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The International Comparative Legal Guides: Foreign Direct Investment Regimes 2023 – Eastern and Southern Africa

1 December 2022
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This chapter aims to provide an overview of the national policies and regulatory frameworks applicable in respect of foreign investments in Kenya, Mauritius, South Africa and Tanzania. Each of these African economies aims to attract foreign investment and has varied policy frameworks to this effect – ranging from actively incentivising local investment, to enhancing the ease of doing business. At present, no country requires a general national security ‘screening’ for foreign investments, although South Africa recently introduced amendments to this effect as part of its merger-control regime, (these amendments have not yet been brought into effect).

While these economies aim to attract foreign investment, the protection of particular national interests – most notably, so-called public interest considerations such as employment and the competitiveness of national industries – is also a key feature of their socio-economic policies. Public interest considerations are generally applied in the context of competition law, under the assessment of mergers where conditions may be applied to remedy perceived negative public interest impacts. There may also be sector-specific legislation requiring local ownership or other protectionist measures. As such, the framework with respect to foreign investment in each jurisdiction reflects both pro-investment policies and laws alongside national interest protection provisions. The balancing of positive economic impacts against potentially negative national interest outcomes appears to be left to be ‘regulated’ on a case-by-case basis.

Kenya has launched a focused investment policy which provides a legal framework for foreign investment and aims to mitigate challenges faced by foreign investors. There are a number of laws aimed at fostering foreign investment, and particularly where such investment can be shown to have public and national interest, technological, trade and other benefits. As part of the country’s foreign investment framework, Kenya established a statutory body whose main objective is to facilitate the implementation of new investment projects, provide aftercare services for new and existing investments, and organise investment-promotion activities. At the same time, a number of regulated sectors apply local shareholding requirements (notably, companies listed on the Kenyan Securities Exchange must reserve at least 25% of their ordinary shares for investment by local investors). In addition, the Kenyan merger control regime allows the competition authority to impose conditions to address negative public interest impacts.

In Mauritius, a dedicated government agency is responsible for promoting investment, and for helping to guide investors through the country’s legal and regulatory requirements. There are a number of policies and schemes in place to encourage investments, but there are also sector-specific limitations on the percentage shareholding a foreign investor may hold in a local company. Merger transactions, including those involving a foreign acquiring firm, do not require mandatory notification under the competition merger-control regime. However, in circumstances where mergers are voluntarily notified, or where the merger parties have been called on by the competition regulator to notify, the effect of the merger is assessed on both competition and public-interest factors. Nevertheless, the competition regulator is not obliged in its assessment to consider national security outcomes.

South Africa’s foreign investment framework similarly provides for a balancing of pro-investment policies against the protection of public interest priorities such as job preservation and the protection of small businesses and businesses owned and controlled by historically disadvantaged persons. Public interest considerations are principally addressed within the merger-control framework, which allows for ministerial intervention in mergers which raise public-interest concerns. In addition, and while not yet in force, recent amendments to the competition laws introduce a national security assessment to be conducted by a separate, executive body to be appointed by the President of the Republic in the case of notifiable transactions involving a foreign acquiring firm.

Tanzania has recently shifted its position with respect to foreign investment and has developed an investment policy currently focused on improving the ease of conducting business in Tanzania. Under this framework, the government has established an agency for the purpose of facilitating investment and advising the government in respect of investment policy. There is no overarching foreign investment screening or review process, however, foreign investments may be subject to review and/or restriction in accordance with various general and sector-specific laws. The Tanzanian merger-control regime provides for the assessment of public-interest considerations, although compared to other jurisdictions, the competition regulator gives relatively little prominence to public-interest considerations.

This article first appeared on ICLG – Mergers & Acquisitions.