Government Spending Due to cyclical, structural and regulatory/policy challenges in the economy, government capital and operational spending has been severely curtailed since 2016, and a double deficit (budget and household) suggests that economic decline may accelerate over the short term. The currently resurgent Rand currency reflects a 20-year plus record current account surplus based on robust commodity exports and muted imports.

• Management: There is growing concern about a host of political, economic, and regulatory factors that affect foreign businesses adversely. These include reports about corruption and mismanagement in government, significant unemployment, violent crime, insufficient infrastructure, and poor government service delivery to impoverished communities; these factors were exacerbated by the Covid-19 pandemic. However, some progress is being made in reforming some State-Owned Enterprises (SOEs) that were tainted by corruption and mismanagement. The National Treasury of South Africa (Treasury) oversees compliance with the Public Finance Management Act (PFMA) that manages fair and transparent procurement processes. However, by its own admission, Treasury has increasingly allowed non-competitive bids under exceptional circumstances for the sake of services delivery. Deviation rules allow SOEs to use existing contracts without requesting new bids from suppliers.  
   
• Competition: U.S. firms entering this market must contend with a mature and competitive market marked by well-established European and Asian.competition. A trade agreement between SADC and the European Union enables many European products to enter South Africa duty-free or at lower rates than U.S. products. The United Kingdom signed a similar agreement with the South African Customs Union member states and Mozambique that took effect in 2021.
   
• Exchange Rates: The volatile Rand-dollar exchange rate can complicate planning, especially for smaller or new-to-market firms.
   
• Energy Reliability: South Africa has struggled for over a decade with an unreliable energy supply causing severe blackouts, known locally as “Load Shedding.” For businesses, unreliable electricity results in increased running costs and reduced productivity and profitability. The power outages in South Africa are a leading inhibitor to investment and growth and are a severe drag on the economy. Although the country has enjoyed a reprieve from load shedding throughout much of 2024 and 2025, due in large part to reduced demand as businesses and households installed behind-the-meter (BTM) solar systems, which are energy systems located on the customer’s side of the utility meter, the energy system remains fragile and is facing a rising electricity affordability crisis.
   
• Expropriation Act: In December 2024, President Cyril Ramaphosa signed the Expropriation Act of 2024 into law. The Act replaces the Expropriation Act of 1975 (enacted during the apartheid era) to create a single framework for state expropriation of property. The new law provides for a “just and equitable” compensation standard outlined in the Constitution, in lieu of expropriation based on market-rate compensation. The Act provides for circumstances where land may be expropriated without compensation, referred to as “nil compensation” under the law. The procedural uncertainty around the new expropriation powers, along with incendiary rhetoric by certain political parties encouraging illegal expropriation of land and farm violence, threaten the security of property rights for landowners and investors.
   
• B-BBEE Laws, policies, and reforms seek “economic transformation” to accelerate the participation of and opportunities for South Africans disadvantaged under apartheid. U.S. companies and investors have noted challenges in navigating the implementation and regulatory impacts of such policies, particularly to obtain government contracts or conclude mergers and acquisitions. Other Government of South Africa initiatives to accelerate transformation include labor laws that require proportional representation in workplaces and prescriptive government procurement requirements such as equity ownership and employment thresholds for South Africans categorized as historically disadvantaged. Also see the “Selling to the Government” section.
   
• Localization: The South African Government is continuously changing the mandatory industrial localization requirement for foreign suppliers that are often viewed as a cost and risk factor for doing business in South Africa.
   
• Ownership: The South African Government has continued to tighten labor and foreign ownership laws and mandated industrial localization. Sectors of specific concern include the extractive industries, security services, and agriculture.
   
• Labor: Due to the poor state of the public education system, skilled labor can be difficult to find in many technical and professional segments despite steadily increasing unemployment. Companies also may experience difficulties in obtaining visas for foreign skilled workers to enter South Africa. While the nominal unemployment rate is above 33 percent, the rate is significantly higher when including those who have stopped looking for work. The labor market has been further constrained by government requirements mandating hiring and workforce demographic quotas based on race and gender for companies with more than 50 employees.
   
• Logistics: South Africa is facing significant challenges in its combined logistics sectors – port, rail and road. Although South Africa’s transport infrastructure is among the best on the continent, a lack of maintenance and infrastructure investment, with a resultant shift from rail to road, as well as congested and inefficient ports, has led to delays in cargo handling and increased costs for shipping companies and importers/exporters. The South African Government has recently renewed its commitment to fix the problems in the sector by establishing the National Logistics Crisis Committee (NLCC) to address the immediate challenges in the freight logistics system which have severely constrained exports and undermined investment and job creation in affected sectors. The NLCC is overseeing a range of interventions to achieve this objective, including upgrading equipment and infrastructure, improving operational performance, increasing the availability of rolling stock, and securing the rail and port networks. The South African Government is actively leading this effort in identified priority areas, in collaboration with business and social partners, where appropriate.