Investment climate in South Africa
South Africa is the only African G20 economy championing reforms to eradicate extreme poverty and promote shared growth nationally, regionally and globally. Economic growth driven by household consumption and investment is projected to rebound in 2017 and strengthen further in 2018. Due to consistent and sound budgetary policies South Africa has been able to tap into international bond markets with reasonable sovereign risk spreads. The country however experienced poor growth prospects and rising government debt as well as high deficits on the current account in 2014 and 2015. Real GDP growth was expected to reach a low level of 0.4% in 2016 and to increase to 1.1% in 2017. The unemployment is quite high and stood at 26% in 2016. The key drivers affecting the performance of the economy include poor commodity prices and domestic problems. In order to address the challenges, the government in the Budget Law 2016/17 announced an adjustment package of expenditure savings, for one-third, and tax measures, for two-third, to reduce the budget deficit from 3.9% of GDP in 2015/16 to 3.0% of GDP in 2017/18 and stabilize the gross debt burden at about 51% of GDP, to help minimize pressures on the sovereign rating. The current administration is aware of the immense challenges to accelerate progress and build a more inclusive society. Its vision and priorities to address them are outlined in the 2030 National Development Plan (NDP) which outlines two main strategic goals to double the GDP by 2030 and eliminate poverty, and reduce inequality.
Why invest in South Africa?
- South Africa is one of the world’s favourite emerging markets, offering investors sophisticated financial infrastructures and exceptional investment opportunities.
- South Africa is the economic powerhouse of the African continent, with a Gross Domestic Product (GDP) of US$283bn and comprising 30% of the entire GDP of Africa.
- South Africa leads the continent in industrial output (40% of Africa’s total output) and mineral production (45% of total mineral production) and generates most of Africa’s electricity (over 50%).
- South Africa has a wealth of natural resources.
- South Africa possesses a large resource base of skilled, semi-skilled and unskilled labour.
- South Africa boasts one of the most modern and extensive transport infrastructures in Africa.
South Africa’s peaceful political transition in 1994 from the apartheid government to the democratically elected government under Africa National Congress (ANC) is known as one of the most remarkable political feats of the past century. In August 2016 the country held the most competitive Local Government Election since 1994 that resulted in the ANC losing majority in Johannesburg, Pretoria and Nelson Mandela Municipality.
According to Census 2011, South Africa’s population stood at 51.77 million compared to the population of 44.8 million in last census of 2001. The population growth is estimated at about 1.3% per year.
It was estimated in 2015 that 64.8% of total population live in urban areas with an estimated annual rate of change of 1.59% for the period from 2010 to 2015
Doing business in South Africa
The highlights of World Bank score of doing business in South Africa are summarised as follows;
|Topics||World Bank 2017 Rank||World Bank 2016 Rank||Change in Rank|
|Starting a Business||131||125||
|Dealing with Construction Permits||99||98||
|Protecting Minority Investors||22||18||-4|
|Trading across Borders||139||137||-2|
The government is in the process of addressing the challenges that have led to the deterioration in the business environment.
S&P Global Ratings has downgraded its South Africa’s the long-term foreign sovereign credit rating by one notch to ‘BB+’ from ‘BBB- while Moody has rated South Africa Baa2 negative watch in 2017.
Foreign exchange controls are applicable to all
transactions no matter the size. The South Africa
Exchange control regulations include the following;
- No resident may effect a transfer without prior approval.
- No company or legal entity may effect a transfer without prior approval.
- Only authorised dealers are allowed to effect a currency transfer.
- Outward payments may only be made for permissible reasons and under conditions that are approved by the authorised dealers on behalf of the Reserve Bank.
- All payments made to foreign parties must be reported to the Reserve Bank.
The Arbitration Act 1965 is the applicable statute. The Arbitration Act provides for the settlement of disputes by arbitration tribunals according to the terms of written arbitration agreements and for the enforcement of the awards of such tribunals. South Africa is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; the Recognition and Enforcement of Foreign Arbitral Awards Act 1977 was enacted to give effect to the New York Convention.
Key development challenges
- South Africa remains a dual economy with one of the highest inequality rates in the world;
- High unemployment rates;
- Skills shortage
- Corruption undermines the developmental effort of government.
South Africa is the 64 least corrupt country out of 175 countries, according to the 2016 Corruption Perceptions Index reported by Transparency International. It got a corruption index score of 45 out of 100.
The high walls, electric fences, and private security guards surrounding South Africa’s residences and businesses are as inherent to the country’s landscape. Most visits to South Africa are trouble-free but there are incidences of insecurity. Visitors are advised to take reasonable care of their security.
Unemployment and skilled labour
At 27%, the unemployment rate is weighing on household consumption and driving up inequalities. There is also lack of adequate skilled labour to support the development of the country.
Attitude to Foreign Direct Investment
The government of South Africa is generally open to foreign investment as a means of driving economic growth, improving international competitiveness, and accessing foreign markets. All business sectors are open to foreign investment although some sectors like energy, mining, banking, insurance, and defence requires government approval before foreign participation. The Department of Trade and Industry’s (DTI) Trade and Investment South Africa (TISA) division provides assistance to foreign investors.
Restrictions on Foreign investment
Currently there are no limitations on foreign ownership, although the Private Security Industry Regulation Act (PSIRA) which has passed Parliament and is awaiting presidential signature to become law, has a clause requiring 51% ownership and control by South Africans. President Zuma also announced in his State of the Nation Address (February 11, 2016) that he will soon launch a land reform bill that restricts foreign ownership, and will convert foreign-owned land to long term leases.
Intellectual Property (IP) Rights.
South Africa has a strong legal structure and enforcement of intellectual property rights through civil and criminal procedures. Companies and Intellectual Property Commission (CIPC) handles trademarks, patents, designs, copyright (films only). Registered intellectual property (IP) rights serve as an incentive to reward innovation by providing IP creators and owners with the time and opportunity to exploit their creation.
The natural resources include gold, chromium, platinum, antimony, coal, iron ore, manganese, nickel, phosphates, tin, uranium, gem, diamonds, copper, vanadium, salt, natural gas, vermiculite, limestone, asbestos, fluorspar, lead, zinc, rutile, kaolin, zirconium, silver, phosphate, gypsum and mica
Information about Investment climate in South Africa has been summarized as follows;
Sources of information