Diamond geezers

South Africa is consistently rated the strongest economy on the African continent. Standard & Poor’s long-term foreign currency debt rating for South Africa is BBB+ and stable in outlook over the next 18 to 24 months – on a par with Poland and Thailand. S&P points to prudent macroeconomic policies, an independent central bank committed to low inflation, a well developed financial sector, political stability and transparent institutions.

Against this must be set weaknesses such as some aspects of the structure of the country’s economy, social inequalities and the vulnerability of capital inflows. Burgeoning population growth amounts to both a pool of hungry labour but also one in which political instability is rooted and may grow if it is too long denied access to the rich fruits of society enjoyed by South Africa’s wealthy.

South Africa knows that it cannot compete with emerging markets such as China and India on availability and cost of labour, so it has adopted a more high-education, high-value but lowcost strategy, stressing the value of its time proximity and cultural affinity with European markets.

The country offers substantial scope for growth. Estimates are that in 2005 the South African economy grew by around 4% – a level that is likely to be maintained over the next three years. Further growth is likely to come from South Africa’s own services sector including financial services, technology such as software development, call centres and manufacturing, where the key inputs of raw materials, labour and energy are competitively priced against those in western European economies.

Political and regulatory environment

The World Bank rates the country 28th out of 155 for ease of doing business, which puts South Africa at a similar level to Chile, South Korea and Israel.

The World Economic Forum ranks the country 25 out of 117 for business competitiveness – on a par with Malaysia, Korea and Spain.

While South Africa still owes its wealth to primary industries such as gold and diamond mining and the financial system is still run by the white minority, things are changing.

Social divisions are more complicated than a simple black/white dichotomy. There are still tribal differences serious enough to cause bloody disputes within recent memory between supporters of the ruling African National Congress and the Inkatha Party. The Cape Coloured community is only one of many disadvantaged groups.

Doing business there

Setting up a business in South Africa is as trouble-free as in the UK. It is important to establish a subsidiary as a Pty Limited company to make sure that the shares are marked as non-resident. This enables funds to be transferred in and out of the country, such as when inward investors are repatriating dividends or capital.

VAT and other company registrations are straightforward procedures in South Africa and there are grants, tax breaks and other support for sectors such as call centre operations and software-related businesses. A variety of economic development zones exist throughout the country.

South Africa’s corruption perception rating is 4.5 (10 represents a high degree of transparency, 1 a high degree of perceived malfeasance). Countries with similar scores include Kuwait, the Czech Republic and Greece.

Management/accountancy staff

Many émigrés have returned to South Africa following the dismantling of apartheid, with skills honed overseas. Accountants probably lead the returning pack of professionals. Add in those who have worked abroad post-qualification and have gained broader international experience, and the market provides a good level of staffing.

All the major accounting firms operate in South Africa and the country’s universities produce a good flow of graduates, so the country is well supplied with qualified staff.

Luke Mills, expat executive director of outsourcing agency Calling The Cape, says: “First-line management tends to be a bit more of an issue, and takes a bit longer to find and develop. But generally companies can recruit people from the domestic business and industrial base with 75% of the capabilities they need. The companies that have been successful here have been those that have taken a long-term recruitment approach, recruiting the good, want-to-learn and business-positive attitude first and foremost, even if all the skills are not available from day one.”

Making a success of business

On the whole, business attire in South Africa is less formal than in the UK. “Ties are not obligatory,” says Mills. “It’s a hot country.”

It is important to be sensitive to social diversity, which is major issue in South Africa. “I don’t think there are any other major dos or don’ts, or differences with the UK,” adds Mills. “If anything, South Africans tend to be a bit more polite, so avoid being blunt or abrasive, which tends not to play too well here. Otherwise, it’s exactly the same as the UK when you are doing business here day to day.”

Case study: Gearing up

Inflows and outflows