Selling South Africa
Two incentive programs are being re-introduced by the South African National Treasury to lure foreign direct investment. After two years hiatus, the Strategic Investment Programme (SIP), which gives tax deductions to capital investments over 50 million Rand (roughly $7 million), and the Small and Medium Enterprise Development Programme (SMEDP), which targets manufacturing, tourism, and agricultural industries, are returning to lure industry to the country. The country's Industrial Development Zones (such as Coega IDZ), which allows investors free import duties, is also used as an incentive.The South African Department of Trade and Industry has chosen 4 leading industrial sectors that will anchor the S.A. economy: capital/transport equipment and metals; automotives and components; chemicals, plastics fabrication, and pharmaceuticals, and forestry, pulp and paper, and furniture.
Sources: City Press (South Africa), All Africa, The South African Department of Trade and Industry
Labels: incentives, Site Selection, South Africa
2 Comments
The problem with all of this hype
South Africa still has exchange controls in place that make doing business with that country so much more difficult than doing business with other countries that have no such controls, especially as the banks there in collusion with the South African Reserve Bank are currently openly not applying their own rules as published on the Reserve Bank website.
By way of illustration, we have been doing business with a South African company supplying them with IT services, engineering consultancy services and selling their products into the Australasian market since 2001. Before undertaking this, we did get legal opinions concerning what steps should be taken concerning the foreign exchange control.
We were recently (August 2007) informed that a payment request to pay our invoices presented to the Standard Bank of South Africa was refused. After a discussion with their expert in their Exchange Control department asking why, we were told that despite there being no prohibition in the exchange control regulations or the exchange control regulations against payment taking place on our invoice, the banks together with the reserve bank have now set up a different set of circumstances that warrant exchange control scrutiny that they are now applying, irrespective of what the manual and the regulations might provide.
There was no warning of the lack of payment or the change of payment authorisation procedures. Now, not only do foreign businesses have to chase creditors in South Africa, they also have to contend with exchange controls and with banks that refuse to follow even their own laws concerning foreign exchange control. This has led to months delays on payment, wasted legal fees sorting out laws that are not even being followed, and an increase in the cost of doing business in South Africa. There is now also the lingering doubt as to whether our contracts are still good and more importantly, whether payment will ultimately be made. It has turned into a star chamber from the dark ages, where you cannot tell from one moment to the next which way they will go.
Even if the laws were followed, Foreign Exchange control is still very restrictive at the best of times. In particular, the business practice of offsetting one debt against another is specifically outlawed. This leads to different procedures in dealing with South African accounts and increased costs concerning foreign exchange and banking fees as each invoice has to be separately paid. There are also the costly delays occasioned by reserve bank interference with commerce.
In short, all of the new moves introduced by the South African government may come to nothing if savvy businesses and investors take a careful look under the hood to see whether their investments will ultimately be honoured.
By
MWNZ on September 19, 2007 7:19 AM
Not everybody has such perspective to look behind the hype. Thank you for that.
By
Pearl on September 25, 2007 10:40 AM
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