South Africa's Anti-Corruption Reforms and Their Impact on Foreign Direct Investment

South Africa's anti-corruption reforms, particularly the proposed establishment of the Office of Public Integrity (OPI) and its removal from the Financial Action Task Force (FATF) grey list in October 2025, represent a pivotal shift in the country's governance landscape. These measures, designed to address systemic corruption and restore investor confidence, have significant implications for foreign direct investment (FDI). However, their success in stabilizing political and economic conditions remains contingent on sustained institutional resilience and the ability to navigate lingering governance risks.

The OPI and FATF Delisting: A New Framework for Accountability

The National Anti-Corruption Advisory Council's 2025 report recommended the creation of the OPI as an independent Chapter 9 institution, tasked with investigating corruption, recovering assets, and preventing systemic graft. By absorbing the resources and mandate of the Special Investigation Unit (SIU), the OPI aims to build on existing anti-corruption mechanisms while enhancing transparency and political independence according to the State Department's investment climate statement. This reform, coupled with South Africa's exit from the FATF grey list-a status it held since 2023-signals a commitment to strengthening anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks. The delisting followed two years of regulatory overhauls, including stricter beneficial ownership disclosures and expanded oversight of high-risk sectors as detailed in Baker McKenzie's analysis.

These developments are critical for FDI, as global investors increasingly prioritize jurisdictions with robust governance structures. According to a U.S. Department of State report, South Africa's delisting is expected to reduce compliance costs, ease cross-border transaction frictions, and enhance access to global financial services. For instance, businesses operating in the country may now benefit from faster payment processing and reduced scrutiny from international banks, factors that could attract capital inflows into infrastructure, energy, and technology sectors as reported by Financial Regulation Journal.

FDI Trends and the Paradox of Corruption's Dual Role

Despite these reforms, South Africa's FDI inflows and outflows remain uneven. In 2023, the country attracted nearly R100 billion (US$5.3 billion) in FDI, but by the second quarter of 2025, outflows surged to $4.26 billion, driven largely by mining sector transactions according to CGTN Africa. This volatility underscores the complex relationship between corruption and investment. While corruption traditionally deters FDI by increasing uncertainty and transaction costs, a 2024 study found that in weak regulatory environments, corruption can paradoxically facilitate investment by circumventing bureaucratic hurdles. South Africa's reforms aim to tip this balance toward transparency, but their effectiveness will depend on consistent enforcement.

The Government of National Unity (GNU), formed in July 2024, has sought to address these challenges through policy coordination and infrastructure investments. However, the Expropriation Act of 2024-which allows for expropriation without compensation-has raised concerns among foreign investors about property rights and regulatory predictability as noted by The Conversation. Such tensions highlight the fragility of South Africa's political stability, even as anti-corruption measures gain traction.

Governance Risk and the Fragility of Institutional Capacity

Political stability remains a critical risk factor for FDI. South Africa's governance risk assessments in 2025–2026 emphasize a "dual crisis" of internal instability and external capture, with the state struggling to maintain its monopoly on violence and manage dependencies on foreign actors like China as assessed by Martin Plaut. Public trust in government institutions has eroded due to service delivery failures, high crime rates, and corruption scandals. For example, the ANC's internal divisions and leadership uncertainties have complicated the GNU's efforts to unify fiscal and ideological priorities as reported by The Conversation.

Moreover, South Africa's economic performance remains constrained by structural challenges. Real GDP growth in 2024 was a modest 0.5%, with projections for 2026 at 1.3% according to Deloitte's economic outlook. While the delisting from the FATF grey list and OPI reforms are expected to improve investor sentiment, their impact will be limited without addressing energy shortages, infrastructure decay, and high unemployment. As noted by Deloitte's 2025 economic outlook, South Africa's fiscal position is under pressure, with a debt-to-GDP ratio nearing 80% and limited capacity to raise new revenue without triggering political backlash as detailed in the same analysis.

The Path Forward: Sustaining Reforms in a Volatile Environment

For South Africa's anti-corruption reforms to meaningfully boost FDI, they must be embedded in a broader strategy to stabilize governance and economic policy. The OPI's independence and the GNU's ability to enforce market-driven reforms will be critical. However, as highlighted by the African Development Bank, institutional coherence and cultural buy-in are as important as technical fixes. South Africa's next FATF mutual evaluation in 2026–2027 will serve as a litmus test for its commitment to maintaining these standards according to Thomson Wilks.

In the short term, FDI is likely to remain cautious. While the delisting reduces reputational risks, investors will monitor the GNU's ability to address corruption, improve service delivery, and stabilize the energy sector. The broader African context also suggests that South Africa's success in attracting FDI will depend on regional competition, as countries like Egypt and Kenya continue to draw investment through large-scale infrastructure projects as analyzed by Trends Research.

Conclusion

South Africa's anti-corruption reforms represent a necessary but insufficient step toward restoring investor confidence. The OPI and FATF delisting have laid the groundwork for improved governance, but their impact on FDI will hinge on the GNU's capacity to sustain these reforms amid political fragmentation and economic headwinds. For foreign investors, the country remains a high-reward, high-risk proposition-one where the interplay of political stability, institutional resilience, and regulatory clarity will ultimately determine the trajectory of capital flows.