South Africa: Investing in South Africa
According to UNCTAD’s World Investment Report 2023, FDI flows to Africa reached USD 9 billion in 2022, following the anomalous peak in 2021 (USD 40.9 billion) caused by a large corporate reconfiguration. The 2022 level, however, was double the average of the last decade. In the same year, South Africa attracted several battery storage projects, with capacities ranging from 35 MW to 300 MW. In 2022, the total stock of FDI stood at USD 173.5 billion, around 42.8% of the country’s GDP. Compared to other countries in the African continent, the potential attractiveness of South Africa is high; however, its performance is relatively weak for FDI attraction, despite progress owing to investment potential in infrastructure. According to the South African Reserve Bank, the country recorded foreign direct investment inflows of ZAR 53.8 billion (around USD 2.8 billion) in the second quarter of 2023, up from inflows of ZAR 0.5 billion in the first quarter. In the third quarter, FDI stood at ZAR 26 billion. The Ramaphosa-led ANC administration encourages foreign investors as they are responsible for job creation and wealth-creating economic growth. Traditionally, European countries are active investors in South Africa (United Kingdom, Netherlands, Belgium, Germany and Luxembourg), as well as the United States, Japan, China, and Australia. Most of the investments are directed to the financial, mining, manufacturing, transportation and retail sectors.
The country has many attractive assets for investors such as an dynamic demography; a diverse, productive and advanced economy; abundant natural resources; a transparent legal system, and a certain political stability. The government offers various sector-specific investment incentives, such as tax allowances to support the automotive sector and rebates for film and television production. The country is also a gateway to the rest of Africa, with a large and growing consumer market. Despite its attractive features, South Africa also faces several challenges that could deter FDI, including corruption, inefficient bureaucracy, widespread corruption, labour unrest, and a shortage of skilled workers in certain sectors, such as engineering and IT. Moreover, persistent "load-shedding," known as rolling blackouts in South Africa, poses a significant challenge to investment. In 2022, the country endured over 200 days of load shedding, a trend that continued almost daily into 2023. Unreliable power access severely hampers economic growth and remains a primary worry for investors. The Competition Amendment Act introduced a screening process for foreign investments, mandating the formation of a special committee to evaluate potential mergers involving foreign acquiring firms for their impact on national security interests. The committee's findings are forwarded to the Minister of Trade and Industry, who, within 30 days, announces in the Gazette whether the merger is approved, approved with conditions, or prohibited. South Africa ranks 59th among the 132 economies on the Global Innovation Index 2023 and 111th out of 184 countries on the 2023 Index of Economic Freedom. Lastly, the country scored 43/100 in the latest Corruption Perception Index (72nd out of 180 countries).
Foreign Direct Investment | 2020 | 2021 | 2022 |
FDI Inward Flow (million USD) | 3,062 | 40,948 | 9,051 |
FDI Stock (million USD) | 133,127 | 174,783 | 173,584 |
Number of Greenfield Investments* | 103 | 119 | 160 |
Value of Greenfield Investments (million USD) | 6,662 | 5,275 | 26,777 |
Source: UNCTAD, Latest available data
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
Country Comparison For the Protection of Investors | South Africa | Sub-Saharan Africa | United States | Germany |
Index of Transaction Transparency* | 8.0 | 5.5 | 7.0 | 5.0 |
Index of Manager’s Responsibility** | 8.0 | 3.5 | 9.0 | 5.0 |
Index of Shareholders’ Power*** | 8.0 | 5.5 | 9.0 | 5.0 |
Source: Doing Business, Latest available data
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.
South Africa has large market potential, well developed infrastructure and a competitive domestic economy. The country's democracy is also well-established and the rule of law is observed. As a productive pole, it is the most industrialised, technologically advanced and diversified economy on the African continent.
South Africa's main assets are:
The economic stability of the country has been weakened by the strict lockdown, which has exacerbated social tensions such as widespread poverty and inequality. Investment (13% of GDP) is also at a standstill due to a lack of business confidence and the postponement of public capital expenditure linked to the diversion of funds for emergency needs.
Other problems may discourage foreign investors:
For a list of other government incentives for FDI, please visit the Department of Trade and Industry's website.
Despite these measures and a developed economy, some elements may indicate that the government is not convinced of the importance of FDI. Thus, some laws are approved without an initial analysis of the consequences they may have on certain economic sectors.
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Latest Update: July 2024