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 2020 World Investment Report, FDI inflows decreased by 15.1% in 2019, USD 4,6 billion, compared to a high inflow of USD 5,4 billion registered in 2018. In 2019, FDI stocks increased to USD 151 billion, well above USD 127 billion in 2018.
This trend is related to the Government’s campaign to attract $100 billion of FDI by 2023. The strong increase in the last few years is mainly due to intercompany financing and equity inflows. Beijing Automotive Industry holding, BMW, Nissan and Mainstream Renewable Energy have been the largest investors in recent years. In addition, the country leads the way in terms of FDI inflows into Africa, mainly through SEZ programmes. 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 new ANC administration led by Ramaphosa is expected to be more encouraging to foreign investors than the the previous president, Jacob Zuma (as an example, the latter had previously announced his intention to revise the Land Law in order to restrict propriety rights for foreigners). Traditionally, European countries are active investors in South Africa (United Kingdom, Netherlands, Belgium, Germany and Luxembourg), as well as the United States, China, Australia and Japan. Most of the investment are directed to the financial, mining, manufacturing, transportation and retail sectors.
South Africa ranks 84th out of 190 economies in the World Bank’s 2020 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. However, the country 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 certain legal uncertainties which discourage foreign investors, despite the promulgation of the Protection of Investment Act in December 2015, which reinforces legal guaranties for foreign investors. However, the government is working towards making South Africa a more attractive destination for foreign investment. They are currently improving their investment environment by working diligently towards ensuring policy certainty and consistency, improving the performance of State-owned enterprises and consolidating fiscal debt.
|Foreign Direct Investment||2017||2018||2019|
|FDI Inward Flow (million USD)||2,008||5,450||4,624|
|FDI Stock (million USD)||156,353||138,562||150,951|
|Number of Greenfield Investments***||106||109||130|
|Value of Greenfield Investments (million USD)||3,560||4,812||4,115|
Source: UNCTAD, 2016
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country’s Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field 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. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
|Country Comparison For the Protection of Investors||South Africa||Sub-Saharan Africa||United States||Germany|
|Index of Transaction Transparency*||8.0||5.0||7.4||5.0|
|Index of Manager’s Responsibility**||8.0||4.0||8.6||5.0|
|Index of Shareholders’ Power***||8.0||5.0||9.0||5.0|
Source: Doing Business, 2016
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. **** The Greater the Index, the Higher the Level of Investor Protection.