Foreign investment regime
The South African government encourages foreign direct investment, and has acknowledged that such investment is necessary to support the country's growth and development objectives. However, the South African government requires that the benefits of foreign direct investment be balanced against its costs to the South African economy.
For this reason, public interest considerations, which are generally embedded in licences and state tenders, are increasingly serving as criteria for the approval or rejection of foreign investment in the country. Public interest considerations are varied, including the need to protect jobs, promote localisation and enhance the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive. 'Historically disadvantaged persons' refers to black South African citizens, by virtue of their disenfranchisement during apartheid South Africa, as well as female and disabled South African citizens. The advancement of historically disadvantaged persons is often facilitated through the promotion of Broad-based Black Economic Empowerment (B-BBEE). B-BBEE is a socio-economic programme endorsed by the Constitution of the Republic of South Africa. It is designed to redress the inequalities of apartheid through transformative measures that enhance participation by black people (and certain other designated groups of South Africans) in the South African economy.
The principal law governing foreign investment in South Africa is the Investment Act. That Act defines 'investment' within the context of foreign direct investments widely, as: (1) any lawful enterprise established, acquired or expanded by an investor in accordance with the laws of the Republic of South Africa, committing resources of economic value over a reasonable period of time, in anticipation of profit; (2) the holding or acquisition of shares, debentures or other ownership instruments of such an enterprise; or (3) the holding, acquisition or merger by such an enterprise with another enterprise outside the Republic to the extent that such holding, acquisition or merger with another enterprise outside the Republic has an effect on an investment contemplated by (1) and (2) in the Republic.
The Investment Act does not compel a review of inbound foreign investment, irrespective of the nature of the investment proposed. However, as noted above, the Competition Amendment Bill (which was passed early in 2019) permits the blocking of a merger involving a foreign acquiring firm if, in the view of a President-appointed committee, its implementation poses national security concerns for the country. While the President is yet to identify and publish a list of national security interests such committee must consider, the Competition Amendment Act provides that the President must, when determining what constitutes national security interests for purposes of this Act, take into account all relevant factors, including the potential impact of a merger transaction:
- on the country's defence capabilities and interests;
- on the use or transfer of sensitive technology or know-how outside the Republic of South Africa;
- on the security of infrastructure, including processes, systems, facilities, technologies, networks, assets and services essential to the health, safety, security or economic well-being of citizens and the effective functioning of government;
- on the supply of critical goods or services to citizens, or the supply of goods or services to government;
- to enable foreign surveillance or espionage, or hinder current or future intelligence or law enforcement operations;
- on the Republic's international interests, including foreign relationships;
- to enable or facilitate the activities of illicit actors, such as terrorists, terrorist organisations or organised crime; and
- on the economic and social stability of the Republic.
Unlike mergers and acquisitions, there is no review of new businesses established, or joint ventures formed, by foreigner investors.