The South African M&A market is predicted to grow by 66% in the next two years, according to the Global Transactions Forecast issued by Baker McKenzie in association with Oxford Economics.

The report shows that South African M&A slowed in 2016 amid economic and political uncertainty. 

While 211 M&A deals were finalised in South Africa in 2015, this dropped to 115 deals in 2016. 

The report predicts that around 190 M&A deals will be concluded in 2017, rising to 274 in 2018; and growing to 295 finalised deals by 2019.

South Africa is also included in the ten countries predicted to see the most growth in the M&A and IPO markets in the next two years.

Meanwhile, Nigeria is the only other African country on the list, with a predicted transaction growth of 62%.

Morne van der Merwe, Managing Partner at Baker McKenzie's Johannesburg office, said: "The global uncertainty caused by major events such as the change in government in the US and Brexit are exacerbated in the South African deal-making environment where domestic issues are already creating a challenging environment.”

“Political instability, regulatory uncertainty and the looming risk of an investment status degrade have all contributed to the current slowdown in deals in South Africa,” he added.

According to van der Merwe, the good news is that strategic assets, often available at a discount, matched by "lazy capital" on corporate balance sheets and private equity looking for a home, will serve as a stimulus for inbound and outbound deal flow in South Africa in the next few years. 

“In addition, the requirement to meet BEE ownership targets and investment interest in Africa from China, India and Japan will further stimulate the deal-making environment. This means that we remain cautiously optimistic about the state of the M&A sector in South Africa in the future,” he said.

The report states that “major policy challenges continue to weigh on South Africa's current economic outlook”. 

The South African Reserve Bank's recent rate hikes to offset inflation caused by depreciation of the rand will continue to undermine investment financing through 2017, but should unwind thereafter. 

Rising commodity prices and gradual reform efforts should also stimulate transactional activity, albeit more so among domestic investors. 

Inbound M&A activity will remain low compared to other emerging markets.

Baker McKenzie South Africa advised on 21 M&A deals in Africa in 2016. 

“As South Africa becomes more integrated into the global economy, the interest in inbound foreign investment continues to rise and the demand for specialist cross border legal skills is increasing rapidly,” said van der Merwe.