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Doing Business in South Africa

The South African economy is characterized by standards similar to those found in developed countries. Its service sector is well established and growing, and the economy is increasingly well managed with slow but steady industrial productivity gains. It has a well-developed physical infrastructure that is comparable to OECD standards. South Africa boasts a sophisticated financial sector with well-developed financial institutions and a stock exchange in Johannesburg (JSE) that ranks among the top exchanges in the world.

South Africa is a vast country covering 1.22 million square kilometers and it is the world’s largest producer of platinum, vanadium, chromium and manganese. Recently, South Africa has seen rapid increases in both inbound and outbound Foreign Direct Investment (FDI). Other quick facts regarding South Africa’s economy and its foreign trade:

  • The United States was the third largest source of South African imports in 2007at 9.4 percent, after Germany (17.1 percent) and China (10.2 percent) and ahead of Japan (8.5 percent) Saudi Arabia (6.6 percent), United Kingdom (6.6 percent), and France (5.2 percent).
  • U.S. exports rose 23 percent in 2007, and by 18 percent in 2008. (Source: U.S.Census Bureau)

The United States is the second largest portfolio investor in South Africa and the second largest source of foreign direct investment (FDI) in South Africa, after the U.K. (Total U.S. FDI is $6.6 billion with total portfolio investment in South Africa at the end of 2007 amounting to $ 51.6 billion). The mature nature of the South African economy is reflected in the mix of economic sectors:

  • primary (including agriculture, fishing and mining): 8 percent,
  • secondary: 22 percent; and
  • services: 70 percent.

The national retail consumption patterns reflect the disparate nature of the economic status of its citizens, ranging from basic needs (e.g., condensed milk) to high-end durable consumer goods (e.g., SUVs). Over the past five years, South Africa has further integrated into the global trading system by negotiating free trade agreements with the European Union, its neighbors in the Southern African Development Community (SADC), the European Free Trade Association and Mercosur. The Southern African Customs Union (SACU) agreement with Botswana, Namibia, Lesotho, and Swaziland, first established in 1910, has also been renegotiated and ratified by all members. The passage of the African Growth and Opportunity Act (AGOA) has provided duty-free access to the U.S. market for all African countries and resulted in an increase in bilateral trade between the United States and South Africa.

The United States and SACU concluded a Trade, Investment and Development Cooperation Agreement (TIDCA) in July 2008. The U.S. and SACU will use TIDCA as a forum to conclude a range of agreements on various trade facilitation issues and other areas of cooperation.

South African GDP grew 5.3 percent in 2006 and 5.1 percent in 2007. South Africa’s GDP growth has slowed to 3.1 percent in 2008 due to the global financial crisis, and is expected to moderate further to about 1.2 percent in 2009. Inflation has risen above the South African Reserve Bank’s managed target range of three to six percent and peaked at 13.6 percent in August 2008. High interest rates have weakened business and consumer confidence. At the same time, structural reforms in general have increased the economy’s diversification and openness, bolstering its resilience to external shocks. The banking sector has managed to avoid any serious disruptions, due to its limited exposure to the U.S. and other foreign markets.

Fourteen years after the watershed 1994 democratic elections, South Africa continues to maintain a stable political environment. The Presidency changed hands with the resignation of Thabo Mbeki in December 2008, succeeded by Kgalema Motlanthe. The Government has generally pursued market-oriented economic policies and has steadily progressed in restructuring state assets and introducing competition for state-owned enterprises (SOE’s). Nonetheless, upcoming elections in April 2009 could prompt a change in current government policies.

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