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
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
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
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.
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
South Africa is keen to make itself the “safe” manufacturing hub of Southern
Last year Volkswagen produced 112,000 Jettas, Polos and Golfs at its
“In fact,” explains Andreas Tostmann, the company’s managing director, “in
VW has seen its sales in South Africa rise by 60% since 2003 and it remains
VW also exported 40,000 vehicles in 2005, mainly to Japan – ahead of both
What is clear is that VW is making strenuous efforts to play a social and
VW has announced support for a new, locally owned operation, Mzantsi Truck
In South Africa, social responsibility is part and parcel of running a
Inflows and outflows
|Net foreign direct investment||$6.7bn|