Global business is increasingly showing interest in expanding their business operations into the African continent. This poses a number of challenges for companies wanting to invest in Africa, particularly in respect of business culture, vastly different legislation, a potentially tumultuous political environment and very specific policy requirements, such as indigenisation policies. However challenging they may be, if these hurdles are overcome by companies, Africa holds substantial potential for companies to enter into and grow their business operations in these markets. As such, increasingly South African companies have been showing interest in expanding into Africa, so as to not be left behind by their global competitors.      

Exchange Control Requirements

Companies registered in South Africa have an additional hurdle to overcome when expanding their business operations into Africa. The Exchange Control Regulations, as applicable in South Africa, requires that particular approvals must be obtained prior to a South African company undertaking a foreign direct investment.

South African companies wishing to expand their business operations into Africa, outside of the Common Monetary Area which consists of Lesotho, Namibia, South Africa and Swaziland, must attend to the following:

  • For foreign direct investments into companies, branches and/or offices, where the total costs of such investment does not exceed R500 million per calendar year, the approval of an Authorised Dealer must be obtained before undertaking such foreign direct investment. In order for the Authorised Dealer to consider such a request, a written application must be made to the Authorised Dealer. Such applications would typically contain the following information for the Authorised Dealer’s consideration:
    • The name and registration number, as well as names and domicile of the shareholders, of the applicant company
    • The applicant company’s latest available audited financial statements verifying, inter alia, the applicant’s nature of business
    • Details of how the investment will be funded
    • An outline of the anticipated benefits of the foreign direct investment (such benefits need to be wider than a potential dividend derived from the investment)
    • The proposed structure through which the foreign target entity will be held, including details of existing or new foreign holding companies
  • In respect of foreign direct investments in excess of R500 million, the Financial Surveillance Department’s prior approval will be required and, similarly, a written application process must be followed.
  • At least 10% of the foreign target entity’s voting rights must be obtained.

Conclusion

Investing into Africa is daunting for most companies. The economic landscape is usually filled with a number of known and unknown legislative, financial, political and cultural variable factors. However, engaging with the right professional advisor to guide you in this journey, already goes a long way towards establishing your presence in Africa, and can provide you with a sound corporate structure for your business operations to grow. 

Phillip Kruger

Legal Advisor, Johannesburg