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Business Environment |
With regard both to regulatory law and to commercial practice, South Africa’s economy has much in common with those of North America, Europe and Australasia. Free enterprise is the norm, although there are a number of important economic sectors (such as transport, telecommunications, electricity and water) that have been or continue to be wholly or partly Government-owned and controlled. The Government has, however, committed itself to the commercialisation, restructuring and privatisation of certain Government-owned enterprises.
South African entrepreneurs and business professionals are generally highly educated, skilled and competitive.
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Relationship of Government and Business |
The Government is committed to providing facilities and opportunities to the communities that were disadvantaged by the pre-1994 apartheid system, and to enabling those communities to share equitably in the resources of the country and its economic activity. The Government’s Macroeconomic Strategy for Growth, Employment and Redistribution (GEAR) is however based on promoting the free market and financial and fiscal discipline, and aims at economic growth, job creation and the development and distribution of basic services to all South Africans.
The Government has indicated the importance it attaches to investment by introducing measures to enhance and support trade and industrial.
The Government has stated its intention to promote small and medium sized enterprises (SMMEs). The National Small Business Act provides a mechanism to review the impact of proposed legislation on small businesses. In addition, it makes provision for the establishment of the Ntsika Enterprise Promotion Agency and a National Small Business Council (which however no longer exists) to assist SMMEs.
The National Economic Development and Labour Council (NEDLAC) facilitates discussions to reach consensus between Government, organised business, organised labour and organised community groupings on various issues of social and economic policy.
Business organisations such as the Chamber of Mines, the South African Chamber of Business (SACOB) the Black Business Council, the National Federated African Chamber of Commerce (NAFCOC) – the South African Foundation and foreign chambers of commerce in South Africa regularly liase with Government and also comment on draft legislation.
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Economic Structure |
South Africa has the most sophisticated free-market economy on the African continent. The country represents only 3% of the continent’s surface area, yet it accounts for approximately 40% of all industrial output, 25% of gross domestic product (GDP), over half of generated electricity and 45% of mineral production in Africa. About 75% of South Africa’s economic activity occurs in the four main metropolitan areas (which together represent about 3% of the total land area) namely the Witwatersrand area surrounding Johannesburg, the Durban/Pinetown area in KwaZulu Natal, the Cape Peninsula, and the Port Elizabeth/Uitenhage area in the Eastern Cape. The Witwatersrand is the financial and industrial hub of the country and accounts for about 40% of the country’s GDP.
The country’s economic system however has a marked duality. A sophisticated industrial economy has developed alongside an underdeveloped “informal” economy. The industrial economy has an established infrastructure and economic base with great potential for further growth and development whereas the “informal” economy presents both untapped potential and a developmental challenge for South Africa. South Africa is also a gateway for investment into Sub-Saharan Africa and since 1994, South Africa’s trade with and investment in other African States has increased significantly.
The relative contributions of the various sectors of the economy in 2000 are provided in Appendix 1.
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Economic Performance |
The South African economy grew by 3,4% during 2000 and 2,2% during 2001, and the Government expects it to grow by 2,3% during 2002 and 3,3% during 2003. The real GDP growth rate during June 2002 was 3,1%.
The average rate of increase of the consumer price index was 8,6% in the period from January 1997 to December 1997, 6,9% in the period from January 1998 to December 1998 and 5,2% in the period from January 1999 to December 1999. The consumer price index for the year to January 2001, rose to 7,1%. In January 2001, core inflation rose to 8,7% against 8,6%in December 2000.
The producer price index and the consumer price index both rose sharply during the first half of 2002, mainly as a result of price increases resulting from the rapid depreciation of the Rand towards the end of 2001. The South African Reserve Bank raised its bank repurchase rate from 11,5% to 12,5% during June 2002.
The national debt dropped from 48% of GDP in March 1997 to 42,9% for 2001/2002. The Government expects debt to decline steadily to 37,4% of GDP by the end of 2004/2005. The Government further expects the budget deficit to be 2,1% of GDP in 2002/2003 and 1,7% in 2004/2005. The international credit rating agency Moodys recently raised South Africa’s credit rating to Baa2.
In 1999, approximately 23,3% of the economically active population was unemployed. Unemployment rose to 25,8% in 2000 and 29,5% in 2001. It should however be borne in mind that actual unemployment is always higher than official statistics indicate. Unemployment statistics currently vary from between 25% to 35% of the economically active population although statistics for the informal sector of the economy are generally not readily available.
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Corporate Performance |
The Entrepreneurial ClimateThe Business Climate
The business climate has been generally positive in recent years. The “business confidence index” compiled by the South African Chamber of Business rose from a yearly average of 100 in 2000 to 106 in 2001. Despite a steady decline from 109 in August 2001 to a recent low of 99,3 in March 2002, the business confidence index improved to a level of 107 in May 2002, partly as a result of rising gold prices and the Rand’s strong performance against the US dollar in early 2002.
Corporate Activity by Sector
The mining industry has played a dominant role in the economic development of South Africa and is a major employer, but its importance has declined in the last decade and it currently accounts for about 7% of GDP. Mining is carried out by the private sector under mineral rights owned outright or leased. (Please however refer to 1.12 below.) There are several major mining enterprises (namely, Anglo American Corporation of South Africa Limited, Gold Fields of South Africa Limited, JCI Limited, Gencor Limited, Anglovaal Holdings Limited, Iscor Limited and Sasol Limited) and a number of smaller, specialised producers. These enterprises produce most of the gold, uranium, zinc, platinum group metals, lead, diamonds, silver, iron, steel and minerals for petrochemical production in South Africa.
Agriculture, forestry and fishing now account for only about 3% of the country’s GDP, although only a century ago the country had an almost exclusively agrarian economy. Except for collective ownership in the underdeveloped informal sector, farming is characterised by private ownership. Significant agricultural products include wheat, maize, sugar-cane, fruits, vegetables, wool, meat and dairy products.
Industry (manufacturing, construction, electricity and water) now accounts for about 24% of the country’s economic activity. The growth of the manufacturing sector in recent years has been significant, and this sector is capable of further expansion. South Africa is still an exporter of primary and intermediate goods and an importer of capital goods. The proportion of manufactured goods in exports has increased significantly, as more of South Africa’s raw materials are being processed before being exported. Tax concessions and business incentives are available for certain industrial activities, particularly for those that produce exports or import substitutes.
The contribution of the financial, real estate and business services sector increased from about 12% during the early 1990s to 20% at the end of 2000. Although the number of tourists to South Africa declined from 2000 to 2001, a comparison of tourism statistics for January to April 2001 and 2002 shows an increase of 7,6% in the number of tourists in South Africa.
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Privatisation |
The public sector’s role in South Africa’s economy has historically always been substantial in comparison with the private sector’s role.
The Government is however taking steps to commercialise, restructure and increase private sector involvement in Government controlled enterprises. During the period 1996 to 2002 –
six radio stations owned by the South African Broadcasting Corporation (SABC) have been sold;
a 30% stake in Telkom (the parastatal in the telecommunications industry) was sold to US-based SBC Communications and Telekom Malaysia;
an airline, Sun Air was fully privatised, though subsequently liquidated;
a 20% stake in the Airports Company (which controls all major airports in South Africa) was sold to Italy’s Aeroporti Di Roma;
strategic management partners were appointed for the Aventura Leisure Group, the Alexkor Diamond Mine and the South African Post Office (although the management contract with the New Zealand Post Office was terminated in 2001);
certain non-core assets of Transnet (the parastatal in the transport industry) were sold;
a 20% stake in South African Airways was sold to Swissair, and subsequently repurchased by the Government due to the failure of Swissair;
Denel (a parastatal in the defence industry) was partially privatised and foreign strategic equity partners BAE Systems and Turbomeca have been introduced;
The following further developments are currently expected –
the sale of a 24% stake in MCell (a cellular telecommunications company) valued at USD475 million. The shares are currently warehoused in Ice Finance, a Dutch company;
the listing of between 14% and 20% of Telkom in 2003 which is expected to raise between R15 billion and R30 billion;
the restructuring of and sale of forests belonging to Safcol (the parastatal in the forestry industry);
the restructuring of certain divisions of Transnet including the grant of concessions with regard to certain ports;
the announcement of details on the listing of South African Airways; the possible listing of the Airports Company in 2004;
the corporatisation (including the introduction of a strategic equity partner) of Eskom (the parastatal in the electricity industry) and the deregulation of the electricity sector in 2002/2004;
the sale by the Aventura Leisure Group of certain resorts;
the listing of information technology parastatal, arrivia.kom in 2004/2005
To date the Government has received R27 billion from the restructuring of state assets, and it expects to raise approximately R12 billion from the restructuring of state enterprises during 2002/2003. The Government is generally not in favour of full privatisation but is pursuing partial privatisation or restructuring by selling equity to “strategic equity partners” while retaining a majority interest (as in the case of Telkom, the Airports Company and South African Airways). The privatisation process has been slowed by the need to consult all stakeholders (particularly trade unions) and a National Framework Agreement has been concluded by the Government with organised labour which provides consultation processes in this regard.
The main objectives of the Government’s privatisation initiatives are to facilitate economic growth, promote the development of historically disadvantaged communities and black economic empowerment, extend private ownership of Governmentcontrolled assets to employees (for example by way of employees share ownership plans) and to previously disadvantaged persons (by way of the National Empowerment Fund), reduce the national borrowing requirement, promote skills transfer and promote fair competition.
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Imports, Exports and Free Trade Areas |
Most of South Africa’s exports to industrialised countries consist of primary and intermediate commodities. A large proportion of exports consists of unprocessed raw materials, with the mining industry contributing the greatest proportion to the country’s total exports. More of South Africa’s raw materials are however now processed in South Africa before being exported. South Africa is a major exporter of gold, diamonds, platinum, wool, sugar, manganese and chrome ores, asbestos, atomic energy materials and base minerals such as coal, antimony, copper and iron ore. The country is also an exporter of deciduous and citrus fruit as well as animal hides and skins. Exports of chemicals, metal products, machinery, transport equipment and manufactured goods have increased, particularly to Africa, in recent years.
Imports include mainly capital goods, certain raw materials, intermediate goods as well as sophisticated consumer goods. The cost of imports has risen sharply as a result of the recent fall in the value of the Rand.
South Africa maintains formal trade relations with most industrialised countries and trade with Africa, Latin America and Asia is growing. At a regional level, South Africa is a member of the Southern African Development Community (SADC) (along with Angola, Botswana, Lesotho, Malawi, Mozambique, Mauritius, Namibia, Swaziland, Tanzania, Seychelles, Democratic Republic of Congo, Zambia and Zimbabwe) which is committed to forming a free trade area.
South Africa is a founder member of the World Trade Organisation (WTO) and is amending its tariff structure in accordance with WTO rules and the Uruguay Round of GATT. This may introduce new trade opportunities for foreign manufacturers. South Africa is a member of the Cairns Group (including Argentina, Australia, Brazil, Canada, Chile, Indonesia and Malaysia) which supports free and fair trade in agricultural markets and the lowering of agricultural tariffs by developed countries. In October 1999 South Africa and the European Union concluded a trade, development and co-operation agreement, which entered into force on 1 January 2000. The formation of free trade areas with the USA, the Mercosur states (which include Argentina, Brazil, Uruguay and Paraguay), India, Nigeria and China is under discussion. Trade with the United States of America has grown significantly subsequent to the passing by the USA Congress of the African Growth and Opportunities Act, in terms of which a large variety of products may be imported into the USA duty and quota free.
The European Union, the United States of America and Japan are amongst South Africa’s largest trade partners. Trade with Africa has also increased significantly in recent years.
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Energy and Natural Resources |
Energy
The Government-owned Electricity Supply Commission (ESKOM) generates and distributes 97% of the country’s electricity, using approximately 80% coal, 10% nuclear power and 10% hydroelectric power. The electricity produced by Eskom is the cheapest in the world. Power lines do not yet reach certain rural and geographically isolated areas. The Government is currently considering the deregulation of the energy sector.
Although South Africa’s GDP ranks twenty-sixth in the world, it ranks sixteenth in the world in energy consumption.
Nuclear energy is provided by the Government-owned Koeberg nuclear reactor situated in the Western Cape, north of Cape Town.
Mossgas (Proprietary) Limited, a company owned by the State, produces liquid fuels and associated products from natural gas and condensate found off South Africa’s Southern Cape coast.
South Africa has the world’s only commercially viable synthetic fuel process. This process was developed by a former parastatal, Sasol Limited (currently one of South Africa’s top ten privately owned companies and a former parastatal) and produces synthetic fuel and byproducts from coal. It is anticipated that Sasol will eventually produce approximately 50% of the country’s oil requirements.
A joint venture between Sasol and the Governments of South Africa and Mozambique has commenced with the construction of a pipeline which will import natural gas from gas fields in Mozambique for conversion to liquid fuel in South Africa.
A primary source of energy that is used mostly by rural households is fuel wood sourced mainly from natural woodlands. Other renewable energy sources such as solar energy, wind power and hydropower have not yet been fully exploited, although an independent power producer licence was recently granted to a private venture which will produce electricity from a wind farm to be built in the Western Cape.
Natural Resources
South Africa holds a significant portion of the world’s reserves of certain metal and mineral resources, including manganese ore, platinum and gold. (See Appendix 2 for a chart listing significant reserves). The country has a reputation as a reliable supplier of these resources.
South Africa’s fish stocks are abundant and well managed. It’s nature reserves and game parks are important tourist attractions.
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Industrial and Trade Organisations |
Numerous public and private development and other agencies provide advice and assistance in order to further economic development.
The Department of Trade and Industry assists in the development of industries, the building and expansion of trade relations, the promotion of foreign trade and exports from South Africa and the maintenance of competitive conditions in the domestic market. Since April 1995, that Department has promoted an institutional support framework for small, medium sized and micro businesses including the Chief Directorate for Small Business Promotion, Ntsika Enterprise Promotion Agency, Khula Enterprise Finance and local Business Service Centres.
The Industrial Development Corporation of South Africa, a self-financing stateowned development finance institution, inter alia provides financing to entrepreneurs engaged in competitive industries.
Various private-sector organisations in major towns and cities, such as the South African Chamber of Business (SACOB), the National Federated African Chamber of Commerce (NAFCOC), the Chamber of Mines, the South African Foundation and local Chambers of Business, provide support and assistance to their members. (SACOB and NAFCOC have now merged.) In addition, business interests from countries including the USA, France, Netherlands, Germany and the EU have formed chambers of commerce in South Africa.
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International Relations and Associations |
South Africa has become a significant player on the world political stage and plays an important role in international organisations like the IMF, World Bank and UN and in international affairs generally (for example with regard to the Lockerbie dispute between the UK and Libya and peace negotiations in Central Africa).
South Africa is one of the founding members of the African Union, the organisation succeeding the former Organisation for African Unity. The President of South Africa, Mr Thabo Mbeki, has been instrumental in the preparation and promotion of NEPAD, the New Partnership for Africa’s Development which seeks to promote investment, development and good governance throughout Africa. South Africa chaired the Non-Aligned Movement from 1998 to 2001.
South Africa has become an important international conference destination, and has recently hosted a number of large international conferences including peace talks on the Democratic Republic of Congo, and the World Conference on Racism, the OAU/AU summit on Peace, Development and Prosperity and the United Nations World Summit on Sustainable Development.
The Government’s foreign policy principles are to seek to prevent conflicts and promote the peaceful resolution of disputes, promote democratisation, disarmament and respect for human rights, advance environmentally sound, sustainable development and poverty alleviation.
Diplomatic relations have been established with 164 countries and South Africa participates in more than 70 international agencies. South Africa has 76 embassies or high commissions and 12 consulates or consulates general abroad.
Africa
South Africa plays an important role in Africa. South Africa’s president, Mr Thabo Mbeki, is one of the originators of the New Partnership for Africa’s Developments (NEPAD) which has received support from several developed countries including the G7 countries.
The income of migrant labourers from neighbouring African states employed in South Africa contributes substantially to the national income of those states. South Africa is a member of the SADC (see 1.7), the Common Monetary Area (together with Lesotho, Namibia and Swaziland), the Southern African Customs Union (SACU) (together with Lesotho, Botswana, Namibia and Swaziland) and a founding member of the African Union (which succeeded the Organisation of African Unity (OAU) in July 2002). South Africa maintains important trade and investment links with other African countries, and these have increased substantially since 1994.
South Africa and the SADC
South Africa’s foreign policy with regard to the Southern African region reflects a commitment to close diplomatic, economic and security cooperation and integration, adherence to human rights, the promotion of democracy and the preservation of regional solidarity, peace and stability.
There are however significant disparities in the levels of development and infrastructure of the SADC member countries. SADC has a permanent secretariat and South Africa currently holds the Financial and Investment Sector as its special area of responsibility.
South Africa has signed four SADC protocols, namely the Protocol on Energy, the Protocol on Trade (which aims ultimately to establish a free trade area in the region), the Protocol on Transport, Communications and Meteorology, and the Protocol on Combating Illicit Drug Trafficking.
The OAU
Since South Africa joined the Organisation of African Unity (OAU) as a full member in 1994, it had been increasingly involved in a broad spectrum of OAU activities, particularly the pursuit of peace, democracy and economic development in Africa.
OAU, The OAU, the pre-eminent political and economic body of Africa, was succeeded by the African Union (AU) at the OAU/AU summit in South Africa during July 2002. South Africa’s President Mr Thabo Mbeki is the first chairperson of the AU.
The AU has a significantly expanded mandate from that of the OAU, and will be geared towards addressing the current needs of the African continent, in particular regarding social and economic development. The AU will play a key role in the implementation of NEPAD, the New Partnership for Africa’s Development. The objectives of the AU include achieving greater unity and solidarity between the African countries and the peoples of Africa; accelerating the political and socio-economic integration of the continent; promoting peace, security, and stability on the continent and promoting democratic principles and institutions, popular participation and good governance.
United Nations
South Africa is a founder member of the UN and has fully participated in and contributed to UN international organisations, treaties and conventions concerned with global policies since its readmittance to the UN in 1994. It has played an active role in the United Nations Commission for Trade and Development (UNCTAD), and several General Assembly working groups tasked with the appraisal of UN reforms and the restructuring of the Security Council. Should Africa be given permanent representation on the Security Council, it is believed that South Africa (together with Nigeria) would be a strong contender for that seat. Johannesburg recently hosted the United Nations World Summit on Sustainable Development.
The Commonwealth
South Africa rejoined the Commonwealth in 1994 after an absence of 33 years. Immediate advantages for South Africa included the facilitation of trade with and travel to other member countries, as well as participation in the biennial Commonwealth Heads of Government Meetings (CHOGM) and other Commonwealth ministerial meetings. South Africa hosted the November 1999 CHOGM and chaired the Commonwealth from 2000 to 2001.
The European Union
The European Union remains South Africa’s main economic partner in terms of trade, investment, finance and transfer of technology. An agreement for the establishment of a free trade area between the EU and South Africa took effect on 1 January 2000. The first phase of the second Multi-Annual Indicative Programme (2000-2002), part of a R11 billion development programme funded by the EU, was launched on 22 June 2000.
Other Organisations
South Africa participates in many other international governmental and nongovernmental organisations that are active in a wide variety of fields, such as finance, shipping, atomic energy, trade, science, agriculture and the environment. This involvement includes participation in the International Monetary Fund, the World Bank, the World Trade Organisation and the NonAligned Movement.
Asia
Asia, including the Indian subcontinent and Australasia, has become a priority area for South Africa’s foreign policy.
With thirteen residential missions in Asia (including Japan, India, and the Peoples Republic of China) and other non-residential accreditations, South Africa’s relations with Asia have strengthened considerably since 1994. Although the Asian financial crisis impacted negatively on trade and investment, prospects for the expansion of economic relations with the Asian region have great potential.
Geographically, South Africa is part of the Indian Ocean Rim (IOR), which encompasses the eastern African coastal countries, the Arabian peninsula, Indonesia, Australia and the Indian subcontinent. The Indian Ocean Rim Association for Regional Co-operation (IOR-ARC), is an important regional economic entity with 19 members. South Africa is one of the seven founder members. The objectives of the IORARC are trade liberalisation, trade and investment facilitation, economic and technical cooperation and trade and investment dialogue.
Middle East
South Africa has diplomatic missions in Israel, Palestine, Jordan, Saudi Arabia, the United Arab Emirates, Iran, Pakistan and Kuwait. It has non-residential accreditation to Bahrain,Yemen, Qatar, Syria and Oman. Overall bilateral trade between South Africa and the Middle East nearly doubled in Rand terms during 2000 to R32,059 billion. However, because of South Africa’s energy imports from the region, South Africa has a large deficit in respect of trade with the Middle East.
North America
The United States of America is South Africa’s largest individual trading partner and since 1994 has been the largest foreign direct investor in South Africa. South Africa benefits from dutyfree exports to the USA under the USA’s Generalised System of Preferences and its African Growth and Opportunity Act. A bilateral commission has been established to strengthen relations between the two countries. There have been preliminary discussions on the formation of a free trade area between the USA and South Africa.
Canada is one of the largest providers of development assistance to South Africa, and has granted South Africa the benefit of its General Preferential Tariff. South Africa and Canada have concluded a number of important agreements, including a nondouble taxation treaty and a trade and investment cooperation arrangement.
Latin America
South Africa maintains diplomatic relations with all the countries of Latin America, excluding the Dominican Republic. There are diplomatic missions in Argentina, Brazil, Chile, Cuba, Mexico, Peru, Venezuela and Uruguay.
Discussions have begun regarding the formation of a free trade area between the SADC and the Mercosur trading bloc, which consists of Argentina, Brazil, Paraguay and Uruguay, with Bolivia and Chile having associate status. Cooperation in the South Atlantic is further enhanced through the Zone of Peace and Co-operation in the South Atlantic (ZPCSA). The aims and objectives of the ZPCSA include the protection of the marine environment and resources, the promotion of the South Atlantic as a nuclear-free zone, and joint business ventures.
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Black Economic Empowerment and Affirmative Action |
For historical reasons, control of the economy has been concentrated primarily in the hands of white South Africans. It is Government policy to actively promote a more equitable distribution of wealth, in a free market context, by actively supporting and favouring the economic empowerment of historically disadvantaged persons (HDPs) in the grant of Government tenders and procurement contracts and licences (for example casino licences, the National Lottery licence, radio and cellular telephone licences) and by rendering financial and other assistance to private business. Joint ventures with HDPs and entities controlled by HDPs have accordingly become common. The private sector has also been involved in empowerment transactions and several large HDP controlled corporations have emerged in recent years pursuant to the unbundling of private business to HDP entities. The Government has also implemented affirmative action and social equity legislation in order to extend and promote opportunities for HDPs in the economy.
The National Empowerment Fund (NEF) has been created to promote the ownership by HDPs of income-generating assets. The NEF aims to raise more than R4 billion over the next few years for the promotion and growth of small and medium sized businesses. It is intended that the NEF will acquire shares in various parastatals, pursuant to privatisation and restructuring.
A Black Economic Empowerment Commission was established in May 1997 under the auspices of the Black Business Council, a body representing eleven black business organisations. At the end of 2001 the Commission submitted a report to the Government in which it made a number of recommendations. The report’s primary recommendation is that an Integrated National Black Economic Empowerment Strategy, be established. The components of the Strategy would include, inter alia, the establishment of a National Procurement Agency within the Department of Trade and Industry, the promulgation of a National Black Empowerment Act and the setting up of an Empowerment Framework for Public Sector Restructuring.
The Strategy would aim at achieving certain targets within ten years, including that –
at least 30% of productive land should be in HDP hands;
at least 10% of life and retirement companies’ funds should be invested in areas of “national priority” over a seven-year period;
HDP equity participation in each sector of the economy should be increased to at least 25%;
HDPs should hold at least 25% of the shares of companies listed on the JSE;
at least 40% of non-executive and executive directors of JSE listed companies should be HDPs;
at least 50% of State owned enterprises and Government procurement should go to HDP companies and at least 30% of these companies should be small and medium sized enterprises;
at least 30% of private sector procurement should be to HDP owned companies;
in the event of restructuring, at least 30% of the equity of restructured State owned enterprises should be owned by HDP companies;
at least 30% of long term contracts and concessions within the public sector should incorporate HDP owned companies and “collective enterprises” upfront;
at least 40% of Government incentives to the private sector should go to HDP companies.
The Government is still considering the Commission’s report, but the President has indicated that the Government supports most of the recommendations. The impact of the report can be seen in the Minerals and Petroleum Resources Development Bill.
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Recent Developments Affecting Business in South Africa |
Promotion of Access to Information Act
This Act enables individuals to obtain certain information or records in the possession or under the control of a public institution (for example a Government department or municipality) or a private body (like a company), subject to compliance with certain requirements. This gives effect to the right of access to information guaranteed in terms of the Constitution. The Act (except for certain sections) commenced with effect from 9 March 2001. In terms of the Act, each public and private body is required to prepare a manual before 28 February 2002 to facilitate access to that body’s information.
Mineral and Petroleum Resources Development Bill
During December 2000, a draft Minerals Development Bill was circulated for comment by the Department of Minerals and Energy. That bill was superseded in 2002 by the Mineral and Petroleum Resources Development Bill which has significant implications for the holders of mineral rights and the mining industry. The Bill seeks to facilitate participation by historically disadvantaged persons in mining ventures and to ensure that unexploited mineral rights are exploited by applying a “use it and keep it” principle which has been accepted and applied in many developed countries. To give effect to these two broad objectives, the right to prospect and mine for all minerals will vest in the State and applications for those rights will be made directly to the State. This is a fundamental change as the right to prospect and mine previously vested in the owner of the mineral rights. The Bill grants the government wide discretionary powers to regulate mineral rights and to promote and support historically disadvantaged persons in the mining industry.
The transitional provisions of the Bill facilitate the conversion of prospecting and mining rights currently held at common law and under the Minerals Act (which will be repealed by the Bill) to the new forms of prospecting and mining rights contemplated by the Bill. For successful conversion, applicants will be required to satisfy the empowerment objectives of the Bill which emerge from an Empowerment Charter for the mining industry. The Charter is presently being negotiated between the South African Government and the mining industry. Prospecting fees and State royalties for mining will become payable to the State, the details of which will be set out in a Money Bill still to be promulgated.
The Bill was recently passed by Parliament, but has not yet been signed into law by the President.
Promotion of Administrative Justice Act
This Act gives effect to the constitutional provisions that everyone has the right to administrative action that is reasonable and procedurally fair and that everyone whose rights have been adversely affected by administrative action has the right to be given written reasons. In terms of the Act administrative action which materially and adversely affects the rights or legitimate expectations of any person, or the rights of the public, must be procedurally fair. The Act also provides for the judicial review of administrative action.
Electronic Communications and Transactions Act
This Act, which came into effect on 30 August 2002, is intended to provide legal certainty regarding electronic communications and transactions and to develop a secure environment for consumers and businesses to conduct electronic transactions. Anyone who conducts business electronically will need to take cognisance of the Act, the salient provisions of which include: legal recognition for electronic signatures; various consumer protection provisions (for instance a seven day “cooling off” period after the receipt of goods ordered electronically); the limitation of the liability of service providers and the criminalisation of unlawful access to, interception of or interference with data. The Act also provides for Government control of the .za space and confers wideranging powers on the Minister and/or the Department of Communications.
Protected Disclosures Act
One of the aims of this Act is to promote the eradication of criminal and other irregular conduct in organs of state and private bodies by protecting “whistle blowers”. This Act accordingly provides for procedures to protect employees in both the private and public sector who disclose information regarding unlawful or irregular conduct, for example unfair discrimination or miscarriages of justice, by their employers or other employees. The protection afforded by the Act is however limited to certain disclosures as defined in the Act (including disclosures to legal advisers or the Public Protector) although there is a general protection for disclosures (for example to the media) made in certain circumstances, in good faith and not for gain. The Act commenced with effect from 16 February 2001.
Prevention of Organised Crime Act
This Act, which commenced in 1999, criminalises the management of and other activities relating to organised crime, racketeering and gangsterism so as to enable the State to take action against the leaders of criminal syndicates as well as parties assisting or benefiting from criminal syndicates. Being involved in racketeering and money laundering are now criminal offences, as is assisting anyone to benefit from the proceeds of unlawful activities or to acquire, use or have possession of such proceeds. It is also a criminal offence for someone not to report a suspicion that property or transactions relate to the proceeds of unlawful activities. The penalties imposed are onerous, being a fine of up to R1 billion or up to life imprisonment for being involved in racketeering activities, a fine of up to R100 million or up to thirty years imprisonment for money laundering, assisting another to benefit from the proceeds of unlawful activities or acquiring, possessing or using such proceeds, and a fine or up to fifteen years imprisonment for failing to report a suspicion relating to the proceeds of unlawful activities. The Act also provides for the confiscation of property derived from criminal activities and for restraint orders to be placed on the use of such property. While the constitutionality of certain provisions (for example regarding the admissibility of certain evidence) could come under attack, this Act should significantly assist the State in its fight against organised crime.
Financial Intelligence Centre Act
The Financial Intelligence Centre Act imposes duties on certain “accountable institutions” in order to combat money laundering. “Accountable institutions” include attorneys, estate agents, financial instrument traders, unit trust management companies, banks, the holders of gambling licences, members of the JSE, investment advisors and investment brokers. “Accountable institutions” may not establish a business relationship or conclude a single transaction with a client unless certain prescribed steps are taken to establish and verify the identity of the client or the identity of any person acting on behalf of the client. Accountable institutions must also maintain a record of the identities of those persons, the nature of the business relationship or transaction, the amount involved and the parties to the transaction and all accounts involved in these transactions. All records must be kept for at least five years from the date of termination of the business relationship or transaction. The Financial Intelligence Centre (created by the Act to combat money laundering) may have access to all such records. There is also a duty on “accountable institutions” to provide information to the Centre including information on cash transactions above a prescribed limit and suspicious and unusual transactions. A failure by an accountable institution to comply with these obligations is a criminal offence rendering the guilty party liable to a fine of up to R10 million or up to fifteen years imprisonment.
King Code on Corporate Governance for South Africa
The King Committee on corporate governance, formed under the auspices of the Institute of Directors, issued a report on corporate governance in the South African context in 1994. The First King Report aimed to formalise what had become generally accepted norms and procedures which should be followed by corporate entities to promote transparent, accountable and responsible management. The Report also made certain recommendations with a view to improving corporate governance in South Africa.
The King Committee conducted a detailed review of the First Report and in March 2002 replaced it with the Second King Report which applies to a wide range of corporate and governmental enterprises, including all companies listed on the JSE, all banks, financial and insurance entities and virtually all Departments of State or administration in the national, provincial or local sphere of government.
The Second Report contains several recommendations which business will have to take into account including greater emphasis on the responsibilities of the board of directors, on the role of independent nonexecutive directors, on separating the CEO and chairman functions, on the importance of safety, ethics, environmental and social issues, and on corporate disclosure (including with regard to directors’ remuneration) to stakeholders.
The King Code is not prescriptive, but rather recommends certain principles and practices. Its impact will largely depend on the extent to which its principles are implemented by business in South Africa. It is however important to note that there is increasing pressure on business (from shareholders and other interest groups) to comply with the principles of the King Code. The JSE, for instance, requires listed companies to disclose the extent to which they comply with the recommendations of King Code.
HIV/AIDS
HIV/AIDS has become a major health problem in South Africa and has significant implications for business and the economy. Various studies have shown increases in the percentage of the population with HIV/AIDS and it is estimated that approximately one out of every nine South Africans has HIV/AIDS.
