Company News » 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

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

South Africa is keen to make itself the “safe” manufacturing hub of Southern
Africa, promoting manufacturing for export as well as sales in its own domestic
marketplace. Nowhere is this more visible than in the country’s growing
automotive sector.

Last year Volkswagen produced 112,000 Jettas, Polos and Golfs at its
Uitenhage factory – twice the number it made eight years earlier.

“In fact,” explains Andreas Tostmann, the company’s managing director, “in
the period 2000 through 2008, Volkswagen South Africa will have invested over
R6bn [£560m] in new models, a new paint shop, and a new truck and bus assembly

VW has seen its sales in South Africa rise by 60% since 2003 and it remains
the country’s biggest car exporter. But it is by no means the only player. BM
W’s Rosslyn site in Pretoria has received plaudits for its efficiency and
quality. And Fiat makes and exports catalytic converters in South Africa, which
now claims to be the world’s biggest supplier of platinum-based catalytic
converter components.

VW also exported 40,000 vehicles in 2005, mainly to Japan – ahead of both
DaimlerChrysler (30,000) and BMW (29,000), which also ship from South Africa.

What is clear is that VW is making strenuous efforts to play a social and
community role in a country where political and social engineering is intent on
developing opportunities for deprived ethnic groups.

VW has announced support for a new, locally owned operation, Mzantsi Truck
and Bus, and also implemented a HIV/AIDS workplace programme to fight the
disease among its staff.

In South Africa, social responsibility is part and parcel of running a
business – and that means more than just paying lip service to the country’s
multicultural ideals. VW has taken this on board as it develops its business

Inflows and outflows

Exports $36.3bn







Imports $40.7bn

Crude oil


Motor vehicles




Net foreign direct investment $6.7bn