Business Environment

Business Environment

Business Environment

South Africa: open for business

 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 and productive economies in Africa.

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

 

Sound economic policies

 

Since the advent of democracy in 1994, South Africa's economy has been undergoing structural transformation, with the implementation of macro-economic policies 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.

Government expenditure has also been restructured towards social services that are contributing to a better quality of life for all South Africans.

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. Consumer inflation came in at under 5% from 2004 through 2006 before global prices pushed it up to 6.5% in 2007. In 1994 it stood at 9.8%.

The government has made it clear that foreign investment is welcome in South Africa, and investor-friendly policies support the public pronouncements. In 2005, the government began formulating a new strategy to boost the country's economic growth rate to 6% of GDP by 2014 and reduce unemployment.

Implementation of the strategy – involving large-scale state investment in infrastructure, small business and skills development, and interventions targeting specific areas of the economy – is well under way.

 

 

Favourable legal and business environment

 

South Africa has a world-class, progressive legal framework. Legislation pertaining to commerce, labour and maritime issues is particularly well developed, while laws relating to competition policy, copyright, patents, trademarks and disputes conform to international norms and conventions.

Sanctity of contract is protected under common law, and independent courts ensure respect for commercial rights and obligations. The independence of the judiciary is guaranteed by the Constitution.

South Africa's financial systems are sophisticated, robust and well regulated. South African banking regulations rank with the best in the world, while the sector has long been rated among the top 10 globally. Foreign banks are well represented and electronic banking facilities are extensive, with internet banking a growth feature of the sector.

The JSE Limited rates among the top 20 stock exchanges in the world by market capitalisation. The JSE's rules and their enforcement are based on global best practice, while the JSE's automated trading, settlement, transfer and registration systems are the equal of any in the world.

 

World-class infrastructure

 

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

And these are being significantly upgraded and expanded in preparation for the 2010 Fifa World Cup.

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.

 

 

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 also serves as 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.

These ports are the conduits for trade between South Africa and her partners in the SADC and the South African Customs Union, as well as hubs for traffic to and from Europe, Asia, the Americas and the east and west coasts of Africa.

Gateway to Africa

 

Not only is South Africa in itself an important emerging market, it is also a minimum requirement for accessing other sub-Saharan markets. The country borders with Namibia, Botswana, Zimbabwe, Mozambique, Swaziland and Lesotho, and 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 imperative for commercial ventures into Africa.

The country plays a significant role in supplying energy, relief aid, transport, communications and outward investment on the continent.

South Africa is also a dynamic force within the 14-member South African Development Community (SADC), and was a key player in the development of the New Partnership for Africa's Development (Nepad), the socio-economic renewal programme of the African Union.

 

Trade reform, strategic alliances

 

Since signing the Global Agreement on Tariffs and Trade in 1994, South Africa has become a player in the global trading system, and a series of trade reforms – including a tariff reduction and rationalisation programme – have been implemented.

Market access has been enhanced through free trade agreements with the European Union and the Southern African Development Community and the implementation of the Africa Growth and Opportunity Act by the United States.

In recent years, South Africa has also developed strong relations with markets in the rest of Africa, Asia and Latin America. The India-Brazil-South Africa (IBSA) alliance, formed in 2003, aims to increase trade between the three countries from the current level of around US$6-billion to $10-billion within the next few years. And the country has become a key trade and investment partner to China, which over the past decade has become a major player on the African continent.

 

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 are still among the lowest in the world, and 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. Recently licensed fixed-line operator Neotel has begun giving state company Telkom its first real taste of competition. The government is taking steps to ensure cheaper and more widely available bandwidth capacity. And major projects are under way to lay submarine fibre-optic cables along both the east and west coasts of Africa to boost the continent's connection with the rest of the world.

South Africa's unit labour costs are lower than those of other key emerging markets, including Mexico, Hungary, Malaysia and Singapore, and the country’s labour productivity has improved markedly in recent years. Comprehensive labour legislation has contributed to a marked decline in the number of man-days lost due to industrial action since 1994.

South Africa's corporate tax rate – down to 28% for 2008/09 – compares favourably against a number of developing companies, and the prospects of further reductions are good.

 

Ease of doing business in SA

 

South Africa ranked 35th out of 178 countries in the World Bank and International Finance Corporation's Doing Business 2008 report, an annual survey that measures the time, cost and hassle for businesses to comply with legal and administrative requirements.

South Africa was ranked above developed countries such as Portugal (37) and Spain (38), as well as major developing economies such as Mexico (44), China (83), Russia (106), India (120) and Brazil (122).

The report placed South Africa ninth for its protection of investors, while it recorded significant improvements in the areas of starting a business and getting credit.

 

Industrial capability, cutting-edge technology

 

South Africa's industrial production growth is well above the average for developing markets.

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 since 1994.

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 44th out of 130 countries – ahead of Italy and India – in the World Economic Forum's Global Competitiveness Index for 2007/08. The highest ranked African country was Tunisia, which placed 32nd with a score of 4.59. South Africa's score, an average of scores across 12 measures of competitiveness, was 4.42.

A number of industrial support measures have been introduced since 1994 to enhance the competitiveness of South Africa's industrial base. These include placing more emphasis on supply-side than demand-side measures (such as tariffs and expensive export support programmes).

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. The Competition Act of 1998 fundamentally reformed the country's competition legislation, strengthening the powers of the competition authorities along the lines of the 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).

The competition authorities monitor implementation and adherence to the law, while state regulators oversee natural monopolies and promote universal access to state utilities.

 

Article last updated: October 2008