South Africa: focus on foreign investments

This week’s article shifts the focus to another part of the world that is very important to Global Connect Admin and Global Connect Consultancy. Namely, South Africa and the foreign investments that are becoming more and more popular due to the market attractiveness.

South Africa possesses the most advanced and diversified economy in sub-Saharan Africa. Its investment environment is bolstered by stable institutions, an independent judiciary, and a robust legal system that upholds the rule of law. Additionally, it benefits from a free press, investigative journalism, a mature financial sector, and experienced local partners.

In November 2021, the Government of South Africa (GoSA) along with the United States, the UK, France, Germany, and the European Union (EU) unveiled the Just Energy Transition Partnership (JETP). This initiative aims to expedite the decarbonization of South Africa’s economy, particularly focusing on the electricity sector, in line with the ambitious emissions reduction targets outlined in South Africa’s Nationally Determined Contribution (NDC). The partnership plans to mobilize an initial commitment of $8.5 billion over three to five years, utilizing various financial mechanisms.

Subsequently, in November 2022, the GoSA announced the Just Energy Transition Investment Plan (JET IP) for the 2023-2027 period. This plan outlines the necessary investments to fulfill the decarbonization commitments specified in the country’s NDC. Despite progress, South Africa grapples with the aftermath of a „lost decade“ characterized by stagnant economic growth, primarily attributed to corruption and economic mismanagement. The country experienced a technical recession in 2019 and 2020, with minimal growth in 2019 and contraction in 2020. While there was a 4.9 percent economic growth in 2021, it contracted by 1.3 percent in 2022.

Notably, South Africa faces a significant obstacle to investment in the form of persistent „load-shedding,“ known as rolling blackouts, which occurred frequently in 2022 and have continued into 2023. This unreliable power supply severely hampers economic progress and remains a major concern for investors. The International Monetary Fund (IMF) revised its GDP forecast for South Africa in 2023 to 0.1 percent, while the South African Reserve Bank adjusted its projection to 0.3 percent, down from the initial estimate of 2.6 percent.

The administration in charge of foreign investments (ANC) actively encourages foreign investment, recognizing its crucial role in job creation and fostering economic growth that generates wealth. Traditionally, European nations such as the United Kingdom, Netherlands, Belgium, Germany, and Luxembourg, along with the United States, Japan, China, and Australia, have been prominent investors in South Africa. These investments predominantly target sectors like finance, mining, manufacturing, transportation, and retail.

In recent years, major investors have included Beijing Automotive Industry Holding, BMW, Nissan, and Mainstream Renewable Energy. Notably, South Africa experienced a significant increase in foreign direct investment (FDI) inflows, totaling $2.8 billion in the second quarter of 2023, a stark contrast to the amount recorded in the first quarter, as per central bank data released in September 2023.

According to the South African Reserve Bank’s Quarterly Bulletin, the acquisition of a local beverage company by a foreign entity contributed to this surge as Heineken is currently in the process of finalizing its purchase of the wine and cider company Distell.

References

Greenough, A. (2023). 2023 Investment Climate Statements: South Africa. From U.S Department of State: https://www.state.gov/reports/2023-investment-climate-statements/south-africa/

Lloyds Bank. (2024, February ). South Africa: Investing in South Africa. From Lloyds Bank: https://www.lloydsbanktrade.com/en/market-potential/south-africa/investment

Miridzhanian, A. (2023, September 28). South Africa’s foreign direct investment inflows rise to $2.8 billion in second quarter. From Reuters: https://www.reuters.com/business/finance/south-africas-foreign-direct-investment-inflows-rise-28-bln-q2-2023-09-28/

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