Browse Countries Breadcrumb-space

South Africa Breadcrumb-space

Country Profile

Full Country Profile

Last Updated: May 2009

Jump to Another Country:

South Africa

	Score	Rank
Financial Standards Index	55.83 out of 100	23
Business Indicator Index	7.73 out of 12	60

Find on this page

12 Key Standards Overview
Summary by Standard
Business Indicator Summary
Quick Facts & Global Indices

Overall Standards Summary

South Africa achieves medium overall compliance with international standards and codes, with a score of 55.83 out of 100 in our Standards Compliance Index. South Africa's compliance in the area of macroeconomic fundamentals is high. However, in the areas of market infrastructure and financial supervision, its performance is mixed. Banking supervision and Payment Systems have a "compliance in progress" rating, but four standards are at an "enacted" level, and two standards have an "insufficient information" rating. South Africa has adopted international best practices in the areas of accounting, auditing, and corporate governance, but they lack legal backing and sufficient enforcement. Supervisory practices in the banking sector are close to international standards, although the lack of an independent assessment for insurance supervision prevents South Africa from achieving a compliance rating.

Choose a standard for a detailed compliance report:

12 Key Standards for Sound Financial Systems	Compliance Level
Special Data Dissemination Standard	CP
Code of Good Practices on Transparency in Monetary Policy	CP
Code of Good Practices on Transparency in Fiscal Policy	CP
Effective Insolvency and Creditor Rights Systems	II
International Financial Reporting Standards	EN
Principles of Corporate Governance	EN
International Standards on Auditing	EN
Anti-Money Laundering/Combating Terrorist Financing Standard	ID
Core Principles for Systemically Important Payment Systems	CP
Core Principles for Effective Banking Supervision	CP
Objectives and Principles of Securities Regulation	EN
Insurance Core Principles	II
II = Insufficient Information \| NC = No Compliance \| ID = Intent Declared \| EN = Enacted \| CP = Compliance in Process \| FC = Full Compliance

Macroeconomic Policy and Data Transparency

CPSpecial Data Dissemination Standard

South Africa has been a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) since August 1996. Information provided by South Africa on the IMF's SDDS website indicates that South Africa complies with SDDS requirements relating to timeliness, coverage, and periodicity of data, and meets the SDDS' stipulations on the integrity and quality of the statistics it disseminates. Though it complies with nearly all SDDS requirements for access to data, South Africa does not provide adequate information regarding labor market - wages and earnings, rendering it less than fully compliant for this principle. Similarly, the SDDS website indicates that South Africa does not provide advance notice for changes in methodology. Instead it only provides such notices at the time of release of data. The IMF's 2008 Article IV Consultation report states that South Africa's data is adequate for surveillance purposes, but it questions the methodological soundness of South Africa's balance of payments data. It notes, however, that steps are being taken to improve the accuracy of this data.

CPCode of Good Practices on Transparency in Monetary Policy

The last comprehensive assessment of monetary policy transparency in South Africa was conducted in 2006 by Oxford Analytica (OA) when it accorded the country the overall score of "Compliance in Progress." As of 2006, the South African Reserve Bank (SARB) had been steadily increasing the transparency of its operations. Since 2002, the SARB has operated with an inflation-targeting framework to achieve its goal of price stability. In its 2008 Article IV Consultation, the International Monetary Fund (IMF) affirmed that South Africa's flexible exchange rate system, with occasional foreign exchange purchases by the SARB in order to strengthen its international reserves position, had served the country well. The currency float is an integral part of the inflation-targeting regime and has helped the economy absorb external shocks. The OA report noted that to increase South Africa's compliance with the IMF's monetary transparency code, the SARB's agency roles and the appointment and dismissal criteria for SARB officials needed to be clarified, which would require amendments to the SARB Act.

CPCode of Good Practices on Transparency in Fiscal Policy

South Africa continues to make progress in the area of fiscal transparency, and the quality of its economic data and reporting procedures are high, according to the last comprehensive report by Oxford Analytica (OA) in 2006. OA consequently assigned South Africa the overall score of "Compliance in Progress." Both the Public Finance Management Act and the Medium Term Expenditure Framework remain useful tools in enforcing strict transparency and accountability standards. The implementation of the Municipal Finance Management Act has also improved the level of openness in fiscal policy. Further evidence of the high level of fiscal transparency in South Africa is the score of 87 percent, or "extensive," awarded to South Africa in the 2008 Open Budget Index. However, the OA report notes that there is no legal requirement for the publication of contingent liabilities and extra-budgetary activities. The 2008 Article IV Consultation report by the International Monetary Fund (IMF) finds that South Africa's fiscal position is strong, highlighting the fiscal surplus attained by the government for 2007/2008. However, the IMF also called for a more neutral fiscal stance in the next few years, which would entail a moderately lower rate of expenditure growth than currently planned.

IIEffective Insolvency and Creditor Rights Systems

A review of the publications on the insolvency and creditors' rights system in South Africa reveals that, overall, the legal framework for corporate insolvency in South Africa is fragmented and inconsistent, and the provisions of different laws overlap each other. In its 2004 policy paper titled "South African Company Law for the 21st Century - Guidelines for Corporate Law Reform," the Department of Trade and Industry (DTI) acknowledged the need for reform of the insolvency laws. Specifically, the DTI called for clarification of the role of liquidators, the winding up process, and the powers of inquiry. To address deficiencies in the South African insolvency regime, the new Companies Act was approved by Parliament and was signed into law in April 2009 with an expected effective date of July 1, 2010. According to analysis put forth by Eric Levinstein in a legal brief by South African law firm Werksman, the Companies Act introduces a new business rescue scheme for companies in financial distress as an alternative to liquidation, which brings South Africa's insolvency regime in line with the U.S. Chapter 11 processes and the administrative procedures in the United Kingdom and Australia. Despite these developments, there is insufficient publicly available information regarding South Africa's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

ENInternational Financial Reporting Standards

Since 1993, South Africa has been harmonizing its Statements of Generally Accepted Accounting Practice (GAAP) with international standards. In June 2004, the South African Institute of Chartered Accountants (SAICA) issued Circular 7/2004 announcing its decision to adopt the text of IFRSs without any amendments. The 2003 World Bank assessment of accounting and auditing practices in South Africa concluded that the lack of legal backing for accounting standards and inadequate enforcement mechanisms presented major challenges. Recognizing the need for reform, the South African authorities embarked upon a review of the Companies Law. The first stage of the reform was completed in April 2007 with the adoption of the Corporate Laws Amendment Act, legislating that widely held companies are legally required to use IFRSs, while limited-interested companies are to follow Statement of GAAP for Small and Medium-sized Entities (SMEs), which copy the exact text of the International Accounting Standards Board's Exposure Draft on IFRSs for SMEs. The second stage of reform ended with the passage of a new Companies Act, which on April 9, 2009 was signed into law with an expected of effective date of July 1, 2010. The law calls for the creation of a Financial Reporting Standards Council, which will be responsible for consulting with the Minister of Trade and Industry on the making of regulations establishing financial reporting standards. Chapter 2, Part C, Section 29.5(b) of this law states that regulations concerning financial reporting standards, "must be consistent with the International Financial Reporting Standards of the International Accounting Standards Board," while Section 29.5(c) allows for deviating standards in the regulations between profit and non-profit companies as well as varying categories within the for-profit sector. According to the SAICA website, the revised standards issued by the IASB as a result of the Improvements Projects are issued as improvements to Statements of GAAP once approved by the Accounting Practices Board.

ENPrinciples of Corporate Governance

South Africa has made significant progress in its corporate governance reform since the mid-1990s. The breadth and sophistication of its practices and rules qualify them as some of the best among emerging market economies, according to assessments by both the World Bank and the Institute of International Finance (IIF). The New Partnership for Africa's Development states in a 2007 report that South Africa has adopted the Principles of Corporate Governance developed by the Organization for Economic Cooperation and Development. It also complimented South Africa for its promulgation of the King I and II Reports, which has strengthened the corporate governance framework. South Africa has been relying on a self-regulation corporate governance approach as evidenced by the comply-or-explain format of compliance with the King Code. However, according to the IIF assessment, the spirit of the disclosure required under a voluntary compliance environment has been embraced by only a few South African companies. In addition, enforcement has been fragmented between three different institutions, the Financial Services Board, the Department of Trade and Industry, and the Companies and Intellectual Properties Registration Office, creating a weak enforcement culture. A new Companies Act was signed into law in 2009 and will take effect on July 1, 2010. The Act is expected to enhance corporate governance and empower shareholders. It also codifies the standard for directors' conduct and holds directors accountable where the standard is not met. Also in 2009, the King Committee released the draft King III, which applies to all entities and takes an "apply or explain" approach. King III will take effect in March 2010 and replace King II.

ENInternational Standards on Auditing

Under the Companies Act, public companies are obliged to be audited though regulations may be promulgated to require audits of other companies if it is in the public interest. Other companies may choose to be audited or may opt to have their financial statements independently reviewed. Per the Auditing Profession Act, Audits must be conducted in accordance with the auditing standards put forth by the Independent Regulatory Board for Auditors (IRBA), formerly the Public Accountants' and Auditors' Board (PAAB). As stated in Circular B.1/2004 issued by the PAAB, South African Auditing Standards (SAASs) have been based on the guiding principles of the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). In June 2004, the Auditing and Assurance Standards Board (AASB) of the PAAB announced its decision to fully adopt the original text of ISAs. As a result, Circular B.1/2004 states that, effective January 1, 2005, the entire suite of pronouncements issued by the IAASB was adopted in South Africa. As indicated in the 2006 self-assessment prepared by the South African Institute of Chartered Accountants as part of the IFAC's Member Body Compliance Program, there will be no timing differences in the adoption of ISAs and no differences between ISAs and the national standards. According to the information available from the IRBA website, in May 2009 ISAs revised and redrafted as a result of the Clarity Project have been adopted for application in South Africa effective for periods commencing on or after December 15, 2009.

IDAnti-Money Laundering/Combating Terrorist Financing Standard

An assessment of South Africa's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime was undertaken by the Financial Action Task Force (FATF) and the Eastern and Southern Africa Anti-Money Laundering Group and a report of their findings was published in 2009. According to this report, South Africa is compliant or largely compliant with the criminalization of money laundering and terrorist financing and with the powers and functions of its financial intelligence unit, but the country is found deficient in its implementation of the FATF's recommendations on preventive measures for financial institutions and Designated non-Financial Business and Professions. For example, the country does not comply with many of the FATF's essential requirements on customer due diligence and record keeping. The FATF, in its 2007-2008 Annual Report, however, names South Africa as one of the jurisdictions that have undertaken to implement the FATF's 40+9 recommendations. The Proceeds of Crime Act of 1996 criminalized money laundering in South Africa for all serious crimes. This Act was supplemented by the Prevention of Organized Crime Act of 1998, which was amended in 1999. In November 2004, the South African Parliament passed the Protection of Constitutional Democracy against Terrorist and Related Activities Act which specifically criminalizes terrorist activity and terrorist financing. South Africa's law enforcement authorities, such as the Financial Intelligence Center (the South African Financial Intelligence Unit), have the power to investigative suspicious activities.

CPCore Principles for Systemically Important Payment Systems

The International Monetary Fund (IMF) states in its 2008 Financial System Stability Assessment report that South Africa has in place a "robust and efficient interbank payments system," with the South African Multiple Option Settlement (SAMOS) at its core. A 2006 report by the Payment System Project Team of the Southern African Development Community (SADC) identifies the SAMOS as the systemically important payment system (SIPS) in South Africa, and the report concludes that SAMOS observes all but Core Principle IX of the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems (CPSIPS). The report further indicates that SAMOS broadly observes Principle IX. However, apart from this report, there is little other information publicly available to substantiate the SADC's compliance level for South Africa's SIPS. The SAMOS system, established in 1998 and owned and operated by the South African Reserve Bank (SARB), is a real time gross settlement (RTGS) system that settles both large-value and low-value interbank payments. South Africa's payment systems, payment instruments, and regulatory environment are collectively referred to as the National Payment System (NPS). The NPS is supervised and regulated by the National Payment System Department (NPSD) within the SARB, which is given ample power to ensure the safety and soundness of payment systems by the National Payment System Act. According to the SARB, one of the main objectives of the NPSD is to ensure the compliance of the NPS with the CPSIPS.

CPCore Principles for Effective Banking Supervision

The IMF conducted a Financial Sector Assessment Program (FSAP) of South Africa in 2000. A report on the findings of this FSAP has not been made available on the IMF's website, however, a 2006 report by the IMF on selected issues in South Africa indicates that the FSAP assessors concluded that the banking system in South Africa was well regulated and the prevailing supervisory practices were largely compliant with international practices. Per the same report, banks in South Africa are highly sophisticated, and according to the IMF's 2006 Article IV Consultation report, South African banks have comprehensive risk management systems in place. In its 2006 Annual Report (published in 2007), the Bank Supervision Department of the South African Reserve Bank (SARB) emphasizes its commitment to fully observe the Basel Core Principles (BCPs) for Effective Banking Supervision . The report also mentions a self-assessment that was conducted in the first half of 2006, based on the revised (2006) BCPs and its accompanying methodology. However, this self-assessment is not available on the SARB website. In its 2007 Annual Report, the Bank Supervision Department provides an update on the implementation of the revised (2006) BCPs and concludes that compliance with the BCPs improved during 2007 through amendments to the Banks Act of 1990 and Regulations. According to the IMF's 2008 FSAP update, a major development in banking supervision has been the SARB's early implementation of Basel II on January 1, 2008.

ENObjectives and Principles of Securities Regulation

The Financial Services Board (FSB) governs South Africa's non-bank financial services sector, including securities firms, participation bond schemes, portfolio management, insurance companies, pension funds, and mutual funds. The South African Reserve Bank's 2005 Financial Stability Review mentioned annual self-assessments conducted by the FSB, which highlighted South Africa's substantial level of compliance with the International Organization of Securities Commissions' Objectives and Principles of Securities Regulation. However, the self-assessments are not publically available. In a 2008 Financial Sector Assessment Program (FSAP) update, the International Monetary Fund (IMF) states that the licensing, supervision, and enforcement capacity, as well as resources of the FSB have been enhanced since the 2000 FSAP (the 2000 FSAP, however, is not publically available). While the framework for securities regulation has been enhanced, according to the IMF, there is a need to strengthen surveillance of over-the-counter markets, and improve monitoring of listed company disclosure. Furthermore, supervisory cooperation between financial sectors is crucial due to the existence of a few large conglomerates with interlocking ownership and operations. With regards to capital markets, the Johannesburg Stock Exchange is the largest exchange among emerging markets, and the fourteenth largest exchange in the world in terms of market capitalization, according to reports from the IMF and the U.S. Department of Commerce.

IIInsurance Core Principles

The Financial Services Board (FSB) governs South Africa's non-bank financial services sector, including insurance companies, securities firms, participation bond schemes, portfolio management, pension funds, and mutual funds. In a 2005 Financial Stability Review, the South African Reserve Bank (SARB) mentions a self-assessment, which concluded that South Africa achieved a "high level of compliance" with the insurance supervisory principles promulgated by the International Association of Insurance Supervisors (IAIS), a finding that is similar to that of a Financial Sector Assessment Program (FSAP) conducted by the International Monetary Fund (IMF) in 2000. Nevertheless, neither the self-assessment mentioned in the SARB Financial Stability Review, nor the 2000 FSAP are publicly available. In its 2008 FSAP update, the IMF states that the licensing, supervision, and enforcement capacity, as well as resources of the FSB have been enhanced since the 2000 FSAP. Shortcomings remain with regards to the FSB's supervision of groups; guidance on governance, risk management, internal controls; adequacy of solvency buffers for life insurers; and supervision of market conduct. The IMF Update does not, however, directly assess South Africa's compliance with the IAIS insurance core principles.

Business Indicators

With an overall score of 7.73/12, South Africa is progressing toward standard on the economic, legal, and political indicators that make up our Business Index. South Africa has a market-based, private-sector driven, capitalist economy, in which total government expenditure, including consumption and transfer payments, is moderate. Government spending equaled 27.3 percent of GDP. The state maintains monopolies in some sectors, including transportation and electric utilities. South Africa encourages foreign investment, particularly in sectors where South Africa has a comparative advantage. Foreign investment is permitted in nearly all sectors, but unclear regulations may inhibit investment. Contracts are mostly secure, and all property rights are protected by the legal system. Corruption is manageable, as reflected in South Africa's ranking of 54th out of 180 countries in Transparency International's 2008 Corruption Perceptions Index.

Global Indices & Quick Facts

South Africa is ranked from the 2nd to the 4th quintile in the global indices benchmarking its political, economic, business, and human capital climates, as shown below. It scores lowest in the UN’s Human Development Index, where it ranks in the 4th quintile. Its low score reflects South Africa's HIV crisis and the exclusion of a very large segment of the population from the formal economy. This represents one of the main roadblocks in the otherwise impressive transformation towards a fully functioning market democracy. South Africa's business regulations are, for the most part, efficient. Its financial system is the continent's most advanced, and foreign investment is permitted in most sectors. While South Africa's score in Transparency International's Corruption Perceptions Index is relatively good, Bertelsmann notes that corruption has increased among leading African National Congress members, which has set “a dangerous example for the country’s political culture.”

Name	Year	Rank	Score	Quintile
Bertelsmann Transformation Status Index	2010	31/128	7.16/10	2
Heritage Foundation Economic Freedom Index	2010	72/179	62.8%	3
Economic Freedom of the World Index	2009	57/141	7.06/10	3
World Economic Forum Global Competitiveness Index	2009	45/133	4.34/7	2
Milken Institute Capital Access Index	2009	28/122	6.21/10	2
World Bank Ease of Doing Business Index	2009	34/183	N/A	1
UNDP Human Development Index	2009	129/177	0.68/1	4
Transparency International Corruption Perceptions Index	2009	55/180	4.7/12	2
Freedom House Index	2009	Free	2/7

Credit Ratings

BBB+/Negative Fitch

A3/Stable Moody's

BBB+/Negative Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 243.3 billion USD (IMF)

2009 GDP (Per Capita): 4,943 USD (IMF)

2010 GDP (Growth Forecast): 1.7% (IMF)

2009 Inflation (CPI): 7.2% (IMF)

2008 Unemployment: 22.9% (CIA)

2008 Foreign Direct Investment

FDI (Inward): 9.0 billion USD (UNCTAD)

FDI (Outward): -3.50 billion USD (UNCTAD)

2007 Official Development Assistance

ODA (Received): 794 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)