South Africa: Investing
In this page: FDI in Figures | What to consider if you invest in South Africa | Protection of Foreign Investment | Procedures Relative to Foreign Investment | Office Real Estate and Land Ownership | Investment Aid | Investment Opportunities | Sectors Where Investment Opportunities Are Fewer | Finding Assistance For Further Information
Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown.
FDI flows to Africa reached USD 83 billion in 2021, from USD 39 billion in 2020. Most recipients saw a moderate rise in FDI. The total for the continent was inflated by a single large intrafirm financial transaction. Greenfield announcements remained depressed, but international project finance deals were up 26 per cent, with strong growth in extractive industries. 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 data published in UNCTAD's 2022 World Investment Report, FDI inflows increased from USD 3.1 billion recorded in 2020 to USD 40.88 billion in 2021. FDI stocks increased from USD 136 billion in 2020 to USD 173 billion in 2021, compared to USD 151 billion in 2019. Data from the OECD shows that in the first half of 2022, FDI inflows reached a total of USD 4.28 billion, up from USD 2.67 billion year-on-year. The country has traditionally been a key investor; however, this trend has been reversed by the pandemic: outward investment was negative in 2020 (by almost USD 2.0 billion) and in H1/2021, as South African multinationals repatriated capital from abroad.
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. Beijing Automotive Industry holding, BMW, Nissan and Mainstream Renewable Energy have been the largest investors in recent years. In addition, the Musina/Makhado SEZ, along principal north–south route into the Southern African Development Community and close to the border with Zimbabwe, offers a strategic location to attract FDI. The country currently counts with five Industrial Development Zone (IDZ).
The country is ranking 48th amongst 82 countries reviewed in the latest Economist Intelligence Unit business environment rankings for 2022-26. Deteriorations in some areas, such as the macroeconomic environment (because of sluggish growth, very high unemployment and fragile global conditions) are offset by improvements in others, including market opportunities and trade policy.
The country has many attractive assets for investors such as an important demography; a diversified, 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 in he automotive sector and rebates for film and television production. However, South Africa suffers from a high crime rate, increasing social unrest (strikes and demonstrations), high levels of corruption, and structural issues in electricity supply and logistics. Investors are also worried about the lack of clarity concerning policy and structural reforms. Investment potential is hampered by legal uncertainties which discourage foreign investors, despite the promulgation of the Protection of Investment Act in December 2015, which reinforces legal guarantees for foreign investors. However, the government is working towards making South Africa a more attractive destination for foreign investment. InvestSA - a division of the Department of Trade and Industry - is currently rolling out several OSS (a single-window mechanism to coordinate and support deals by assisting with permit approvals, licensing and registration processes) across South Africa with the aim of making it a more investor-friendly country.
| Foreign Direct Investment | 2019 | 2020 | 2021 |
|---|---|---|---|
| FDI Inward Flow (million USD) | 5,125 | 3,062 | 40,889 |
| FDI Stock (million USD) | 145,246 | 133,127 | 173,056 |
| Number of Greenfield Investments* | 130 | 104 | 115 |
| Value of Greenfield Investments (million USD) | 4,115 | 5,599 | 6,459 |
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.
| Main Investing Countries | 2019, in % |
|---|---|
| United Kingdom | 29.4 |
| The Netherlands | 19.5 |
| Belgium | 9.6 |
| United States | 6.5 |
| Japan | 5.7 |
| Germany | 4.5 |
| China | 4.5 |
| Australia | 4.1 |
| Main Invested Sectors | 2019, in % |
|---|---|
| Financial and insurance services, real estate and business services | 39.4 |
| Mining and quarrying | 25.5 |
| Manufacturing | 16.6 |
| Transport, storage and communication | 11.0 |
| Wholesale and retail trade, catering and accomodation | 6.4 |
| Community, social and personal services | 0.8 |
Source: South African Reserve Bank - Latest available data.
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.
| 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.
Companies have to appoint a South African resident as the company's legal representative. Any acquisition or disposal by a non-resident entity or person of shares in a South African resident, unlisted company requires approval by the Financial Surveillance Department of the South African Reserve Bank, or one of its Authorised Dealers, under the Exchange Control Regulations. Moreover, foreign companies have to appoint an auditor.
The investor will be required to appoint a consultant, auditor, and/or legal advisor to register a company on his/her behalf. The company should be registered within 21 days and must also register with the tax office.
InvestSA, the agency responsible for the promotion of foreign investment in the country, provides advice on where to locate and facilitates regulatory steps such as licensing, company registration and work permits, as well as providing details of financial institutions and funding opportunities.
Among many others:
- Foreign Film and Television Production and Post-Production Incentive (Foreign Film)
- Aquaculture development and enhancement programme
- Agro processing support scheme
- Black industrialist scheme
- Clothing and textiles competitiveness programme
- Export marketing and investment assistance
- Global business services
- Innovation and technology funding instruments
- Manufacturing competitiveness enhancement programme
For more details on investments aids, visit the DTI website and Invest SA website.
The South African Government retains and exercises control over certain industry sectors and is the primary shareholder of the so-called "state-owned" enterprises. The key sectors in which state-owned enterprises play a key role are the:
Any Comment About This Content? Report It to Us.
© eexpand, All Rights Reserved.
Latest Update: March 2023
Reserved for registered profiles