South Africa

South Africa Corruption Report

Snapshot

South_Africa_230x153.pngSouth Africa suffers from widespread corruption, despite it performing better than regional averages across a number of key measurements. The country has simpler procedures, smoother interactions with tax officials and easier enforcement of commercial contracts than comparable regional countries. It has a robust anti-corruption framework, but laws are inadequately enforced. Public procurement is particularly prone to corruption, and bribery thrives at the central government level. The Prevention and Combating of Corruption Act (PCCA) criminalises corruption in public and private sectors, including attempted corruption, extortionactive and passive bribery, bribing a foreign public official, fraud and money laundering, and it obliges public officials to report corrupt activities. As it is a criminal offence to provide any form of "gratification" to an official if it is not lawfully due, companies are advised to refrain from giving gifts or exchanging facilitation payments

Last updated: December 2015
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Judicial System

Corruption in the judiciary is a low risk for businesses in South Africa. Firms should note that lower-level courts are more susceptible to corruption than higher levels (FitW 2015). The judiciary is granted independence under the constitution (BTI 2014) but has increasingly faced pressure from the African National Congress (AllAfrica, Aug. 2015). Political influence polarises the judiciary and sometimes influences hiring and firing (FitW 2015). Nonetheless, businesses have confidence in the South African legal system and consider the legal framework for settling disputes and for challenging regulations to be moderately efficient (GCR 2014-2015). Enforcing contracts is less bureaucratic, time-intensive and costly than the regional average (DB 2015). Complications for businesses can arise from time-consuming dispute resolutions (ICS 2015); the judiciary suffers from understaffing and underfunding (HRR 2014).

Police

Crime and petty corruption in the police are significant risks when operating in South Africa. Businesses report the police is unreliable (GCR 2014-2015). Costs arising from crime and violence can be challenging for companies (GCR 2014-2015). The police sometimes request bribes to protect businesses owned by foreigners against xenophobic violence (HRR 2014).

Public Services

Corruption and inefficient government bureaucracy are significant risks in South Africa's public services sector; irregular payments and bribes are commonly exchanged (GCR 2014-2015), and nepotism and cronyism are common (The South African, July 2015). 

Legal, regulatory, and accounting systems are generally transparent and consistent with international norms (ICS 2015). Depending on where they establish their business, companies face different regulatory challenges due to varying levels of efficiency at public agencies (DB SA 2015). There is no connection between the size of the city and the performance of agencies, and every city has respective challenges and advantages. It is easier to start a business in Ekurhuleni, Johannesburg and Tshwane; to deal with construction permits in Cape Town; to obtain a commercial electricity connection and enforce a contract in Mangaung; and to register property in Johannesburg (DB SA 2015).

Land Administration

Corruption is not a significant risk when dealing with the South African land administration. Property rights are explicitly guaranteed by the constitution and respected in practice (BTI 2014). Registering property and obtaining construction permits is less time consuming and costly than elsewhere in the region but requires more procedures (DB 2015). The acquisition of land and real estate is easy and fast, except for cases of politically sensitive land restitution (BTI 2014).

In February 2015, President Zuma suggested that private land ownership shall be limited and that foreigners shall not be allowed to own land but only to lease it (BBC, Feb. 2015). While these proposals are not yet law, it has already caused some investors to cancel potential deals (ICS 2015).

Tax Administration

Corruption in the South African tax authorities presents a low risk for companies. Perceived corruption among tax authorities in South Africa is significantly lower than the continental average (AB 2014). The South African Revenue Service (SARS) operates a 24-hour Fraud and Anti-Corruption Hotline where companies can report corruption related to the tax administration. A business executive spends on average 200 hours per year on preparing, filing and paying taxes, much less time than elsewhere in Sub-Saharan Africa (DB 2015). Additionally, there are less costs and procedures associated with the South African tax administration than on regional average (DB 2015).

Customs Administration

Corruption when importing and exporting in South Africa poses a risk to companies. Trading across borders is not as bureaucratically cumbersome in South Africa than in other regional countries (GCR 2014-2015), but incidences of irregular payments and bribes in relation to exports and imports at ports or borders do occur (GETR 2014).

Public Procurement

Corruption in public procurement is a significant risk for businesses in South Africa. Favouritism in decisions of government officials are common, and public funds are frequently diverted (GCR 2014-2015). Corruption in form of pay-offs in return for inflated government tenders (colloquially known as “tenderpreneurship”) is endemic in South African government procurement (BTI 2014). With the Local Procurement Accord, the government committed to increasing the procurement proportion of goods and services from South African suppliers to an "aspirational target" of 75 percent, which creates a potential disadvantage for foreign companies (ICS 2015). The Broad-Based Black Economic Empowerment(BBBEE) strategy aims to increase the participation of black citizens in the economy but has been criticised both for providing too much preferential treatment in the awarding of government contracts to wealthy black elites and for leading to increased corruption in public procurement (WSJ, Apr. 2014).

In a high-profile case, President Zuma, received kickbacks from French arms company Thales in return for the procurement of their weapons systems; the charges against Zuma are repeatedly dropped and revived (Times Live, Sept. 2015). Another prominent unresolved corruption case is that of John Block, the African National Congress Northern Cape leader who was arrested in November 2011 for tender fraud, corruption and money laundering (News24, June 2015). Companies are recommended to use a specialised public procurement due diligence tool to mitigate corruption risks related to public procurement in South Africa.

Natural Resources

Mining operations in South Africa are particularly vulnerable to corruption and illegal activities (Bloomberg, Jan. 2015). The scale of mining operations and the large sums of money involved - coupled with many interactions with government officials such as securing concessions, customs clearance and obtaining permits - increase corruption risks (Corruption Watch, July 2014). Illegal mining and money laundering are widespread in South Africa, costing the industry 5 to 10 percent of its annual production (CNN, Aug. 2015; Bloomberg, Jan. 2015).

Legislation

South Africa has a well-developed legal framework for curbing corruption, but the country's lack of enforcement jeopardises this effort (TI 2014). The Prevention and Combating of Corruption Act (PCCA) criminalises corruption in public and private sectors and codifies specific offences, making it easier for courts to use the Act. It specifically criminalises attempted corruption, extortionactive and passive bribery, bribing a foreign official, abuse of office and money laundering, and it obliges public officials to report corrupt activities. However, it suffers from poor implementation, and it does not protect whistleblowers against recrimination or defamation claims. As it is a criminal offence to provide any form of "gratification" to an official if it is not lawfully due, companies are advised to refrain from giving gifts and exchanging facilitation payments. See the website of the National Anti-Corruption Forum for a useful guide to the Act and its components and for information on blacklisting. The Public Finance Management Act addresses unauthorised government expenditures. The Promotion of Access to Information Act provides for access to public information, but it has not been fully implemented. The Code of Conduct for Assembly and Permanent Council Members requires public officials to disclose gifts and interests, but observers say sanctions are weak and there are reports of public officials who fail to declare their interests. 

South Africa has ratified the United Nations Convention against Corruption, the African Union Convention on Preventing and Combating Corruption and the OECD Anti-Bribery Convention

Civil Society

Freedom of expression is enshrined in the constitution and is well respected in practice (FitW 2015). The internet is considered "free" (FotN 2014). South Africa is home to a diverse and active media landscape (FotP 2015). The press operates freely but is increasingly challenged by government officials' encroachments (FotP 2015)South Africa has many civil society organisations that are concerned with anti-corruption efforts (Iol, Sep. 2015). As the government has proposed several potentially restrictive laws, civil society has pushed back (FitW 2015).

Sources

Topics: Sub-Saharan Africa