Why is South Africa embracing both Gulf capital and geopolitical risk at the same time: a regional litmus test for “investability”

Why South Africa Is Simultaneously Embracing Gulf Capital and Geopolitical Risk-Taking: A Regional Stress Test of “Investability”

South Africa is currently facing not just an ordinary economic slowdown, but a more difficult structural predicament to repair: weakening growth momentum, pressure on manufacturing, rising debt levels, high unemployment, and long-term failures in the power and rail systems. Against this backdrop, Pretoria is turning to the Gulf, hoping to secure urgently needed capital from Saudi Arabia, the UAE, and Qatar to use in infrastructure, logistics, and real estate to restart the economy.

The problem, however, is that capital never looks only at asset returns; it also looks at policy consistency, the stability of external relations, and whether a country is placing itself in a high-risk position amid great-power rivalry. While South Africa is actively courting Gulf funds, it is also continuing to deepen ties with Iran, Russia, and China in its diplomatic and security policies. This parallel strategy is making it harder for global investors to price the country.

Gulf Capital’s Entry into Africa Is No Longer Just About “Finding Projects”

South Africa’s pursuit of Gulf funding is not an isolated event, but part of an accelerated Gulf strategy for capital deployment in Africa. The UAE has in recent years become one of Africa’s largest foreign investors, with official figures showing that it invested more than $110 billion in Africa between 2019 and 2023. Saudi Arabia’s ACWA Power is also exploring multibillion-dollar hydrogen and renewable energy projects in South Africa, showing that Gulf capital is shifting from traditional financial investment toward energy transition, critical infrastructure, and industrial chain positioning.

Behind this is a change in Gulf economic strategy: they are no longer simply chasing overseas financial returns, but are looking for future supply-chain nodes, energy-transition assets, and partner countries compatible with their “post-oil era” strategies. Ports, railways, mining, green power, and hydrogen are becoming the priority directions for capital going abroad. South Africa happens to have exactly these conditions: it is one of Africa’s most industrialized economies, has global supply-chain-critical resources such as platinum-group metals, manganese, and chromium, and also has a certain foundation in manufacturing and port systems.

But capital flows often also screen partners. The investment logic that the UAE, Saudi Arabia, and Qatar are advancing in Africa is more strategic: they need predictable institutional environments, stable external relations, and node countries that can be embedded in the global trading system. In other words, Gulf capital is not simply “investing wherever there is money,” but choosing interfaces for future economic networks.

South Africa’s Problem Is Not “Lack of Money,” but “Credibility”

The most difficult part of South Africa’s economy is that it has simultaneously lost both its traditional growth engines and the window to restore policy credibility. Manufacturing’s share of the economy has fallen from about 23% in the early 1980s to just over 11%, meaning that the core sector of an industrialized country is deteriorating. Factory output fell again at the end of last year, with steel, machinery, and automobile industries all cutting production and jobs. At the same time, power shortages and failures in rail and port infrastructure have forced factories to operate at only about two-thirds of capacity, while export chains are also being slowed down.On external shocks, tensions in the Strait of Hormuz have pushed up oil prices and put pressure on South Africa’s inflation and exchange rate. The South African Reserve Bank has already warned that if oil prices remain elevated, inflation could return to around 5% later this year. For an economy dependent on fuel imports and already mired in fiscal deficits, volatility in global energy markets quickly feeds through to domestic prices, the currency, and confidence.

This also explains why South Africa is so eager to attract foreign investment. The Minister of Public Works and Infrastructure visited the Middle East earlier this year, seeking investment support from Saudi Arabia, Qatar, Kuwait, and the UAE for infrastructure, logistics, and real estate. This is not a simple financing exercise, but part of outsourcing economic governance: when domestic fiscal and public construction capacity is inadequate, the government must rely on external capital to complete system repairs.

The problem is that what external capital fears most is not a slow project, but unclear policy direction.

Geopolitical choices are becoming an investment discount

South Africa insists on its so-called “non-aligned” stance, arguing that it is a sovereign choice grounded in the constitution and international law. But from an investor’s perspective, what truly affects decisions is not a verbal position, but whether that position will evolve into conflicts with key markets, key partners, and key financing channels.

South Africa’s recent military and diplomatic engagement with Iran, Russia, and China has already created a clear risk perception in Western markets. Especially given that the United States remains South Africa’s second-largest trading partner, this perception directly affects export prospects, regulatory expectations, and financing costs. South African exports to the U.S. are mainly platinum-group metals, vehicles, steel and aluminum, and agricultural products, while automobiles and agricultural goods are heavily dependent on preferential access under the African Growth and Opportunity Act (AGOA). As AGOA briefly expired, the U.S. imposed tariffs on South African goods, and vehicle exports fell sharply, South Africa’s vulnerability to a single market has become more pronounced.

In other words, South Africa’s current problem is no longer just a trade problem, but an “investability” problem: investors are beginning to worry that a country that frequently probes different geopolitical camps may face greater policy conflict, sanctions spillover, or trade penalties in the future.

That is also why so-called “neutrality” does not necessarily mean “low risk.” In a highly fragmented global order, what is truly welcomed is not abstract independence, but concrete predictability.

For Gulf states, South Africa is both an asset opportunity and a risk filter

From a Gulf perspective, South Africa still has appeal. It is a major African economy with mineral resources, an industrial base, and regional spillover capacity. If Gulf countries want to expand their logistics, mining, green energy, and critical minerals presence in Africa, South Africa is clearly an important piece of the puzzle.

But what deserves more attention at present is that the pace of Gulf capital in South Africa is clearly slower than in Egypt and Mauritania. This shows that capital is not allocated evenly, but rather favors countries that better align with its long-term strategy in terms of macro reform, policy coherence, and geopolitical positioning. Although South Africa has resources and market scale, it is steadily undermining its own attractiveness through political inconsistency, international positioning, and infrastructure governance.This has a broader implication for the Gulf’s economic transformation: as sovereign capital continues to expand overseas, Gulf countries’ foreign investment has shifted from “capital export” to “strategic choice.” What they want is not only returns, but also supply chain security, the scalability of energy cooperation, and manageable political risk. South Africa’s case shows that in the future, countries seeking Gulf capital must prove not only that they can offer projects, but also that they can provide order.

The long-term impact of this contest

In the short term, South Africa may still continue to attract some funds from the Gulf, especially in mining, railways, logistics, green energy, and infrastructure. The very expansion of investment by the UAE and Saudi Arabia in Africa also means they will not easily abandon a market as large as South Africa.

But in the long run, what will truly determine whether South Africa can secure sustained capital inflows is not a single visit or one agreement, but whether it can rebuild three kinds of trust:

1. Macro trust: whether fiscal conditions and inflation can remain stable; 2. Industry trust: whether manufacturing, ports, and energy systems can resume normal operation; 3. Geopolitical trust: whether it can maintain a clear and predictable foreign policy in an environment of deepening great-power divisions.

If these three forms of trust cannot be repaired in sync, then even if South Africa can continue to “engage” Gulf capital, it may only secure project-level transactions, and find it difficult to obtain truly long-term strategic investment.

From a broader perspective of Middle East–Africa economic relations, this is also a signal worth the Gulf countries’ attention: in the era of capital going abroad, what increasingly determines where money goes is not resources themselves, but whether a country can become a stable node in global supply chains, the energy transition, and industrial restructuring.