INVESTMENT CLIMATE IN SOUTH AFRICA DISCUSSION PAPER
The bedrock of the trade and thus business and investment relationship between South Africa and the European Union is the EU Southern African Development Community (SADC) Economic Partnership Agreement (EPA), which came into effect in October 2016, liberalising over 98% of all tariff lines.
South African companies enjoy preferential access to EU export markets and to the SADC EPA member states. President Ramaphosa has repeatedly stressed the need to improve the conditions for domestic and foreign investors, since the Investment Summit that took place in November last year.
EU business acknowledges the progress made by South Africa, in particular with the advancement in addressing governance issues in critical State-Owned Enterprises (SOE) and government institutions as well as the recent publication of the revised Integrated Resource Plan (IRP), but still remains concerned with regard to the investment climate.
South Africa could dramatically improve investor confidence through a set of measures enhancing investment protection. A re-shaping of certain B-BBEE requirements would trigger increased FDI flows; especially from smaller EU companies and at the same time promote skills and technological transfers into SA. A re-calibration of procurement policies should be considered to achieve the intended policy goals related to transformation without hurting productivity and South Africa’s competitiveness. If EU businesses operate on a level playing field, they can boost local manufacturing capabilities all along the value chain. Skills constraints can be tackled through a combination of short-term solutions such as the easing of immigration regulations and long-term reforms in education. South Africa should remove regulatory hurdles for the benefit of Independent Power Producers (IPPs) and Public Private Partnerships (PPPs) to resolve infrastructure constraints.
The SADC EU Economic Partnership Agreement (EPA) offers enormous opportunities for trade with the European Union as well as for Foreign Direct Investment from the EU. The EU business community is firmly anchored in the country. There is potential to further enhance capital inflows especially from smaller EU companies, thereby contributing to know-how transfer and the widening of the skills base of South Africans. At the same time, the EPA offers opportunities for South African entrepreneurs to reach out to half a billion consumers. EU business acknowledges the improvements achieved so far and remains ready to work together with the South African Government to find solutions to the challenges identified in this paper.