Foreign direct investment in South Africa

South Africa, Africa Region

The foreign direct investment (FDI) regime in South Africa is relevantly open in that foreign investor is not only protected but also greatly encouraged in South Africa.  As such, we have relatively fewer FDI approvals or restrictions then might be present in certain other jurisdictions. However, there are certain approvals and restrictions that would need to be considered by any foreign investor seeking an opportunity in South Africa.

As a starting point, the South African FDI regime generally applies to all investors in all sectors.  That being said, the FDI framework may prescribe additional approval requirements that would need to be obtained depending on what sector the FDI is made into.

While there are no general local shareholder requirements in South Africa, any foreign investor should also take into consideration South Africa’s Broad-based Black Economic Empowerment (B-BBEE) framework (a socio-economic programme endorsed by the Constitution of South Africa, providing for the promotion of businesses, firms owned and/or controlled by historically disadvantaged individuals).  In this regard, certain sector specific local restrictions may need to be considered.

Under South African law, there are three general approvals potentially required in relation to FDI and these are exchange control approvals, take over regulation panel approval and the eventual approval of the yet to be established foreign investment committee.  We briefly set out here some information on these three general approvals.

In terms of exchange control, the approval of the South African Reserve Bank (SARB) usually through authorised dealers is required for most movement of capital/funds in and out of South African borders.  There are no exceptions to the applicability of exchange control regulations where transactions involve foreign persons and the relevant approvals must be obtained if triggered.

Secondly, the Take Over Regulation Panel (TRP) is established in terms of the Companies Act 71 of 2008 (Companies Act) to regulate, amongst others, the transactions of regulated companies.  Only certain companies qualify as regulated companies and it is important in each transaction involving a South African company to understand whether it is a regulated company in terms of the Companies Act and/or the memorandum of incorporation of the relevant company.

Finally, a recent amendment to the Competition Act 89 of 1998 (Competition Act) contemplates the introduction of a foreign investment committee (FIC).  Once established, the FIC will be tasked with reviewing and approving or rejecting transactions that (a) constitute a merger as defined in the Competition Act, (b) involve a foreign acquiring firm and (c) the implementation of which may have an adverse effect on the national security interests of South Africa.  What constitutes as a “security interest” in South Africa still requires the promulgation of regulations but from a general reading of the Competition Act, could be a very wide concept.

Understanding FDI in South Africa is imperative for any foreign investor to structure their deal in compliance with the relevant FDI laws and regulations.  Please see our guideline for more information on certain specific question.