South Africa’s persistent investment crisis is eroding economic growth, jobs, and the country’s broader social wellbeing. But there is hope on the horizon if the correct policy reforms are adopted.

This is according to a new report released yesterday by the Institute of Race Relations (IRR), a think tank in Johannesburg.

Entitled "Open(ing) for business": South Africa's investment malaise and how to escape it the report finds that the country’s decade-long economic malaise is rooted in failing governance, shrinking public and private investment, and a dense web of burdensome regulation. 

The report singles out persistent power shortages, clogged logistics networks, crumbling infrastructure, and chronic skills shortages, with the IRR stating: “Skills shortages born of weak schooling and an aversion to low wage employment further erode productivity and raise entry barriers for new ventures.” 

In response, the IRR sets out a sweeping reform blueprint targeting regulation, empowerment policy, the informal sector, labour law, and policy certainty. 

Regulations

The IRR urges that only regulations which are strictly necessary should be retained. Where regulations are imposed, it urges that they must be practical and efficiently implemented so that necessary permissions can be processed quickly and businesses that meet requirements are not held back by bureaucracy. The IRR urges a strong programme of deregulation wherever possible to remove unnecessary barriers to economic activity. 

The report is particularly critical of broad-based black economic empowerment (B-BBEE), stating: “B-BBEE has failed and should be abolished in its current form. While it has benefited a small cadre of people, not infrequently those with political cache rather than business acumen, it has added to the costs and complexities of doing business.”

The IRR warns: “Demands that equity be surrendered as a condition for operating fully in the South African economy is wholly counter-productive.” Instead, it puts forward a new empowerment model, Economic Empowerment for the Disadvantaged, which seeks to incentivise investment and materially uplift the country’s poorest citizens through targeted support rather than blanket equity requirements. 

Addressing the informal sector, the IRR urges a complete policy reorientation, calling on the state to understand the sector on its own terms. The report points out: “The informal economy comprises both survivalist activities and scalable, profit-oriented operations.” While the former provide vital livelihoods for many, the latter offer genuine opportunities for investment and growth. 

Targeted Support

The IRR urges targeted support for access to premises, capital, and integration into formal value chains, noting: “Different types of enterprises demand different levels of regulation.” This, the report argues, requires policymakers and public servants with: “sufficient understanding of the informal economy, and the associated ideological flexibility, to design and implement suitable policy solutions.” 

Labour legislation also faces scrutiny in the IRR’s blueprint. The report argues: “Centralised bargaining agreements between government, large firms, and organised labour are negotiated to the detriment of those not represented at the table, including unemployed people, the unskilled, and small businesses.”

The IRR urges: “This system needs to be abolished, and either limited strictly to those who actively participate in it, or who choose to be covered by it, or replaced by the principle of free association and competition.” It contends that existing labour regulations have become a major disincentive to labour-intensive investment and have compounded South Africa’s unemployment crisis. 

To restore investor confidence, the IRR urges the elimination of threats to property rights, such as expropriation without compensation, as well as any regulatory requirements that force businesses to cede equity.

The report says: “Every new law and regulation must be subject to robust impact assessments focused on their effects on growth and investment.” The IRR notes that while variants of these assessments already exist, they are often pro forma exercises that legitimate rather than interrogate policy proposals.

The IRR concludes that, without deep reforms to policy, regulation, and governance, South Africa will remain unattractive to the capital inflows it desperately needs to reignite growth and create jobs.