Foreign direct investment (FDI) in South Africa

FDI in Figures

According to UNCTAD’s World Investment Report 2024, FDI flows to Africa reached USD 5.2 billion in 2023, down from USD 9.2 billion recorded one year earlier. At the end of the same period, the total stock of inward FDI stood at USD 124 billion. 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’s positive net international investment position (IIP) fell from ZAR 2,050 billion in June 2024 to ZAR 1,924 billion in September. This decline was due to a larger increase in foreign liabilities compared to foreign assets. The market value of South Africa’s foreign liabilities rose by 4.6%, from ZAR 6,788 billion in June to ZAR 7,101 billion in September. 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. In 2024, three energy producers announced separate green hydrogen projects in South Africa worth a combined USD 7.1 billion (UNCTAD).

South Africa has the most advanced and broad-based economy in sub-Saharan Africa, bolstered by stable institutions, an independent judiciary, a free press, a robust financial sector, and experienced local partners. It remains an attractive investment hub, with well-regulated capital markets, a strategic position for regional trade, strengths in industrial sectors, and a strong legal system. However, the country faces challenges from a "lost decade" of stagnation due to corruption and mismanagement, slow post-COVID recovery, and persistent issues like policy uncertainty, lack of regulatory enforcement, SOE financial strain, corruption, violent crime, labour unrest, inadequate infrastructure, and a shortage of skilled labour. Moreover, persistent "load-shedding," known as rolling blackouts in South Africa, poses a significant challenge to investment, as unreliable power access severely hampers economic growth and remains a primary worry for investors. South Africa imposes few restrictions on foreign private ownership and offers various incentive programs to attract foreign investment. Key legislation governing foreign ownership includes the Investment Act, the 2019 Competition Amendment Act, and the Companies Act. Foreign investors can establish domestic entities or register foreign-owned companies, typically through subsidiaries or private companies with at least one director and shareholder. While foreign companies can purchase South African assets and engage in takeovers, national security provisions allow for reviews of such transactions. The 2019 Competition Amendment Act enables blocking mergers involving foreign firms if they pose national security concerns, particularly in sectors like energy, mining, banking, insurance, and defence. South Africa ranks 59th among the 132 economies on the Global Innovation Index and 111th out of 184 countries on the latest Index of Economic Freedom. Lastly, the country scored 41/100 in the latest Corruption Perception Index (83rd out of 180 countries).

What to consider if you invest in South Africa

Strong Points

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 business climate is good and state financial management is competent.
• The country enjoys a good-sized and active stock exchange.
• South Africa has shifted from its traditional industries to production and financial services, which are the main contributors to GDP.
• The tourism and retail sectors have a great potential.
• The mining sector is a major part of the economy.  It is the world's largest producer of chrome, manganese, platinum, vanadium and vermiculite. It is the second largest producer of ilmenite, palladium, rutile and zirconium. It is the world's third largest coal exporter. South Africa is also a huge exporter of diamonds and iron ore (U.S. Geological Survey).
• The country also enjoys a strategic geographical location, that makes it an ideal hub to access the sub-Saharan markets.

Weak Points

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:

• Increased labour strikes in recent years, which rating agencies have warned could further lower South-Africa's credit rating
• Violence and corruption continue to hinder the economy, while income inequality remains high
• Access to electricity is insufficient because of a lack of investment.
• Lack of high-skilled labour force, high unemployment (33.6% in 2021), rigidity of the labour market
• Immigration laws make the employment of foreign workers more complicated.
• Import-export process may be difficult.
• Economy depends on the ore prices and FDI inflows.
• Market entry is very competitive, as the market is very mature.

Government Measures to Motivate or Restrict FDI

Nearly all business sectors are open to foreign investors. Government approval is not required and there are few restrictions on how or how much foreign entities can invest. Additionally, the Government has put in place various measures to encourage foreign investments, including simple tax rules, investment incentives, a better regulatory policy on competition and protection of intellectual property. Below are a few examples of these measures: 

• The 12I Tax Incentive is designed to support Greenfield investments as well as Brownfield investments.
• The Capital Projects Feasibility Programme (CPFP) is a cost-sharing grant that contributes to the cost of feasibility studies likely to lead to projects that will increase local exports and stimulate the market for South African capital goods and services.
• The Critical Infrastructure Programme (CIP) aims to leverage investment by supporting infrastructure, thus lowering the cost of doing business. The South African Government is implementing the CIP to stimulate investment growth in line with the National Industrial Policy Framework (NIPF) and Industrial Policy Action Plan (IPAP).

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.

Bilateral investment conventions signed by South Africa

South Africa is a signatory to 50 bilateral investment treaties (BITs). To see the conventions, click here.