The UK Department of International Trade released its updated “Overseas Business Risk – South Africa” guidance at the end of last month. The concise document provides political and economic overviews, and covers key economic developments, the business environment, human rights, bribery and corruption, security and intellectual property.
“South Africa is a young, relatively stable democracy, dominated by one political party,” states the guidance. “South Africa remains the most sophisticated and developed economy in Africa and has high-class companies in finance, real estate, business services, manufacturing and wholesale and retail trade.”
For investors, the country remained the ‘gateway to Africa’ because of its relative sophistication and ease (by African standards) of doing business. Further, South Africa could provide outside investors with both expertise and critical services for doing business elsewhere on the continent.
However, the country suffers from high unemployment – 27.6% being the official figure, but “expanded definitions” put it at 38%, while unemployment among the youth (defined as the age group 15 to 34) was 55.2% during the first quarter of last year. South Africa suffers from deep, structural and worsening poverty and is one of the most unequal countries in the world.
“South Africa’s business environment is challenging, but still among the best in Africa,” says the guidance. “At the forefront of the South African government’s economic priorities is the transformation of the racially-skewed ownership, management and employment profile of the South African economy.”
The guidance refers to policies and programmes to address these issues, such as broad-based black economic empowerment codes, the National Industrial Policy Framework and the Industrial Policy Action Plan, including local content requirements. The guidance does not comment on these policies and programmes.
The UK document also covers South Africa’s 2012 unilateral termination of its bilateral investment treaties with a number of countries. The subsequent Protection of Investment Act (signed into law in mid-2018) deprives foreign investors of the right to directly approach international tribunals, should they have a dispute with the South African government. Again, the guidance does not comment on these developments.
It notes that South Africa has fallen from 39th place on the World Bank’s Ease of Doing Business Index in 2013 to 82nd place in 2019. “Particular challenges faced by existing and prospective investors include a relative shortage of skilled employees, uncertainty over the future direction of the government’s policy on land reform without compensation, restrictive visa regime, unreliable power supplies and corruption. However, developed transport infrastructure and sophisticated financial and legal sectors are well established.”
The guidance highlights South Africa’s “strong constitutional protections for human rights”, including cultural, economic and social rights, and its “strong commitment” as a country to human rights. The country has also achieved “relative success” in the provision of basic services. But many South Africans are concerned about corruption, unemployment, threats to freedom of expression and the excessive use of force by the police. There are also concerns about xenophobic violence. “South Africa continues to play an important but inconsistent role in advancing the rights of lesbian, gay, bisexual and transgender people.”
Corruption exists in South Africa but is illegal. “It often takes the form of individuals who enrich themselves through corrupting the awarding of government tender contracts, mostly based on personal connections and corrupt relationships.” The guidance further warns that it is illegal for British nationals, businesses, institutions, and foreigners permanently resident in the UK, to undertake bribery anywhere in the world, even if done entirely outside Britain.
As for security, the document is most succinct. “Terrorists are likely to try to carry out attacks and there is a very high level of crime in South Africa.”
The final issue addressed by the guidance is intellectual property (IP) rights. It points out that these rights are territorial, so companies should register their IP in any and all countries to which they export. South Africa has signed a number of international IP treaties. “In general, South Africa provides adequate protection of IP rights,” it observes.
“However, infringement is common, particularly of trademarks and copyright. Often, the State does not have sufficient enforcement capacity.” Moreover, IP rights are private rights, so the owner of the rights has to carry the responsibility and cost of enforcing them.