Administrative Barriers Encountered in South Africa by Foreign Investors
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ADMINISTRATIVE BARRIERS ENCOUNTERED IN SOUTH AFRICA BY FOREIGN INVESTORS by Isaac Mpofu Submitted in fulfilment of the requirements for the degree Magister Philosophiae in Business Management in the Faculty of Management at the University of Johannesburg Supervisor: Miss A. Makka Co-supervisor: Dr G. Goldman Johannesburg, January 2012 i ABSTRACT The role of foreign direct investment, in driving economic growth and development has been a contested one. There have always been views in favour of FDI and against. Foreign investment is attracted by predictable, transparent, non- discriminatory regulations of the host country. Consequently, negative administrative barriers (legal and regulatory requirements for establishing, operating and locating a business) can deter foreign investors. Administrative processes in South Africa are not consistent, efficient and transparent and they generally interfere with the operation of free markets. Theoretically, foreign investors are likely to invest in countries where administrative processes are consistent, efficient, transparent and high levels of certainty. This study‘s aims were to identify administrative barriers encountered in South Africa by foreign investor and to ascertain the levels of consistency, efficiency and transparency of administrative procedures. The study further propose solutions aimed at improving the levels of consistency, transparency and efficiency of administrative processes in order to easy, simplify or mitigate the burden of these processes. The study adopted a positivistic view and descriptive research method was employed. The survey questionnaire was used as the main data-gathering instrument for this study. The study found out that there were high levels of administrative barriers to foreign direct investment in South Africa and the processes were not consistency, efficient and transparent. The main conclusions drawn from this research were that current administrative processes to foreign direct investment are barriers to investment as they add an extra burden and cost to the investor investing in South Africa. This study proposed a multi-pronged administrative simplification strategies aimed at reducing and simplifying administrative processes. ii DECLARATION I, Isaac Mpofu, declare that this research report is my own work except as indicated in the references and acknowledgements. It is submitted in partial fulfilment of the requirements for the degree of Magister Philosophiae in Business Management at the University of Johannesburg. It has not been submitted before for any degree or examination in this or any other university. Isaac Mpofu Student Number: 200582511 Signed at …………………………………………………… On the …………………………….. day of ………………………… 2012 iii ACKNOWLEDGEMENTS I would like to take this opportunity to give my most sincere gratitude to the following people. Without you, this journey would have been really lonely. Firstly, to my supervisors, Miss Anoosha Makka and Dr Geoff Goldman, whose encouragement, guidance and support from the initial to the final level enabled me to develop an understanding of the subject, Secondly, to STATKON, for assisting with the design, data capturing and analysis for this study, Thirdly, to Mrs Melissa Davidson for editing and proof reading, and Lastly, I wish to extend special thanks to my family and to all those who supported me in any respect during the completion of this study. Thank you all, I really appreciate it. Isaac Mpofu iv AFFIDAVIT: MASTER’S AND DOCTORAL STUDENTS TO WHOM IT MAY CONCERN This serves to confirm that I Isaac Mpofu (Full Name(s) and Surname ID Number 7408046316807 Student number 200582511 enrolled for the Qualification Magister Philosophiae in Business Management Faculty of Management Herewith declare that my academic work is in line with the Plagiarism Policy of the University of Johannesburg which I am familiar with. I further declare that the work presented in the dissertation (minor dissertation/dissertation/thesis) is authentic and original unless clearly indicated otherwise and in such instances full reference to the source is acknowledged and I do not pretend to receive any credit for such acknowledged quotations, and that there is no copyright infringement in my work. I declare that no unethical research practices were used or material gained through dishonesty. I understand that plagiarism is a serious offence and that should I contravene the Plagiarism Policy notwithstanding signing this affidavit, I may be found guilty of a serious criminal offence (perjury) that would amongst other consequences compel the UJ to inform all other tertiary institutions of the offence and to issue a corresponding certificate of reprehensible academic conduct to whomever requests such a certificate from the institution. Signed at _____________________on this ______________day of _______________ 2012. Signature__________________________________ Print name ISAAC MPOFU STAMP COMMISSIONER OF OATHS Affidavit certified by a Commissioner of Oaths This affidavit conforms with the requirements of the JUSTICES OF THE PEACE AND COMMISSIONERS OF OATHS ACT 16 OF 1963 and the applicable Regulations published in the GG GNR 1258 of 21 July 1972; GN 903 of 10 July 1998; GN 109 of 2 February 2001 as amended. v ABBREVIATIONS ABSA - Amalgamated Bank of South Africa ANC - African National Congress ASGI-SA - Accelerated and Shared Growth Initiative for South Africa BC – Before Christ BEE - Black economic empowerment B-BBEE - Broad Based Black Economic Empowerment BMW - Bayerische Motoren Werke BP - British Petroleum BPM5 - Balance of Payments Manual, fifth edition (IMF) BRIC - Brazil, Russia, India and China BRICS - Brazil, Russia, India, China and South Africa CIPC - Companies and Intellectual Property Commission CIPRO - Companies and Intellectual Property Registration Office CIS - Commonwealth of Independent States COSATU - Congress of South African Trade Unions CUTS - Consumer Unity and Trust Society DCA - Development and Cooperation Agreement DHA – Department of Home Affairs DTI - Department of Trade and Industry EFTA - European Free Trade Association vi EME - Emerging Market Economies EPWP - Expanded Public Works Program EU - European Union FDI - Foreign Direct Investment FIAS - Foreign Investment Advisory Service GATT - General Agreement on Tariffs and Trade GEAR - Growth, Employment and Redistribution Program GDP - Gross Domestic Product ILO - International Labor Organisation IMF - International Monetary Fund IPA – Investment Promotion Agency JIPSA - Joint Initiative for Priority Skills Acquisition M&A - Mergers and Acquisitions MIGA - Multilateral Investment Guarantee Agency MNE or MNC - Multinational Enterprise or Multinational Corporation MOI - Memorandum of Incorporation NEPAD - New Partnership for Africa's Development OECD - Organisation for Economic Cooperation and Development OLI – Ownership, Location and Internalisation PAYE - Pay As You Earn SA – South Africa vii SACU - Southern African Customs Union SADC - Southern African Development Community SAPA – South African Press Association SARB – South African Reserve Bank SARS - South African Revenue Service SPSS - Statistical Package for the Social Sciences TISA - Trade and Investment South Africa UN – United Nations UNCTAD - United Nations Conference on Trade and Development U.S.A - United States of America WIR - World investment report WTO - World Trade Organization WWII - Second World War viii TABLE OF CONTENTS ABSTRACT ........................................................................................................... II DECLARATION .................................................................................................... III ACKNOWLEDGEMENTS..................................................................................... IV ABBREVIATIONS ................................................................................................ VI LIST OF TABLES ................................................................................................ XII LIST OF FIGURES ............................................................................................ XIV CHAPTER 1: INTRODUCTION .......................................................................... 1 1.1 Background to the study ....................................................................................... 1 1.2 Problem statement ................................................................................................ 8 1.3 Objectives of the study ........................................................................................ 10 1.4 Research questions and hypothesis ................................................................... 11 1.5 The significance of the study ............................................................................... 11 1.6 Delimitations ....................................................................................................... 12 1.7 Study chapters discussion .................................................................................. 13 1.8 Chapter summary ............................................................................................... 13 CHAPTER 2: LITERATURE REVIEW .............................................................. 14 2.1 Introduction ......................................................................................................... 14 2.2 A brief history of foreign direct investment .......................................................... 15 2.2.1 FDI in Europe and America ................................................................