for all activities related to diamonds and precious metals. SADPMR ensures that all diamond dealers comply with the Kimberley Process certification scheme.

The National Energy Regulator of South Africa (NERSA) regulates petroleum, gas, and electricity. It issues licences for building petroleum pipelines, and loading and storage facilities, constructing and operating gas transmission, distribution, and re-gasification facilities, conversion of infrastructure, and trade in gas, and electricity generation and distribution.

19

Banking & Financial Services

Manufacturing

Mining & Petroleum

Diamonds & Precious Metals

Energy Sector

The Department of Communications (DoC) is responsible for policies and legislation related to communications technology (ICT), ensuring reliable and affordable ICT infrastructure, strengthening the Independent Communications Authority of South Africa (ICASA), the regulator, enhancing the capacity of and overseeing state-owned enterprises (SOEs), and meeting South Africa's international ICT responsibilities. The Electronic Communications Act No. 36 of 2005 is aimed at facilitating the synergies between telecom, broadcasting, and information technologies services, while promoting competition in the sector through inter alia, facilitating access to networks. According to the Act, the Competition Act applies to the telecom subsector. ICASA cooperates with the Competition Commission on any type of investigation. ICASA regulates broadcasting, postal, and telecom services, issues licences for providers, enforces compliance with rules and regulations, monitors complaints and disputes brought against licensees, manages the frequency spectrum; and protects consumers.

WTO (2009) states that “under its GATS specific commitments South Africa committed to license a second telecommunications supplier no later than 1 January 2004, to compete against Telkom in long distance, data, telex, fax, and private-leased circuit services. As a result, a second operator was licensed, but Telkom continues to have a de facto monopoly over the network.”

3 . 3 F o r e i g n E m p l o y m e n t & R e s i d e n c e

The Department of Home Affairs website http://www.home-affairs.gov.za/ provides access to all laws and regulations regarding immigration and work permits including the Immigration Act 2002 as amended in 2004. Application forms are available on-line.

General Work Permit: an employer must first attempt to employ a South African citizen or resident by advertising in the national print media. If a suitable candidate cannot be found, the position can be offered to a foreign national. Quota Work Permit: for employment of highly skilled foreign nationals. Each year the Government publishes a critical skills list setting out specific professional categories and skills with a numerical quota. Where a job position is listed the prospective employer does not have to advertise the position. Exceptional Skills Work Permit: where an individual can show exceptional skills and how these would be to the advantage of the South African economy.Intra-Company Work Permit: An employer can apply for an intra-company temporary residence work permit for key or senior employees if the employee is required to work in South Africa and is being transferred from a branch, subsidiary or affiliate abroad. This permit cannot be renewed and is limited to three years. Business Permit: applies to owners of businesses who are investing in starting up or acquiring a business in South Africa. An applicant must show that a feasibility and viability study has been prepared and included in a substantive business plan. The business must have a capitalisation of R2.5m (about €250,000), a commitment to employ at least five South African citizens or residents, and an undertaking to register with the South African Revenue Service (SARS).

3 . 4 F o r e i g n I n v e s t o r A c c e s s t o L a n d a n d P r o p e r t y R i g h t s

There are no restrictions on property ownership by non-residents provided that there is compliance with procedures, including the local registration of entities registered outside of South Africa, and the appointment of a South African resident public officer for a South African registered company owned by a non-resident. If a

20

Communications

non-resident purchases property with the intention of residing in South Africa for long periods, then application should be made for permanent residency. Non-residents may borrow up to 50% of the purchase price in South Africa, but must transfer the other 50+% to South Africa from a recognised foreign bank.

Alienation of Land Act, No. 68 of 1981 regulates the alienation of land in certain circumstances and provide for connected matters.

Private, State, Provincial, Municipal and Parastatal lands are potentially available for development use with different application processes. Zoning for physical planning is handled by local authorities generally in accordance with the National Development Act. There is one process for the transfer of land and a good system of land registration.

The Mineral and Petroleum Resources Development Act (MPRDA) regulates the issuing of licenses for prospecting and exploration of minerals and rehabilitation of land surface from prospecting and mining operations. Mineral rights are vested in the State.

The Broad Based Socio-Economic Empowerment Charter for the Mining Industry (Mining Charter) must be complied with to facilitate the entry of historically disadvantaged South Africans into the mining sector.

4 F O R E I G N I N V E S T M E N T O P E R A T I O N S

4 . 1 E m p l o y m e n t

The Department of Labour website http://www.labour.gov.za/ contains details and guides to employment legislation including the following. Employment Equity Act 1998 prohibits all forms of unfair discrimination at work and required all enterprises employing more than fifty employees to take affirmative action to bring about a representative spread of designated groups in all occupations and organisational levels within defined time periods. Labour Relations Act encourages and regulates collective bargaining, sets up Commission for Conciliation Mediation and Arbitration (CCMA) which is responsible for dispute resolution, the Labour Court responsible for retrenchment etc and review of CCMA decisions and Labour Appeal Court for appeals from decisions of the Labour Court. Basic Conditions of Employment Act sets out minimum requirements for working hours, leave and all other basic employment conditions.

4 . 2 B u s i n e s s T a x a t i o n

New enterprises file with SARS for income tax, value added tax (VAT), employee tax – standard income tax on employees (SITE) and pay as you earn (PAYE). Corporate income tax rate is 28% and there is also a 12.5% secondary tax companies (STC) levied on declared dividends. Foreign resident companies that earn income from a South Africa source face a tax rate of 33% as STC is not payable by a foreign resident company.

VAT is levied on domestically produced and imported goods and services at a standard rate of 14%. Exports, some basic foodstuffs (e.g. brown bread, maize meal, eggs, milk, fruit, and vegetables), goods used or consumed for agricultural, pastoral or other farming purposes (e.g. animal feed, seed, fertilizers, pesticides, and animal remedies), fuels (lighting paraffin, diesel, and gasoline), and international transport of goods and passengers are zero-rated. Goods and services exempt from VAT include financial services, donated goods or services or

21

Value Added Tax

any other goods made or manufactured with donated inputs, the supply of residential accommodation, educational services and transport services. VAT is not payable on temporary imports and imports for export-processing. VAT is levied on the domestic open-market value for goods and services produced in South Africa. VAT is levied on the duty-inclusive free on board (fob) customs value of imports (i.e. the fob customs value plus the amount of any non-rebated customs duty), uplifted by 10%. The additional 10% is included to adjust for the customs valuation on the fob value rather than the cost, insurance and freight (cif) value.

South Africa levies a diamond export levy on the value of exports of unpolished diamonds to promote the development of the local economy, develop skills, and create employment. Exports of unpolished diamonds are prohibited unless undertaken by a producer, a manufacturer (synthetic diamonds), a dealer, or a holder of an export permit. There are also export levies on citrus fruit (R 0.0213 per kg) and wine (in bulk R 0.05 per litre and R 0.08 per litre otherwise).

Customs and Excise Act 91 of 1964 (C&E Act) customs duties levied by South Africa in terms of the C&E Act are also levied by the other SACU member states. The C&E Act consists of twelve Chapters, twelve Chapters to the Rules, ten Schedules to the C&E Act and one Annexure. The latter includes South African trade agreements with Zimbabwe and Malawi, a Free Trade Agreement with the European Community, the Trade, Development and Cooperation Agreement (TDCA) and the SADC Trade Protocol.

4 . 3 E n v i r o n m e n t , P h y s i c a l P l a n n i n g , H e a l t h & S a f e t y , C o n s u m e r P r o t e c t i o n

The National Environment Management Act No 107 of 1998 provides a legal framework for environmental developments. An Environmental Impact Assessment (EIA) is required in certain circumstances at national and provincial levels with about 100 applications processed each year.

Consumer Affairs (Unfair Business Practices) Act, No. 71 of 1988 provides for the prohibition or control of certain business practices; and connected matters.

Consumer Protection Act No 68 of 2008 promotes a fair, accessible and sustainable market place for consumer products and services and provides effective means of redress for consumers. It establishes national norms and standards for consumer protection, provides for improved consumer information, prohibits unfair marketing and business practices, promotes responsible consumer behaviour, promotes a consistent framework legislative and enforcement framework relating to consumer transactions and agreements and forms the National Consumer Commission.

The National Credit Regulator (NCR) was established as the regulator under the National Credit Act No. 34 of 2005 (The Act) and is responsible for the regulation of the South African credit industry. It is tasked with carrying out education, research, policy development, registration of industry participants, investigation of complaints, and ensuring the enforcement of the Act.The Act requires the Regulator to promote the development of an accessible credit market, particularly to address the needs of historically disadvantaged persons, low income persons, and remote, isolated or low density communities.

The NCR is also tasked with the registration of credit providers, credit bureaux and debt counsellors; and with the enforcement of compliance with the Act.

22

Export Levy

Customs

Environment

Consumer Protection

National Credit Regulator

Standards Act, No. 8 of 2008 recognises the South Africa Bureau of Standards (SABS) as the primary institution responsible for the development, promotion, and maintenance of standardisation, and the provision of conformity assessment services. SABS has the power to set, issue, amend, and withdraw standards. SABS also furnishes reports and issues certificates in connection with examinations, tests, analyses, calibrations, and any other assessments. The SABS may levy fees for setting and issuing a standard and for services rendered in connection with the provision of conformity assessment services. The SABS develops and maintains South African national standards (SANS), at the request of interested parties, and details the process to be used to set or amend them. South African National Standards (SANS) are harmonised as far as possible with international standards. There are over 440 technical committees and subcommittees administered by the SABS to develop standards.

The regulatory function previously performed by the SABS is carried out by the National Regulator for Compulsory Specifications (NRCS) established under the National Regulator for Compulsory Specifications Act (NRCS Act) 2008 to administer compulsory specifications. The NRCS Act provides the legal framework for the administration of technical regulations, maintained in the interests of public safety, health, and the environment.

The Agricultural Product Standards Amendment Act (Act No. 63 of 1998) is the main law regulating the setting of standards for agricultural products. Standards are set in consultation with the agriculture sector, consumer groups, and international standards setting bodies (e.g. the FAO / WHO Codex Alimentarius Commission, and various special advisory commissions under the World Organisation for Animal Health (OIE)). A South African national standard in respect of a product or service under the jurisdiction of the Agricultural Product Standards Act, 1990, or the Liquor Products Act, 1989, can be set or amended following an agreement between the SABS Board and the director-general of the department responsible for agriculture.

Trade Metrology Act, No. 77 of 1973 consolidates and amends the law relating to trade metrology, so as to ensure the accuracy of measuring instruments utilised in trade, on the basis of national measuring standards.

4 . 4 C o m p e t i t i o n P o l i c y & L a w

Competition Act, No. 89 of 1998 provides for the establishment of a Competition Commission of South Africa (CCSA) responsible for the investigation, control, evaluation and prosecution of restrictive practices, abuse of dominant positions and mergers, prohibitions on anti-competitive conduct. The CCSA has the right to exempt firms from application of the Act. Exemptions are granted if the agreement or practice contributes to export promotion, assisting SMEs and historically disadvantaged persons to become competitive, stopping the decline of an industry or protecting the stability of any industry designated by the Minister responsible for that industry.

The Competition Tribunal of South Africa (CTSA) is responsible for adjudicating on large mergers and all restrictive practices and acts as an appeal body for CCSA decisions in regard to small and intermediate mergers and exemptions. The Competition Appeal Court handles appeals from decisions of CTSA and is a division of the High Court. The Act allows for exemptions from the provisions on anti-competitive practices where such practices promote the ability of black owned and black controlled enterprises to become competitive.

The National Energy Regulator of South Africa (NERSA) www.nersa.org.za regulates petroleum, gas, and electricity and sets and approves utility charges.

23

Standards

Utilities (eg Sasol or Eskom) may not increase regulated rates or alter conditions of service without NERSA's approval. NERSA ensures that access to petroleum pipelines and loading and storage facilities is provided on the appropriate land, promotes competition amongst petroleum pipelines users and gas industries, as well as the optimal use of gas resources, and settles customer disputes. NERSA is financed with public funds, levies charged to regulated industries, charges on dispute resolution, and licence fees.

Telecommunications Act (Act No. 103) 1996

4 . 5 M o n e t a r y P o l i c y , F o r e i g n E x c h a n g e a n d F o r e i g n I n v e s t o r s

The South African Reserve Bank is the central bank established by Section 223 of the Constitution and regulated by South African Reserve Bank Act (Act No. 90). The primary object of the Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth. The Constitution provides that the Reserve Bank must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the Bank and the Cabinet member responsible for national financial matters, The Reserve Bank is responsible for monetary policy and the Monetary Policy Committee of the Reserve Bank determines interest rates. See Foreign Investment and Capital Mobility above at 3.1. where the Minister responsible for finance has delegated functions relating to foreign exchange flows to the Reserve Bank.

4 . 6 P u b l i c P r o c u r e m e n t

Section 217(I) of the South African Constitution stipulates that contracts for goods and services must be in accordance with a system that is fair, equitable, transparent, competitive, and cost-effective. The Constitution also confers an obligation for national legislation to set a framework providing for preferential procurement to address the social and economic imbalances of the past.

Procurement in South Africa is regulated by the State Tender Act (Act No. 86 of 1968), the Public Finance Management Act of 1999, the Preferential Procurement Policy Framework Act (PPPFA) of 2000, the Policy to Guide Uniformity in Procurement Reform Processes in Government (a Framework for Supply Chain Management), and the general Procurement Guidelines, which are supplemented by individual Accounting Officer's Procurement Procedures. These apply to all national and provincial departments. The National Treasury, through the Public Finance Management Act of 1999, introduced norms and standards for transparency and expenditure control measures, which should include best practices to regulate financial management in the national and provincial spheres of government. The Municipal Finance Management Act (MFMA) extends the same principles to municipalities.

All procurement contracts must comply with the Preferential Procurement Policy Framework Act (Act No. 5 of 2000) and implementing regulations which stipulate that preferences must be applied to all tenders regardless of value. The Act provides that the tender process is made more accessible to black people. Tenders are unbundled into smaller tenders to allow smaller enterprises to tender. A point system operates for the award of tenders with a combination of price and preference for targeted groups. The preferences are aimed at supporting SMEs and micro enterprises (SMMEs) and historically disadvantaged individuals (HDIs), women, and physically handicapped people and promoting employment and domestic production including in specific provinces and the rural areas. Preference points are to be awarded on the basis of comparative prices not tender prices. For tenders valued of less than R 500,000, there is an 80/20 split, with 80 points

24

awarded to the lowest price acceptable bid. A maximum of 20 points is awarded to HDIs under the Black Economic Empowerment (BEE) programme depending on ownership, management, and employment goals. Tenders valued over R 500,000 operate on the same basis except the split is 90/10. The contract is to be awarded to the bidder with the highest points unless justified by other developmental objective criteria. Exemption from provisions of the Framework Act might be justified on grounds of public or national security interests. Foreign firms may only bid through a local agent.

In 2009 the South African Treasury published a draft set of Preferential Procurement Regulations which are intended to replace the 2001 Regulations under the Act. The aim is to align preferential procurement with the approach to Black Economic Empowerment under the Broad-Based Black Economic Empowerment Act 53 of 2003. This process led to the amendmentof the Preferential Procurement Regulations as interim measures to align themselves to the B-BBEE Codes of Good Practice.

Most government purchasing takes place through competitive bidding, on invitations for tenders, published in the Government Tender Bulletin, on ministry websites, and sometimes in local newspapers. Where the Tender Board considers it "advisable", bidders are pre-screened to ensure that they can supply the goods or services so that the tender offer is extended to suitable bidders. The Board might consider that invitations to tender for specific supplies or services should be limited to certain bidders. Potential bidders are evaluated in the light of the requirements, and invitations are extended only to bidders found to be suitable. In comparing tenders, the prices are brought to a comparative level by deducting preferences and other benefits, adding delivery and other costs as applicable, and bringing implied contract price adjustments into account. The Board awards price preferences for local content, for products with the SABS marks, and other preferences mandated by the Ministry of Finance. After prices have been brought to a comparative level the lowest is normally chosen. When there are equal-price tenders the Board's General Procedures stipulate the criteria to be followed, including national content.

4 . 7 I n t e l l e c t u a l P r o p e r t y

Intellectual property in South African is protected under the Companies Act of No.71 of 2008. The Companies Act led to the establishment of a new institution,, the Companies and Intellectual Property Commission. It furthermore led to the transformation of three existing company law entities, namely the Take-over Regulation Panel, the Financial Reporting Standards Council and the Companies Tribunal

The main functions of the Commission are as follows:• Register companies, co-operatives and intellectual property rights and maintain such a register;• Disclose information on its register;• Promote education about, and awareness of, company and intellectual property law;• Promote compliance with the relevant legislation;• Ensure the efficient and effective enforcement of relevant legislation;• Monitor compliance with and contraventions of financial reporting standards, and make recommendations in this regard; and• Report to, conduct research for, and advise the Minister of Trade and Industry, on matters of national policy relating to company and intellectual property law.

25

The Commission’s mandate can in short be defined as the administration of and performance of all the powers and functions assigned to it by the said Companies Act, 2008 (Act 71 of 2008), as well as Acts referred to in Schedule 4 of the Act. {Section 185 (2) (d) and 187(1) referred}; and other agreements.

Within the domain of intellectual propery, the Commission functions within the following Acts:

Patents Act, 1978 (Act 57 of 1978)

To consolidate the law relating to patents for inventions and for the rights of a patentee.

Patent Cooperation Treaty (PCT), effective in South Africa from 16 March 1999

To provide for functioning of the CIPC as receiving, designated and elected office in terms of PCT.

Trade Marks Act, 1993 ( Act 194 of 1993)

To consolidate the law relating to trade marks and provide for the registration of trade marks, certification of trade marks and collective trade marks, and the protection of rights relating thereto.

Designs Act, 1993 (Act 195 of 1993)

To consolidate the law relating to designs, provide for the registration of designs and delineate the rights pertaining thereto.

26

4.7.1 Copyright Act, 1978 (Act 98 of 1978)

4.7.2 To regulate copyright in respect of, inter alia, artistic works, dramatic works, computer programmes, musical and literary works.

4.7.3 Registration of Copyright in Cinematography Films Act, 1977 (Act 62 of 1977)

4.7.4 To provide for the registration of copyright in cinematograph films and matters connected therewith.

4.7.5 Merchandise Marks Act , 1941 (Act 17 of 1941) (amended 2002)

4.7.6 To make provision concerning the marking of merchandise and of coverings in or with which merchandise is sold and the use of certain words and emblems in connection with business.

4.7.7 Intellectual Property Laws Rationalization Act ,1996 (Act 107 of 1996)

4.7.8 To provide for the integration of Intellectual property rights subsisting in the ex- Transkei, Bophuthatswana, Venda and Ciskei states (TBVCs) into the national system, extend the South African intellectual property rights legislation throughout the Republic and repeal certain intellectual property laws.

27

4.7.9 Counterfeit Goods Act, 1997 (Act 37 of 1997)

4.7.10 To strengthen prohibitions on trade in counterfeit goods; confer powers on inspectors and the South African Police Service (SAPS) to enter and search premises, with and without a warrant; and confer powers on Customs and excise to seize and detain suspected counterfeit goods.

4.7.11 Performer's Protection Act, 1967 (Act 11 of 1967)

4.7.12 To provide for the protection of the rights of performers of literary and artistic works

Unauthorised Use of Emblems Act, 1961 (Act 37 of 1961)

To provide for the continued operation of certain laws relating to the use of certain emblems and representations and extend the scope of such laws.

For further information please refer to: www.cipc.co.za

4 . 8 I n v e s t m e n t P r o t e c t i o n a n d D i s p u t e S e t t l e m e n t

Constitution of the Republic of South Africa No. 108 of 1996Section 3 Equality

(1) Everyone is equal before the law and has the right to equal protection and benefit of the law.

(2) Equality includes the full and equal enjoyment of all rights and freedoms. To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.

(3) The state may not unfairly discriminate directly or indirectly against anyone on one or more grounds, including race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth.

(4) No person may unfairly discriminate directly or indirectly against anyone on one or more grounds in terms of subsection (3). National legislation must be enacted to prevent or prohibit unfair discrimination.

(5) Discrimination on one or more of the grounds listed in subsection (3) is unfair unless it is established that the discrimination is fair.

28

Section 25 Property (1) No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.

(2) Property may be expropriated only in terms of law of general application--(a) for a public purpose or in the public interest; and(b) subject to compensation, the amount of which and the time and

manner of payment of which have either been agreed to by those affected or decided or approved by a court.

(3) The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including-

(a) the current use of the property;(b) the history of the acquisition and use of the property; (c) the market value of the property;(d) the extent of direct state investment and subsidy in the acquisition

and beneficial capital improvement of the property; and(e) the purpose of the expropriation.

(4) For the purposes of this section(a). the public interest includes the nation’s commitment to land reform,

and to reforms to bring about equitable access to all South Africa’s natural resources; and

(b). property is not limited to land.(5) The state must take reasonable legislative and other measures, within its

available resources, to foster conditions which enable citizens to gain access to land on an equitable basis.

(6) A person or community whose tenure of land is Iegally insecure as a result of past racially discriminatory laws or practices is entitled, to the extent provided by an Act of Parliament, either to tenure which is legally secure or to comparable redress.

(7) A person or community dispossessed of property after 19 June 1913 as a result of past racially discriminatory laws or practices is entitled, to the extent provided by an Act of Parliament, either to restitution of that property or to equitable redress.

(8) No provision of this section may impede the state from taking legislative and other measures to achieve land, water and related reform, in order to redress the results of past racial discrimination, provided that any departure from the provisions of this section is in accordance with the provisions of section 36 (1).

(9) Parliament must enact the legislation referred to in subsection (6).

Expropriation (Establishment of Undertakings) Act, No. 39 of 1951 provides for the expropriation of land and the taking of the right to use land temporarily for, or in connection with, the objects or undertakings of national importance.

The legal and judicial system in South Africa is well developed. Disputes may be resolved by arbitration. The Arbitration Act 1965 regulates arbitration and does not distinguish between international or South Africa arbitration. The Act is not based on the UNCITRAL Model Law although it has many similar provisions and is less prescriptive than the model law. The High Court has jurisdiction to enforce awards.

4 . 9 I n t e r n a t i o n a l A g r e e m e n t s a n d O b l i g a t i o n s – T r a d e a n d o t h e r A g r e e m e n t s , B I T s , D T T s

South Africa is a founder member of the General Agreement on Tariffs and Trade (GATT), which was replaced by World Trade Organisation (WTO), and is a member of WTO since 1 January 1995.

29

Dispute Settlement

WTO

SA – EU Trade Development and Cooperation Agreement (TDCA) 1999 signed in Pretoria on 11 October 1999 aims, among other things, to establish a free trade area over a 12 year period covering 90% of bilateral trade. The implementation of this agreement is overseen by the Joint Co-operation Council which also functions as a forum for overall dialogue between the EU and South Africa. South Africa, while part of the ACP group of countries, was not party to the same preferential trade arrangements granted to the ACP under the Cotonou Agreement (2000). For the Economic Partnership Agreements (EPAs) which are the trade pillar of the Cotonou Agreement, South Africa joined the negotiations with the SADC EPA group in February 2007. 5 of the 7 countries in the SADC EPA Group have initialled and are close to signing an interim or "stepping stone" EPA, South Africa has opted not to join at this stage as its trade relations with the EU are governed by the TDCA. RSA has stated that it is in favour of joining a full EPA in the future and will continue to participate in negotiations with the goal of increasing regional integration and boosting competitiveness of the SADC economies.

WTO (2009) states that South Africa has bilateral trade agreements with Malawi and Zimbabwe, and that it grants non-reciprocal preferential treatment on a number of products from Mozambique. The 1964 trade agreement with Zimbabwe (a member of COMESA and SADC) is subject to various conditions. The duty-free regime or preferential tariff quotas apply to items including dairy products, potatoes, birds, eggs, some cereals, oil seeds, and oleaginous fruits. Live horses, asses, mules, cotton waste, and metal bedsteads are duty-free, and specified types of woven fabrics of cotton are subject to concessionary tariff rates, when they meet specified levels of Zimbabwean content (75% in most cases). Concessionary customs duties are granted by Zimbabwe on certain products exported by South Africa.

Under the 1990 agreement with Malawi (a member of COMESA and SADC), South Africa allows duty-free imports to its market for all goods grown, produced or manufactured in Malawi, subject to a minimum domestic value-added of 25%. Preferential quotas apply to some products, such as tea (10,000 tonnes annually). The agreement also contains anti-dumping and countervailing provisions.

South Africa products are eligible for non-reciprocal preferences, including lower tariffs or preferential tariff quotas under the U.S. African Growth and Opportunity Act (AGOA), and the GSP schemes of the EC, as well as of Canada, Japan, Norway, Switzerland, and the United States.

SACU – USA Trade Investment Development Cooperation Agreement (TIDCA) 2008 provides that the Parties affirm their desire to promote an attractive investment climate and to expand and diversify trade between SACU and the United States. It establishes a Consultative Group on Trade and Investment comprising representatives of each Party to work towards this objective. The Consultative Group is to endeavour to conclude mutually beneficial trade and investment enhancing agreements between the United States and SACU, such as memoranda of understanding, mutual assistance agreements, and cooperation agreements in areas of common interest; monitor trade and investment relations between SACU and the United States,

identify opportunities for expanding trade and investment, and identify relevant issues affecting trade for further discussion.

identify and work to remove impediments to trade and investment between SACU and the United States;

consider, as appropriate and as resources permit, trade capacity building assistance and/or cooperation;

promote increased contact between the private sectors in SACU and the United States to facilitate the expansion of trade and investment; and

seek the advice of the private sector and civil society, where appropriate, on matters related to the Consultative Group’s work.

30

SA-EU TDCA

Other Trade Agreements

SACU-USA TIDCA

RSA intends to enter Preferential Trade Agreements with India and China.

In August 2010 National Treasury announced that it is to renegotiate Double Tax Agreements with low tax countries and to complete this exercise by 1 January 2013.

The Taxation Laws Amendment Bill 2010 proposes changes in taxation law to promote the establishment of regional holding companies and regional investment fund management in RSA that would invest and carry out activities outside of RSA.

In 2009 DTI published a review of Bilateral Investment Treaties. The review was commenced because it was felt that, in the years after 1994, RSA had entered into agreements that were unduly favourable to investors without safeguards to preserve flexibility in a number of critical policy areas. The review suggests that the RSA’s investment approach to both inward and outward FDI has not been informed by a holistic policy perspective but rather a patchwork of general policy considerations. The formal legal basis for FDI policy is scattered across various line function departments that do not always coordinate policy interventions. It is proposed that the legal basis for both inward and outward FDI be placed on a more secure footing by developing an overarching policy on FDI with more direct mechanisms for cooperation. A much closer link must be established between investment promotion activities, industrial policy and trade policy.

The Review concluded that RSA should review its BIT practices, with a view to developing a model BIT which is in line with its development needs, balancing the need for investor certainty on the one hand, but also ensuring that its own legitimate interests are not compromised. Further domestic legislative intervention may be needed to ensure that such a balance is achieved.See below list of BITs and DTTs

Convention on Agency in the International Sale of Goods Act, No. 4 of 1986 To provide for the application in the Republic of the Convention on Agency in the International Sale of Goods adopted by the International Institute of the United Nations (UN) organisation, for the unification of Private Law.

Protection of Businesses Act, No. 99 of 1978 seeks to restrict the enforcement in the Republic of certain foreign judgements, orders, directions, arbitration awards and letters of request, and prohibit the furnishing of information relating to businesses in compliance with foreign orders, directions or letters of request.

5 S A D C R E L A T E D I S S U E SThe DTI Medium Term Strategic Framework 2009 states that South Africa plans to play a leading role in efforts aimed at strengthening the SADC region. The focus in the medium term will be:

Contributing to political cohesion and strengthening governance and capacity in the SADC, especially in the Secretariat, including deploying personnel to strategic positions within the Secretariat;

Promoting regional integration, including through SADC Protocols aimed at improving security and stability, infrastructure, transport (surface, air and maritime), public administration and other sectors; the coordinating of multi-sector plans, and harmonising industrial policies;

Moving towards enhanced regional economic integration and address sources of disagreement among members of SACU on issues such as trade policy and revenue sharing;

Operate the Project Preparation Development Fund (PPDF) as the first step towards the SADC Development Fund;

Ensuring the EPAs have a developmental agenda and support regional integration;

31

Announcement of Intended Changes

DTI BIT Review 2009

Other Agreements and Laws

Combine the Review of the Trade Chapter of the SA-EU TDCA with the SADC-EU EPA Negotiations;

Active engagement with SADC member states to pursue the regional agenda on governance and public administration.

South Africa, Angola, Botswana, the Democratic Republic of Congo (DRC), and Namibia, signed a Memorandum of Understanding (MoU) on the Western Power Corridor Project in October 2004. The MoU, under the auspices of NEPAD, is to pilot the use of hydroelectric energy from the Inga rapids site to ensure a constant supply of electricity in the SADC region. A joint venture company has been established to study the project's viability, and to build, own, and operate the infrastructure.

This Framework reviewed RSA trade policy and strategy, tariff reform and trade performance since 1994 and recommended an approach on trade and tariff policy and strategy and brings greater clarity to linkages with industrial policy.

The key principles of South Africa’s strategy for global trade integration are set out in the Framework. It states that “South Africa is deeply committed to development integration in Southern Africa that combines trade integration with infrastructural development and sectoral policy coordination. Our approach privileges the policy interventions required to build regional productive capacity and infrastructure as experience has demonstrated that the main barriers to increasing intra-regional trade are often not tariffs. Despite significant liberalisation, there is no discernible growth in intra-regional trade. As such, neither further liberalisation nor the construction of customs unions will necessarily lead to increased, mutually-beneficial and equitable, intra-regional trade. We will require purposeful interventions that address underdeveloped production structures and develop infrastructure and institutions across the region. Trade integration must therefore be complemented by sectoral cooperation and greatly enhanced policy coordination programmes to address real economy capacity constraints.”

South Africa Trade Policy and Strategy Framework states

“The regional agenda will also need to respond to the Economic Partnership Agreements (EPAs) between the European Union (EU) and SADC countries. As the EPAs will establish a series of different and sometimes incompatible trade regimes between the EU and members of SADC, it is likely to undermine deeper integration in Southern Africa. Member states of SADC and SACU will need to respond collectively to this new challenge to the region’s integration and development strategy.”

“South Africa has pursued regional arrangements in Southern Africa through the SADC Trade Protocol and SACU, with the EU under the TDCA, through the SACU-EFTA FTA and through the SACU-MERCOSUR preferential trade agreement (PTA). We have learned important lessons that will inform our future bilateral engagements. First, as compared to free trade agreements (FTAs) more focused preferential trade agreements (PTAs) allows for a more strategic integration process among developing countries. Second, it is increasingly apparent that tariffs are not always the most important barrier faced in foreign markets and hence negotiating outcomes must deal more effectively with non-tariff barriers. Third, we will need to give attention to forging mutually beneficial sectoral cooperation agreements that can support South Africa’s broader development objectives. Further consideration should be given to designing appropriate trade and economic arrangements that suit our economic objectives. This should include an assessment of investment treaties that impact on developmental policy space.”

32

DTI A South Africa Trade Policy & Strategy Framework May 2010

Strategy Framework and Regional Integration

“Importantly, our work on regional integration places emphasis on developing supply-side capacity that will enable countries in the region to diversify their economies as well as to take advantage of opportunities for more dynamic and diverse exports. A more integrated development strategy that includes Spatial Development Initiatives (SDIs), investment promotion into the region, and region-wide industrial development linkages will give strong effect to ‘developmental regionalism’ that South Africa pursues.”

A function of ITED in DTI is to promote regional integration in SACU and SADC, as a platform for integration into the global economy, through development integration that combines: trade integration, policy coordination and sectoral cooperation:

Common approach to SADC regional integration; Consolidate SADC FTA; Obtain approval of South African position paper on the establishment of the

Trilateral FTA (COMESA-EAC-SADC); Vision statement of South Africa within SACU resulting in an agreed South

African government strategy and the making of a decision on the future of SACU - deeper integration or rollback;

Implementation of cross-border infrastructure development projects, (Spatial Development Initiatives (SDI)), and with approval by governments, conduct pre-feasibility studies for Angola, Lesotho, Mozambique, Zimbabwe and Namibia.

In a Review of Bilateral Investment Treaties July 2009, the DTI states

“In the SADC region the Protocol on Finance and Investment (FIP) creates a framework for investment in the SADC region. This instrument seems only to cater for inward FDI and does not cater for intra-SADC investment. There seems to be little or no integration between the FIP and investment protection and promotion policies followed by the RSA. Given the sizeable intra-Africa investments made by RSA companies, the RSA ought to assess how best such investments by its citizens may be safeguarded. Already the issue of diplomatic protection has been raised in the context where no BIT was in place to protect such interests. Different considerations apply in situations where either inward or outward FDI is contemplated. This raises some difficult questions with relation to the appropriate model for investment protection since clearly different needs may be articulated by RSA companies that invest in the African continent or elsewhere and investment entering the RSA. Many countries, particularly developing countries who seek to promote sustainable development, have an investment law which regulates issues pertaining to sectoral interventions, incentives and the role of an Investment Promotion Agency. Clear policy guidelines must inform approaches to both inward and outward investment.”

The review also contains a legal analysis of various provisions found in BITs. Policy recommendations are made with regard to the emerging legal trends and issues that have come to dominate investment treaties.

“In respect of SADC, reference was made to the Protocol on Finance and Investment (FIP), in particular to Annex 1 which deals with co-operation on investment. The Annex aims to create the framework for broader FDI promotion in the SADC and in some aspects emulates the provisions of a typical BIT. The FIP has not been harmonised within current RSA treaty making practice since it appears that standard clauses in RSA BITs differ substantially from equivalent provisions to be found in the FIP. The effect of the Annex appears to be that of promoting the SADC region as an attractive destination for FDI and as such does not really cater for intra-SADC investment, the latter being a factor which is directly relevant to the RSA in respect of its de facto intra-African investment stance and the sizeable investments which the RSA companies are making in SADC and Africa. In

33

DTI Functions and Regional Integration

Review of Bilateral Investment Treaties

Recommendations on Emerging Trends in BITs

this regard, the SADC desk has confirmed that the RSA has entered into five BITs with states in the SADC and that there are several more being negotiated. It was specifically indicated that these BITs were driven by the RSA, largely influenced by private sector interest in SADC countries.”

Bilateral Investment Treaties 1 June 2010RSA Partner Date of Signature Date of Entry into Force

1. Algeria 24 Sept 2000

2. Angola 17 Feb 2005

3. Argentina 23 July 1998 1 Jan 2001

4. Austria 28 Nov 1996 1 Jan 1998

5. Belgium and Luxembourg

14 Aug 1998 14 Mar 2003

6. Brunei Darussalam

14 Nov 2000

7. Canada 27 Nov 1995

8. Chile 12 Nov 1998

9. China 30 Dec 1997 1 April 1998

10. Congo 1 Dec 2005

11. Congo DR 31 Aug 2004

12. Cuba 8 Dec 1995 7 Apr 1997

13. Czech Republic 14 Dec 1998 17 Sept 1999

14. Denmark 22 Feb 1996 23 April 1997

15. Egypt 28 Oct 1998

16. Equatorial Guinea 17 Feb 2004

17. Ethiopia 1 Jan 2008

18. Finland 14 Sept 1998 3 Oct 1999

19. France 11 Oct 1995 22 June 1997

20. Germany 11 Sept 1995 10 April 1998

21. Ghana 9 Jul 1998

22. Greece 19 Nov 1998 5 Sept 2001

23. Iran Islamic Republic

3 Nov 1997 5 Mar 2002

24. Israel 21 Oct 2004

25. Italy 9 June 1997 16 Mar 1999

26. Korea, Republic of 7 July 1995 6 June 1997

27. Libyan Arab Jamahiriya

14 June 2002

28. Madagascar 13 Dec 2006

29. Mauritius 17 Feb 1998 7 Oct 1998

30. Mozambique 6 May 1998 28 July 1998

31. Netherlands 9 May 1995 1 May 1999

32. Paraguay 3 April 1974 16 June 1974

34

Bilateral Investment Treaties

33. Qatar 20 Oct 2003

34. Russian Federation

23 Nov 1998 12 April 2000

35. Rwanda 19 Oct 2000

36. Senegal 5 June 1998

37. Spain 30 Sept 1998 23 Dec 1999

38. Sweden 25 May 1998 1 Jan 1999

39. Switzerland 27 June 1995 29 Nov 1997

40. Tanzania UR 22 Sept 2005

41. Tunisia 28 Feb 2002

42. Turkey 23 June 2000

43. Uganda 8 May 2000

44. United Kingdom 20 Sept 1994 27 May 1998

45. Yemen 1 Aug 2002

46. Zimbabwe 27 Nov 2009

47 signed including 7 with SADC members

23 in force including 2 with SADC members

Double Taxation Agreements RSA at 1 June 2010 RSA Partner Type of

AgreementDate of Signature

Date of Entry into Force

1. Algeria Income & Capital 28 April 1998 12 June 2000

2. Australia Income & Capital 1 July 1999 21 Dec 1999 (amend 2008)

3. Austria Income & Capital 4 Mar 1996 6 Feb 1997

4. Belarus Not Specified 18 Dec 2002 29 Dec 2003

5. Belgium Income & Capital 1 Feb 1995 9 Oct 1998

6. Botswana Income & Capital 1 April 1977 20 April 2004

7. Brazil Income 8 Nov 2003 24 July 2006

8. Bulgaria Income 29 April 2004 27 Oct 2004

9. Canada Income & Capital 27 Nov 1995 30 April 1997

10. China Income 25 April 2000 7 Jan 2001

11. Congo DR Income 29 April 2005

12. Croatia Income & Capital 18 Nov 1996 7 Nov 1997

13. Cyprus Income & Capital 26 Nov 1997 8 Dec 1998

14. Czech Republic Income & Capital 11 Nov 1996 3 Dec 1997

15. Denmark Income & Capital 21 June 1995 21 Dec 1995

16. Egypt Income 26 August 1997

16 Dec 1998

17. Ethiopia Income 17 March 4 Jan 2006

35

Double Taxation Agreement

Double Taxation Agreements RSA at 1 June 2010 2004

18. Finland Income & Capital 26 May 1995 12 Dec 1995

19. France Income & Capital 8 Nov 1993 1 Nov 1995

20. Gabon Income 22 March 2005

21. Germany Income 25 Jan 1973 28 Feb 1975

22. Germany Not Specified 14 Feb 2003 Will replace 21 when ratified

23. Ghana Income & Capital 2 Nov 2004 23 April 2007

24. Hungary Income & Capital 4 March 1994 5 May 1996

25. Ireland Income & Capital 7 Nov 1997 5 Dec 1997

26. Ireland Income & Capital 17 Mar 2010 Will replace 25 when ratified

27. Israel Income & Capital 10 Feb 1978 27 May 1980

28. Italy Income & Capital 16 Nov 1995 2 Mar 1999

29. Japan Income & Capital 7 March 1997 5 Nov 1997

30. Korea Republic of Income & Capital 7 July 1995 7 Jan 1996

31. Kuwait Income 17 Feb 2004 25 April 2006

32. Lesotho Income & Capital 24 Oct 1995 9 Jan 1997

33. Malawi Income & Capital 3 May 1971 2 Sept 1971

34. Malaysia Not Specified 29 July 2005 17 Mar 2006

35. Malta Income & Capital 16 May 1997 12 Nov 1997

36. Mauritius Income & Capital 5 July 1996 20 June 1997

37. Mexico signed Ratified in RSA

38. Mozambique Income 18 Sept 2007 19 Feb 2009

39. Namibia Income & Capital 18 May 1998 11 April 1999

40. Nigeria Income & Capital Gains

29 April 2000 5 July 2008

41. Netherlands Income & Capital 10 Oct 2005 28 Dec 2008

42. New Zealand Income & Capital 6 Feb 2002 23 July 2004

43. Norway Income & Capital 12 Feb 1996 12 Sept 1996

44. Oman Income 9 Oct 2002 29 Dec 2003

45. Pakistan Income 26 Jan 1998 9 Mar 1999

46. Poland Income & Capital 10 Nov 1993 5 Dec 1995

47. Romania Income & Capital 12 Nov 1993 21 Dec 1995

48. Rwanda signed Ratified in RSA

49. Seychelles Income & Capital 26 Aug 1998 29 June

36

Double Taxation AgreementDouble Taxation Agreement

Double Taxation Agreements RSA at 1 June 2010 2002

50. Slovakia Income & Capital 28 May 1998 30 June 1999

51. Sudan signed Ratified in RSA

52. Swaziland Income 23 Jan 2004 8 Feb 2005

53. Sweden Income & Capital 24 May 1995 25 Dec 1995

54. Switzerland Income 8 May 2007 27 Jan 2009

55. Taiwan Province of China

Income & Capital 14 Feb 1994 12 Sept 1996

56. Tanzania UR Income 22 Sept 2005 15 June 2007

57. Thailand Income & Capital 12 Feb 1996 27 Aug 1996

58. Tunisia Income & Capital 2 Feb 1999 10 Dec 1999

59. Turkey Income 3 March 2005 6 Dec 2006

60. Uganda Income 27 May 1997 9 April 2001

61. Ukraine Not Specified 28 Aug 2003 29 Dec 2004

62. United Kingdom Income & Capital Gains

4 July 2002 17 Dec 2002

63. United Kingdom Inheritance 31 July 1978 Ratified

64. United States Income & Capital 17 Feb 1997 28 Dec 1997

65. United States Inheritance 15 July 1952 Ratified

66. Zambia Income & Capital 22 May 1956 31 Aug 1956

67. Zimbabwe Income & Capital 10 June 1965 3 Dec 1965

67 agreements / 62 partners including 12 SADC members, 65 income or income and capital signed 59 in force

37

Double Taxation AgreementDouble Taxation Agreement

Sources included

Department of Trade and Industry (2007) National Industrial Policy Framework http://www.dti.gov.za/nipf/niPF-3aug.pdf

Department of Trade and Industry (2009) Bilateral Investment Treaty Policy Framework Review Government Position Paper June 2009 http://www.dti.gov.za/ads/bi-lateral_policy.pdf

Department of Trade and Industry (2009) South Africa Investor’s Handbook 2009 http://www.dti.gov.za/publications/Investor_Handbook.pdf

Department of Trade and Industry (2010) A South African Trade Policy and Strategy Framework May 2010 http://www.thedti.gov.za/TPSF.pdfDepartment of Trade and Industry (2010) Industrial Policy Action Plan 2010/11 – 2012/13 February 2010 (IPAP 2) http://www.thedti.gov.za/ipap/IPAP2010-2013_18_FEB_2010.pdf

Department of Trade and Industry (2010) Medium Term Strategic Framework 2010-13 http://www.thedti.gov.za/publications.jsp?year=2010<&subthemeid=Department of Trade and Industry Broad Based Black Economic Empowerment http://www.dti.gov.za/bee/beehome.htm

Department of Trade and Industry Export Incentives http://www.thedti.gov.za/exporting/exportincentives.htmDepartment of Trade and Industry Investment Incentives http://www.thedti.gov.za/offerings/Investment_Support.htm

South Africa Reserve Bank Exchange Control Manual http://www.reservebank.co.za/

South Africa Revenue Service (2010) International Treaties http://www.sars.gov.za/home.asp?pid=3906

The Presidency Republic of South Africa (2009) Together Doing More and Better Medium Term Strategic Framework A Framework To Guide Government’s Programme In The Electoral Mandate Period (2009 – 2014) July 2009 http://www.info.gov.za/view/DownloadFileAction?id=103901

UNCTAD (2010) Bilateral Investment Treaties and Double Tax Agreements http://www.unctad.org/Templates/Page.asp?intItemID=2339&lang=1(Significant differences were observed in the list of Double Tax Agreements on the UNCTAD web site compared with the SARS website. The latter appeared to be more accurate and comprehensive.)

WTO Trade Policy Review SACU-South Africa 2009 Annex 4 South Africa WT/TPR/S/222/ZAF http://www.wto.int/english/tratop_e/tpr_e/s222-04_e.doc

National Consumer Commission. (2012) http://www.nccsa.org.za

Companies and Intellectual Propoerty Commission (2012) http://www.cipc.co.za

38