Real Business, South Africa - Tue October 4, 2011

Rise of the Rainbow Nation: South Africa

South Africa is the economic powerhouse of Africa, the “s” in Brics, and one of the UK’s foremost trade partners. South Africa is fast becoming a business hub to reckon with. Elliot Wilson investigates why.

On December 24, 2010, South Africa crossed a Rubicon. One of the world’s most vibrant economic nations received an invitation to join an exclusive but informal club with just four members: Brazil, Russia, India and China.

Overnight, the four Bric nations – standing for the first letter of each country’s name – became the five Brics. But the invitation did more than add a visually pleasingly plural to a catchy acronym. It highlighted and reinforced the startling rise of South Africa, a nation built on hard labour, great beauty, immigration and staggeringly abundant natural resources.

Suddenly, everyone wants to be best mates with the Rainbow Nation. In July, Prime Minister David Cameron, backed by an entourage including Barclays chief executive Bob Diamond, arrived on South African shores to meet president Jacob Zuma. South Africa is in the UK’s so-called “Premier League” of trading partners, and Britain is the country’s leading long-term investor. Trade between the two nations hit £9bn in 2010, with UK exports to South Africa jumping 28 per cent. Cameron and Zuma pledged to double that figure by 2015.

In June, the Germans were in town, led by Chancellor Angela Merkel. Barely a year goes by without the Chinese or the Indians (or the French, Americans, Japanese or Koreans) paying fealty to the southernmost African state.

Little wonder. As Africa’s largest economy, it is a huge importer of capital goods – great news for Britain’s services-based economy – and has resisted the worst strains of global disorder, with GDP growing 2.8 per cent in 2010 and on track to hit 3.6 per cent this year.

South Africa also acts as a classic entry-and-exit point, allowing foreign corporates access to Africa’s vast hinterland. Think of the nation as a set of saloon doors: they swing inward, granting miners and drillers access to sub-Saharan Africa – diamonds from Botswana, oil from Angola, platinum from Zimbabwe. (Africa boasts six of the ten fastest growing economies in the world, most of which are found south of the Sahara.)

Then, the doors swing in reverse. Resources are loaded onto trains and lorries, or pumped through pipelines to the South African coast, to be shipped off to fuel the economic braziers of China, India and (when they work) Europe and America.

So far so good. But South Africa, like most leading economies, is a complex beast. British corporates such as Vodafone and Barclays are leading investors here, but neither simply hopped off the ship and set up shop. Preparation is essential.

For a start, this a nation whose workers like a good strike – larger companies take note.

The usual gripe is, inevitably, about wages, and can usually be solved by sitting around a table. But most workers belong to a union and companies would do well to accommodate demands, within reason.

“You do have a lot of strikes here, which can create problems with companies looking to set up in South Africa,’” says Hein Stroebel, founder of Executive Immigration, a consultancy based in the Western Cape town of George, that advises foreign companies setting up shop across the nation.

Then there’s the issue of work permits. South Africa allows foreign specialists (say, chemical engineers, senior managers, derivatives bankers) to work there for up to three years. After that, the firm should either transfer the job to a local citizen or apply for an “intra-company work transfer permit” to retain the foreign worker. These are often hard to get.

Another headache is provided by the Black Economic Empowerment (BEE) scheme. This is honourable in intent, a way of boosting the percentage of black African workers employed at every level of the economy. Major foreign employers (most smaller companies are exempt) should read the BEE rules line by line.

Big companies will typically need to hire three South African workers for every foreign employee. In most cases, of that majority, half will need to be black, with the other half a mix of white workers and Chinese and Indian South Africans.

And one more thing. South African rules demand that major foreign corporates working here relinquish a stake (it can vary from five to 50 per cent) of the local holding company, which can be held by either a BEE-related organisation, or a powerful member of the BEE community. Again, these rules are complex, so do your homework!

But get your head wrapped around these issues and South Africa is a great place to do business. Caroline Dean, head of marketing at UKTI in Johannesburg, notes the country’s “emerging middle class with expendable cash”, and its position as the “leading market in the region”.

The Rainbow Nation is an increasingly powerful force in shipbuilding, banking, construction, engineering, and commodity extraction and refining. Its tourism industry is on a high, aided by the successful hosting of the 2010 football World Cup. It’s an outlandishly pleasant place to live and do business.

The UKTI’s Dean also highlights South Africa’s “good exchange rate, good infrastructure, low labour costs”, as well as the climate, excellent sporting facilities, food and drink, medical facilities, and generally high quality of life.

Luke Barlow, a taxation director working at global auditor Deloitte in the Western Cape, says: “Given the global attraction of a city like Cape Town, it is relatively easy to persuade key employees to relocate. Cape Town and other cities in South Africa also have a highly educated workforce, and the country has a very sophisticated business infrastructure.”

It is also, broadly speaking, a straightforward place to do business – no small fact in Africa. South Africa placed 34th in the World Bank’s Ease of Doing Business Index 2011, the highest-ranked African nation (neighbouring Botswana was next, in 52nd place), thanks to performing well in two particular metrics: ease of getting credit, and the level of state protection for investors.

The nation’s global outlook is also to be applauded. The newly introduced “headquarter company regime”, for example, grants an array of tax concessions to foreign-owned, South Africa-based firms – notably the relaxation of an array of transfer pricing rules, and exemption from foreign exchange regulations.

Of course, doing business anywhere is only easy if you have the right product at the right time – and if you are willing to do your homework. South African Hilary Alexander moved back to Cape Town in 2010 with her company, marketing consultancy Top Copy Communications. She missed the lifestyle and loves – after a decade spent in London – the low overheads and wage costs.

But she advises newcomers to do their local research: “Make the time to know your industry. Most industries are small worlds here, so make contacts, find the networks, and work out who the movers-and-shakers are – you’ll be able to do that just by looking at Twitter.”

And read contracts, adds Alexander. After years in London, where she got used to business being done on the basis of trust (“approach client, send invoice, invoice paid”), she ran into a few nasty surprises back in her homeland. “Make sure everyone has read the contract, and that they understand what is being said, to avoid having to untangle any nasty knots later.”

Viewed from any angle, South Africa is an open and genuinely global economy. It is the latest – and the first African – Bric, and is being courted by the world’s leading trading nations. It isn’t always the easiest place to do business, but understand the rules, follow them, and you’ll be fine. And when you’ve done that, go surfing, eat fabulous food and drink world-class wines. Could business life be any better?

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