Investing in South Africa


South Africa: open for business

South Africa is one of the most sophisticated, diverse and promising emerging markets globally.

Strategically located at the tip of the African continent, South Africa is a key investment location, both for the market opportunities that lie within its borders and for the opportunity that exists to use the country as a gateway to the rest of the continent, a market of nearly 1-billion people.

South Africa has enormous potential as an investment destination, offering a unique combination of highly developed first-world economic infrastructure with a vibrant emerging market economy.

It is also one of the most advanced, broad-based industrial and productive economies in Africa.

Here are just some of the reasons for doing business in South Africa:

Sound economic policies

South Africa's disciplined fiscal framework is aimed at promoting domestic competitiveness, growth and employment and increasing the economy's outward orientation.

Key economic reforms have given rise to a high level of macro-economic stability. Taxes have been reduced, tariffs lowered, the fiscal deficit brought under control, and exchange controls relaxed.

Despite its bright prospects, South Africa still faces key challenges of poverty, unemployment and inequality. The government is addressing these through two key economic frameworks:
  • the New Growth Path, which aims to create a more developed and equitable economy, largely through creating 5-million jobs.
  • The Industrial Policy Action Plan, which aims to promote broader participation by historically disadvantaged groups in the mainstream of the industrial economy. The strategy here involves large-scale state investment in infrastructure, small business and skills development, and interventions targeting specific areas of the economy.

South Africa's central bank, the SA Reserve Bank, maintains its independence from the government. The Bank's programme of inflation targeting has shown good results: the real interest rate has stabilised and the currency remains at competitive levels.

The government has made it clear that foreign investment is welcome in South Africa, and its investor-friendly policies support the public pronouncements.

Favourable legal and business environment

South African law is founded on the Roman-Dutch law, although aspects of our law (particularly the company laws and the law of evidence) have been heavily influenced by English law.

General commercial legal practices relating to transactions and the drafting of commercial agreements are generally globally applicable and in line with international norms and conventions.

There is a world-class and modern Constitution (including a Bill of Rights) in place that regulates human rights and all legislation. It guarantees the independence of the judiciary.

Trade and industry is undertaken within the framework of a free enterprise economy. The courts are open to foreigners on exactly the same terms and conditions as South African citizens, although many commercial disputes are resolved through arbitration by agreement between the parties.

Sanctity of contract is protected under common law, and independent courts ensure respect for commercial rights and obligations.

The JSE Limited rates among the top 20 stock exchanges in the world by market capitalisation.

The JSE is regarded as a mature, efficient, secure market with world-class regulation, trading, clearing, settlement assurance and risk management. It has harmonised its listing requirements, disclosure and continuing obligations with those of the London Stock Exchange (LSE) and offers superb investor protection.

World-class infrastructure

South Africa has world-class infrastructure – including a modern transport network, widely available energy, and sophisticated telecommunications facilities.

The government has identified massive infrastructure projects as key to boosting the country's economic growth rate and creating employment, and is spending billions of rands on getting the investment ball rolling.

South Africa’s success in hosting the world’s largest sporting event, the 2010 FIFA World Cup, has shown that the country is capable of undertaking – and successfully completing – major projects on time.

Access to markets

Located at the southernmost tip of the African continent, South Africa is ideally positioned for access to the 14 countries comprising the Southern African Development Community (SADC) – with a combined market of over 250-million people – as well as the islands off Africa's east coast, and even the Gulf States and India.

South Africa is a trans-shipment point between the emerging markets of Central and South America and the newly industrialised nations of South and Far East Asia.

Major shipping lanes pass along the South African coastline in the South Atlantic and Indian oceans, and its seven commercial ports form by far the largest, best equipped and most efficient network on the continent.

Gateway to Africa

Africa, with 200- to 300-million of its people approaching relative middle-class status, is seen as the next great growth story after China and India.

The McKinsey Global Institute has identified Africa as the world's second-fastest growing region. This growth is "creating substantial new business opportunities" for global companies.

South Africa facilitates easy access to other sub-Saharan markets, in particular. The country is the economic powerhouse of Africa and it is rightly considered a dynamic force within the 14-member Southern African Development Community.

Bordering Namibia, Botswana, Zimbabwe, Mozambique, Swaziland and Lesotho, its well-developed road and rail links provide the platform and infrastructure for ground transportation deep into sub-Saharan Africa.

Moreover, South Africa has the resident marketing skills and distribution channels to open up commercial ventures into Africa.

South Africa has a host of investment incentives and industrial financing interventions that are aimed at encouraging commercial activity, and its trade rules favour a further expansion in South Africa’s burgeoning levels of international trade.

The special International Headquarter Company (IHQ) regime is aimed at positioning South Africa as a holding company gateway for foreign multinationals investing into Africa.

Trade reform, strategic alliances

South Africa has trading relationships with more than 200 countries and territories. It was admitted to the BRIC group of countries of Brazil, Russia, India and China (now called BRICS) in 2011.

The country has special relationships with the Southern African Customs Union (Botswana, Namibia, Lesotho and Swaziland), the Southern African Development Community, as well as the European Union. There are also bilateral agreements in place with Mozambique and Zimbabwe.

It also has strong relations with markets in the rest of Africa, Asia and Latin America – especially via its economic alliance with other BRICS members.

South Africa has become a key trade and investment partner to China, which over the past decade has become a major player on the African continent.

African leaders have called for a continental free trade area by 2017 to boost trade within the continent, which should boost the opportunities available to South African companies.

Trade agreements further the aims of the South African government to accelerate growth and industrial development. The Economic Development Division (ITED) within the Department of Trade and Industry is the section responsible for such trade negotiations.

Cost of doing business in SA

South Africa's exchange rate makes it one of the least expensive countries for foreigners to live and do business in – with a first-world infrastructure and high living standards ensuring good value for money.

South Africa's energy costs have increased in recent years, but the government is determined to meet its growing energy needs through renewable and efficient sources.

The country compares favourably for petroleum prices, with private sector and multinational oil companies refining and marketing nearly all imported petroleum products in southern Africa.

And telecommunications costs are coming down. The government is taking steps to ensure cheaper and more widely available bandwidth capacity, while the landing of several submarine fibre-optic cables along both the east and west coasts of Africa has boosted the continent's connection with the rest of the world.

Labour unrest in 2011 has brought with it demands for higher wages, which may affect business input costs. However, professional labour costs remain low compared to Europe.

South Africa's corporate tax rate – at 28% in 2013 – compares favourably against a number of developing companies.

Ease of doing business in SA

South Africa moved up two spots to rank 39th out of 185 countries in the World Bank and International Finance Corporation's Doing Business 2013 report, an annual survey that measures the time, cost and hassle for businesses to comply with legal and administrative requirements.

South Africa fell between developed countries such as France (34) and Spain (38), and above major developing economies such as Mexico (48), China (91), Russia (112), Brazil (130) and India (132).

The report placed South Africa tenth for its protection of investors, the best of all African countries, and it recorded significant improvements in the areas of trading across borders and enforcing contracts.

All companies planning to do business with the South African government and the general business community must comply with Broad-Based Black Economic Empowerment (B-BBEE) policies which are aimed at redressing economic imbalances among historically disadvantaged communities.

Industrial capability, cutting-edge technology

The country's manufacturing output is increasingly technology-intensive, with high- tech manufacturing sectors – such as machinery, scientific equipment and motor vehicles – enjoying a growing share of total manufacturing production.

South Africa's technological research and quality standards are world-renowned. The country has developed a number of leading technologies, particularly in the fields of energy and fuels, steel production, deep-level mining, telecommunications and information technology.

Competitiveness

South Africa was ranked 52nd out of 144 countries in the World Economic Forum's Global Competitiveness Index for 2012. It remains the highest ranked country in sub- Saharan Africa, and claimed third place among the BRICS countries.

The government has provided incentives for value-added manufacturing projects, support for industrial innovation, improved access to finance, and an enabling environment for small business development.

Industrial development zones have been established in close proximity to major ports and airports, offering world-class infrastructure, dedicated customs support and reduced taxation.

South Africa has a well-developed and regulated competition regime based on best international practice. Competition legislation follows European Union, US and Canadian models.

The law places various prohibitions on anti-competitive conduct, restrictive practices (such as price fixing, predatory pricing and collusive tendering) and "abuses" by "dominant" firms (firms with a market share of 35% or more).

SAinfo reporter

Reviewed: 31 January 2013

Sources:

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