Foreign Direct Investment

As many Member States of the Southern African Development Community (SADC) strive to develop their economies, they rely on investment from other nations to help achieve their long-term economic goals. For this reason, SADC has developed policies and procedures encouraging such Foreign Direct Investment, placing funding directly into production, instead of accumulating it through the sale of stocks and bonds. Foreign Direct Investment directly contributes to projects that create jobs in the region and that develop the infrastructure and industry necessary to grow the economy. Through these cooperative activities, the larger SADC goal of greater Regional Integration also benefits.

The Protocol on Finance and Investment

As the guiding financial policy for SADC, the Protocol on Finance and Investment highlights the importance of Foreign Direct Investment. Article 3 of Annex 1 indicates that Member States of SADC should promote entrepreneurship in industries that specifically attract Foreign Direct Investment. Similarly, Article 4 of Annex 3 directs Member States to collaboratively develop a framework for Tax Incentives that will draw foreign direct investment into the region.

SADC recognises that attracting foreign direct investment involves competing with other nations throughout the world. Therefore, the Regional Indicative Strategic Development Plan (RISDP) outlines factors that investors consider when assessing a region for its suitability toward business:

A stable political and macroeconomic environment, as well as favourable regulations, quality economic infrastructure, qualified human resources, and a transparent legal system;
Integration of the national markets into an expanded regional market with a higher level of liquidity; and
A harmonised investment regime and business environment.

Factors Affecting Foreign Direct Investment

The global economic downturn that began in 2008 has greatly affected foreign direct investment in SADC. Between 2009 and 2010, total foreign direct investment in the region fell by almost 50%. However, not all Member States are equal in terms of market size, political stability, infrastructure quality, or availability of natural resources – all factors that affect international investment. Consequently, some Member States have maintained levels of foreign direct investment more strongly than others. South Africa and Angola have historically higher levels of foreign direct investment, and 2010 saw the Democratic Republic of Congo increase its net foreign direct investment inflow to almost US $3 billion. Similarly, Seychelles increased its foreign direct investment as a percentage of gross domestic product significantly, approaching 40%. Even Member States who are below average in terms of these key decisive indicators are often able to attract steady Foreign Direct Investment into extractive industries, as the potential international demand for the natural resources outweigh any risks involved.

With the recently established Regional Infrastructure Development Master Plan, SADC acknowledges the success of public-private partnerships in attracting foreign direct investment into regional infrastructure. Through these partnerships, Member States have successfully drawn private sector support for important roads, railways, and ports along the Maputo Corridor and elsewhere, for petroleum and gas development, and for telecommunications services throughout the region. Furthermore, several Member States have found investors for tourism infrastructure, particularly for border post upgrades in Lesotho and for park lodge construction in Botswana and Mozambique.

Yet, the most important factor for attracting foreign direct investment into a region is its economic integration into world markets. Therefore, furthering SADC’s emphasis on Economic Liberalisation and Regional Integration will in turn entice international companies and investors into the region.

Restrictions on Foreign Investment

While all SADC Member States encourage Foreign Direct Investment, each Member State still currently operates its own regulatory framework with its own level of economic liberalisation. Although many Member States are fully open to foreign investment in several sectors, certain strategic sectors still have limits on foreign investment. In particular, many Member States place restrictions against foreign ownership of extractive industries, especially mining, oil and gas; transport and telecommunications; banking and insurance; and media. These sectors fall under special policies and programmes aimed at economically empowering the people in the region and protecting sovereignty.

Following is a breakdown of restrictions on Foreign Direct Investment in SADC Member States:

  • Five SADC countries restrict foreign investment in telecommunications, with only Mauritius and Zambia allowing 100% foreign ownership; Madagascar and Mozambique only restrict fixed line telecommunications, allowing foreign ownership of mobile services.
  • Angola restricts foreign ownership to 10% in banking, 50% in insurance, and 80% in transportation.
  • Tanzania restricts foreign investment in insurance to 66%.
  • Most SADC countries restrict media ownership by foreign investors, especially television broadcasting; only Madagascar and Zambia permit 100% foreign ownership in the media sector.

SADC Foreign Direct Investment at Glance