Successfully investing in South Africa

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last updated on 27 May 2020 | reading time approx. 2 minutes

 

 

 

How do you assess the current economic situation in South Africa?

South Africa is one of the largest economies in Africa and highly developed in a regional comparison. The South African market continues to offer a good market entry position for companies wishing to do business in Sub-Saharan Africa.

 
In recent years, South Africa has suffered from a weak economy, which will continue in 2020. Economic growth is around 1 per cent. One of the reasons for the weak economic growth is the heavily indebted state enterprises. In particular, the state-owned power utility Eskom is hampering an economic upswing through the ongoing planned power cuts (so-called “load shedding”).

 

How would you describe the investment climate in South Africa? Which sectors offer the largest potential?

South Africa continues to offer a good and open investment climate for foreign companies, especially by African standards. This continues to be the case even though the three major rating agencies now assign South Africa the so-called “junk status”. Among other things, South Africa offers a good infrastructure, a very good financial sector, unproblematic company formation within ten working days and a reliable and independent legal system. Now, however, the great wave of optimism that began after Cyril Ramaphosa became president is fading due to the slow economic progress.


The following sectors offer great potential: the energy sector, especially renewable energy projects, the tourism sector, manufacturing industry, with the strong automotive sector, but also food processing and packaging and the traditionally important mining sector.

 

What challenges do German companies face during their business ventures into South Africa?

Challenges for German companies in South Africa include the Broad-Based Black Economic Empowerment laws (B-BBEE laws) and the difficulties associated with obtaining a work permit. Above a certain company size, in certain economic sectors and especially for public sector contracts, it is essential for German investors to deal with the B-BBEE laws. It will then be inevitable to act together with a South African partner who fulfils the legal requirements. The legal situation in the field of immigration law remains uncertain and secondments of employees from Germany must be planned thoroughly and well in advance. Further challenges are the country's volatile currency and the ongoing load shedding.

 

How does the market for Renewable Energies develop in South Africa?

The market for renewable energies is developing positively, albeit too slowly compared with its great potential. The national electricity development plan, which among other things defines the electricity mix until 2030 (“IRP 2019”), provides for an increase in the share of renewable energy from the current 8 to 32 per cent (in 2030). This is the basis for the next rounds of the public tendering programme for renewable energy projects. In the IRP 2019, 4,000 MW were also allocated for self-generation plants. The market for self-generation offers enormous potential due to the rising electricity price and ongoing power cuts. Furthermore, grid-connected self-generation plants up to 1 MW and off-grid self-generation plants (regardless of their MW) do not require a generation license, which in the past was one of the biggest hurdle for these projects. Another positive development that gives hope for further market liberalisation is the planned unbundling of the state-owned electricity utility Eskom into three separate companies: generation, transmission and distribution.
 

In your opinion, how will South Africa develop?

South Africa's economic growth is likely to remain low in the short term, but will pick up in the upcoming years. The country's economic development is heavily dependent on energy supply. South Africa must continue to open the energy market to independent power producers in order to achieve better overall economic growth.

 

South Africa will improve its ease of doing business and thus ensure to remain one of the most popular African countries for foreign investors.

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