South Africa needs tax incentives to boost investment

South Africa stands at a pivotal moment in its economic trajectory.  After more than a decade of sluggish growth, escalating fiscal pressures, and deteriorating infrastructure performance, the country urgently needs strategies that can stimulate investment, unlock productivity, and restore confidence among both domestic and foreign investors. Tax incentives – properly designed and effectively administered – offer one of the most powerful policy levers to achieve these outcomes.

While South Africa remains the most industrialised economy in Sub‑Saharan Africa, investor sentiment has been undermined by persistent structural challenges. These include policy uncertainty, weakened infrastructure, severe energy constraints, only recently resolved, and a tight fiscal position. Despite strengths such as strong capital markets and a robust legal system, investor confidence continues to be threatened by slow economic reforms, corruption, and concerns around property rights.

In this context, tax incentives can serve as a compensatory tool to offset investor risk.  By lowering the effective cost of doing business, they encourage long‑term capital commitments that might otherwise be diverted to more predictable emerging markets.

South Africa’s fiscal authorities face a difficult balancing act. The National Treasury over the years has signalled the need to boost revenues. Well-designed tax incentives will not cost the government any money, apart from lost revenue, while achieving higher economic growth, improving productivity, and broadening the tax base through increased business activity.  Incentives for capital expenditure and manufacturing expansion can stimulate productivity gains – one of the most critical levers identified for boosting growth. Combined with already existing tax incentives for research and development as well as energy efficiencies, significant productivity gains can be achieved. In other words, by fostering higher privatesector activity, incentives help generate more taxable income overall.

South Africa’s growth potential is held back most severely by failures in the logistics, and until recently, energy sectors. It remains to be seen if the energy sector will remain load shedding free. Productivity gains and economic expansion depend heavily on improvements in infrastructure for energy and transportation systems. Yet the fiscus cannot afford the capital investment required on its own, particularly climate‑resilient infrastructure and renewable energy capacity. Tax incentives can crowd in private capital where public finances fall short.  

With improved reliability in electricity supply and logistics, businesses will be more likely to reinvest and expand operations, creating a positive feedback loop of growth.  While these improvements take time to be implemented tax incentives will play an important role to attract capital investments.

South Africa is Africa’s leading investment destination, but competition is intensifying. Neighbouring countries offer corporate tax incentives, special economic zones, and streamlined regulatory environments to attract foreign investors. Although South Africa’s value proposition remains strong, backed by worldclass financial markets and an increasingly diversified economy, it needs to stay competitive even with all the challenges it faces.  South Africa needs to strengthen and modernise its incentive portfolio, particularly to support advanced manufacturing, greenenergy projects, and digital industries. Without renewed incentives, South Africa risks losing out on largescale green energy and industrial investments that are already shaping global value chains.

Tax incentives alone cannot fix structural issues such as regulatory inefficiency, corruption, or gaps in skills development. But they can serve as catalysts that encourage investment during the time needed to implement broader reforms.

If South Africa hopes to reignite much needed economic growth, restore investor confidence, and position itself as a globally competitive investment hub, tax incentives must form a core part of its economic strategy. Tax incentives are not giveaways – they are investments in national prosperity. By reducing investor risk, stimulating productivity, attracting foreign direct investment, and supporting infrastructure and energy reform, tax incentives can unlock the country’s immense potential and set it on a sustainable path to inclusive economic growth.