"Within one month our revenues had jumped over 50%."

Doing Business in South Africa

kalkar bay

South Africa has long been considered the most dynamic and promising economy not just in Sub-Saharan Africa but also the African continent. It is a multi-ethnic country and has diverse cultures and languages. Eleven official languages are recognised in the constitution, according to South Africa Info. South Africa is ranked as an upper-middle income economy by the World Bank, one of only four countries in Africa in this category (the others being Botswana, Gabon and Mauritius). It has the largest economy in Africa, and the 28th-largest in the world, according to the World Bank’s World Development Indicators Database. With the IMF estimating Nominal GDP at $422.037 billion and GDP per capita at $8,342. About a quarter of the population is unemployed, as mentioned in a recent aritcle by Bloomberg and most of the population lives on less than US $1.25 a day, according to UN Human Development statistics.South Africa has a mixed economy with high rate of poverty and low GDP per capita. Unemployment is extremely high and South Africa is ranked in the top 10 countries in the world  inequality,as measured by the Gini Coefficient. Other problems include state ownership and interference, which impose high barriers to entry in many areas, according to an assesment by the OECD. South Africa ranks poorly when it comes to education; only India fares worse when it comes to the percentage of matriculants moving onto higher education in 2007. This is despite the report ranking South Africa fourth for the percentage of GDP it spends on education (over 4% in 2007). The report ranks South Africa 11th out of 14 countries when it comes to the country’s use of technology and innovation, putting the African country behind Korea as well as the BRIC countries, but ahead of Colombia, Mexico and Argentina. Nevertheless, South Africa is falling behind other emerging markets, such as India and China, owing to several factors: the country is relatively small, without the advantage of a huge domestic customer base; it has had for decades an unusually low rate of saving and investment, partly because of political uncertainties; an inadequate education system results in an acute shortage of skilled manpower; a strong and volatile currency deters investors and makes its exports less competitive; the infrastructure, though far better than in the rest of Africa, suffers from severe bottlenecks, including power shortages, and urgently needs upgrading, according to an article by The Economist. However, for all its disadvantages, the South African economy has many bright spots, that businesses should consider.South Africa compares well to other emerging markets on affordability and availability of capital, financial market sophistication, business tax rates and infrastructure, but fares poorly on the cost and availability of labour, education, and the use of technology and innovation, according to a survey by a Brazilian Industry survey of emerging markets. Released by Brazil’s National Confederation of Industry, “Competitividade Brasil 2010: Comparação com Países Selecionados”, (Competition Brazil: A comparison with selected countries) compares 14 countries on a range of measures. The survey was released in December 2010, in it South Africa was found to have the second most sophisticated financial market and the second-lowest effective business tax rate (business taxes as a percentage of company profits), out of 14 surveyed countries. The countries surveyed are Australia, Canada, Russia, Mexico, China, Poland, Spain, India, Korea, Brazil, South Africa, Colombia, Chile and Argentina. The country was also ranked fourth for ease of accessing capital, fourth for cost of capital, sixth for its transport infrastructure (considered better than that of China, India, Mexico, Brazil and Poland, but behind that of Korea and Chile), and seventh for foreign direct investment as a percentage of GDP: in 2008 it was over 3% of the GDP. South Africa is also a popular tourist destination, and a substantial amount of revenue comes from tourism, according to SA Economic Research. The South African market also seems to be growing according to a Census done by the South African government. According to the government census, the South African population numbered at 44,819,778 in 2001, while it numbered at 50,586,757 in a 2011 census.

South Africa is the second largest producer of gold and is the world’s largest producer of chrome, manganese, platinum, vanadium and vermiculite, the second largest producer of ilmenite, palladium, rutile and zirconium, as mesntioned in a US Geological Survey. It is also the world’s third largest coal exporter, according to a report by Platts. South Africa also has a large agricultural sector and is a net exporter of farming products. Principal international trading partners of South Africa—besides other African countries—include Germany, the United States, China, Japan, the United Kingdom and Spain, according to the CIA World Factbook. Chief exports include corn, diamonds, fruits, gold, metals and minerals, sugar, and wool. Machinery and transportation equipment make up more than one-third of the value of the country’s imports. Other imports include chemicals, manufactured goods, and petroleum.

Overall, South Africa has a tremendous amount of potential as well as tremendous challenges. The opportunites range from industry to industry and its ultimately up to businesses if they want to take advantage of them or if the risks are greater than they would want. The South African economy is truly one of the next emerging markets and is likely going to be one of the more promising markets in comparison to others. While poor governance might hamper the South African economy, its clear that the government’s main intention is to provide a better enviornemnt for businesses. Why else would South Africa be ranked 35th on the World Bank’s Ease of Doing Business survey, which is a lot higher than many other countries in better economic postions that South Africa.

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Author:Globial International Business Team

The Globial International Business Team researches, analyzes, and reports on all things related to global trade and business.

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