“South Africa is something of a great nation itself”.

This statement may feel somewhat

exaggerating; however, it is quite obvious as we dig into the variety of factors regarding this
country. Hosting the World Cup is a great honor, and one that many countries fight for.
However, hosting does not come without its drawbacks. It can be a very costly event with no
guarantees on economic return. Any country that hosts the World Cup must meet strict
infrastructure requirements, amongst many other standards set by FIFA, the international
governing body for football. South Africa spent approximately $4 billion on World Cup
preparations in the year of 2010 (11 years ago), which is nearly half of Mali’s total GDP in that
year. As a more specific term, South Africa boasts the most advanced, broad-based economy on
the African continent. In dealing with the legacy of apartheid, South African laws, policies, and
reforms seek to produce economic transformation to increase the participation of and
opportunities for historically disadvantaged South Africans. The government views its role as the
primary driver of development and aims to promote greater industrialization.

Part 1: Country report

The investment climate is fortified by stable institutions, an independent judiciary and robust
legal sector committed to upholding the rule of law, a free press and investigative reporting, a
mature financial and services sector, good infrastructure, and a broad selection of experienced
local partners.

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment
The government of South Africa is generally open to foreign investment as a means to drive
economic growth, improve international competitiveness, and access foreign markets. Merger
and acquisition activity is more sensitive and requires advance work to answer potential
stakeholder concerns. The 2018 Competition Amendment Bill, which was signed into law in
February, 2019, introduced a mechanism for South Africa to review foreign direct investments
and mergers and acquisitions by a foreign acquiring firm on the basis of protecting national
security interests (see section on Laws and Regulations on Foreign Direct Investment
below).Virtually all business sectors are open to foreign investment. Certain sectors require
government approval for foreign participation, including energy, mining, banking, insurance, and
defense.
Limits on Foreign Control and Right to Private Ownership and Establishment
Currently there is no limitation on foreign private ownership. South Africa’s transformation
efforts – the re-integration of historically disadvantaged South Africans into the economy – has
led to policies that could disadvantage foreign and some locally owned companies. The Broad-
Based Black Economic Empowerment Act of 2013 (B-BBEE), and associated codes of good
practice, requires levels of company ownership and participation by Black South Africans to get
bidding preferences on government tenders and contracts. The DTIC created an alternative
equity equivalence (EE) program for multinational or foreign owned companies to allow them to
score on the ownership requirements under the law, but many view the terms as onerous and
restrictive. Currently eight multinationals, most in the technology sector, participate in this
program.
Other Investment Policy Reviews
The last Trade Policy Review carried out by the World Trade Organization for the Southern
African Customs Union, in which South Africa is a member, was in 2015. Neither the OECD nor
the UN Conference on Trade and Development (UNCTAD) has conducted investment policy
reviews for South Africa.
Business Facilitation
According to the World Bank’s Doing Business report, South Africa’s rank in ease of doing
business in 2020 was 84 of 190, down from 82 in 2019. It ranks 139th for starting a business, 5
points lower than in 2019. In South Africa, it takes an average of forty days to complete the
process. South Africa ranks 145 of 190 countries on trading across borders.
Outward Investment
South Africa does not incentivize outward investments. South Africa’s stock foreign direct
investments in the United States in 2018 totaled USD 3.9 billion (latest figures available), a 5.6
percent decrease from 2017. The largest outward direct investment of a South African company
is a gas liquefaction plant in the State of Louisiana by Johannesburg Stock Exchange (JSE) and
NASDAQ dual-listed petrochemical company SASOL. There are some restrictions on outward
investment, such as a R1 billion (USD 83 million) limit per year on outward flows per company.
The South African Reserve Bank must approve larger investments and at least 10 percent of the
foreign target entities voting rights must be obtained through the investment.

2. Bilateral Investment and Taxation Treaties

Of South Africa’s 50 signed bilateral investment treaties (BITs), 39 never entered into force or
were terminated. According to UNCTAD, eleven agreements are still in force including with
Russia, China, Cuba, and Iran. The 2015 “Protection of Investment Act” replaces lapsed BITs
and stipulates, “Existing investments that were made under such treaties will continue to be
protected for the period and terms stipulated in the treaties. Any investments made after the
termination of a treaty, but before promulgation of this Act, will be governed by the general
South African law.” It also provides that “the government may consent to international
arbitration in respect of investments covered by the Act, subject to the exhaustion of domestic
remedies.” Such “arbitration will be conducted between the Republic and the home state of the
applicable investor.” South Africa is not engaged in new BIT negotiations.
South Africa is a member of the Southern Africa Customs Union (SACU), which has a common
external tariff and tariff-free trade between its five members (South Africa, Botswana, Lesotho,
Namibia, and Eswatini, formerly known as Swaziland). South Africa is generally restricted from
negotiating trade agreements bilaterally because SACU is the competent authority. South Africa
has free trade agreements with the Southern African Development Community (SADC)
including its 12 members.
South Africa is a signatory to the SADC-EAC-COMESA Tripartite FTA, which includes 26
countries with a combined population of approximately 590 million people. This agreement
primarily covers trade in goods. South Africa ratified the African Continental Free Trade
Agreement in 2018, though the agreement still requires signatories to present offers on tariff
lines and services, and agree to rules of origin among other outstanding issues.
The United States and South Africa signed a Trade and Investment Framework Agreement
(TIFA) in 1999. The last TIFA discussions were held in 2015. The United States and SACU
negotiated a Trade, Investment and Development Cooperation Agreement (TIDCA) in 2008.
The first U.S.-South Africa bilateral tax treaty eliminated double taxation and entered into force
in 1998. In 2014, a new bilateral tax treaty was signed to implement the U.S. Foreign Asset Tax
Compliance Act (FATCA).
As part of a broad set of tax increases, in 2018 the government raised, for the first time since
1993, the value added tax (VAT) by one percentage point to 15 percent. Fiscal measures were
introduced in the 2020/21 budget intended to raise government revenues, such as an above
inflation upward adjustments to personal income tax brackets, higher alcohol and tobacco excise
duties, and an extra 25 cents per liter for fuel. A carbon tax was also slated to begin. The tax
increases come alongside government expenditure cuts primarily in government payroll
compensation. Taken together, these interventions aim to stabilize public finances by 2023.
According to Finance Minister Tito Mboweni, “Our economy has won before, and it will win
again.”

3. Legal Regime
Transparency of the Regulatory System
South African laws and regulations are generally published in draft form for stakeholders to
comment, and legal, regulatory, and accounting systems are generally transparent and consistent
with international norms.
The DTIC is responsible for business-related regulations. It develops and reviews regulatory
systems in the areas of competition, standards, consumer protection, company and intellectual
property registration and protections, as well as other subjects in the public interest. It also
oversees the work of national and provincial regulatory agencies mandated to assist the DTIC in
creating and managing competitive and socially responsible business and consumer regulations.
South Africa’s Consumer Protection Act (2008) went into effect in 2011. The legislation
reinforces various consumer rights, including right of product choice, right to fair contract terms,
and right of product quality. Impact of the legislation varies by industry, and businesses have
adjusted their operations accordingly.
International Regulatory Considerations
South Africa is a member of the Southern African Customs Union (SACU), the oldest existing
customs union in the world. SACU functions mainly on the basis of the 2002 SACU Agreement
which aims to: (a) facilitate the cross-border trade in goods among SACU members; (b) create
effective, transparent and democratic institutions; (c) promote fair competition in the common
customs area; (d) increase investment opportunities in the common customs area; (e) enhance the
economic development, diversification, industrialization and competitiveness of member States;
(f) promote the integration of its members into the global economy through enhanced trade and
investment; (g) facilitate the equitable sharing of revenue arising from customs and duties levied
by members; and (h) facilitate the development of common policies and strategies.
Laws and Regulations on Foreign Direct Investment
The February 2019 ratification of the Competition Amendment Bill introduced, among other
revisions, section 18A that mandates the President create a committee – comprised of 28
Ministers and officials chosen by the President – to evaluate and intervene in a merger or
acquisition by a foreign acquiring firm based on protecting national security interests. The new
section states that the President must identify and publish in the Gazette – the South African
equivalent of the U.S. Federal Register – a list of national security interests including the
markets, industries, goods or services, sectors or regions in which a merger involving a foreign
acquiring firm must be notified to the South African government. It also suggests the President
consider a merger’s impact on the economic and social stability of South Africa. As of May
2020, the president has not established the committee, nor has he published the list of national
security interests.
Bankruptcy Regulations
South Africa has a strong bankruptcy law, which grants many rights to debtors, including
rejection of overly burdensome contracts, avoiding preferential transactions, and the ability to
obtain credit during insolvency proceedings. South Africa ranks 68 out of 190 countries for
resolving insolvency according to the 2020 World Bank Doing Business report, a drop in its
ranking from its 2018 rank of 55 and 2019 rank of 65.

4. Industrial Policies
Investment Incentives
The Public Investment Corporation SOC Limited (PIC) is an asset management firm wholly
owned by the government of South Africa, represented by the Minister of Finance and is
governed by the Public Investment Corporation Act, 2004. PIC’s clients are mostly public sector
entities, including the Government Employees Pension Fund (GEPF) and Unemployment
Insurance Fund (UIF), among others. The PIC runs a diversified investment portfolio including
listed equities, real estate, capital market, private equity and impact investing. The PIC has been
known to jointly finance foreign direct investment if the project will create social returns,
primarily in the form of new employment opportunities for South Africans.
South Africa offers various investment incentives targeted at specific sectors or types of business
activities. The DTIC has a number of incentive programs ranging from tax allowances to support
in the automotive sector and helping innovation and technology companies to film and television
production.
Performance and Data Localization Requirements
Foreign investors who establish a business or who invest in existing businesses in South Africa
must show within twelve months of establishing the business that at least 60 percent of the total
permanent staff are South African citizens or permanent residents.
The Broad-Based Black Economic Empowerment (B-BBEE) program measures employment
equity, management control, and ownership by historically disadvantaged South Africans for
companies which do business with the government or bid on government tenders. Companies
may consider the B-BBEE scores of their sub-contractors and suppliers, as their scores can
sometimes contribute to or detract from the contracting company’s B-BBEE score.
A business visa is required for foreign investors who will establish a business or who will invest
in an existing business in South Africa. They are required to invest a prescribed financial capital
contribution equivalent to R2.5million (USD 178 thousand) and have at least R5 million (USD
356 thousand) in cash and capital available. These capital requirements may be reduced or
waived if the investment qualifies under one of the following types of industries/businesses:
information and communication technology; clothing and textile manufacturing; chemicals and
biotechnology; agro-processing; metals and minerals refinement; automotive manufacturing;
tourism; and crafts.

5. Protection of Property Rights

Real Property
The South African legal system protects and facilitates the acquisition and disposition of all
property rights (e.g., land, buildings, and mortgages). Deeds must be registered at the Deeds
Office. Banks usually register mortgages as security when providing finance for the purchase of
property. Foreigners may purchase and own immovable property in South Africa without any
restrictions, as foreigners are generally subject to the same laws as South African nationals.
Foreign companies and trusts are also permitted to own property in South Africa, provided that
they are registered in South Africa as an external company. South Africa ranks 108 of 190
countries in registering property according to the 2020 World Bank Doing Business report.
Intellectual Property Rights
South Africa has a strong legal structure and enforcement of intellectual property rights through
civil and criminal procedures. Criminal procedures are generally lengthy, so the customary route
is through civil enforcement. There are concerns about counterfeit consumer goods, illegal
commercial photocopying, and software piracy.
Owners of patents and trademarks may license them locally, but when a patent license entails the
payment of royalties to a non-resident licensor, the DTIC must approve the royalty agreement.
Patents are granted for twenty years – usually with no option to renew. Trademarks are valid for
an initial period of ten years, renewable for ten-year periods. The holder of a patent or trademark
must pay an annual fee to preserve ownership rights. All agreements relating to payment for the
right to use know-how, patents, trademarks, copyrights, or other similar property are subject to
approval by exchange control authorities in the SARB. A royalty of up to four percent is the
standard approval for consumer goods, and up to six percent for intermediate and finished capital
goods.

6. Financial Sector
Capital Markets and Portfolio Investment
South Africa recognizes the importance of foreign capital in financing persistent current account
and budget deficits and openly courts foreign portfolio investment. Authorities regularly meet
with investors and encourage open discussion between investors and a wide range of private and
public sector stakeholders. The government enhanced efforts to attract and retain foreign
investors. President Cyril Ramaphosa hosted investment conferences in October 2018 and
October 2019 and attended the World Economic Forum in Davos in January 2019 to promote
South Africa as an investment destination. South Africa suffered a two-quarter technical
recession in 2019 with economic growth registering only 0.2 percent for the entire year.
South Africa’s financial market is regarded as one of the most sophisticated among emerging
markets. A sound legal and regulatory framework governs financial institutions and transactions.
The fully independent South African Reserve Bank (SARB) regulates a wide range of
commercial, retail and investment banking services according to international best practices,
such as Basel III, and participates in international forums such as the Financial Stability Board
and G-20 Finance Ministers and Central Bank Governors. There are calls to “nationalize” the
privately-held SARB, which would not change its constitutional mandate to maintain price
stability.
Money and Banking System
South African banks are well capitalized and comply with international banking standards. There
are 19 registered banks in South Africa and 15 branches of foreign banks. Twenty-nine foreign
banks have approved local representative offices. Five banks – Standard, ABSA, First Rand
(FNB), Capitec, and Nedbank – dominate the sector; accounting for over 85 percent of the
country’s banking assets, which total over USD 390 billion.
The Financial Services Board (FSB) governs South Africa’s non-bank financial services
industry. The FSB regulates insurance companies, pension funds, unit trusts (i.e., mutual funds),
participation bond schemes, portfolio management, and the financial markets. The JSE Securities
Exchange SA (JSE) is the sixteenth largest exchange in the world measured by market
capitalization and enjoys the global reputation of being one of the best regulated. Market
capitalization stood at USD 670 billion as of March 2020, with 344 firms listed.

7. Corruption
South Africa has a robust anti-corruption framework, but laws are inadequately enforced and
accountability in public sectors tends to be low. The law provides for criminal penalties for
conviction of official corruption, and the government continued efforts to curb corruption, but
officials sometimes engaged in corrupt practices with impunity.

8. Labor Policies and Practices

Since 1994, the South African government has replaced apartheid-era labor legislation with
policies that emphasize employment security, fair wages, and decent working conditions. Under
the aegis of the National Economic Development and Labor Council (NEDLAC), government,
business, and organized labor are to negotiate all labor laws, with the exception of laws
pertaining to occupational health and safety. The South African Constitution and South African
laws allows workers to form or join trade unions without previous authorization or excessive
requirements. Labor unions that meet a locally negotiated minimum threshold of representation
(often, 50 percent plus one union member) are entitled to represent the entire workplace in
negotiations with management. As the majority union or representative union, they may also
extract agency fees from non-union members present in the workplace. In some workplaces and
job sectors, this financial incentive has encouraged inter-union rivalries, including intimidation
and violence, as unions compete for the maximum share of employees in seeking the status of
representative union.
Part 2: Country risk
Country Risk Score: C
RISK ASSESSMENT
Timid recovery from a deep recession
While growth was already very weak, the severe lockdown to combat the COVID-19 pandemic,
coupled with the fall in external demand, caused a deep recession in 2020. With the lifting of
restrictions and the external upturn, activity is expected to show moderate growth in 2021, which
will owe much to the base effect. Household consumption (60% of GDP), heavily affected by
lockdown, should recover moderately. Even if unemployment falls from its peak (43% in Q3
2020), it will remain high. Cut back by the fall in employment, incomes have also been affected
by the fall in wages in the private sector, which is largely informal. Public sector wages could
see a sharp deceleration in the context of fiscal consolidation. Furthermore, households will be
faced with an increase in electricity prices of more than 9%, as well as weak consumer credit due
to the prudence of banks. Investment (18% of GDP) will recover only slightly. The public sector,
which is in a poor financial position, is counting on the involvement of the private sector for the
implementation of the infrastructure (transport, energy, housing) and reindustrialisation
components of the Economic Reconstruction and Recovery Plan announced in October 2020.
Attracting foreign investment will remain difficult because of the uncertain electricity supply,
numerous strikes, corruption and crime. Exports of goods and services (30% of GDP) will
continue to benefit from the good performance of mineral prices, for which the essential Chinese
demand will remain well oriented. Other products, notably automobiles, should benefit from an
intensification of the recovery in Africa, as well as in North America and Western Europe.
Conversely, tourism (9% of GDP) will struggle to recover, which will continue to weigh on the
accommodation and transport sectors.
Public accounts remain the Achilles' heel
The public accounts deteriorated significantly during the 2020-2021 fiscal year. The deficit may
have exceeded 15% of GDP and the debt at the end of the fiscal year may have amounted to 83%
of GDP (albeit reduced). This is due mainly to the large revenue shortfall caused by the
recession, but also to capital injections into public enterprises. Additional expenditure related to
COVID-19 (10% of GDP), of which only a third will have affected the budget, also contributed,
although this was largely offset by cuts in other expenditure. The gross financing requirement,
including deficit and debt refinancing, is expected to have reached 25% of GDP compared to
15% a year earlier. This has prompted the government to seek multilateral financing (notably the
IMF) for around 10% of this need. On the bright side, 88% of the public debt is denominated in
rand, 70% of which is held by residents (mainly banks). It is easily found on the large domestic
market thanks to comfortable yields (4.4% at 2 years, 9% at 10 years) while the key rate of the
central bank was only 3.5% at the end of November 2020. This leaves 38% for non-residents,
including foreign currency denominated debt, even after their divestments in the wake of the
global market turbulence in spring 2020, which temporarily led to a depreciation of the rand and
a rise in yields. Although debt repayment is expected to be low in 2021, the market could be
shaken again, especially since the major rating agencies rate sovereign risk as speculative. The
fiscal year 2021-2022 will bring only limited improvement in public accounts and will see
further increases in debt. Their consolidation will require major efforts, given that wages
represent one third of public spending, transfers to public enterprises another third, and interest
13%.
The current account deficit has almost disappeared as of 2020. The trade surplus has increased
due to the contraction in imports linked to reduced domestic demand, while the contraction in
exports has been smaller due to their recovery in the second half of the year. Moreover, the terms
of trade improved with the decrease in the price of hydrocarbons and the increase in the price of
precious metals. The balance of services, usually balanced, deteriorated with the fall in tourism.
The income deficit persisted with transfers to other members of the Southern African Customs
Union (SACU), remittances from migrant workers, and repatriations by foreign investors not
offset by the income from South African investments abroad. A small current account deficit will
reappear in 2021 with the resumption of imports. FDI will remain scarce, and its financing will
therefore rely on portfolio investment. The refinancing of external debt (53% of GDP at the end
of 2019, half in rand) will be essentially linked in 2020-2021 to its private share (more than half).
Pressing social and economic challenges
The crisis has exacerbated unemployment, poverty, divisions, corruption, and generated a
seventh year of declining per capita income. The ANC, in power since the end of apartheid, with
little competition from the opposition and 230 of the 400 seats in the Assembly since the 2019
elections, is more divided than ever, with prominent members accused of corruption. Its left-
wing faction wants land redistribution with limited compensation, increased Black Economic
Empowerment, opposes wage moderation in the civil service and is impeding the reform of the
electricity market. President Ramaphosa hopes that the ANC's National General Council
scheduled for spring 2021, ahead of the municipal elections, will help shed some light and
convince public opinion and the market that reforms are possible.

Part 3: Case studies (Genpact)

Genpact is an American professional services firm legally domiciled in Bermuda with its
headquarters in New York City, New York. It is a global leader in business process and
technology management, and has significantly grown its business in South Africa in the past 12
months, adding five new clients since the beginning of 2011.
Genpact’s growing South African client base comprises industries such as telecommunications,
mining, construction, consumer packaged goods, services, retail, and insurance. Genpact South
Africa provides extensive business process management services including finance and
accounting (F&A), B2B collections, customer service, process reengineering, analytics, human
resources, payroll, and procurement, in addition to helping clients set up shared services
operations. Genpact’s reengineering services, part of the company’s expanding Smart Decision
Services portfolio to help clients make better business decisions, along with its Smart Enterprise
Processes (SEPSM) framework for assessing the effectiveness of their business processes, has
gained a strong foothold with its South African clients. More specifically, Genpact is
experiencing a growing demand in process reengineering services that support ERP
implementations.
Genpact began its South African operations at the end of 2009 when it assumed responsibility of
South African Breweries Ltd.’s (SAB) shared services center in Johannesburg. Genpact currently
employs more than 200 professionals in South Africa and continues to provide SAB with
comprehensive F&A services. Genpact South Africa’s range of F&A services for clients such as
Telkom and Massmart includes accounts payable (purchase to pay), accounts receivable (order to
cash), payroll (hire to retire), and general accounting (record to report).
“SAB has been very pleased with its decision to partner with Genpact, especially because of
Genpact’s ability to continuously improve business processes which will help us achieve
measurable business impact year over year,” said Garth Sanders, chief financial officer, SAB.
“Genpact’s process expertise and operational excellence has created an incredibly effective
shared services center for SAB.”
“Genpact’s growth in South Africa is a testament to our success in bringing our global business
practices and expertise to emerging economies to serve global multinational corporations that are
expanding in the South Africa market, as well as local corporations that are growing rapidly,”
said Tiger Tyagarajan, president and CEO, Genpact. “We have been leveraging South Africa’s
favorable economic environment, modern infrastructure, and diverse and talented workforce to
build solid delivery capabilities on top of our strong partnership with SAB. Our Smart Decision
Services and deep domain industry expertise have also proven to be major differentiators for us
in this thriving South African market, and we look forward to continuing this growth trajectory
and helping companies achieve sizable business outcomes.”
“Our South African business can help us to grow with our clients into other regions of Africa
because our clients have a clear view on how they want to expand within the continent,” said
Rein van der Horst, vice president and country manager, South Africa for Genpact. “Genpact
offers valuable and unique global expertise gained in other emerging markets to the South
African market.”
What reasons should the company prefer to enter the country?
South Africa was named “Offshoring Destination of the Year” twice in the last four years (2016
and 2018). This was due to a strong foundation of BPO-related governmental support and
business incentives.
State of the industry
For years now, the traditional destinations for offshore outsourcing have been India and the
Philippines – mostly due to a large workforce that is paid in a weaker currency.
With a current unemployment rate of 23.3% and well over 200,000 university graduates a year,
South Africa harbours a sizable pool of brilliantly capable minds hungry to prove themselves.
Today, Deloitte, BT, British Gas and Amazon are among some of the giants leveraging off the
country’s affordable, fully equipped and readily available workforce. However, there are also
several other benefits that South Africa can offer over alternative offshore destinations.
The cost factor
One of the primary offshoring benefits is the financial gain. South Africa has a lower cost of
living than most western markets. As such, development resources are much more cost-effective
(European businesses tend to make savings of up to 50%).
The solid performance of the country's BPO sector is also due, in part, to the backing it has
received from the national government. The Department of Trade, Industry and Competition has
provided funding of approximately ZAR 1.3 billion between 2007 and 2018, and committed a
further ZAR 1.2 billion in 2019 for further operational improvements going forward.
On top of that, the average GBP/ZAR exchange rate over the last three years clocks in at 19:1.
This means you will be able to hire fantastic people at a fraction of the London cost.
First-world infrastructure
BPOs in South Africa have access to the latest technologies needed to run a smooth, successful
operation. While the rest of the country is adequately developed, Cape Town, specifically, is well
known for its first-world infrastructure.
The cost of real estate can be an unpleasant surprise in some offshore locations, but South
Africa’s low commercial property and rental prices have made it increasingly popular for new
businesses looking to expand their reach. In addition, connectivity throughout is also exploding,
thanks to the commissioning of various undersea cables.
Time zone difference
South Africa’s time zone (GMT+2) tends to overlap effectively with most locations. Calls with
America usually happen in the late afternoons, while Australia garners the early morning slot,
and Europe gets everything in between.
Business language
Cross-border business requires clear and unambiguous communication. A typical workday tends
to entail complex, nuanced dialogue that needs to be sent and received without disruption. Even
seemingly, minor things that are lost in translation can have major consequences. Rest assured,
English is South Africa’s workplace language of choice and the country prides itself on this
skillset
Cultural affinity
South Africa’s inherent societal diversity ensures general respect for different cultures. This is
important when businesses want to ensure successful offshoring operations – understanding the
culture is imperative. One cannot effectively do work in these areas without having an innate
understanding of the people that will engage with it. It is simply impossible.
Strategic benefit
This is probably the biggest differentiator when using a South African workforce. South Africans
consistently deliver excellent work – establishing the country as a lucrative outsourcing hub on
the strength of services delivered. These workforces are not just pure development houses but are
organisations in their own right that can be engaged with to add value at a strategic level.