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 vibrant legal sector committed to upholding the rule of law, a free press and investigative reporting, a mature financial and services sector, good infrastructure, and a broad selection of experienced local partners. South Africa encourages investment that develops manufacturing of goods for export.
South Africa is still fighting its way back from a “lost decade” in which economic growth stagnated, largely as a consequence of corruption and economic mismanagement during the term of its former president. Since assuming office in February 2018, South Africa’s new president, Cyril Ramaphosa, has committed to improving the investment climate. The early steps he has taken are encouraging, but the challenges are enormous. At a minimum, South Africa will need to strengthen economic growth and stabilize public finances in order to reverse the credit downgrades by two of the three global ratings agencies. Other challenges include: creating policy certainty; reinforcing regulatory oversight; making state-owned enterprises (SOEs) profitable rather than recipients of government bail-outs; 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 (unemployment is over 27 percent); and increasing the supply of appropriately-skilled labor.
In dealing with the legacy of apartheid, South African laws, policies, and reforms seek to produce economic transformation to increase 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. Government initiatives to accelerate transformation have included tightening labor laws to achieve proportional racial, gender, and disability representation in workplaces, and ascriptive requirements for government procurement such as equity stakes for historically disadvantaged South Africans and localization requirements. Following the adoption of a resolution calling for land expropriation without compensation at the December 2017 conference of the African National Congress, investors are watching closely how the government will implement land reform initiatives and what Parliament will decide as a result of its review of the constitution on this issue.
Despite these uncertainties and some important structural economic challenges, South Africa is a destination conducive to U.S. investment; the dynamic business community is highly market-oriented and the driver of economic growth. President Ramaphosa aims to attract USD 100 billion in investment over the next five years. South Africa offers ample opportunities and continues to attract investors seeking a comparatively low-risk location in Africa from which to access the continent with the fastest growing consumer market in the world.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||73 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||82 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||58 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$7,334||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$5,430||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|