South Africa, with its advanced and industrialized economy in Sub-Saharan Africa, remains a hub for regional investment. The Government of South Africa (GoSA) is relatively open to foreign investment to drive economic growth, improve international competitiveness, and access foreign markets.
The Department of Trade and Industry and Competition (DTIC) and its investment promotion agency (InvestSA) assist foreign investors through both investment facilitation and aftercare. It actively courts manufacturing in sectors where it believes South Africa has a competitive advantage. It favors sectors that are labor intensive and with the potential for local supply chain development.
InvestSA also provides support for foreign investors through its One Stop Shop program, which is designed to assist investors by streamlining administrative procedures across several government departments and agencies for investment facilitation and business registration. Foreign companies may be eligible for incentives in South Africa under several ad hoc initiatives as well as the Special Economic Zones (SEZs) Act of 2014, which promotes regional industrial development by providing incentives for foreign (and local) investors that elect to operate within the country’s SEZs.
The South African government prioritizes investment retention and engages in dialogue with investors through structured platforms such as InvestSA and the Presidential Investment Summit - an annual event where the government engages with domestic and foreign investors to discuss challenges, opportunities, and policy reforms.
The International Chamber of Commerce (ICC) plays a significant role in this landscape, particularly in the realm of commercial arbitration. In line with international trends, commercial arbitration of disputes in South Africa has become more popular over the last 15 years.
Read also: Lagos Airport: A Historical Overview
This is particularly so in disputes which require the arbitrator to have specialised commercial skills, for example, in disputes that are commercially complex or transnational in scope, or where a particular expertise is required, such as in construction or engineering disputes.
Beyond the Courtroom Exploring Arbitration and Alternative Dispute Resolution in South Africa
Arbitration and Legal Framework
The principal legislation governing arbitrations in South Africa is the Arbitration Act 42 of 1965, which applies to international and domestic arbitration proceedings conducted in the country, although the common law (based on English law as developed by the courts) still applies to the extent that there is no conflict.
Because this legislation dates from 40 or 50 years ago, and predates the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, the current South African legislation is not in alignment with international developments.
At the end of 2017, South Africa’s legal framework was modernised and brought in line with the UNCITRAL Model Law on International Commercial Arbitration (the “UNCITRAL Model Law”) through the adoption of the International Arbitration Act 15 of 2017 (IAA).
The IAA now provides a comprehensive legal regime that is conducive to international arbitration, addressing all stages of the arbitral process and limiting court intervention to specific grounds, such as procedural or jurisdictional issues. South Africa is also a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which facilitates the recognition and enforcement of foreign arbitral awards in the country.
Read also: Accra Airport Guide
The IAA explicitly incorporates the UNCITRAL Model Law into South African law. As a result, the Model Law serves as the foundational framework for international arbitration in South Africa, ensuring alignment with global standards and offering a predictable legal environment for international commercial disputes. The IAA also provides for the recognition and enforcement of foreign arbitral awards, thus replacing South Africa’s prior legislation (the Recognition of Foreign Arbitral Awards Act of 1977).
While the IAA closely follows the UNCITRAL Model Law, there are a few notable distinctions.
Key Distinctions in the IAA:
- Public policy and state parties: The IAA emphasises public policy considerations, particularly concerning state parties involved in arbitration. It mandates that arbitration proceedings involving public bodies be held publicly, diverging from the UNCITRAL Model Law’s typical confidentiality provisions.
- Investor-state dispute settlement (ISDS): The IAA does not provide for automatic recourse to ISDS mechanisms (such as the International Centre for Settlement of Investment Disputes (ICSID) arbitration), reflecting a cautious stance towards ISDS.
This stance is also reflected in the Protection of Investment Act, which makes international arbitration voluntary but not compulsory for the South African government in ISDS matters.
There have been no significant amendments to the IAA in the past year; however, the ongoing interpretation and application of the IAA by the courts continues to shape its implementation and effectiveness. This judicial involvement has been crucial in refining the arbitration landscape in South Africa, ensuring that the IAA evolves together with emerging legal and commercial needs.
Currently, there is no pending legislation that may significantly alter the international arbitration landscape in South Africa.
Read also: Your Guide to Luxor International Airport
Although many arbitrations, including large commercial disputes, are conducted in an ad hoc informal manner, there are several accredited arbitral bodies that are well placed to administer arbitrations with their own sets of rules and highly competent and experienced body of arbitrators.
There are several independent arbitration bodies in South Africa, including the International Chamber of Commerce (ICC), Association of Arbitrators of Southern Africa (formed in 1979, it has approximately 2000 members), and the Arbitration Foundation of South Africa (AFSA, founded in 1996).
AFSA is a joint venture between organised business and the legal and accounting professions. It has two sets of rules: commercial rules for arbitrating complex or substantial matters, and simple rules for arbitrating smaller, less intricate disputes.
AFSA is arguably the leading arbitral institution in South Africa and the one most involved in trying to fashion for South Africa a genuine international arbitration presence, seeking to capitalise on its position, financial and legal infrastructure, and accessibility. AFSA has partnered with the Shanghai International Arbitration Centre (SHIAC) to provide an umbrella organisation for Sino-African disputes.
Since the adoption of the IAA, the prevalence of international arbitrations seated in South Africa has increased. Statistics published by the Arbitration Foundation of Southern Africa (AFSA) show this increased prevalence.
According to AFSA’s 2022 report, international arbitrations constituted 65% of the overall disputes lodged with AFSA, while domestic arbitrations accounted for the remaining 35%. The composition of parties involved in AFSA international arbitrations reflects significant international engagement, with 71% hailing from the SADC region and the remaining 29% of the parties originating from non-African nations.
South Africa is increasingly being chosen as a seat of arbitration in parties’ commercial contracts, particularly due to the availability of skilled arbitrators and a supportive judiciary that respects the autonomy of the arbitration process. This has made international arbitration in South Africa an attractive option for parties, particularly those hailing from the Southern African Development Community (SADC) region.
AFSA is South Africa’s leading arbitral institution, and has played a significant role in the development of international arbitrations in South Africa.
Although it is not a new institution, in 2021 the AFSA International Court was established under the revised AFSA International Arbitration Rules (the “AFSA International Rules”), and AFSA began to offer services that catered to both domestic and international disputes in diverse sectors, reflecting its capacity to manage complex cases and its importance in the South African arbitration landscape.
The AFSA International Court is the first of its kind in South Africa and is tasked with taking decisions on behalf of AFSA, including the appointment of arbitrators and resolution of any challenges to appointments and issues of jurisdiction.
The China-Africa Joint Arbitration Centre (CAJAC Johannesburg) is a subsidiary of AFSA and was established in response to the need for a credible China-Africa dispute resolution mechanism, necessitated by the increasing trade between China and Africa.
South Africa does not have courts specifically designated for international or domestic arbitration disputes. However, in the Gauteng Province, the Commercial Court (which is a specialist division of the Gauteng High Courts) can be used to resolve arbitration-related matters expediently.
Under the IAA, parties enjoy broad discretion in shaping the composition of the arbitral tribunal, a principle that reflects the foundational value of party autonomy in international arbitration.
This autonomy allows parties to determine key aspects of the arbitration process, including the number of arbitrators, the method of their appointment and any specific qualifications or expertise required - such as legal background or industry-specific knowledge.
However, this autonomy is subject to the requirement that the appointed arbitrators must be impartial and independent. The requirement of “impartiality” means that the arbitrator must not favour either party, while “independence” requires freedom from any relationships or interests that could influence the arbitrator’s judgment.
If the parties fail to agree on the method of selecting arbitrators and there is no other chosen method, or if their chosen method fails, the IAA provides a default mechanism.
Article 11 of Schedule 1 of the IAA stipulates the following.
In an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator, they will be appointed, on the request of a party, by the relevant court with jurisdiction (which is determined with reference to Article 6 of Schedule 1 to the IAA).
In an arbitration with three arbitrators:
- each party must appoint one arbitrator, and the two appointed arbitrators will appoint the third arbitrator; and
- if a party fails to appoint the arbitrator within 30 days of receipt of a request to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the appointment will be made, on the request of a party, by the relevant court with jurisdiction (which is determined with reference to Article 6 of Schedule 1 to the IAA).
The South African courts may only intervene in the selection of arbitrators under specific circumstances, as outlined in the IAA.
This intervention can occur in the following circumstances:
- when there is a failure in the agreed procedure for appointment and the court is requested to intervene; or
- when a party challenges an arbitrator’s appointment on grounds such as bias or lack of independence, and if its challenge under the agreed procedure is not successful
Investment Climate in South Africa
South Africa boasts the most advanced, broad-based economy in sub-Saharan Africa and remains an attractive hub for regional investment. However, South Africa continues to suffer the effects from a “lost decade” in which economic growth stagnated, largely due to corruption and economic mismanagement, and a slow economic rebound post-COVID amid endemic logistics and energy crises.
Following national elections in May 2024, in which no party earned a majority of the vote, South Africa formed a ten-party coalition government in July 2024 referred to as the Government of National Unity (GNU). Consequently, the stability of the GNU has been a key driver of positive investor sentiment.
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. Laws, policies, and reforms seek “economic transformation” to accelerate the participation of and opportunities for South Africans disadvantaged under apartheid.
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.
In February 2023, the Financial Action Task Force listed South Africa as a jurisdiction under increased monitoring, known as the “grey list,” to address deficiencies in its regime to counter money laundering and terrorist financing (AML/CFT).
The Government of South Africa is relatively open to foreign investment to drive economic growth, improve international competitiveness, and access foreign markets.
The 2018 Competition Amendment Act introduced a government review mechanism for foreign direct investment (FDI) in certain sectors on national security grounds, including energy, mining, banking, insurance, and defense.
Private sector representatives have expressed concern about the politicization of mergers and acquisitions. Under the Companies Act, which governs the registration and operation of companies in South Africa, foreign investors may establish domestic entities as well as register foreign-owned entities.
Most foreign investors establish subsidiaries or private companies with at least one director and one shareholder. A private company’s directors do not have to be South African but private company may not have more than 50 members (shareholders). If the foreign investor requires an entity with more than 50 members, a public company may be the best option.
The 2019 Competition Amendment Act allows for the blocking of a merger involving a foreign acquiring firm if, in the opinion of a presidentially appointed foreign investment committee, its implementation is a cause for concern for the country’s national security.
The Companies Act outlines relevant national security interest criteria for certain industries, including energy, mining, banking, insurance, and defense that could potentially subject transactions covered to additional scrutiny. Reviews are conducted by an interministerial committee appointed by the president.
Although South Africa welcomes foreign investment, foreign companies may be subject to additional regulatory measures, especially if seeking certain public contracts or licenses.
Under the Broad-Based Black Economic Empowerment (B-BBEE) Act of 2003 and its subsequent regulatory codes, South Africa has undertaken efforts to reintegrate historically disadvantaged individuals into the economy by requiring companies meet certain thresholds of black ownership and management control, among other measures for black economic empowerment, to participate in government tenders and contracts.
In recognition of the challenge the B-BBEE scoring system can place on foreign business, the DTIC created an alternative Equity Equivalence Investment Program (EEIP) program for multinational or foreign owned companies to allow them to show alternative paths to making B-BBEE ownership and management commitments under the law.
Popular articles:
tags: #Africa
