South Africa - International Franchise Association

Private sector representatives and other interested parties are concerned about
politicization of South Africa’s posture towards this type of investment.
Macroeconomic management was generally strong over the past decade, with reduced
levels of public debt, generally low inflation, and a positive rate of economic growth until
the global slowdown in 2009. While inflation increased over 2011, it remains within the
target range of 3-6% set by the central bank. As growth has stalled, government
revenue has been negatively affected. This, combined with higher labor costs for public
services, now means that South Africa is projected to run a budget deficit of 5.5% of
GDP through March, 2012. In November 2011, Moody’s downgraded South Africa’s
credit outlook from “stable” to “negative," citing greater political risk due to increasing
constraints on public finances. Fitch followed suit in January 2012, but S&P maintained
a “stable outlook rating.
Since the end of apartheid in 1994, the government has sought to liberalize trade and
enhance international competitiveness by lowering tariffs, abolishing most import
controls, undertaking some privatization, and reforming the regulatory environment.
While this has resulted in several large foreign acquisitions in banking,
telecommunications, tourism, and other sectors, foreign direct investment has fallen
short of the government's expectations. South African banks are well capitalized and
have little exposure to sub-prime debt or other sources of financial contagion.
South Africa’s Industrial Policy Action Plan (IPAP) is focused on South Africa’s industrial
infrastructure development. Key stated objectives include revising government
procurement policy to enable the government to support targeted sectors (capital and
transport equipment; automotive; chemical, plastic fabrication and pharmaceuticals; and
forestry, paper and furniture); improving South Africa’s competitiveness by using trade
and competition policy, and improving small- and medium-sized firms’ access to
industrial financing.
Mergers and acquisitions in South Africa are subject to screening and approval under
the Competition Act of 1998 (The Act). The Act allows South Africa’s Competition
Commission to review investment for public interest considerations such as the effect
the investment would have on specific industrial sectors, employment within South
Africa, the ability of small businesses to become competitive, and the ability of national
industries to compete internationally. These broad powers present a risk, if the process
becomes politicized, that requirements could be imposed that would distort trade or
discriminate against foreign investors. The Competition Tribunal reviews decisions
made by the Competition Commission. Inward investment is also subject to the
requirements of the Companies Act of 2008, which sets out requirements for corporate
governance, among other considerations. Please see the “Transparency of the
Regulatory System” for more about South Africa’s Companies Act.
Foreign investment within South Africa is also affected by South Africa’s Broad-Based
Black Economic Empowerment (BEE) program. BEE is a government program to
increase the participation in the economy of historically disadvantaged South Africans.
BEE requirements are specified in the Codes of Good Practice, which were published in
the Government Gazette in February 2007. The codes created a “BEE Scorecard” that
awards firms “empowerment points” along seven different dimensions, including
ownership, management, skills development, employment equity, preferential
procurement, enterprise development, and socio-economic development. Each