South Africa’s regulatory certainty deficit is testing the patience of foreign capital

South Africa offers a paradox that emerging-market analysts have become used to, awash with credible institutions but nonetheless striving so hard to make itself unwelcoming to the capital it desperately needs. With independent courts, robust commercial law, and signatory to the New York Convention on arbitral awards, the country possesses many of the ingredients that long-term investors crave.

The judiciary is generally considered transparent and operates fairly. There are no widespread complaints about court processes regarding investment disputes. However, the investment weather have worsen for years, not due to institutional collapse, but due to the compounding triad of legal, regulatory, and contract enforcement risks that constitute implicit tax on capital. These factors conspire to erode investor trust and deter the very long-term Foreign Direct Investment (FDI) required to build productive capacity.

A regulatory morass and the cost of uncertainty

This structural discord manifests acutely in the April showers of the country’s regulatory landscape. Corporate entities are often confronted with an opaque maze of policy reversals and shifting targets against their preferences for a stable, predictable rulebook. For instance, the Broad-Based Black Economic Empowerment (B-BBEE) frameworks too often face whimsical administrative adjustment that scuttle long-term equity calculations, even if rooted in the vital historical necessity of socioeconomic redress.

Again, the Expropriation Act of 2024, which was signed into law by President Cyril Ramaphosa in December 2024, has replaced apartheid-era legislation and introduced a “just and equitable” compensation standard. Sadly, it explicitly provides for circumstances where land may be expropriated without any compensation at all.

Meanwhile, localization mandates and erratic procurement targets complicate supply chains, turning what should be simple capital deployment into an ongoing compliance exercise. Bureaucratic paralysis is rife, with long delays in securing critical licenses, forcing projects into indefinite hibernation. This regulatory inertia compounds the policy uncertainty, creates a substantial opportunity cost, stifles market agility, and corrodes the returns on capital.

Consequently, FDI has plateaued to unenviable level over the past decade, consistently hovering below 2 percent of GDP. But economists say that an additional 1.5 percentage points could be added to annual economic growth if regulatory compliance delays are reduced by half.

The enforcement bottleneck
Commercial disputes often arise, inevitably, from these shifting sands, presenting investors with a second, more daunting obstacle of inefficient contract enforcement. But the vulnerability does not lie within the integrity of South Africa’s judiciary itself. If anything, the country’s high courts and appellate divisions have been uncorrupted, rigorous, and legally sound, frequently ruling against the state in landmark constitutional and commercial battles. The breakdown is in administrative and institutional capacity.

Limited administrative resources, systemic backlogs, and an over-burdened court registry mean that a straightforward breach-of-contract dispute can easily languish for three to five years before reaching a final resolution. The consequence is not palatable for an infrastructure fund or an industrial multinational as capital cannot afford to sit idle on a balance sheet or frozen in litigation limbo while awaiting a court date. Afterall, a legal right that cannot be quickly enforced is synonymous with having no right whatsoever. This is the reality in the fast-moving world of global trade.

Three surgical reform imperatives for change
Pretoria must abandon the illusion that policy pronouncements alone can attract capital and perform three (3) specific reform surgeries if South Africa is to reverse this trend and spark a sustained investment revival.
First, the government must codify the “public interest” test in competition law. Instead of allowing the Competition Commission to extract whatever it can in each case, Parliament should amend the Competition Act to specify that public interest conditions are limited to, for instance (a) preserving at least 95 percent of existing jobs, (b) maintaining a headquarters in South Africa for at least five (5) years, and (c) offering B-BBEE equity to a maximum of 10 percent of transaction value. Anything beyond that requires a new regulation, subject to parliamentary scrutiny. This would transform merger negotiations from open-ended bargaining into a check-the-box exercise.

Second, Pretoria must finalise the exchange control restoration announced in April 2026, moving from “positive bias” to a veritable rules-based system. This will entail publishing a complete and concise list of prohibited capital transactions, abolishing the requirement for approval of routine cross-border payments under R10 million, and creating a 48-hour automatic approval process for all others. The Reserve Bank should retain monitoring powers, not pre-clearance powers. If Zimbabwe can liberalise its current account, so can South Africa.