Tuesday, 29 Nov 2011
Businesswoman on phone in South Africa
Overseas Business Risk - South Africa
Political and Economic
Political
South Africa is a young, yet stable democracy, dominated by one political party. The African National Congress (ANC) has won all four national elections since the start of democracy in 1994. Jacob Zuma became president in May 2009 following the ANC’s victory at the polls securing 65.9% of the popular vote. He came to power with the support of the tripartite alliance consisting of the South African Communist Party (SACP), the Congress of South African Trade Unions (COSATU) and the ANC.
Although the ANC recently won 63% of the vote in the May 2011 Local Government Elections, the main opposition party, the Democratic Alliance, was deemed the biggest winner as it increased its support base from 14% in 2006 to 25%. This gives the opposition a solid platform to intensify their campaign and strengthen their bid for the 2014 national election.
Despite the ANC’s domination of South African politics, diverse interests within and between the tripartite alliance creates its own checks and balances. Calls from the left for a more radical approach to economic policy, including greater government intervention to create employment, competes with the views of economic moderates who emphasize the importance of prudent monetary and fiscal economic policy.
Economic Situation
South Africa has recovered from its first recession in 17 years after it contracted by 1.7% in 2009 on the back of the collapse in global trade. Prudent macroeconomic policies and tight banking regulation limited the impact of the global downturn. And years of fiscal responsibility provided the space to respond effectively to the crisis. Economic growth in 2011 has continued its momentum from the end of 2010. Annualized growth of 4.8% in Q1 of 2011 surpassed expectations and increased from 4.5% in Q4 2010. The National Treasury forecasts growth of 3.4% for 2011 increasing to 4.4% by 2013.
The economy is diversified, with a strong services sector. Finance, real estate and business services is the largest industry contributing 20.7% to GDP and manufacturing contributes 16.4%. While manufacturing was the best performing industry during Q1, exporters continue to blame the strong, and some argue, overvalued Rand for eroding their international competitiveness. Mining only contributes 5.5% to GDP, but it is important for employment and is a significant foreign exchange earner.
Unemployment remains an immense challenge with an official figure of 25% but the real figure is probably nearer 40%. Two thirds of all those unemployed are below the age of 35. President Zuma announced during his speech at the 99th anniversary of the ANC that 2011 would be the year of job creation. He officially endorsed the ‘New Growth Path’ document that aims to create 5 million jobs in 10 years. In addition, a new jobs fund has been announced and a youth wage subsidy is in the pipeline.
Key challenges for the year ahead will come from chronic skills shortages, low productivity levels and infrastructure bottlenecks particularly in energy, transport and water which are a result from years of underinvestment.
South Africa has an inflation target band of 3-6%, but this framework is heavily criticized by the left. Inflation bottomed out at 3.2% in September 2010 and has been climbing slowly since. External cost push factors of high fuel and food prices have taken the blame. Domestic factors of double digit increases in electricity and significantly above inflation wage increases are expected to add further pressure. Inflation is expected to stay within the band during the year with the SARB forecasting 5.1% for 2011 and 6% for 2012. The Reserve Bank has cut the repo rate by 6.5 ppt since December 2008 to 5.5% but could start tightening before the end of the year.
South Africa is an ideal export market for UK companies and is fourth on the list of key emerging markets for global investors. The South African Government has embarked on an ambitious multi-year capital expenditure programme worth approximately £90 billion, with the majority of the spending taking place in public infrastructure and power generation. UKTI is active and already participating in an engagement strategy to approach South Africa’s high-value infrastructure plans with a focus primarily in key projects in healthcare and acid mine drainage, with more work in the energy and water sectors to come.
South Africa has recently joined the BRICS grouping and China is South Africa’s largest trading partner, although the UK is in the top 5. UK exports to South Africa in 2010 were worth £3.5 billion, while imports from South Africa totaled £4.4 billion. Some 600 South African companies are present in the UK (4 out of 5 South African businesses in Europe are based in the UK). Both countries are committed to the bilateral government agreement to double trade by 2015.
More information on political risk, including political demonstrations, is available in the FCO Travel Advice.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
In 2009, South Africa was ranked 55th out of 180 countries in Transparency International’s corruption perception index (CPI).
South Africa is a signatory to the OECD Anti-Bribery Convention. The 2010 peer review by members of the Working Group on Bribery found that South Africa had a modern anti-bribery legislation, but more needed to be done on enforcement.
Bribery and corruption is not regarded as endemic in South Africa, but there have been reports and some high level convictions of corruption, in both private and public organisations in South Africa. Any approaches to experiences relating to bribery and corruption in business dealings should be reported to relevant authorities. It should be noted that UK bribery legislation also applies to UK registered companies and UK nationals committing acts of bribery wholly outside the UK.
Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in South Africa.
Read the information provided on our Bribery and corruption page.
Terrorism Threat
There is an underlying threat from terrorism. Attacks, although unlikely, could be indiscriminate, including in places frequented by expatriates and foreign travelers.
Read the latest Travel Advice for South Africa from the Foreign & Commonwealth Office.
Read the information provided on our Terrorism threat page
Protective Security Advice
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses
South Africa has a high level of crime and visitors should be vigilant about personal security and when driving around the country. Please consult FCO travel advice for up-to-date information about the situation.
Visitors to South Africa should be diligent about protecting digital data. Spyware, phishing and malicious software tools are common. One example of this is to send authentic-looking emails to potential victims. The emails appear to have been sent from a trusted institution such as a bank, requesting recipients to divulge personal information. Once criminals have these details they are able to steal money from the victims' bank accounts. Diligence coupled with firewalls or spyware removal tools are recommended.
Read the information provided on our Protective security advice page
Intellectual Property
Businessman working at a computer
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.
In 2008, South Africa enacted the IPR Intellectual Property Right for Publicly Financed Research and Development Act. The law clarifies obligations related to the ownership of intellectual property rights in the country and applies to aesthetic and functional designs, marks related to patentable inventions and copyright. Further information can be viewed at the South African Department of Trade & Industry's website.
Read the information provided on our Intellectual Property page.
Organised Crime
Read the information provided on our Organised crime page.
More information is available on overseas business risk in a range of markets.