As Giants Hesitate: How South Africa’s Weak Incentives Are Pushing Business Out

A quiet exodus is brewing in South Africa’s corporate corridors. Major investors like Volkswagen Group Africa and British American Tobacco are publicly reconsidering their future in the country, citing unsustainable investment economics. At the heart of their hesitation lies a critical failure: South Africa’s tepid, often dysfunctional incentive system is no longer competitive, pushing both job creation and manufacturing into a perilous decline.

This isn’t just about multinationals seeking better deals. It reflects a systemic breakdown where well-intentioned policies are undermined by poor implementation, pushing the economy toward a dangerous shift from production to importation.

The ETI Debacle: When Job Creation Incentives Backfire

Take the Employment Tax Incentive (ETI), designed to spur youth hiring. Instead of fueling employment, it’s become a source of friction. As Webber Wentzel’s Joon Chong notes, disputes between SARS and employers over disallowed claims are rising, with over 400 cases on hold awaiting a test outcome.

Jonathan Gering, CEO of a firm managing 1,500 youth placements, highlights the absurdity: legitimate employers training young people are being penalized due to SARS’s “narrow view” of definitions. “People who are training and developing young workers… are not benefitting from the very incentive that was created to secure jobs,” he states. This bureaucratic rigidity is strangling the incentive’s purpose, leaving both businesses and unemployed youth in limbo.

Voices from the Frontlines: “There Are Better Business Cases Elsewhere”

The frustration is palpable at the highest levels. Martina Biene, head of Volkswagen Group Africa, has voiced concerns about the government’s lack of urgency in addressing investment hurdles. The message to head office in Germany is stark: “We might have a business case but there are better business cases elsewhere.”

This sentiment is echoed by analysts. Izak Swart of Deloitte warns that investors are losing confidence in South Africa’s incentive offerings, which are being scrapped or bogged down by obstacles. The result? “Many companies are leaving because government policies are making it easier and cheaper to import.”

Olebogeng Ramatlhodi, also of Deloitte, paints a sobering picture: South Africa’s economy is shifting “from a production-based to an import and distribution-based economy. This is quite sad and does not bode well for us.”

The Global Race South Africa is Losing

While South Africa’s manufacturing contribution to GDP shrinks, competitors are surging ahead. Vietnam’s manufacturing sector grew nearly 10% in 2025, contributing over 31% to economic value. Why? Countries like Vietnam, Mexico, and Brazil focus on aggressive, export-driven incentives, generous tax breaks, and regulatory friendliness. South Africa’s offerings, focused on job retention and industrial financing, are seen as uncompetitive and unreliable.

A Call for Urgent, Strategic Overhaul

The warning signs are flashing red. The erosion of incentives, coupled with a hardline approach from tax authorities and policy uncertainty, is creating a perfect storm. It’s not just about losing a few factories; it’s about the slow deindustrialization of the economy and the thousands of sustainable jobs that vanish with it.

The solution demands urgent, coordinated action from The Presidency and the finance and trade ministries. It requires streamlining existing incentives like the ETI to actually work as intended, and designing bold, competitive new packages that match the ambitions of rival emerging markets. Otherwise, the exit of corporate giants will not be a trickle, but a floodand the jobs crisis will deepen from an emergency to a permanent state.

{Source: MoneyWeb}

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