South Africa: open for business

Despite a slowing global economy, South Africa remains one of the most promising emerging markets. It is also Africa’s most sophisticated and diverse economy.

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South Africa has a diverse economy built on mineral wealth, technology and financial services. (Image: Brand South Africa)

South Africa’s position at the tip of Africa is key to its importance as an investment destination. This is true for both commercial opportunities within its borders and the potential it offers as a gateway to the rest of the continent – a market of some 1-billion people.

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

Here are just 10 of the many reasons to do business in South Africa:

  1. Sound economic policies

South Africa’s disciplined fiscal framework promotes domestic competitiveness, growth and employment and increases the economy’s outward orientation.

Key economic reforms have created solid macroeconomic stability. Taxes have been reduced, tariffs lowered, the fiscal deficit brought under control, and exchange controls relaxed.

The National Development Plan

Despite its bright prospects, South Africa still faces the key challenges of poverty, unemployment and inequality. The National Development Plan is a bold effort to overcome these.

The plan aims, by the year 2030, to:

  • achieve a real annual economic growth rate of 5%,
  • reduce inequality,
  • and rein in unemployment from its current 25% to a mere 6%.

Two ambitious economic frameworks support the targets of the National Development Plan.

  • The New Growth Path aims to create a more developed and equitable economy, largely by creating 5-million jobs.
  • The Industrial Policy Action Plan aims to promote broader participation by historically disadvantaged groups in the mainstream of the industrial economy. It plans large-scale state investment in infrastructure, small business and skills development, and interventions targeting specific areas of the economy.

The South African Reserve Bank, the central bank, maintains its independence from the government. Its programme of inflation targeting has shown good results in stabilising both interest and exchange rates.

South Africa’s investor-friendly policies also make it clear that foreign investment is welcome.

  1. A favourable business and legal environment

South Africa’s Johannesburg Stock Exchange (JSE) rates among the top 20 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 and offers superb investor protection.

The World Economic Forum’s 2015-16 Global Competitiveness Index rates South Africa first in the world – out of 140 countries – for financing through the local equity market, and second for the regulation of securities exchanges.

The index also rates South Africa first for the strength of auditing and reporting standards, and gives it third place for both the efficacy of corporate boards, and the protection of minority shareholders’ interests.

South Africa’s legal system is based on Roman-Dutch law, although aspects of it – particularly company law 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.

South Africa’s globally admired and progressive Constitution – which includes a Bill of Rights – is the highest law of the land, regulating the protection of human rights and the principles behind all legislation. One of its guarantees is the independence of the judiciary.

Trade and industry takes place a free enterprise economy. The courts are open to foreigners on exactly the same terms and conditions as South African citizens. But many commercial disputes avoid the courts, instead being resolved with arbitration and by agreement between the parties.

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

  1. World-class infrastructure

South Africa has world-class infrastructure – including a modern transport network, sophisticated telecommunications and superb tourism 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.

  1. Access to markets

Its position at the southern tip of the continent gives South Africa easy access to the 14 countries in the Southern African Development Community (SADC) – with a combined market of over 250-million people.

The country is also an excellent launchpad to 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. The country’s seven commercial ports form the largest, best equipped and most efficient network in Africa.

  1. The gateway to Africa

Africa, with 200- to 300-million of its people approaching 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 allows easy access to the other markets of sub-Saharan Africa. It is the economic powerhouse of the continent and considered a dynamic force in the Southern African Development Community.

Sharing borders with 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.

South Africa also has the resident marketing skills and distribution channels to open up commercial ventures into the rest of Africa.

South Africa has a host of investment incentives and industrial financing interventions to encourage commercial activity. The country’s trade rules favour a further expansion in its already burgeoning 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.

  1. Trade reform and global strategic alliances

South Africa has trading relationships with more than 200 countries and territories.

In 2011 the country was admitted to the BRIC group of major developing economies – Brazil, Russia, India and China – now renamed BRICS.

In 2015 the BRICS group set up the New Development Bank to help finance the growth of emerging economies. Each of the five countries has a 20% shareholding in the bank, which has an authorised capital investment of US$100-billion.

The bank will be headquartered in Shanghai, China. Its first regional office, the Africa Regional Centre, is to be set up in South Africa’s commercial hub, Johannesburg.

The BRICS countries have also established a Contingent Reserve Agreement, in which they undertake to provide financial support to each other in the event of balance of payment problems.

South Africa also has special relationships with the Southern African Customs Union (Botswana, Namibia, Lesotho and Swaziland), the Southern African Development Community, and the European Union. It also has bilateral agreements with Mozambique and Zimbabwe.

The country has become a key trade and investment partner to China, today a major investor in Africa.

Plans are afoot for a continental free trade area to boost commerce within Africa, opening up opportunities for South African companies.

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

  1. The cost of doing business in South Africa

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. 

While energy costs have increased in recent years, the government plans to meet the country’s growing energy needs with renewable and efficient sources.

South Africa petroleum prices compares favourably with other continental markets. Private sector and multinational oil companies refine and market nearly all imported petroleum products in southern Africa.

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.

South Africa’s corporate tax rate – 28% for the 2016/2017 tax year – compares favourably with a number of developing countries. Professional labour costs are far lower than those in developed economies.

  1. The ease of doing business in South Africa

South Africa ranks at 73rd out of 189 countries in the World Bank and International Finance Corporation’s 2016 Doing Business report.

The report is an annual survey of the time, cost and frustration of complying with legal and administrative requirements of doing businesses.

The survey rates the ease of doing business in South Africa as higher than major developing economies such as Brazil (116), China (84), India (130) and Nigeria (169). It also scores far above the sub-Saharan African average rank of 143.

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. These aim to redress imbalances and broaden the economic access to members of historically disadvantaged communities.

  1. Industrial capability and cutting-edge technology

South Africa’s manufacturing output is increasingly technology-intensive.

The high-tech manufacturing sectors – machinery, scientific equipment and motor vehicles – enjoy 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.

  1. Competitiveness

South Africa ranks at 49th out of 140 countries in the World Economic Forum’s 2015-16 Global Competitiveness Index.

South Africa is the highest ranked country in sub-Saharan Africa, and claims the middle ground among the BRICS countries – behind China (28) and Russia (45), but ahead of India (55) and Brazil (75).

South Africa’s government provides 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, defined as companies with a market share of 35% or more.

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Updated May 2016