South Africa welcomes foreign investment, in both the public and private sectors and in all spheres of the economy. The government has emphasized policies and programs to further encourage foreign investment. To this end, the Department of Trade, Industry and Competition ("DTIC") offers a wide range of incentive schemes to encourage the growth of competitive new enterprises and the creation of sustainable industries. The government/National Treasury is also increasingly looking for even more ways to encourage investment into South Africa and to streamline possible areas that may have caused delays or created a barrier to investment in the past.

South Africa’s foreign investment regime is quite permissive. The main piece of legislation governing foreign investment is the Protection of Investment Act 22 of 2015 (the "Act"). The Act was introduced as a replacement for bilateral investment treaties ("BITs") which expired or were terminated. The Act does not require a review of foreign investment. Its purpose is to protect investment in a manner that balances the public interest and the rights and obligations of investors. Importantly, foreign investors have ensured no less favorable treatment than South African investors in like circumstances. The physical and legal security of foreign investors’ property is ensured “in accordance with minimum standards of customary international law and subject to available resources and capacity”, and in terms of Section 25 of the Constitution, which protects the right to property. The Act also provides for remedies for foreign investors in the event of a dispute with the South African government, including through mediation, litigation in domestic courts, independent tribunals and statutory bodies, and, subject to the exhaustion of domestic remedies, international arbitration between South Africa and the investor’s home State.

South Africa is also a member of, or party to, many international bodies, cooperation agreements, treaties and other instruments that deal with foreign investment. As an example, the African Continental Free Trade Area ("AfCFTA"), is set to be the world’s largest free trade area. The AfCFTA presents great opportunities for the liberalization of the flow of goods, services and people across the continent. If fully implemented, the AfCFTA will significantly increase intra-continental trade and economic growth. The AfCFTA consists of key protocols – trade in goods, trade in services, dispute settlement, competition policy, intellectual property and investment.

In order to repatriate funds from South Africa, it is important for foreign investors to take into consideration South African exchange control regulations. The Currency and Exchanges Act 9 of 1933 and Exchange Control Regulations, 1961 control the flow of money in and out of South Africa. The South African Reserve Bank ("SARB") controls and oversees all capital inflows and outflows. SARB delegates power to authorized dealers, which oversee and regulate the market on its behalf. Companies are required to provide certain information to remit money to a foreign party (i.e. evidence that it is on the basis of an arm’s length transaction, etc.) and seek approval from SARB or, where empowered, the authorized dealer. Exchange control regulations cover all payments and investments abroad by a company and all loans made by overseas investors to a South African resident. This is an example of an area where the Government/ National Treasury is relaxing requirements as they look for further ways to encourage investment into South Africa and to streamline possible areas that may have caused delays or created a barrier to investment in the past. For example, moving away from the “restrictive” approach that disallowed any capital flows without permission, to a “progressive”, pro-investment allowance of all capital flows, save for a limited list of risk-based capital flow measures.

Other legislation, either not in force or not specific to foreign investment, but which are pertinent are listed below:

The Competition Act 89 of 1998 provides for the investigation and control of mergers, restrictive practices and abuse of dominance. Mergers taking place in and within South Africa that meet prescribed financial thresholds are subject to prior screening and approval under the Competition Act (the South African equivalent of antitrust laws). Recent amendments to the Competition Act introduced national security provisions, which require a separate application to an executive body ("the Committee") to be established by the President to screen transactions that constitute notifiable mergers involving a ‘foreign acquiring firm’ that impact a specified list of national security interests. Although not yet in force, the provision contemplates that the Committee will review notified transactions in parallel with the Competition Commission’s ("Commission") competition investigation. Much of the substantive content of the new provision is still to be determined (by way of regulations and notices to be issued by the President) and the scope of application, requirements, processes and mechanisms under this provision have not yet been clearly outlined.

The Customs and Excise Act 91 of 1964, read with the Customs Control Act 31 of 2014, and the Customs Duty Act 30 of 2014 impose customs duties, listed in schedules to the Act, in accordance with the World Customs Organization’s Harmonised System of Tariff Classification. In terms of the Act, a prospective importer must be registered as a Customs client and, thereafter, obtain an import license from Customs to import goods into South Africa.

The Broad-Based Black Economic Empowerment Act 53 of 2003 and Broad-Based Black Economic Empowerment Codes of Good Practice were introduced to provide for the inclusive participation of historically disadvantaged South Africans in the economy. Companies earn points on a BEE scorecard, which uses a number of different criteria to determine a rating (the highest rating is level 1). Multinationals often enter into joint ventures with black-owned enterprises to qualify for a BEE rating, but there has been increasing endorsement from the government of worker ownership arrangements as a means of achieving BEE compliance. This is important for companies whose businesses intend to deliver goods or services to the government, and companies that are active in sectors that have charters. Certain sectors, including financial services, mining, petroleum, integrated transport, forest products, construction, tourism, chartered accountancy, information and communication technology, and property have charters that seek to increase the economic participation of black South Africans in those sectors.

The Companies Act 71 of 2008, and the regulations to that Act (collectively, the "Takeover Regulations") apply to certain affected transactions (including schemes, mergers and material asset disposals) or offers that, if accepted, result in an affected transaction involving a regulated company (including, among others, public companies). If the Takeover Regulations apply, the Takeover Regulation Panel, a regulatory body established by the Act, must issue a compliance certificate or exempt the transacting parties in respect of certain approvals and procedural requirements in order for the transaction to proceed. A foreign company is required to appoint a South African resident as the company’s legal representative, as well as a South African qualified and registered auditor where they are required to be audited.

Our exchange control regulations are focused on economic protectionism (although these requirements are increasingly being relaxed) while our competition laws, to the extent they will become applicable to investment, will be a combination.

The Competition Act requires the South African competition authorities to assess intermediate and large mergers by reference to both competition and public interest outcomes and makes provision for the Minister of Trade, Industry and Competition (Minister) to intervene and make representations in merger proceedings on matters of public interest. The public interest considerations under the Competition Act are reflective of the government’s policy objectives on transformation and inclusion and include whether a merger is likely to impact employment/job creation, local industrial sectors, the ability of small and medium firms or firms owned and controlled by historically disadvantaged persons ("HDPs") to participate within the market, the competitiveness of national industries in global markets, and/or the spread of ownership, and in particular, ownership in a firm by HDPs or workers. The public interest assessment applies regardless of the competition effect of a merger. This will be supplemented with the recent amendments to the Competition Act discussed in the first question above which will introduce national security screening for foreign investments through the merger review process.

In terms of the Protection of Investment Act, an investment is any lawful enterprise established, acquired or expanded by an investor, or the holding of ownership instruments in such an enterprise, which commits resources of economic value over a reasonable period of time, in anticipation of proï¬t. The definition includes the holding, acquisition or merger with another enterprise outside South Africa if that investment affects an existing investment in South Africa. The definition applies with respect to all investments and does not cover only particular countries.

For exchange control purposes, a ‘non-resident’ means a person (i.e. a natural person or legal entity) ‘whose normal place of residence, domicile or registration is outside the Common Monetary Area consisting of Lesotho, Namibia, South Africa and eSwatini. While exchange controls do not apply to non-residents, non-residents may be impacted indirectly as acquisitions of South African assets and transactions with residents may require exchange control approval.

Amendments to the Competition Act provide that a “foreign acquiring firm” means an acquiring firm incorporated, established or formed under the laws of a country other than the Republic of South Africa or whose place of effective management is outside the Republic. This provision is, however, not yet in effect.

The various treaties and other instruments that apply to foreign investment will be limited to parties to those instruments.

The Protection of Investment Act does not designate any sectors for screening.

Once the President’s list of national security interests is published in terms of the Competition Act, it will be clearer whether there are any specific sectors designated for foreign investment screening for investments caught by the competition provisions.

There are, however, certain sector-specific restrictions on foreign ownership, subject to sector-specific approval. For example, the Banks Act 94 of 1990 prohibits any local or foreign entity from holding more than 15% of the shares or voting rights in a bank (or its controlling company) without having obtained the necessary consent. The Electronic Communication Act 36 of 2005 prohibits foreigners from directly or indirectly exercising control over a commercial broadcasting license or having a financial interest in the voting shares or paid-up capital exceeding 20% in a commercial broadcasting licensee unless exempted by the Independent Communications Authority of South Africa ("ICASA"). Sector-specific advice should be obtained prior to an investment.

The Protection of Investment Act does not require a review of foreign investment and there are, therefore, no minimum or maximum investment thresholds set.

In terms of the merger control regime, the Commission must be notified of all intermediate mergers. Intermediate mergers are those where: (i) the annual turnover of the acquirer in, into or from South Africa, or the assets of the acquirer in South Africa, combined with the annual turnover of the target in, into or from South Africa, or the assets of the target in South Africa) equal or exceed R600 million; and (ii) the annual turnover or asset value of the target is at least R100 million. The Commission must also be notified of all large mergers where (i) the annual turnover of the acquirer in, into or from South Africa, or the assets of the acquirer in South Africa, combined with the annual turnover of the target in, into or from South Africa, or the assets of the target in South Africa) equal or exceed R6.6 billion; and (ii) the annual turnover or asset value of the target is at least R190 million.

No foreign investment approvals are needed from the government for foreign investors to establish a new business or invest in South Africa, apart from the approval required under the exchange control legislation, which is administered by the South African Reserve Bank ("SARB"), however, specific licenses and permits are necessary for foreign investment in certain highly regulated sectors.

As explained above, the national security screening provision under the Competition Act is not yet in force, but once in force, if an intermediate or large merger involves a foreign acquiring firm and takes place in a sector on the President’s list of national security interests, it must be notified to both the Commission as well as the Committee.

For exchange control purposes, approval is typically obtained prior to closing, although in most instances, it is only actually required in advance of repatriation of funds. There are ways to rectify the invalidity for certain investments, depending on the sector. In the case of SARB, an application would need to be made to regularise the investment, which requires detailed motivation on why prior approval was not sought.

Specific sector approvals must typically be obtained before closing. Different regulators have different processes and a legal advisor would be able to advise in respect of the specific sector.

Once in force, Committee approval for transactions involving foreign acquiring firms, involving a national security asset, and meeting the financial thresholds for mandatory merger notification, will be required prior to closing. The Committee may permit the merger, permit the merger with conditions, or prohibit the merger. Large and intermediate mergers may not be implemented before obtaining the Commission’s approval. If firms implement a merger before approval, a penalty of no more than 10% of the firms’ combined annual turnover in, and exports from, South Africa in the preceding financial year may be imposed.

Not applicable

Generally, South Africa welcomes foreign investment and is not obstructive in the process.

From a competition perspective, the Committee is not yet established and the section of the Competition Act relating to foreign investment approval for national security interests is not yet in effect. There has, therefore, been no review, delay, modification or blocking of transactions.

The Commission, however, in terms of the merger control provisions in the Competition Act, actively reviews local mergers as well as mergers involving foreign acquiring firms. In line with policy objectives and as explained above, mergers involving foreign acquiring firms in which public interest issues are present, usually engage with the Minister on these issues prior to, and/or in parallel with the Commission’s merger investigation, in order to reach an agreement with the Minister on the necessary steps or conditions required to address the Minister’s public interest concerns and thus not delaying competition approval.

On 1 June 2021, the Commission prohibited the acquisition of Burger King (South Africa). The transaction involved the proposed acquisition of Burger King (South Africa) and Grand Foods Meat Plant by ECP Africa, part of Emerging Capital Partners, a private equity firm founded in the USA with investments across Africa. The seller was Grand Parade Investments, a company controlled by HDPs, whereas ECP Africa had no such shareholding. The Commission found that the proposed transaction raised no competition concerns, but that it raised very significant public interest concerns in that it would result in a significant reduction in Black ownership in the target firms – from more than 68% to 0% – and on this basis prohibited the merger. Approval for the merger was however received from the Competition Tribunal, but subject to a number of public interest commitments. In the last two years, there has been an accelerated focus by South African competition regulators to ensure that all mergers promote a greater spread of ownership in South Africa. This practice has been codified in terms of draft guidelines on public interest in merger control and the Commission is inviting stakeholders to comment on its proposed approach.

Other than in the limited sectors described above, there are no traditional grounds to block an investment.

The Competition Commission can only review and block transactions on traditional competition/antitrust grounds (i.e. whether a merger is likely to substantially prevent or lessen competition), and public interest grounds (considerations include the effect that a merger will have on a particular industrial sector or region; employment; the ability of small and medium businesses or firms owned by HDPs to enter, participate in, or expand within the market; the ability of national industries to compete in international markets; and increasing the levels of ownership by HDPs and workers in the market).

In determining what constitutes ‘national security interests’ when screening mergers involving foreign acquiring firms, the President must consider the potential impact of the transaction on:

• national defense capabilities and interests;
• the use or transfer of sensitive technology or know-how outside of South Africa;
• the security of infrastructure essential to the health, safety, security or economic well-being of citizens and the effective functioning of government;
• the supply of critical goods or services to citizens or government;
• the enabling of foreign surveillance or espionage, or the hindrance of current or future intelligence or law enforcement operations;
• South Africa’s international interests, including foreign relationships;
• the enabling of the activities of illicit actors, such as terrorists, terrorist organizations or organized crime; and
• the economic and social stability of South Africa.

The screening committee has not yet been appointed, nor has a list of national security interests been published by the President.

The substantive content of the new competition provisions related to foreign investment is still to be determined by way of regulations and notices to be issued by the President.

Negotiations regarding the AfCFTA are progressing well and we anticipate further developments in the coming months in light of renewed focus in this space.

Amendments to the Companies Act are expected later this year, aimed at enhancing transactional certainty, easing requirements for financial assistance, Memorandum of Incorporation amendments, validation of share issues, unpaid share issues and buy-backs and adjusting triggers for private company compliance with takeover regulations. They are also set to introduce more onerous governance and disclosure obligations aligned with global trends.