South Africa: Investing

FDI in Figures

Being largely a free-market economy, South Africa encourages foreign investment in both private and public sectors. Factors attracting FDI into the country include: transparent regulatory framework, large population, access to raw materials and political stability.

According to the UNCTAD World Investment Report, the potential apeal for foreign investment in South Africa is strong compared with other countries in the world, but performances are poor in terms of FDI attraction. Since the global financial crisis which affected the world at the end of 2008 - beginning 2009, South Africa has been suffering from lack of foreing investor interest; the FDI inflows have dried up and net capital outflows have exceeded inflows. In 2010, FDI flows accounted for just over a quarter of their 2008 volume.

Foreign Direct Investment	2008	2009	2010
FDI Inward Flow (million USD)	9,006	5,365	1,553
FDI Stock (million USD)	68,007	117,434	132,396
Performance Index*, Ranking on 141 Economies	80	79	-
Potential Index**, Ranking on 141 Economies	72	-	-
Number of Greenfield Investments***	116	108	-
FDI Inwards (in % of GFCF****)	14.5	4.0	-
FDI Stock (in % of GDP)	24.6	44.0	-

Source: UNCTAD - Last Available Data.

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.

FDI Inflows By Countries and Industry

Main Investing Countries	2011, in %
United Kingdom	49.6
Netherlands	17.5
United States	6.2
Germany	6.0
Switzerland	4.5
China	3.7
Japan	1.9
Malaysia	1.7

Main Invested Sectors	2011, in %
Mining	38.3
Manufacturing	25.9
Financial and insurance services, real estate and business services	23.8
Transport, storage and communication	8.3
Trade, catering, hotel industry	3.4

Source: South African Reserve Bank, Quarterly Bulletin, December 2011 - Last Available Data.

Form of Company Preferred By Foreign Investors: Private Limited
Form of Establishment Preferred By Foreign Investors: Simple process of establishment, do not require to have statutory general body meetings like public companies, and do not have to submit their annual financial statements with the Registrar.
Main Foreign Companies: Global companies in South Africa
Sources of Statistics: Department of trade and industry
South African Reserve Bank
Business Map

Why You Should Choose to Invest in South Africa

Strong Points: South Africa has high market potential, developed infrastructures and a reasonably competitive domestic economy. The country has put into place economic reforms, which have led to macro-economic stability, tax and customs reduction. It also has a large and active stock exchange.
South Africa has shifted from its traditional industries to production and financial services which are the main contributors to the GDP. Tourism and the retail sector have great potential.
Weak Points: South Africa has a certain amount of weaknesses: High rate of criminal violence and corruption, a highly regulated labour market and poor or unclear regulations in some of the key sectors like telecommunications. These factors contribute negatively to foreign investment.
Government Measures to Motivate or Restrict FDI: Nearly all the business sectors are open to foreign investors. No government approval is required, and there are almost no restrictions on the form or the extent of foreign investment. Other measures taken by the government are simple tax rules, investment incentives, a better regulatory policy on competition, protection of intellectual rights. We can quote :
- The Foreign Investment Grant up to 15% of the value of new machinery and equipment;
- The Skills Support Program which provides up to 50% of training costs and 30% of workers salaries;
- The Strategic Industrial Project program which offers tax allowances; and
- The Small and Medium Enterprise Development Program which offers tax free grants.

With 23.5% unemployment, Jacob Zuma recognising that the recession had delayed economic recovery and the private sector's capacity to create new opportunities, announced the remittance of some 303 million dollars in order to help company heads and employees who were in trouble due to the crisis.

Protection of Foreign Investment

Bilateral Investment Conventions Signed By South Africa: South Africa is a signatory to 35 conventions. UNCTAD allows you to visualize the list of conventions signed by South Africa, and and to download these conventions.
International Controversies Registered By UNCTAD: UNCTAD offers a database listing disagreements and the countries involved.
Organizations Offering Their Assistance in Case of Disagreement: ICCWBO , International Chamber of Commerce
Member of the Multilateral Investment Guarantee Agency: Yes, Visit: MIGA

Country Comparison For the Protection of Investors

	South Africa	Sub-Saharan Africa	United States	Germany
Index of Transaction Transparency*	8.0	4.8	7.0	5.0
Index of Manager’s Responsibility**	8.0	3.4	9.0	5.0
Index of Shareholders’ Power***	8.0	5.0	9.0	5.0
Index of Investor Protection****	8.0	4.4	8.3	5.0

Source: Doing Business - Last 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. **** The Greater the Index, the Higher the Level of Investor Protection.

Procedures Relative to Foreign Investment

Freedom of Establishment: Guaranteed
Acquisition of Holdings: Possible.

Companies have to appoint a South African resident as the company's legal representative. Moreover, foreign companies have to appoint an auditor.
Obligation to Declare: No government approval is required for foreign investors to establish a new business or invest in South Africa apart from the approval required under the exchange control regulations.

The investor will be required to appoint a consultants, auditors, and/or legal advisors to register a company on his/her behalf. The company should be registered within 21days; it should also register for tax.
Competent Organization For the Declaration: South African Reserve Bank (SARB)
Requests For Specific Authorizations: Virtually all sectors are open to foreign investors. Very few restrictions apply only to foreign companies.

For example, a foreign bank establishing a branch in South Africa may be required to employ a certain minimum number of local residents in order to obtain a banking license and may be obliged to have a minimum capital base.

Restrictions also exist regarding the ownership of immovable property by foreign companies. Foreign companies are required to register as external companies before immovable property may be registered in their names.

Office Real Estate and Land Ownership

Possible Temporary Solutions: Renting.
However in case the foreign company is of national interest, the South African government provides temporary space for a limited period, say up to 2 years.
The Possibility of Buying Land and Industrial and Commercial Buildings: Yes
Risk of Expropriation: As per the Expropriation Act of 1975 and the Expropriation Act Amendment of 1992 , the government is entitled to expropriate private property for reasons of public necessity or utility.

Investment Aid

Forms of Aid: The various forms of aid and incentives provided by government are:
- Foreign Investment Grant: provide up to 15 % of the value of new machinery per entity for relocation to South Africa.
- Industrial Development Zones: provide duty-free import of production-related materials and zero VAT on materials sourced from South Africa.
- The Skills Support Program : provides up to 50% of training costs and 30% of worker salaries for a maximum of three years to encourage the development of advanced skills.
- The Strategic Investment Project Program : offers a tax allowance of up to 100% (maximum if USD 86 million per project) on the cost of buildings, plant and machinery, for strategic investments of at least USD 70 million).
- The Critical Infrastructure Facility: supplements funds up to 30% of the development costs of qualifying infrastructure projects.
Privileged Domains: Infrastructure development (sectors like transportation, telecommunications, and energy), job creation, environment protection, development of manpower skills, creation of healthy competitiveness.
Privileged Geographical Zones: The first Industrial Development Zone (IDZ) was set up in South Africa 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 into South Africa upon payment of normal import duties on finished goods. There are no exemptions from other laws or regulations, such as environmental and labor laws.

IDZs are currently located at Coega near Port Elizabeth, in East London, Richards Bay, and at Johannesburg International Airport.
Free Zones: No free zones or free ports exist in South Africa.
Organizations Which Finance: Industrial Development Corporation (IDC)

Development Bank of Southern Africa (BDSA)

Overseas Private Investment Corporation (OPIC)

African Development Bank Group.

Small Business Development Corporation (SBDC)

Investment Opportunities

The Key Sectors of the National Economy: Mineral exports, Manufacturing sector which includes railway rolling stock, synthetic fuels, and mining equipment and machinery, tourism, health and fruit production.
High Potential Sectors: Business process outsourcing which includes call centres.
Privatization Programs: Postal service, the telecommunications services (TELKOM) and railway lines scheduled for privatization.
Tenders, Projects and Public Procurement: South African Government Information, Tenders
Tenders.co, Tenders in South Africa
Cape Business News, Trade Offers
Tenders Info, Tenders in South Africa
DgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors: Banking, insurance and broadcasting industries. Also there are some restrictions on the borrowing levels of foreign-controlled companies.
Sectors in Decline: Textiles and clothing.

Finding Assistance For Further Information

Investment Aid Agency: Trade and Investment South Africa (TISA)
The New Partnership for Africa's Development
Other Useful Resources: Doing business with South Africa
Economic Developments and Prospects in South Africa - African Economic Outlook
Doing Business Guides: South Africa Commercial Guide 2010 - Buy USA
Economic Developments and Prospects in Zambia - African Economic Outlook

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