While South Africa serves as a gateway to Southern Africa, and offers significant market potential, German-owned companies are wary of the country’s corruption levels and political uncertainty, according to the ‘German-Southern African Business Outlook 2025’ report.

The outlook, compiled by professional services firm KPMG Germany and the Southern African-German Chamber of Commerce and Industry (AHK Southern Africa), nonetheless highlights South Africa as the most attractive location for German businesses in Southern Africa.

This is evidenced by German investment in South Africa showing resilience, with the net stock of direct and indirect investments reaching €7.82-billion in 2022. German companies operating in Southern Africa continue to regard South Africa as the most strategically significant market in the region, with many German companies focusing on the medium-term prospects and the potential in the country.

Companies surveyed in the report identify South Africa’s ability to provide access to the other sub-Saharan markets as one of the three biggest business opportunities in South Africa.

Additionally, respondents value South Africa’s supplier network and reliable local business partners along with its regulatory and business environment. The country’s growing market and relatively developed infrastructure are also viewed as relatively advantageous when compared with other Southern Africa countries.

According to the report, Germany’s trade with other Southern Africa countries remains modest and significantly volatile.

“The trade volume between Germany and South Africa is more than seven times the trade volume between Germany and Southern Africa, excluding South Africa.”

In 2024, trade with the region, excluding South Africa, amounted to €2.7-billion. Of this, Germany exported €1.4-billion in goods and imported €1.3-billion. Angola, Tanzania and the Democratic Republic of Congo emerged as the top three trading partners in this category, with trade volumes of €468-million, €422-million, and €391-million respectively.

South Africa’s advantages, relative to its Southern African peers, offer significant value despite recent economic challenges, such as weak economic growth, high inflation and the energy crisis, which have affected German companies operating in the country.

Further, the report highlights corruption and political uncertainty as the main concerns of German companies surveyed, as they view anticorruption measures along with a reduction in red tape as essential for enabling for better operating conditions in future, the report states.

While the majority of the German business community is cautiously optimistic about the newly elected government, following the parliamentary elections in May 2024, political uncertainty continues to dent investor confidence.

To address these concerns, companies are calling for more political stability with nearly half of the companies surveyed also urging the new administration to prioritise the fight against corruption and crime. A further 34% of companies advocate for greater support for private investment.

The report points out that, despite the relatively positive outlook for German companies, the South African market for German companies has been stagnating for several years.

“Exports declined by 8.1% to €9.1-billion in 2024 while imports fell significantly by 12.5% to €10.5-billion, which has been primarily attributed to the significant decline in commodity prices in 2023,” according to the report.

While the trade balance has previously been in Germany’s favour, South Africa has consistently recorded a trade surplus with Germany since 2019. This suggests that, with commodity prices, aside from gold, either declining or remaining stagnant, and other emerging trade tensions reshaping the economic landscape, the trade relationship between South Africa and Germany will also need to evolve.

Areas in which such an evolution may benefit the overall trade balance and drive investment include, agriculture and food processing, climate and environment-related sectors, water management, hydrogen and the circular economy, technology and transportation.