OBG talks to David Lancaster, Senior Partner, Webber Wentzel

Interview: David Lancaster

What are international investors’ legal concerns when doing business in South Africa?

DAVID LANCASTER: Global companies need to increasingly be assured that legislation related to anti-corruption in their home markets will apply to their activities elsewhere. Whether doing business with government or private sector clients, they cannot afford to be in breach of good governance norms, so issues around procurement practices are extremely important. Compared to many other emerging markets, South Africa is a relatively easy place for multinationals to do business, especially for companies originating from the US or Europe, as our legal system is similar to UK company law and the business language is English. There are very few restrictions on acquiring and owning assets or repatriating earnings and capital. Setting up a company is also relatively straightforward. South Africa has never tried to position itself as an offshore destination similar to, say, Mauritius. It is not a place to come if you are looking to take advantage of lax legislation or tax incentives. But there are other good reasons to come, mainly that there is a substantial market to serve and it offers good infrastructure and a stable environment to operate as a base to penetrate other emerging African markets. Multinationals need to be aware that much of the government’s policy revolves around job creation. In addition, the country is looking to investors who are coming to build factories, open up mines, or provide labour-intensive services such as call centres. Foreign companies are less interested in incentives and mostly concerned with policy certainty. They understand that they will have to comply with strict legislation, and are fine with this so long as things are clear.

What are the legislative principles foreign companies might struggle to adhere to?

LANCASTER: In a relatively short time frame, South Africa went from being unregulated when it comes to competition and anti-trust laws to an extremely tight regime. Local and foreign companies are still getting used to this new environment. As evidenced in the high profile Walmart case, the government' s attitude towards the interpretation and application of competition legislation can be quite ambiguous. While the case originally caused some confusion among foreign investors, particularly regarding the government’s view of them, a lot of lessons have been learned.

Overall, our legislation is solid and many core regulatory issues such as the Companies Act, employment laws and competition laws are not unique to our country. The overall framework is attractive and works well, but problems arise when implementation is not consistent and when there are inconsistencies between how different government departments interpret and apply them. For instance, foreign entrants to South Africa fully understand the need to take BEE (Black Economic Empowerment) into account to rectify the country’s history and want to fully comply with the principles. However, inconsistent application of the rules and continual changing of the rules become difficult to plan for and can sometimes create uncertainty.

How will potential legislative changes impact foreign business in South Africa?

LANCASTER: Mining, because of its importance to the South African economy, is one sector for which legislation will always be scrutinised heavily. South Africa lost out to the likes of Australia during the commodities boom. One reason was a lack of sufficient infrastructure to get the products to ports, but the other and probably bigger issue was the difficulty and lack of transparency in attaining licences and permits. It is a tough industry for government to monitor. On the one hand, you do not want to be a country where commodities are simply dug out of the ground and exported for someone else’s benefit, and therefore want to maximise royalty earnings and encourage and even enforce beneficiation. However, mining requires heavy capital investments and investors do require long-term certainty.