
Foreign Direct Investment
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 2021 World Investment Report, FDI inflows decreased by 39.4% in 2020 to USD 3.1 billion, compared to the high inflow of USD 5.1 billion recorded in 2019. In 2020, FDI stocks declined to USD 136 billion compared to USD 151 billion in 2019. Data from the OECD shows that in the first half of 2021, FDI inflows reached USD 1.64 billion, up from USD 234 million 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).
South Africa ranks 84th out of 190 economies in the World Bank's latest Doing Business report. 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 the 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.
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.
