South Africa boasts the most advanced, broad-based economy on the African continent. The investment climate is fortified by stable institutions, an independent judiciary, and a robust legal sector committed to upholding the rule of law; a free press and investigative reporting; a mature financial and services sector; good infrastructure; and experienced local partners.
In dealing with the legacy of apartheid, South African laws, policies, and reforms seek economic transformation to accelerate the participation of and opportunities for historically disadvantaged South Africans. The government views its role as the primary driver of development and aims to promote greater industrialization, often employing tariffs and other trade measures that support domestic industry while negatively impacting foreign trade partners. President Ramaphosa’s October 2020 Economic Reconstruction and Recovery Plan unveiled the latest domestic support target: the substitution of 20% of imported goods in 42 categories with domestic production within 5 years. Other government initiatives to accelerate transformation include labor laws to achieve proportional racial, gender, and disability representation in workplaces and prescriptive government procurement requirements such as equity stakes and employment thresholds for historically disadvantaged South Africans.
South Africa continued to fight its way back from a “lost decade” in which economic growth stagnated, hovering at zero percent pre-COVID-19, largely due to corruption and economic mismanagement. South Africa suffered a four-quarter technical recession in 2019 and 2020 with economic growth registering only 0.2 percent growth for the entire year of 2019 and contracting 7 percent in 2020. As a result, Moody’s rating agency downgraded South Africa’s sovereign debt to sub-investment grade. S&P and Fitch ratings agencies made their initial sovereign debt downgrades to sub-investment grade earlier.
As the country continues to grapple with these challenges, it implemented one of the strictest economic and social lockdown regimes in the world at a significant cost to its economy. In a 2020 survey of over 2,000 South African businesses conducted by Statistics South Africa (StatsSA), over eight percent of respondents permanently ceased trading, while over 36 percent indicated short-term layoffs. South Africa had a -7 percent rate of GDP growth for the year and the official unemployment rate in the fourth quarter of 2020 was 32.5 percent. Other challenges include: creating policy certainty; reinforcing regulatory oversight; making state-owned enterprises (SOEs) profitable rather than recipients of government money; weeding out widespread corruption; reducing violent crime; tackling labor unrest; improving basic infrastructure and government service delivery; creating more jobs while reducing the size of the state; and increasing the supply of appropriately-skilled labor.
Despite structural challenges, South Africa remains a destination conducive to U.S. investment as a comparatively low-risk location in Africa, the fastest growing consumer market in the world. Google (US) invested approximately USD 140 million and PepsiCo invested over USD 1 billion in 2020. Ford announced a USD 1.6 billion investment, including the expansion of its Gauteng province manufacturing plant in January 2021.
|TI Corruption Perceptions Index||2020||69 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||84 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||60 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||$7.8 Billion||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||$6,040||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment (FDI)
The Government of South Africa is generally open to foreign investment to drive economic growth, improve international competitiveness, and access foreign markets. The Department of Trade and Industry and Competition’s (the DTIC) Trade and Investment South Africa (TISA) division assists foreign investors. It actively courts manufacturing in sectors where it believes South Africa has a competitive advantage. It favors sectors that are labor intensive and with the potential for local supply chain development. The DTIC publishes the “Investor’s Handbook” on its website: and TISA provides investment support through One Stop Shops in Pretoria, Johannesburg, Cape Town, Durban, and online at (see Business Facilitation). The 2018 Competition Amendment Bill introduced a government review mechanism for FDI in certain sectors on national security grounds, including energy, mining, banking, insurance, and defense (see section on Laws and Regulations on Foreign Direct Investment). The private sector has expressed concern about the politicization of mergers and acquisitions.
Limits on Foreign Control and Right to Private Ownership and Establishment
Currently there is no limitation on foreign private ownership. South Africa’s efforts to re-integrate historically disadvantaged South Africans into the economy have led to policies that could disadvantage foreign and some locally owned companies. The Broad-Based Black Economic Empowerment Act of 2013 (B-BBEE), and associated codes of good practice, requires levels of company ownership and participation by black South Africans to obtain bidding preferences on government tenders and contracts. The DTIC created an alternative equity equivalence (EE) program for multinational or foreign owned companies to allow them to score on the ownership requirements under the law, but many view the terms as onerous and restrictive. Only eight multinationals, primarily in the technology sector, participate in the EE program. The government also is considering a new Equity Employment Bill that will set a numerical threshold, purportedly at the discretion of each Ministry, for employment based on race, gender and disability, over and above other B-BBEE criteria.
Other Investment Policy Reviews
The World Trade Organization published a Trade Policy Review for the Southern African Customs Union, which South Africa joined in 2015. OECD published an Economic Survey on South Africa, with investment-related information in 2020. UN Conference on Trade and Development (UNCTAD) has not conducted investment policy reviews for South Africa.
According to the World Bank’s Doing Business report, South Africa’s rank in ease of doing business in 2020 was 84 of 190, down from 82 in 2019. It ranks 139th for starting a business, 5 points lower than in 2019. In South Africa, it takes an average of 40 days to complete the process. South Africa ranks 145 of 190 countries on trading across borders.
The DTIC has established One Stop Shops (OSS) to simplify administrative procedures and guidelines for foreign companies wishing to invest in South Africa in Cape Town, Durban, and Johannesburg. OSS are supposed to have officials from government entities that handle regulation, permits and licensing, infrastructure, finance, and incentives, with a view to reducing lengthy bureaucratic procedures, reducing bottlenecks, and providing post-investment services. Some users of the OSS complain that some of the inter-governmental offices are not staffed, so finding a representative for certain transactions may be difficult. The virtual OSS web site is: .
The Companies and Intellectual Property Commission (CIPC) issues business registrations, and publishes a step-by-step guide and allows for online registration at ( ), through a self-service terminal, or through a collaborating private bank. New businesses must also request through the South African Revenue Service (SARS) an income tax reference number for turnover tax (small companies), corporate tax, employer contributions for PAYE (income tax), and skills development levy (applicable to most companies). The smallest informal companies may not be required to register with CIPC but must register with the tax authorities. Companies must also register with the Department of Labour (DoL) – – to contribute to the Unemployment Insurance Fund (UIF) and a compensation fund for occupational injuries. DoL registration may take up to 30 days but may be done concurrently with other registrations.
South Africa does not incentivize outward investments. South Africa’s stock foreign direct investments in the United States in 2019 totaled USD 4.1 billion (latest figures available), a 5.1 percent increase from 2018. The largest outward direct investment of a South African company was a gas liquefaction plant in the State of Louisiana by Johannesburg Stock Exchange (JSE) and NASDAQ dual-listed petrochemical company SASOL. There are some restrictions on outward investment, such as a R1 billion (USD 83 million) limit per year on outward flows per company. Larger investments must be approved by the South African Reserve Bank and at least 10 percent of the foreign target entities’ voting rights must be obtained through the investment.
3. Legal Regime
Transparency of the Regulatory System
South African laws and regulations are generally published in draft form for stakeholder comment. However, foreign stakeholders have expressed concern over the adequacy of notice and the government’s willingness to address comments. Legal, regulatory, and accounting systems are generally transparent and consistent with international norms. The DTIC is responsible for business-related regulations. It develops and reviews regulatory systems in the areas of competition, standards, consumer protection, company and intellectual property registration and protections, as well as other subjects in the public interest. It also oversees the work of national and provincial regulatory agencies mandated to assist the DTIC in creating and managing competitive and socially responsible business and consumer regulations. The DTIC publishes a list of Bills and Acts that govern its work at: http://www.theDTIC.gov.za/legislation/legislation-and-business-regulation/?hilite=%27IDZ%27
South Africa’s Consumer Protection Act (2008) reinforces various consumer rights, including right of product choice, right to fair contract terms, and right of product quality. The law’s impact varies by industry, and businesses have adjusted their operations accordingly. A brochure summarizing the Consumer Protection Act can be found at: http://www.theDTIC.gov.za/wp-content/uploads/CP_Brochure.pdf . Similarly, the National Credit Act of 2005 aims to promote a fair and non-discriminatory marketplace for access to consumer credit and for that purpose to provide the general regulation of consumer credit and improves standards of consumer information. A brochure summarizing the National Credit Act can be found at: http://www.theDTIC.gov.za/wp-content/uploads/NCA_Brochure.pdf
International Regulatory Considerations
South Africa is a member of the African Continental Free Trade Area, which commenced trading in January 2021. It is a signatory to the SADC-EAC-COMESA Tripartite FTA and a member of the Southern Africa Customs Union (SACU), which has a common external tariff and tariff-free trade between its five members (South Africa, Botswana, Lesotho, Namibia, and Eswatini, formerly known as Swaziland). South Africa has free trade agreements with the Southern African Development Community (SADC); the Trade, Development and Cooperation Agreement (TDCA) between South Africa and the European Union (EU); the EFTA-SACU Free Trade Agreement between SACU and the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway, and Switzerland; and the Economic Partnership Agreement (EPA) between the SADC EPA States (South Africa, Botswana, Namibia, Eswatini, Lesotho, and Mozambique) and the EU and its Member States. SACU and Mozambique (SACUM) and the United Kington (UK) signed an Economic Partnership Agreement (EPA) in September 2019.
South Africa is a member of the WTO. While it notifies some draft technical regulations to the Committee on Technical Barriers to Trade (TBT), it is often after implementation. In November 2017, South Africa ratified the WTO’s Trade Facilitation Agreement, implementing many of its commitments, including some Category B notifications. The South African Government is not party to the WTO’s Government Procurement Agreement (GPA).
Legal System and Judicial Independence
South Africa has a strong legal system composed of civil law inherited from the Dutch, common law inherited from the British, and African customary law. Generally, South Africa follows English law in criminal and civil procedure, company law, constitutional law, and the law of evidence, but follows Roman-Dutch common law in contract law, law of delict (torts), law of persons, and family law. South African company law regulates corporations, including external companies, non-profit, and for-profit companies (including state-owned enterprises). Funded by the Department of Justice and Constitutional Development, South Africa has district and magistrate courts across 350 districts and high courts for each of the provinces. Cases from Limpopo and Mpumalanga are heard in Gauteng. The Supreme Court of Appeals hears appeals, and its decisions may only be overruled by the Constitutional Court. South Africa has multiple specialized courts, including the Competition Appeal Court, Electoral Court, Land Claims Court, the Labor and Labor Appeal Courts, and Tax Courts to handle disputes between taxpayers and SARS. Rulings are subject to the same appeals process as other courts.
Laws and Regulations on Foreign Direct Investment
The February 2019 ratification of the Competition Amendment Bill (CAB) introduced, among other revisions, section 18A that mandates the President create an as-of-yet-unestablished committee comprised of 28 Ministers and officials chosen by the President to evaluate and intervene in a merger or acquisition by a foreign acquiring firm on the basis of protecting national security interests. The law also states that the President must identify and publish in the Gazette, the South African equivalent of the U.S. Federal Register, a list of national security interests including the markets, industries, goods or services, sectors or regions for mergers involving a foreign acquiring firm.
Competition and Antitrust Laws
The Competition Commission, separate from the above committee, is empowered to investigate, control, and evaluate restrictive business practices, abuse of dominant positions, and review mergers to achieve equity and efficiency. Its public website is www.compcom.co.za . The Competition Tribunal has jurisdiction throughout South Africa and adjudicates competition matters in accordance with the CAB. While the Commission is the investigation and enforcement agency, the Tribunal is the adjudicative body, very much like a court.
Expropriation and Compensation
Racially discriminatory property laws and land allocations during the colonial and apartheid periods resulted in highly distorted patterns of land ownership and property distribution in South Africa. Given land reform’s slow and mixed success, the National Assembly (Parliament) passed a motion in February 2018 to investigate amending the constitution (specifically Section 25, the “property clause”) to allow for land expropriation without compensation (EWC). Some politicians, think-tanks, and academics argue that Section 25 already allows for EWC in certain cases, while others insist that amendments are required to implement EWC more broadly. Parliament tasked an ad hoc Constitutional Review Committee composed of parliamentarians from various political parties to report back on whether to amend the constitution to allow EWC, and if so, how it should be done. In December 2018, the National Assembly adopted the committee’s report recommending a constitutional amendment. Following elections in May 2019 the new Parliament created an ad hoc Committee to Initiate and Introduce Legislation to Amend Section 25 of the Constitution. The Committee drafted constitutional amendment language explicitly allowing for EWC and accepted public comments on the draft language through March 2021. Parliament awaits the committee’s submission after granting a series of extensions to complete its work. Constitutional amendments require a two-thirds parliamentary majority (267 votes) to pass, as well as the support of six out of the nine provinces in the National Council of Provinces. Because no single political party holds such a majority, a two-third vote can only be achieved with the support of two or more political parties. Academics foresee EWC test cases in the next year primarily targeted at abandoned buildings in urban areas, informal settlements in peri-urban areas, and property with labor tenants in rural areas.
In October 2020, the Government of South Africa also published a draft expropriation bill in its Gazette, which would introduce the EWC concept into its legal system. The application of the draft’s provisions could conflict with South Africa’s commitments to international investors under its remaining investment protection treaties as well as its obligations under customary international law. Submissions closed in February 2021.
Existing expropriation law, including The Expropriation Act of 1975 (Act) and the Expropriation Act Amendment of 1992, entitles the government to expropriate private property for reasons of public necessity or utility. The decision is an administrative one. Compensation should be the fair market value of the property as agreed between the buyer and seller, or determined by the court per Section 25 of the Constitution.
In 2018, the government operationalized the 2014 Property Valuation Act that creates the office of Valuer-General charged with the valuation of property that has been identified for land reform or acquisition or disposal. The Act gives the government the option to expropriate property based on a formulation in the Constitution termed “just and equitable compensation.”
The Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), enacted in 2004, gave the state ownership of South Africa’s mineral and petroleum resources. It replaced private ownership with a system of licenses controlled by the government and issued by the Department of Mineral Resources. Under the MPRDA, investors who held pre-existing rights were granted the opportunity to apply for licenses, provided they met the licensing criteria, including the achievement of certain B-BBEE objectives. Parliament passed amendment to the MPRDA in 2014 but the President never signed them. In August 2018, the Minister for the Department of Mineral Resources, Gwede Mantashe, called for the recall of the amendments so that oil and gas could be separated out into a new bill. He also announced the B-BBEE provisions in the new Mining Charter would not apply during exploration but would start once commodities were found and mining commenced. In November 2019, the newly merged Department of Mineral Resources and Energy (DMRE) published draft regulations to the MPRDA. In December 2019, the DMRE published the Draft Upstream Petroleum Resources Development Bill for public comment. Parliament continues to review this legislation. Oil and gas exploration and production is currently regulated under the Mineral and Petroleum Resources Development Act, 2002 (MPRDA), but the new Bill will repeal and replace the relevant sections pertaining to upstream petroleum activities in the MPRDA.
ICSID Convention and New York Convention
South Africa is a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitration awards as implemented through the Recognition and Enforcement of Foreign Arbitral Awards Act, No. 40 of 1977 . It is not a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States or the World Bank’s International Center for the Settlement of Investment Disputes.
Investor-State Dispute Settlement
The 2015 Promotion of Investment Act removes the option for investor state dispute settlement through international courts typically afforded through bilateral investment treaties (BITs). Instead, investors disputing an action taken by the South African government must request the DTIC to facilitate the resolution by appointing a mediator. A foreign investor may also approach any competent court, independent tribunal, or statutory body within South Africa for the resolution of the dispute. Dispute resolution can be a time-intensive process in South Africa. If the matter is urgent, and the presiding judge agrees, an interim decision can be taken within days while the appeal process can take months or years. If the matter is a dispute of law and is not urgent, it may proceed by application or motion to be solved within months. Where there is a dispute of fact, the matter is referred to trial, which may take several years so there is a growing preference for Alternative Dispute Resolution.
International Commercial Arbitration and Foreign Courts
The Arbitration Act of 1965, which does not distinguish between domestic and international arbitration and is not based on UNCITRAL model law, governs arbitration in South Africa. South African courts retain discretion to hear a dispute over a contract using the law of a foreign jurisdiction. However, the South African court will interpret the contract with the law of the country or jurisdiction provided for in the contract. South Africa recognizes the International Chamber of Commerce, which supervises the resolution of transnational commercial disputes. It applies commercial and bankruptcy laws with consistency and has an independent, objective court system for enforcing property and contractual rights. Alternative Dispute Resolution is increasingly popular in South Africa for many reasons, including the confidentiality which can be imposed on the evidence, case documents, and the judgment. South Africa’s new Companies Act also provides a mechanism for Alternative Dispute Resolution.
South Africa’s bankruptcy regime grants many rights to debtors, including rejection of overly burdensome contracts, avoiding preferential transactions, and the ability to obtain credit during insolvency proceedings. South Africa ranks 68 out of 190 countries for resolving insolvency according to the 2020 World Bank Doing Business report, a drop from its 2019 ranking of 65.
4. Industrial Policies
The Public Investment Corporation SOC Limited (PIC) is an asset management firm wholly owned by the government of South Africa and is governed by the . PIC’s clients are mostly public sector entities, including the Government Employees Pension Fund (GEPF) and Unemployment Insurance Fund (UIF), among others. The PIC runs a diversified investment portfolio including listed equities, real estate, capital market, private equity, and impact investing. The PIC has been known to jointly finance foreign direct investment if the project will create social returns, primarily in the form of new employment opportunities for South Africans. South Africa also offers various investment incentives targeted at specific sectors or types of business activities, including tax allowances to support in the automotive sector and rebates for film and television production. More information regarding incentive programs may be found at:
Foreign Trade Zones/Free Ports/Trade Facilitation
South Africa designated its first Industrial Development Zone (IDZ) in 2001. IDZs offer duty-free import of production-related materials and zero VAT on materials sourced from South Africa, along with the right to sell in South Africa upon payment of normal import duties on finished goods. Expedited services and other logistical arrangements may be provided for small to medium-sized enterprises or for new foreign direct investment. Co-funding for infrastructure development is available from the DTIC. There are no exemptions from other laws or regulations, such as environmental and labor laws. The Manufacturing Development Board licenses IDZ enterprises in collaboration with the South African Revenue Service (SARS), which handles IDZ customs matters. IDZ operators may be public, private, or a combination of both. There are currently five IDZs in South Africa: Coega IDZ, Richards Bay IDZ, Dube Trade Port, East London IDZ, and Saldanha Bay IDZ. South Africa also has Special Economic Zones (SEZs) focused on industrial development. The SEZs encompass the IDZs but also provide scope for economic activity beyond export-driven industry to include innovation centers and regional development. There are six SEZs in South Africa: Atlantis SEZ, Nkomazi SEZ, Maliti-A-Phofung SEZ, Musina/Makhado SEZ, Tshwane SEZ, and O.R. Tambo SEZ. The broader SEZ incentives strategy allows for 15 percent Corporate Tax as opposed to the current 28 percent, Building Tax Allowance, Employment Tax Incentive, Customs Controlled Area (VAT exemption and duty free), and Accelerated 12i Tax Allowance. For more detailed information on SEZs, please see:
Performance and Data Localization Requirements
Employment and Investor Requirements
Foreign investors who establish a business or invest in existing businesses in South Africa must show within twelve months of establishing the business that at least 60 percent of the total permanent staff are South African citizens or permanent residents. The Broad-Based Black Economic Empowerment (B-BBEE) program measures employment equity, management control, and ownership by historically disadvantaged South Africans for companies which do business with the government or bid on government tenders. Companies may consider the B-BBEE scores of their sub-contractors and suppliers, as their scores can sometimes contribute to or detract from the contracting company’s B-BBEE score.
A business visa is required for foreign investors or business owners. To qualify for a visa, investors must invest a prescribed financial capital contribution equivalent to R2.5 million (USD 178,000) and have at least R5 million (USD 356,000) in cash and capital available. The capital requirements may be reduced or waived if the investment qualifies under one of the following types of industries/businesses: information and communication technology; clothing and textile manufacturing; chemicals and bio-technology; agro-processing; metals and minerals refinement; automotive manufacturing; tourism; and crafts. The documentation required for obtaining a business visa is onerous and includes, among other requirements, a letter of recommendation from the DTIC regarding the feasibility of the business and its contribution to the national interest, and various certificates issued by a chartered or professional South African accountant. U.S. citizens have found the process lengthy, confusing, and difficult. Requirements frequently change mid-process. Many U.S. citizens use facilitation services.
In February 2021, the Minister of Home Affairs published the 2021 Critical Skills List for public comment, updating the 2014 version. This list forms the basis for granting business visas. Stakeholders are concerned that the list eliminates highly skilled jobs for which it is difficult to find local labor, particularly in ICT and engineering, which may have a negative impact on investment.
Goods, Technology, and Data Treatment
The government incentivizes the use of local content in goods and technology. The Protection of Personal Information Act (POPIA), which the government enacted in 2013 and which will enter fully into force in July 2021, regulates how personal information may be processed and under which conditions data may be transferred outside of South Africa. POPIA created an Information Regulator (IR) to draft and enforce regulations., Detailed guidance concerning transnational data transfers is scheduled to be released before July 2021. The IR acknowledges POPIA’s implementation will create substantial compliance costs for tech firms.
Investment Performance Requirements
There are no performance requirements on investments.
5. Protection of Property Rights
The South African legal system protects and facilitates the acquisition and disposition of all property rights (e.g., land, buildings, and mortgages). Deeds must be registered at the Deeds Office. Banks usually register mortgages as security when providing finance for the purchase of property. Foreigners may purchase and own immovable property in South Africa without any restrictions, as foreigners are generally subject to the same laws as South African nationals. Foreign companies and trusts are also permitted to own property in South Africa if they are registered in South Africa as an external company. South Africa ranks 108 of 190 countries in registering property according to the 2020 World Bank Doing Business report.
Intellectual Property Rights
South Africa enforces intellectual property rights through civil and criminal procedures. It is a member of the World Intellectual Property Organization (WIPO) and in the process of acceding to the Madrid Protocol. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at . It is also a signatory to the WTO’s Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS).
Owners of patents and trademarks may license them locally, but when a patent license entails the payment of royalties to a non-resident licensor, the DTIC must approve the royalty agreement. Patents are granted for twenty years, usually with no option to renew. Trademarks are valid for an initial period of ten years, renewable for ten-year periods. A patent or trademark holder pays an annual fee to preserve ownership rights. All agreements relating to payment for applicable rights are subject to SARB approval. A royalty of up to four percent is the standard for consumer goods and up to six percent for intermediate and finished capital goods.
Literary, musical, and artistic works, as well as cinematographic films and sound recordings, are eligible for protection under the Copyright Act of 1978. New designs may be registered under the Designs Act of 1967, which grants copyrights for five years. The Counterfeit Goods Act of 1997 provides additional protection to owners of trademarks, copyrights, and certain marks under the Merchandise Marks Act of 1941. The Intellectual Property Laws Amendment Act of 1997 amended the Merchandise Marks Act of 1941, the Performers’ Protection Act of 1967, the Patents Act of 1978, the Copyright Act of 1978, the Trademarks Act of 1993, and the Designs Act of 1993 to bring South African intellectual property legislation into line with TRIPS.
To modernize its IPR regime further, the DTIC introduced the Copyright Amendment Bill (CB) and the Performers’ Protection Amendment Bill (PPA). The controversial bills remain under Parliamentary review after being returned by the President in June 2020 on constitutional grounds. Stakeholders have raised several concerns, including the CB bill’s application of “fair use,” and clauses in both bills that allow the DTIC Minister to set royalty rates for visual artistic work or equitable renumeration for direct or indirect uses of copyrighted works. Additional changes to South Africa’s IPR regime are under consideration through a draft DTIC policy document, Phase 1 of the Intellectual Property Policy of the Republic of South Africa.
6. Financial Sector
Capital Markets and Portfolio Investment
South Africa recognizes the importance of foreign capital in financing persistent current account and budget deficits, and South Africa’s financial markets are regarded as some of the most sophisticated among emerging markets. A sound legal and regulatory framework governs financial institutions and transactions. The fully independent South African Reserve Bank (SARB) regulates a wide range of commercial, retail and investment banking services according to international best practices, such as Basel III, and participates in international forums such as the Financial Stability Board and G-20 Finance Ministers and Central Bank Governors. The Johannesburg Stock Exchange (JSE) serves as the front-line regulator for listed firms but is supervised by the Financial Services Board (FSB). The FSB also oversees other non-banking financial services, including other collective investment schemes, retirement funds and a diversified insurance industry. The South African government has committed to tabling a Twin Peaks regulatory architecture to provide a clear demarcation of supervisory responsibilities and consumer accountability and to consolidate banking and non-banking regulation.
South Africa has access to deep pools of capital from local and foreign investors that provides sufficient scope for entry and exit of large positions. Financial sector assets amount to almost three times the country’s GDP, and the JSE is the largest on the continent with capitalization of approximately USD 670 billion and 335 companies listed on the main, alternative, and other smaller boards as of January 2021. Non-bank financial institutions (NBFI) hold about two thirds of financial assets. The liquidity and depth provided by NBFIs make these markets attractive to foreign investors, who hold more than a third of equities and government bonds, including sizeable positions in local-currency bonds. A well-developed derivative market and a currency that is widely traded as a proxy for emerging market risk allows investors considerable scope to hedge positions with interest rate and foreign exchange derivatives.
SARB’s exchange control policies permit authorized currency dealers, to buy and borrow foreign currency freely on behalf of domestic and foreign clients. The size of transactions is not limited, but dealers must report all transactions to SARB. Non-residents may purchase securities without restriction and freely transfer capital in and out of South Africa. Local individual and institutional investors are limited to holding 25 percent of their capital outside of South Africa.
Banks, NBFIs, and other financial intermediaries are skilled at assessing risk and allocating credit based on market conditions. Foreign investors may borrow freely on the local market. In recent years, the South African auditing profession has suffered significant reputational damage with allegations that two large foreign firms aided, and abetted irregular client management practices linked to the previous administration, or engaged in delinquent oversight of listed client companies. South Africa’s WEF competitiveness rating for auditing and reporting fell from number one in the world in 2016, to number 60 in 2019.
Money and Banking System
South African banks are well capitalized and comply with international banking standards. There are 19 registered banks in South Africa and 15 branches of foreign banks. Twenty-nine foreign banks have approved local representative offices. Five banks – Standard, ABSA, First Rand (FNB), Capitec, and Nedbank – dominate the sector, accounting for over 85 percent of the country’s banking assets, which total over USD 390 billion. SARB regulates the sector according to the Bank Act of 1990. There are three alternatives for foreign banks to establish local operations, all of which require SARB approval: separate company, branch, or representative office. The criteria for the registration of a foreign bank are the same as for domestic banks. Foreign banks must include additional information, such as holding company approval, a letter of “comfort and understanding” from the holding company, and a letter of no objection from the foreign bank’s home regulatory authority. More information on the banking industry may be found at www.banking.org.za .
The Financial Services Board (FSB) governs South Africa’s non-bank financial services industry (see website: www.fsb.co.za/ ). The FSB regulates insurance companies, pension funds, unit trusts (i.e., mutual funds), participation bond schemes, portfolio management, and the financial markets. The JSE Securities Exchange SA (JSE), the sixteenth largest exchange in the world measured by market capitalization, enjoys the global reputation of being one of the best regulated. Market capitalization stood at USD 670 billion as of January 2021, with 335 firms listed. The Bond Exchange of South Africa (BESA) is licensed under the Financial Markets Control Act. Membership includes banks, insurers, investors, stockbrokers, and independent intermediaries. The exchange consists principally of bonds issued by government, state-owned enterprises, and private corporations. The JSE acquired BESA in 2009. More information on financial markets may be found at www.jse.co.za . Non-residents can finance 100 percent of their investment through local borrowing. A finance ratio of 1:1 also applies to emigrants, the acquisition of residential properties by non-residents, and financial transactions such as portfolio investments, securities lending and hedging by non-residents.
Foreign Exchange and Remittances
The SARB Exchange Control Department administers foreign exchange policy. An authorized foreign exchange dealer, normally one of the large commercial banks, must handle international commercial transactions and report every purchase of foreign exchange, irrespective of the amount. Generally, there are only limited delays in the conversion and transfer of funds. Due to South Africa’s relatively closed exchange system, no private player, however large, can hedge large quantities of Rand for more than five years. While non-residents may freely transfer capital in and out of South Africa, transactions must be reported to authorities. Non-residents may purchase local securities without restriction. To facilitate repatriation of capital and profits, foreign investors should ensure an authorized dealer endorses their share certificates as “non-resident.” Foreign investors should also be sure to maintain an accurate record of investment.
Subsidiaries and branches of foreign companies in South Africa are considered South African entities, treated legally as South African companies, and subject to SARB’s exchange control. South African companies generally may freely remit to non-residents repayment of capital investments; dividends and branch profits (provided such transfers are made from trading profits and are financed without resorting to excessive local borrowing); interest payments (provided the rate is reasonable); and payment of royalties or similar fees for the use of know-how, patents, designs, trademarks or similar property (subject to SARB prior approval).
While South African companies may invest in other countries, SARB approval/notification is required for investments over R500 million (USD 33.5 million). South African individuals may freely invest in foreign firms listed on South African stock exchanges. Individual South African taxpayers in good standing may make investments up to a total of R4 million (USD 266,000) in other countries. As of 2010, South African banks are permitted to commit up to 25 percent of their capital in direct and indirect foreign liabilities. In addition, mutual and other investment funds can invest up to 25 percent of their retail assets in other countries. Pension plans and insurance funds may invest 25 percent of their retail assets in other countries.
Before accepting or repaying a foreign loan, South African residents must obtain SARB approval. SARB must also approve the payment of royalties and license fees to non-residents when no local manufacturing is involved. DTIC must approve the payment of royalties related to patents on manufacturing processes and products. Upon proof of invoice, South African companies may pay fees for foreign management and other services provided such fees are not calculated as a percentage of sales, profits, purchases, or income.
Sovereign Wealth Funds
Although the President and the Finance Minister announced in February 2020 the aim to create a Sovereign Wealth Fund, no action has been taken.
7. State-Owned Enterprises
State-owned enterprises (SOEs) play a significant role in the South African economy in key sectors such as electricity, transport (air, rail, freight, and pipelines), and telecommunications. Limited competition is allowed in some sectors (e.g., telecommunications and air). The government’s interest in these sectors often competes with and discourages foreign investment.
The Department of Public Enterprises (DPE) oversees in full or in part for seven of the approximately 700 SOEs at the national, provincial, and local levels. These include: Alexkor (diamonds); Denel (military equipment); Eskom (electricity generation, transmission, and distribution); South African Express and Mango (budget airlines); South African Airways (national carrier); South African Forestry Company (SAFCOL); and Transnet (transportation). The seven SOEs employ approximately 105,000 people. For other national-level SOEs, the appropriate cabinet minister acts as shareholder on behalf of the state. The Department of Transport, for example, oversees South African’s National Roads Agency (SANRAL), Passenger Rail Agency of South Africa (PRASA), and Airports Company South Africa (ACSA), which operates nine of South Africa’s airports. The Department of Communications oversees the South African Broadcasting Corporation (SABC).
SOEs under DPE’s authority posted a combined loss of R13.9 billion (USD 0.9 billion) in 2019. Many are plagued by mismanagement and corruption, and repeated government bailouts have exposed the public sector’s balance sheet to sizable contingent liabilities. The debt of Eskom alone represents about 10 percent of GDP of which two-thirds is guaranteed by government, and the company’s direct cost to the budget has exceeded 9 percent of GDP since 2008/9.
Eskom, provides generation, transmission, and distribution for over 90 percent of South Africa’s electricity of which 80 percent comes from 15 coal-fired power plants. Eskom’s coal plants are an average of 39 years old, and a lack of maintenance has caused unplanned breakdowns and rolling blackouts, known locally as “load shedding,” as old coal plants struggle to keep up with demand. Load shedding reached a record 859 hours in 2020 costing the economy an estimated $7 billion and is expected to continue for the next several years until the South African Government can increase generating capacity and increase its Energy Availability Factor (EAF). In October 2019 the DMRE finalized its Integrated Resource Plan (IRP) for Electricity, which outlines South Africa’s policy roadmap for new power generation until 2030, which includes replacing 10,000 Mega Watts (MW) of coal-fired generation by 2030 with a mix of technologies, including renewables, gas and coal. The IRP also leaves the possibility open for procurement of nuclear technology at a “scale and pace that flexibly responds to the economy and associated electricity demand” and DMRE issued a Request for Information on new nuclear build in 2020. In accordance with the IRP, the South African government recently approved almost 14,000 Mega Watts (MW) of power to address chronic electricity shortages. The government announced the long-awaited Bid Window 5 (BW5) of the Renewable Energy Independent Power Procurement Program (REIPPP) in September 2020, the primary method by which renewable energy has been introduced into South Africa. The REIPP relies primarily on private capital and since the program launched in 2011 it has already attracted approx. ZAR 210 billion (USD 14 billion) of investment into the country. All three major credit ratings agencies have downgraded Eskom’s debt following Moody’s downgrade of South Africa’s sovereign debt rating in March 2020, which could impact investors’ ability to finance energy projects.
Transnet National Ports Authority (TNPA), the monopoly responsible for South Africa’s ports, charges some of the highest shipping fees in the world. High tariffs on containers subsidize bulk shipments of coal and iron. According to the South African Ports Regulator, raw materials exporters paid as much as one quarter less than exporters of finished products. TNPA is a division of Transnet, a state-owned company that manages the country’s port, rail, and pipeline networks. In April 2012, Transnet launched its Market Driven Strategy (MDS), a R336 billion (USD 28 billion) investment program to modernize its port and rail infrastructure. In March 2014, Transnet announced an average overall tariff increase of 8.5 percent at its ports to finance a USD 240 million modernization effort. In 2016, Transnet reported it had invested R124 billion (USD 10.3 billion) in the previous four years in rail, ports, and pipeline infrastructure. In May 2020 S&P downgraded Transnet’s local currency rating from BB to BB- based on a generally negative outlook for South Africa’s economy rather than Transnet’s outlook specifically.
Direct aviation links between the United States and South Africa have been sharply curtailed by the COVID-19 pandemic. The emergence of a more contagious South African strain of COVID-19 in December 2020 spurred a deadly spike in infections and led the United States and many African countries to restrict entry of persons traveling from South Africa. Consequently, many airlines suspended transcontinental flights between South Africa and Europe, as well as the United States. United Airlines and Delta Air Lines provided regular service between Atlanta (Delta) and Newark (United) to Johannesburg and Cape Town before the pandemic, but both airlines have suspended service indefinitely pending resumption of sufficient demand. The state-owned carrier, South African Airways (SAA), entered business rescue in December 2019 and suspended all operations indefinitely in September 2020. The pandemic exacerbated SAA’s already dire financial straits and complicated its attempts to find a strategic equity partner to help it resume operations. Industry experts doubt the airline will be able to resume operations.
The telecommunications sector, while advanced for the continent, is hampered by regulatory uncertainty and poor implementation of the digital migration, both of which contribute to the high cost of data. In 2006, South Africa agreed to meet an International Telecommunication Union deadline to achieve analogue-to-digital migration by June 1, 2015. As of March 2021, South Africa has initiated but not completed the migration due to legal delays. Until this process is finalized, South Africa will not be able to effectively allocate the resulting additional spectrum. The independent communications regulator initiated a spectrum auction in September 2020, which was enjoined by court action in February 2021 following suits by two of the three biggest South African telecommunications companies. The regulator temporarily released high-demand spectrum to mobile network operators in June 2020 and extended the temporary release in March 2021.
The government has not taken any concrete action to privatize SOEs. Candidates for unbundling are Eskom and defense contractor Denel.
South Africa has a robust anti-corruption framework, but laws are inadequately enforced, and public sector accountability is low. High-level political interference has undermined the country’s National Prosecuting Authority (NPA). “State capture”, a term used to describe systemic corruption of the state’s decision-making processes by private interests, is synonymous with the administration of former president Jacob Zuma. In response to widespread calls for accountability, President Ramaphosa launched four separate judicial commissions of inquiry to investigate corruption, fraud, and maladministration, including in the Public Investment Corporation, South African Revenue Service, and the NPA which have revealed pervasive networks of corruption across all levels of government.
The Department of Public Service and Administration coordinates government initiatives against corruption, and South Africa’s Directorate for Priority Crime Investigations focuses on organized crime, economic crimes, and corruption. The Office of the Public Protector, a constitutionally mandated body, investigates government abuse and mismanagement. The Prevention and Combating of Corrupt Activities Act (PCCA) officially criminalizes corruption in public and private sectors and codifies specific offenses (such as extortion and money laundering), making it easier for courts to enforce the legislation. Applying to both domestic and foreign organizations doing business in the country, the PCCA covers receiving or offering bribes, influencing witnesses and tampering with evidence in ongoing investigations, obstruction of justice, contracts, procuring and withdrawal of tenders, and conflict of interests, among other areas. Inconsistently implemented, the PCCA lacks whistleblower protections. The Promotion of Access to Information Act and the Public Finance Management Act call for increased access to public information and review of government expenditures.
UN Anticorruption Convention, OECD Convention on Combatting Bribery
South Africa is a signatory to the Anticorruption Convention and the OECD Convention on Combatting Bribery. South Africa is also a party to the SADC Protocol Against Corruption, which seeks to facilitate and regulate cooperation in matters of corruption amongst Member States and foster development and harmonization of policies and domestic legislation related to corruption. The Protocol defines ‘acts of corruption,’ preventative measures, jurisdiction of Member States, as well as extradition.
Resources to Report Corruption
To report corruption to the government:
Advocate Busisiwe Mkhwebane
Office of the Public Protector, South Africa
175 Lunnon Street, Hillcrest Office Park, Pretoria 0083
Anti-Corruption Hotline: +27 80 011 2040 or +27 12 366 7000
Or for a non-government agency:
10. Political and Security Environment
South Africa has strong institutions and is relatively stable, but it also has a history of politically motivated violence and civil disturbance. Violent protests against the lack of effective government service delivery are common. Killings of, and by, mostly low-level political and organized crime rivals occur regularly. In May 2018, President Ramaphosa set up an inter-ministerial committee in the security cluster to serve as a national task force on political killings. The task force includes the Police Minister‚ State Security Minister‚ Justice Minister‚ National Prosecuting Authority, and the National Police Commissioner. The task force ordered multiple arrests, including of high-profile officials, in what appears to be a crackdown on political killings. Criminal threats and labor-related unrest have impacted U.S. companies in the past.
11. Labor Policies and Practices
The unemployment rate in the fourth quarter of 2020 was 32.5%. The results of the Quarterly Labour Force Survey (QLFS) for the fourth quarter of 2020 show that the number of employed persons increased by 333,000 to 15 million in the fourth quarter of 2020. The number of unemployed persons increased by 701, 000 to 7.2 million compared to the third quarter of 2020. The youth unemployment (ages 15-24) rate was 63.2% in the fourth quarter of 2020.
The South African government has replaced apartheid-era labor legislation with policies that emphasize employment security, fair wages, and decent working conditions. Under the aegis of the National Economic Development and Labor Council (NEDLAC), government, business, and organized labor negotiate all labor laws, apart from laws pertaining to occupational health and safety. Workers may form or join trade unions without previous authorization or excessive requirements. Labor unions that meet a locally negotiated minimum threshold of representation (often, 50 percent plus one union member) are entitled to represent the entire workplace in negotiations with management. As the majority union or representative union, they may also extract agency fees from non-union members present in the workplace. In some workplaces and job sectors, this financial incentive has encouraged inter-union rivalries, including intimidation and violence.
There are 205 trade unions registered with the Department of Labor as of February 2019 (latest published figures), up from 190 the prior year, but down from the 2002 high of 504. According to the 2019 Fourth Quarter Labor Force Survey (QLFS) report from Statistics South Africa (StatsSA), 4.071 million workers belonged to a union, an increase of 30,000 from the fourth quarter of 2018. Department of Labor statistics indicate union density declined from 45.2 percent in 1997 to 24.7 percent in 2014, the most recent data available. Using StatsSA data, however, union density can be calculated: The February 2020 QLFS reported 4.071 million union members and 13.868 million employees, for a union density of 29.4 percent.
The right to strike is protected on issues such as wages, benefits, organizational rights disputes, and socioeconomic interests of workers. Workers may not strike because of disputes where other legal recourse exists, such as through arbitration. South Africa has robust labor dispute resolution institutions, including the Commission for Conciliation, Mediation and Arbitration (CCMA), the bargaining councils, and specialized labor courts of both first instance and appellate jurisdiction. The government does not waive labor laws for foreign direct investment. The number of working days lost to strike action fell to 55,000 in 2020, compared with 1.2 million in 2019. The sharp decrease is attributable to the government’s imposition of the National State of Disaster at the onset of the COVID-19 pandemic, and the accompanying lockdown that commenced on March 26, which forced many businesses either to close or lay off workers and implement wage cuts or shorten time of work. The fact that many wage negotiations were put on hold also led to a reduction in strike figures.
Collective bargaining is a cornerstone of the current labor relations framework. As of February 2019, the South Africa Department of Labor listed 39 private sector bargaining councils through which parties negotiate wages and conditions of employment. Per the Labor Relations Act, the Minister of Labor must extend agreements reached in bargaining councils to non-parties of the agreement operating in the same sector. Employer federations, particularly those representing small and medium enterprises (SMEs) argue the extension of these agreements – often reached between unions and big business – negatively impacts SMEs. In 2019, the average wage settlement resulted in a 7.1 percent wage increase, on average 2.9 percent above the increase in South Africa’s consumer price index (latest information available).
Major labor legislation includes:
South Africa’s current national minimum wage is R21.69/hour, with lower rates for domestic workers (R19.09/hour). The rate is subject to annual increases by the National Minimum Wage Commission as approved by parliament and signed by the President. Employers and employees are each required to pay one percent of wages to the national unemployment fund, which will pay benefits based on reverse sliding scale of the prior salary, up to 58 percent of the prior wage, for up to 34 weeks. The Labor Relations Act (LRA) outlines dismissal guidelines, dispute resolution mechanisms, and retrenchment guideline. The Act enshrines the right of workers to strike and of management to lock out striking workers. It created the Commission on Conciliation, Mediation, and Arbitration (CCMA), which mediates and arbitrates labor disputes as well as certifies bargaining council impasses for strikes to be called legally.
The Basic Conditions of Employment Act (BCEA) establishes a 45-hour workweek, standardizes time-and-a-half pay for overtime, and authorizes four months of maternity leave for women. Overtime work must be conducted through an agreement between employees and employers and may not be more than 10 hours a week. The law stipulates rest periods of 12 consecutive hours daily and 36 hours weekly and must include Sunday. The law allows adjustments to rest periods by mutual agreement. A ministerial determination exempted businesses employing fewer than 10 persons from certain provisions of the law concerning overtime and leave. Farmers and other employers may apply for variances. The law applies to all workers, including foreign nationals and migrant workers, but the government did not prioritize labor protections for workers in the informal economy. The law prohibits employment of children under age 15, except for work in the performing arts with appropriate permission from the Department of Labor.
The Employment Equity Act of 1998 (EEA), amended in 2014, protects workers against unfair discrimination on the grounds of race, age, gender, religion, marital status, pregnancy, family responsibility, ethnic or social origin, color, sexual orientation, disability, conscience, belief, political, opinion, culture, language, HIV status, birth, or any other arbitrary ground. The EEA further requires large- and medium-sized companies to prepare employment equity plans to ensure that historically disadvantaged South Africans, as well as women and disabled persons, are adequately represented in the workforce. More information regarding South African labor legislation may be found at:
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||$351.10
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2019||N/A||2019||$7.8 billion||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2019||N/A||2019||$4.1 billion||BEA data available at
|Total inbound stock of FDI as % host GDP||2019||N/A||2019||1.3%||UNCTAD data available at
* Source for Host Country Data: N/A
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||145,247||100%||Total Outward||214, 998||100%|
|United Kingdom||45, 366||31.3%||The Netherlands||93, 532||43.5%|
|The Netherlands||25, 615||17.6%||United Kingdom||26, 163||12.2%|
|Belgium||15, 940||10.9%||United States||15, 705||7.3%|
|Japan||8, 784||6.1%||Mauritius||11, 226||5.2%|
|United States||8,784||6.1%||Australia||7, 930||3.7%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||149, 455||100%||All Countries||139, 515||100%||All Countries||9, 940||100%|
|United Kingdom||47, 384||32%||United Kingdom||45, 104||32%||United Kingdom||2, 280||X%|
|Ireland||21, 642||14%||Ireland||20, 614||15%||United States||1, 902||X%|
|United States||19, 735||13%||United States||17, 834||13%||Ireland||1, 028||X%|
|Luxembourg||15, 711||11%||Luxembourg||15, 140||11%||Italy||783||X%|
|The Netherlands||9, 283||6%||The Netherlands||9, 034||6%||Luxembourg||571||X%|