Guidance

Overseas Business Risk: South Africa

Updated 15 February 2021

1. Political Overview

South Africa is a young, relatively stable democracy, dominated by one political party: the African National Congress (ANC). Cyril Ramaphosa replaced Jacob Zuma as president in February 2018 following his election as President of the ANC. The party governs with the support of the tripartite alliance, which consists of the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU), alongside the ANC.

The ANC’s 2019 National and Provincial Election victory at the polls secured 57.5% of the popular vote for the party. The main opposition party, the Democratic Alliance (DA), secured 20.76% of the vote, with the Economic Freedom Fighters achieving 10.79%. The ANC retained control of eight of the nine provinces, the exception being the DA controlled Western Cape.

In 2021, South Africa will have Local Government Elections.

2. Economic Overview

The South African economy grew 0.8% in 2018 and growth of 0.2% in 2019, which included two consecutive recessions in the second half of 2019 in part due to power cuts that weighed on economic activity. Such anemic growth masks an actual drop in per capita income as population growth has outstripped GDP growth for the last 5 years.

COVID-19 has further weakened the economy. Stringent lockdown regulations at the start of the pandemic have led to an estimated to a 7% contraction in 2020. 2021 is estimated to see growth of 3.6%, supported by a commodity price boom and a rollout of the vaccine. The impact of COVID-19 increased government debt with debt-to-GDP forecast at to reach 81.1% in 2020/21 and the fiscal deficit 14.7%. All rating agencies now have South Africa’s sovereign rating at sub-investment grade.

However, South Africa remains the most sophisticated and developed economy in Africa and has high class companies in finance, real estate and business services, manufacturing and wholesale and retail trade. South Africa is the ‘gateway to Africa’ for investors due to its comparative sophistication, ease of doing business (relative to African counterparts), continental expertise and ability to act as a base for critical services for doing business on the rest of the continent. The African Continental Free Trade Agreement (AfCFTA), which took effect from January 2021 is going to be key in unlocking Africa’s potential in its post COVID-19 growth recovery. Overall, Africa’s GDP is forecasted to increase by between $28 billion and $44 billion after full implementation in 2040

3. Key Economic Developments

Unemployment remains a substantial challenge in South Africa, with an official figure of 30.8% and 43.1% under expanded definitions in the third quarter of 2020. Youth unemployment (aged 15 – 24) surpassed 60% in the third quarter of 2020. South Africa is one of the world’s most unequal countries. Poverty is deep, structural and worsening. Over 18 million South Africans receive poverty-alleviating social grants from the government.

4. Business Environment

At the forefront of the South African government’s economic priorities is the transformation of the racially skewed ownership, management and employment profile of the South African economy. They apply a range of policy tools to this end including the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice and the National Industrial Policy Framework (NIPF), the implementation vehicle for which is the Industrial Policy Action Plan (IPAP). Among other things, the IPAP details a range of policies such as local content requirements and incentive schemes designed to support the NIPF. Generating employment opportunities for South African citizens is also part of this strategy. Visa regulations recognise the contribution that foreign employees can make, particularly where certain skillsets are in short supply in South Africa. However, applications will be assessed against tightly-defined criteria for the particular category of visa.

The Protection of Investment Act (2015) was signed into operation by President Ramaphosa on 13 June 2018. The Act followed South Africa’s unilateral termination of bilateral investment treaties (BITs), principally with certain EU member states. The significant changes introduced by the new legislation included the removal of investor-state dispute settlement (ISDS) i.e. the right of the foreign investor to directly approach international tribunals in the event of a dispute with the SA government.

Particular challenges cited by investors include a relative shortage of skilled employees, uncertainty over the future direction of the government’s policy on land reform without compensation, and unreliable power supplies. SA economic transformation policies such as BBB-EE also create additional requirements and costs for UK investors seeking to establish operations in market.. However, developed transport infrastructure and sophisticated financial and legal sectors are well established.

South Africa occupies 84 position (out of 190 economies assessed) in the 2020 World Bank Ease of Doing Business report. High among the President’s priorities is securing a top-50 place.

5. Human Rights

Human rights in South Africa are protected under its 1996 constitution, which has been hailed as one of the most progressive in the world. It guarantees economic, social and cultural rights. The country has a strong commitment to human rights and has statutory oversight bodies, such as the South African Human Rights Commission, which protects the rights guaranteed under the Constitution.

South Africa is signatory to various international human rights instruments including the Universal Declaration of Human Rights; African Charter on Human and Peoples’ Rights; the International Covenant on Economic, Social and Cultural Rights; and the UN declaration on sexual orientation and gender identity.

Despite South Africa’s strong constitutional protections for human rights, and its relative success at providing basic services, the government continues to struggle to meet demands for economic and social rights. Issues such as unemployment, corruption, crime, gender-based violence, and threats to freedom of expression remain a concern for many citizens. Excessive force by police is a persistent problem as well as concerns about the treatment of migrants, refugees, and asylum seekers, and resultant xenophobia violence. South Africa continues to play an important but inconsistent role in advancing the rights of lesbian, gay, bisexual and transgender people.

6. Bribery and Corruption

Corruption in South Africa includes the private use of public resources, bribery and improper favouritism. It often takes the form of individuals who enrich themselves through corrupting the awarding of government tender contracts, mostly based on personal connections and corrupt relationships. In 2018, the Judicial Commission of Inquiry into State Capture, known as the Zondo Commission after its Chair, Deputy Chief Justice Raymond Zondo, began investigations into high-level corruption, bribery and money laundering activities. Specific focus has been on corruption involving government officials, state-owned enterprises and private companies who facilitated it. The Commission has placed increased scrutiny on all deals involving government officials and private companies.

Please see our anti-corruption strategy.

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. South Africa is a signatory to the OECD Anti-Bribery Convention. It should be noted that UK bribery legislation also applies to UK registered companies and UK nationals committing acts of bribery wholly outside the UK. Please see the information provided on our Bribery page.

7. Security

Terrorists are likely to try to carry out attacks and there is a very high level of crime in South Africa. Please consult FCDO travel advice for up-to-date information.

The Centre for the Protection of National Infrastructure provides protective security advice to businesses.

8. Intellectual Property

Intellectual Property (IP) rights are territorial: They only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, you should consider registering your IP rights in your export markets. South Africa is a signatory to various international IP treaties, the notable of which are the World Trade Organisation (WTO) Agreement on Trade- Related Aspects of Intellectual Property Rights (TRIPS Agreement), Berne Convention for the Protection of Literary and Artistic Works, Paris Convention for the Protection of Industrial Property, World Intellectual Property Organisation (WIPO) Treaty and the Patent Cooperation Treaty.

In general, South Africa provides adequate protection of IP rights. However, infringement is common, particularly of trademarks and copyright. Often, the State does not have sufficient enforcement capacity. In view of the fact that IP rights are private rights, the IP rights owner or holder bears the onus and costs of enforcing such rights. Further information can be viewed at the South African Companies and Intellectual Property Commission

9. Contact

Contact the DBT team in South Africa for more information.