Well-regulated economy
South Africa has a well-regulated economy primarily managed by three governmental pillars: the Treasury Department, Reserve Bank and the Department of Trade and Industry.
South Africa's legislative framework lays down fiscal responsibilities, creates an independent auditor-general and and central bank.
Related organisations of interest to international investors are the Industrial Development Corporation of South Africa Limited (IDC), Development Bank of South Africa, South African Revenue Service (SARS) and the Competition Commission.
Reserve Bank
The South African Reserve Bank (SARB) is the central bank of the Republic of South Africa. Its primary goal, as defined in the Constitution, is to protect the value of the currency. This requires the achievement and
maintenance of financial stability.
The SARB deems it essential that South Africa has a growing economy based on the principles of a market system, private and social initiative, effective competition and social fairness. It recognises, in the performance of its duties, the need to pursue balanced economic policies that enhance both development and growth.
Its primary functions are the issuing of banknotes and coins, government's banker, custodian of banks' cash reserves, clearance and settlement of inter-institutional claims, custodian of foreign reserves, provision of accommodation and lender of last resort, public debt management, open-market operations, collection and interpretation of statistics, monetary and exchange rate policy and supervision of banks.
The SARB is co-responsible for the formulation of monetary and exchange rate policies and is largely responsible for the execution of such policies. The manner in which the other functions of the SARB are
carried out will depend partly, and in certain respects greatly, on the prevailing stance of monetary policy. Monetary policy will, in turn, be determined on the basis of the SARB's assessment of current and prospective economic developments.
Exchange control was first introduced in South Africa during the Second World War as a means of protecting South Africa's foreign exchange reserves and extends over the Common Monetary Area. The Currency and Exchanges Act of 1933 empowers the President to make regulations in regard to any matter directly or indirectly relating to or affecting or having any bearing upon currency, banking or exchanges.
The Treasury has delegated the administration of exchange control to the SARB, which is responsible for the day-to-day administration and functioning of exchange control.
The Exchange Control Department of the SARB has a wide discretion, but exercises its powers within certain policy guidelines. In turn, the SARB has delegated some
of its powers to deal with exchange control matters to certain banks that are known as "authorised dealers" in foreign exchange.
Development Bank of Southern Africa
The private sector investments unit of the Development Bank of Southern Africa (DBSA) plays a unique role in facilitating private sector provision of infrastructure in support of sustainable economic development in the SADC region.
The unit was established in 1996 in response to a worldwide trend towards increased private sector involvement in infrastructure, and in recognition of the need for an appropriate source of financial support for public-private partnerships (PPPs) in Southern Africa.
The sub-continent faces exciting and challenging times. There is increasing
demand for much-needed new and improved infrastructure such as water supply and sanitation systems, affordable housing and electricity supply, health care facilities, schools, roads, tourism infrastructure, airports and harbour facilities, to name but a few.
Such infrastructure is required by national, provincial and local governments and their operating departments to ensure the needs of our region's people are met. Many of these organisations, however, lack the necessary fiscal and managerial resources to be empowered sufficiently to achieve a drastic reduction in the backlog of required new infrastructure in the short and medium term.
The DBSA aims to promote economic development by fostering the growth of productive enterprise and efficient capital markets within the regional and sectoral requirements of DBSA's mandate. Its focus is on four broad infrastructural groups: basic infrastructure services to the community (e.g. water and sanitation); economic infrastructure
(e.g. telecommunications, toll roads, rail, power); industrial/agribusiness projects with infrastructure components; and capital market development.
Industrial Development Corporation
It is government policy to encourage economic development through contributions by private enterprise. Official assistance is available in a variety of forms, but investment incentives are generally "non-tax" incentives.
The state-owned financial institution, the Industrial Development Corporation of South Africa Limited (IDC), was established for the purpose of offering an extensive range of financing facilities to private sector entrepreneurs engaged in manufacturing industries in South Africa. The financial institution follows normal company practice and pays income tax at corporate rates.
The IDC, whose stated mission is the assistance of financing of new
and existing private sector enterprises so that industrial development takes place in South Africa according to sound business principles, provides development capital to new undertakings in urban and rural areas, generally in the form of medium to long-term finance loans for the acquisition of fixed assets. In certain cases, however, the IDC may also take equity in industrial enterprises.
Competition authorities
Difficulties in interpretation and implementation of the Competition Act of 1998 have resulted in the passing, in quick succession, of three Competition Amendment Acts.
The Competition Act fundamentally reforms the regulatory framework for mergers in or having an effect in South Africa. The Act has been widely criticised for requiring notification of
mergers, which have no impact on competition and because of the delays experienced in obtaining the necessary approvals. The Competition Act prohibits certain restrictive vertical practices, restrictive horizontal practices and abuse of dominance.
The Competition Commission is responsible for the investigation and evaluation of mergers, prohibited practices and exemptions. It has the power to allow or disallow small and intermediate mergers and is obliged to make recommendations to the Competition Tribunal in relation to large mergers.
The purpose of the Competition Act is to maintain and promote competition in the South African market in order to:
- promote the efficiency, adaptability and development of the economy
- provide consumers with competitive prices and product choices, promote employment and advance the social and economic welfare of South Africans
- expand opportunities for South African participation in world markets and recognise the role
of foreign competition within South Africa
- ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy
- promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged people
South African Revenue Service
Various forms of taxation are levied in South Africa, and there is extensive taxation legislation.
In addition to the numerous sources of taxation, a distinction is drawn for tax purposes between two categories of legal persons, namely natural persons (individuals) and juristic persons (such as companies and close corporations).
The South African income tax system has been primarily a source-based system. Under the source based system, all income arising from a source within or deemed to be within South Africa was taxed,
irrespective of the residence of the recipient of that income. With effect from 1 January 2001, however, South African residents are (subject to certain exemptions) taxed on their worldwide income and the application of the source principle only applies to the taxation of non-South African residents.
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