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Country Commercial Guides for FY 2000: South AfricaReport prepared by U.S. Embassy Pretoria, released July 1999 Note* |
VIII. TRADE AND PROJECT FINANCING
1. The Banking System
South Africa's well-developed banking system resembles Britain's system rather than America's and is composed of three key elements: the South African Reserve Bank (the country's central bank), private sector banks (commercial banks, merchant banks, and general banks), and mutual banks.
In 1998 South African banks held the first six places amongst the top 100 banks on the continent of Africa. The legal distinctions between commercial, merchant, and general banks have eased in recent years, and South Africa's major bank holding companies typically own several banks geared to various clienteles. The structure of financial intermediation involves a considerable degree of concentration of ownership. As of January 1998, 56 fully licensed institutions and 60 representative offices of foreign banks conducted banking in South Africa. There is currently only one U.S. bank (Citibank) with a full commercial banking license. Four large blocks have traditionally dominated the sector, accounting for as much as 80 percent of total bank assets:
* Amalgamated Banks of South Africa (ABSA)
* Standard Bank Group
* First National Bank of SA Ltd.
* Nedcor
Banking institutions are regulated by the Banks Act of 1990 which stipulates compliance with specific prudential requirements regarding capital, cash reserves, liquid assets, and large exposures. South African banks are now required to maintain a capital to risk weighted asset ratio of 8 percent, bringing this country into line with international practice.
The banking system in South Africa was strengthened in 1995 by the increased willingness and ability of international investors to offer the banks an increasingly diversified shareholder base. In addition, the restructuring of The Johannesburg Stock Exchange (JSE) has, for the first time, allowed banks to enter the securities markets as stockbrokers. Assets held in the banking sector have expanded from R39 billion in 1980 to R540 billion in 1998.
In May 1995, the amended provisions of the 1990 Bank Act came into operation by virtue of a Proclamation by the President of the Republic, thereby allowing for the conducting of business by a foreign financial institution by means of a branch office in South Africa. Citibank is the only U.S. branch in the country and currently has 1 operating branch with two more expected to open shortly. New legislation has been introduced before Parliament to further clarify South African banking regulations and to bring them into line with international "best business" standards.
2. Foreign Exchange Controls
Exchange controls were first imposed in South Africa just prior to World War II. Whereas exchange controls have been effective in preventing the outflow of funds, they have also discouraged inward investment. In recent years, the South African financial sector has moved on the road towards globalization by expanding the involvement of foreign banks in the country and that of non-residents in the South African financial markets.
Since 1994 significant progress has been achieved, including the elimination of the financial Rand in March 1995; the lifting of exchange control on investments by individuals up to R200,000 (approx. USD 33,333); and the increasingly large offshore investments corporations have been allowed to make.
Exchange controls are currently administered by the South African Reserve Bank (SARB)'s Exchange Control Department through commercial banks that are authorized to deal in foreign exchange. All international commercial transactions must be accounted for through these "authorized foreign exchange dealers."
This provides the SARB some degree of flexibility for determining short-term exchange rates. In March 1997, the Finance Ministry announced phased-in measures to relax foreign exchange controls, including doubling foreign firms' access to local credit and increasing, higher retention of offshore income, and increased ceilings on foreign investment holdings of local financial institutions.
Further relaxation of exchange controls and the restructuring of the financial system are important preconditions for South Africa's greater participation in the globalization process. The South African government's commitment to exchange control reform is well-known; the key question, however, is how to sequence such reforms. One structural reform in need of attention is South Africa's forward book, which creates risk perceptions about the Rand. J.P. Morgan economist Peter Worthington suggests that once the forward book has been addressed, the consequences for the Rand of an easing of exchange controls would be easier to manage.
All inquiries of an exchange control nature should be directed at an authorized foreign exchange dealer, who will, if required, refer the matter to the Exchange Control Department of the SARB.
South African Reserve Bank
Mr. A.M. Bruce-Brand
Head, Exchange Control Department
PO Box 8432
Pretoria 0001
Tel: (27 12) 313-3911; Fax: (27 12) 313-3197
Internet: www.resbank.co.za
A list of authorized dealers in foreign exchange can also be found on the Internet at www.resbank.co.za/Exc/authdel.html.
2.1 Currency. The currency unit is the Rand, denoted by the symbol R1. R1=100 cents. South Africa has recently introduced new notes and coins, but the old currency is still in circulation. On March 20, 1995, the South African Government eliminated the two-tiered currency system comprising the commercial Rand and the financial Rand. Consequently, all foreign exchange transactions, including foreign investment flows, capital gains, and proceeds from the sale of equities and securities by non-residents now take place via the unitary Rand (see Appendix C 2).
3. General Financing Availability
South Africa's sophisticated financial sector has some thirty two commercial and merchant banks that can provide overdraft facilities and roughly thirteen merchant banks that can provide short to long term credit. Only banks deemed to be "authorized dealers in foreign exchange"are allowed to handle foreign trade payments.
There are approximately 40 foreign banks represented in South Africa, (see list at the end of this section). Key areas of business for foreign banks include trade finance, letters of credit, foreign exchange activities and services to offshore investors. A number of European finance and development institutions, such as the European Investment Bank and the United Kingdom's Commonwealth Development Corporation, have opened offices in South Africa.
4. Methods of Payment
Letters of Credit (LC) are the customary way to finance imports into South Africa. LC's are documents issued by a bank on behalf of an importer in favor of a beneficiary, typically the exporter. The most commonly used documentary credits are: 1) irrevocable credits; and 2) confirmed irrevocable credits. If the exporter is concerned about the reliability of the importer only, he/she should use an irrevocable LC. If the exporter is also concerned about the standing of the issuing bank and/or the standing of the importer's country, he/she should use a confirmed irrevocable credit.
In South Africa all credits issued are subject to exchange control regulations and when necessary, a South African import permit. South African exchange control regulations stipulate that payment of imports may be effected only by authorized banks against submission by their customers of documentary proof that the goods were imported into South Africa as evidenced by invoices and shipping documents stamped by South African customs.
An exception is when South African banks have opened documentary import letters of credit in favor of foreign exporters. Payment in those instances may be effected against presentation by the exporter of invoices and shipping documents to the foreign negotiating bank before the goods have arrived in South Africa (but after they have left the United States).
If credit is available, payment will take place upon presentation of documents. Payment can be made via transmission or airmail depending on the reimbursement clauses. The advising bank should, if possible, be the same bank as the exporter's bank. If the exporter's bank is unknown the South African bank will advise the credit through a correspondent bank known to it in the US and, if possible, in the exporter's city.
4.1 Quotations and Terms of Payment. American exporters should offer quotations based on the f.o.b. value at the port of export. As a general rule, such quotations should also include a statement of the actual charges for freight and insurance plus any additional charges to the port of delivery. Quotations are usually in terms of the currency of the country of origin.
The terms of payment for imported goods vary according to the type of buyer and the buyer's access to capital. Large organizations such as the government or mining companies tend to transact business on a sight-draft basis, while small companies tend to operate on documents against acceptable terms. Payment between 80 and 120 days after acceptance is most common, but terms may vary between 30 and 180 days. For larger orders of capital equipment, longer terms are often required.
It is advisable to ship on a letter of credit, sight letter of credit, or 30-day letter of credit basis that the importer can use as a negotiating instrument to expedite the payment transfer. Payments for shipments made on an open account basis will have a lower priority for foreign exchange, possibly delaying payment to the exporter. The payment transfer can be affected within 24 to 48 hours after the importer presents a valid import permit and proper documents to his or her bank.
5. Foreign Exchange for Import Purchases
Generally, the SARB's Exchange Control Department does not provide foreign exchange in payment of imports prior to the date of shipment or dispatch of goods to South Africa. When South African authorized dealers of foreign exchange open documentary import letters of credit in favor of foreign exporters, payment is effected against presentation by the exporters of invoices and shipping documents to the foreign negotiating bank prior to the arrival of goods in South Africa.
Foreign currency payments for imports may only be made against the following documents:
Received for shipment bills of lading On-board bills of lading Air waybills of lading Parcel post receipts Carriers' receipts or railroad bills of lading giving title to the goods and evidencing dispatch to a port for shipment to South Africa Arrival notifications issued by Ellerman and Bucknall (Pty) Limited, Safmarine Limited, and the Transatlantic Shipping Agency (Pty) Limited, and Nedloyd Agency Cies SA (Pty) Limited. Foreign exchange may be provided for advance payments not exceeding 33 1/3 percent of the ex-factory cost of capital goods to be imported provided that:
1) the South African banker is satisfied from the production of documentary evidence supplied by the overseas manufacturer that the order would otherwise be refused,
2) that such payment is normal in the trade concerned, and
3) the importer has applied to the South African Reserve Bank and the application is justified.
The first shipment from a new supplier, the lack of availability of the imported equipment, or its superior quality to what is available in South Africa, are all examples of conditions for proper justification. Higher payment amounts (millions of Dollars) are less likely to receive pre-payment permission.
Foreign exchange may also be provided on a cash-with-order basis to cover the cost of permissible imports, but authorized dealers must satisfy themselves by the subsequent production of the usual documentary evidence that the exchange provided has been used for the purposes stated and that the goods have been imported into the Republic.
Authorized dealers must in due course insist upon the presentation to them of original bills of entry import or local parcel post receipts as evidence that goods, in respect of which transfers have been effected in terms of the above rules, have been received in South Africa. Such documents will also be boldly stamped "Exchange Provided." The date of the exchange transaction should be inserted under the stamp and, in the event of a part payment, the amount concerned should be stated. Customers are advised to retain the stamped documents for at least two years for inspection purposes.
5.1 Air Shipments. The SARB amended the payment procedures for imports consigned by air in March 1992. The new regulations allow the South African importer to obtain foreign exchange to meet import payments for goods consigned by air on a cash-on-delivery basis before the goods are cleared through customs. The documentation required for this transaction is a copy of the respective air waybill bearing an original stamp with the words "For Exchange Control Purposes Only" and dated and signed by a member of the South African Association of Airfreight Forwarders. Inquiries may be addressed to:
South African Association of Airfreight Forwarders
Private Bag X89
Bryanston 2021
Tel: (27 11) 463-4131; Fax: (27 11) 463-1367
6. Types of Available Trade and Finance Insurance
The United States' Export-Import Bank and the Trade and Development Agency offer their programs to support U.S. trade and investment activities in South Africa. The South African Government has a number of development agencies that provide project financing. With the lifting of international sanctions against South Africa, a number of multilateral lending agencies have made available financing for projects in South Africa.
6.1 Export-Import Bank of the United States. All of the Export-Import Bank's programs (Eximbank) are available to finance the sale of U.S. goods and services to South Africa. Exports of consumer goods, spare parts, raw materials (on terms up to 180 days) agricultural commodities and quasi-capital goods (on terms up to 360 days) can be supported under Eximbank's short-term credit insurance policies. Exports of capital goods and related services can be supported by Eximbank's long-term loans and guarantees of commercial bank financing (up to ten years repayment), or medium-term loans, guarantees and insurance (up to seven year repayment terms).
Repayment of loans made to the Government of South Africa and its parastatals must be guaranteed by the full faith and credit of the Republic of South Africa. Eximbank will consider private obligors which are credit worthy as demonstrated by their financial statements, commercial track record and credit history. The large private banking sector in South Africa may be able to guarantee repayment of smaller firms' obligations arising from the importation of U.S. goods or services.
Exporters can apply for a letter of interest (LI) when negotiating a sale of capital goods or services. The LI will be issued within seven business days and indicates Eximbank's willingness to finance a potential sale.
Eximbank is also very interested in considering acceptable forms of limited recourse project finance in South Africa where reasonable assurance of repayment is based on the project's cash flow rather than guarantor. For additional information on Eximbank's programs, see page 44.
7. Available Project Financing
7.1 U.S. Trade and Development Agency (TDA). The U.S. Trade and Development Agency promotes economic development in developing countries by funding feasibility studies, consultancies, training programs, and other project planning services. In Africa, TDA assists U.S. firms by identifying major development projects that offer large export potential and by funding U.S. private sector involvement in project planning. This, in turn, helps position U.S. firms for follow-on activities during the implementation phase of the project. For additional information contact:
U.S. Trade and Development Agency
Africa Division
SA-16, Room 309
Washington, DC 20523-1602
Tel: (703) 875-4357; Fax: (703) 875-4009
Contact: Mr. John Richter, Regional Director
E-mail: jrichter@tda.gov
7.2 Development Bank of Southern Africa (DBSA). DBSA was originally formed in 1983 by the South African Government to fund development projects in the formerly "independent" black homelands of Transkei, Ciskei, Venda, and Bophuthatswana. Today DBSA is expected to play a major role in mobilizing and providing loan finance and technical assistance for major development projects in South Africa and in neighboring Southern African countries.
DBSA membership is open to any country in Southern Africa. It functions as a "banker's"bank, providing soft loans to governments, local authorities, development corporations, and nongovernmental organizations, which in turn make loans to individuals in bank-approved projects. DBSA's financial resources include share capital contributions from its members and loans obtained from financial markets. Grant aid from the South African Government comprises an important source of DBSA's funding.
Development Bank of Southern Africa
PO Box 1234
Halfway House 1685, MidRandTel: (27 11) 313-3911; Fax: (27 11) 313-3086
Internet: www.dbsa.org
7.3 Industrial Development Corporation of South Africa, Ltd. (IDC). The IDC is a state-owned financial institution offering an extensive range of financing facilities to private sector entrepreneurs engaged in manufacturing industries in South Africa. Its mission is to assist in the financing of new and existing private sector enterprises so that industrial development takes place in South Africa according to sound business principles.
IDC's import finance scheme involves credit and guarantee facilities for local industrialists to finance the importation of capital goods and services. Impofin Limited (Pty) is a wholly-owned subsidiary of IC which can conclude line-of-credit agreements with banks in most of the supplier countries to South Africa to enable South African importers to purchase plant and equipment on extended credit terms.
The IDC recently established a special Black Economic Empowerment Scheme to make its financing programs available to black South African enterprises, entrepreneurs, and employer organizations. The scheme can provide finance for the creation of a new enterprise, the expansion of an existing enterprise, and the acquisition of control or a significant stake in an existing enterprise.
IDC
PO Box 784055
Sandton 2146
Tel: (27 11) 269-3000; Fax: (27 11) 269-3116
Contact: Mr. Khaya Ngqula (Managing Director)
Mr. Ted Droste (General Manager)
Internet: www.mbendi.co.za/coid.htm
www.idc.co.za
7.4 Small Business Development in South Africa. For a comprehensive listing of organizations in South Africa that support small and medium business development, please refer to the OPIC/Department of Commerce publication entitled Africa: A Guide to Business Finance for U.S. Firms. Additional information may be obtained from the United States Agency for International Development (USAID).
USAID/South Africa
PO Box 55380
Pretoria 0007
Tel: (27 12) 323-8869; Fax: (27 12) 323-6443
7.5 The Enterprise Development Unit. The Enterprise Development Unit of the University of the Western Cape also provides information on entrepreneurship and small business development in South Africa.
Enterprise Development Unit
Department of Management
University of the Western Cape
Private Bag X17
Bellville 7535
Internet: www.uwc.ac.za/ems/ems.htm
7.6 The African Development Bank Group. The African Development Bank Group (AfDB), headquartered in Abidjan, Cote d'Ivoire (West Africa), is an international financial institution created by Africans in 1963 to promote the economic and social development of its member African countries. The Bank Group covers Africa exclusively, with its lending operations and non-lending development activities all centered on Africa.
Founded with initial capital resources of USD 250 million, it has authorized capital today of over USD 24 billion. The bank is owned by its 77 member countries, 53 of which are African and 24 non-African. The United States joined the (AfDB) in 1983 after membership was opened to non-African countries and currently holds approximately 5.6 percent of shares outstanding.
The AfDB is comprised of three institutions: the African Development Bank (ADB), the African Development Fund (ADF), and the Nigerian Trust Fund (NTF). Collectively, these institutions are known as the AfDB or Bank Group. The AfDB lends to creditworthy African member countries and the poorer African member countries. Additional information about the African Development Bank Group can be found on the Internet at www.afdb.org.
Office of the U.S. Executive Director
African Development Bank
01 B.P. 1387
Abidjan 01, Cote D'Ivoire
Tel: (225) 20-40-15; Fax: (225) 33-14-34
Office of Multilateral Development Banks
U.S. & Foreign Commercial Service
U.S. Department of Commerce
Room H-1806
Washington, DC 20230
Tel: (202) 482-3399; Fax: (202) 482-3914
7.7 The World Bank Group. South Africa was a founding member of the International Bank for Reconstruction and Development (IBRD) in 1944. It joined the International Development Association (IDA) in 1960, the International Finance Corporation (IFC) in 1957, and the Multilateral Investment Guarantee Agency (MIGA) in 1994. From 1953 to 1966 South Africa took out 11 loans from the Bank - 4 for electricity projects and 7 for transportation projects. The last of these loans was closed in 1968 and all amounts have been fully repaid.
The focus of the Bank's current work in South Africa is on poverty alleviation and reduction of inequality, as well as on economic growth. Support is mainly in the form of technical assistance and sharing the experience of lessons learned in relevant areas. One loan (Industrial Competitiveness and Job Creation Project) and one GEF Grant (Cape Peninsula Biodiversity Project) were signed in March 1998. MIGA has issued guarantees for 3 investments in South Africa as well as 2 investments by South African corporations in neighboring countries.
Taking a lead role in private sector development in Africa is the International Finance Corporation (IFC), the private sector lending arm of the World Bank. IFC's activities in South Africa target private sector development and job creation and its aggregate committed portfolio in South Africa is approximately USD 41 million. Through its small project facility, the Africa Enterprise Fund (AEF), the IFC provides project financing ranging from USD 100,000 to USD 1.5 million, typically in the form of a loan (at market rates) or an equity investment. Additional information is available on the Internet at www.worldbank.org, or contact:
World Bank Resident Mission in South Africa
IBRD Section:
PO Box 12629
Hatfield 0028
Tel: (27 12) 342-3111; Fax: (27 11) 342-5151
Contact: Mr. Fayez Omar (Chief of Mission)
IFC Section:
PO Box 41283
Craighall 2024
Tel: (27 11) 325-0720; Fax: (27 11) 325-0582
U.S. Department of Commerce
Liaison to the U.S. Executive Directors Office
International Bank for Reconstruction and Development
1818 H. St., NW
Washington, DC 20433
Tel: (202) 458-0118; Fax: (202) 477-2967
Office of Multilateral Development Banks
U.S. & Foreign Commercial Service
U.S. Department of Commerce
Room H-1107
Washington, DC 20230
Tel: (202) 482-3399; Fax: (202) 482-3914
Africa Project Development Facility
1818 H St., NW
Washington, DC 20433
Tel: (202) 473-0508; Fax: (202) 522-3204
United Nations Development Program (UNDP). The United Nations' Development Program (UNDP) is also represented in South Africa.
UNDP
PO Box 6541
Pretoria 0001
Tel: (27 12) 320-4360; Fax: (27 12) 320-4353
Mr. David Whaley (Resident Representative of the UNDP)
8. Banks in South Africa with Correspondent U.S. Banking Arrangements
ABSA (with Chemical Bank)
Standard
First National
Nedbank (with Bankers Trust, Chase Manhattan, Chemical Bank, Citibank, and Morgan Guarantee Trust)9. Banks in South Africa with Correspondent Worldwide Banking Arrangements
ABSA Bank Limited
Bank of Lisbon International Limited
Bank of Taiwan (South Africa) Limited
Boland Bank Limited
FirstCorp Merchant Bank Limited
First National Bank of Southern Africa Limited
French Bank of Southern Africa Limited
International Bank of Southern Africa - S.F.O.M. Limited
Investec Bank Limited
Nedcor Bank Limited
Rand Merchant Bank Limited
Societe Generale South Africa Limited
Standard Bank of Bophuthatswana Limited
Standard Merchant Bank Limited
The South African Bank of Athens Limited
The Standard Bank of South Africa Limited
UAL Merchant Bank
10. Foreign Banks Represented in South Africa
Belgium: Belgolaise Bank
Canada: Royal Bank of Canada
Egypt: National Bank of Egypt
France: Banque Francaise du Commerce Exterieur; Banque Paribas;
Compagnie Financiere de Cic et de L'Union
Europeenne;
Credit Commercial de France;
Credit Lyonnais
Germany: Bayerische Landesbank Girozentrale; Bayerische Vereinsbank AG;
Berliner Handels Und Frankfurter Bank AG; Deutsche Bank AG; Dresdner Bank AG Vereins-und Westbank AG
India: Export Import Bank of India
Israel: Bank Leumi Le Israel BM
Japan: The Bank of Tokyo - Mitsubishi, Ltd.
Luxembourg: Kredietbank NV & Kredietbank SA
The Netherlands: ABN Amro Bank NV
Portugal: Banco Borges & Irmao; Banco Comercial Portugues;
Banco de Comercio e Industria; Banco Espirito Santo e Commercial de Lisboa;
Banco Portugues do Atlantico SA;
Banco Totta & Acores
Spain: Banco de Santander
Swaziland: Meridien (Biao) Bank Swaziland Limited
Switzerland: Credit Suisse/Swiss Credit Bank;
Creditanstalt-Bankverein; Swiss Bank Corporation;
Union Bank of Switzerland
United Kingdom: Baring Brothers & Company Limited:
Hill Samuel Bank Limited; Kleinwort Benson Limited;
Rea Brothers (Guernsey) Limited;
Robert Fleming (Pty) Limited; Standard Chartered Bank;
West Merchant Bank Limited U.S.A.:
AIG Johannesburg NA;
Citibank NA;
Equator Bank Limited;
First Union National Bank;
Merrill Lynch Capital Markets Bank Limited
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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