Country Analysis- The Republic of South Africa
Daniel Stone
Ohio Dominican University
Executive Summary. The Republic of South
Africa has the largest economy in the African continent with a Gross Domestic
Product (GDP) of approximately US$364 billion in 2010. This is in part due to its location which has
an impact on business that distinguishes itself from the rest of Africa since
South Africa and its neighboring countries have the main exports of natural
resources. The climate in South Africa also
allows for a strong and robust economy and distinguishes itself from the rest
of the African continent since the climate permits a flourishing wine and
gardening industries in the southern part of South Africa.
Also, due to South Africa's expansive infrastructure, the
natural resources that originally built the South African economy can be transported
with little resistance. It's infrastructure
has an impact on business by allowing goods and services to be moved in a more
streamlined fashion on the one hand, while allowing an increase in labor
productivity on the other hand resulting in lower absenteeism due to the lessening
resistance for commuters.
A possible risk in business development is the low involvement
in the political process. Nearly 50% of
the population in South Africa is under the age of 24. Known as the "Born Free"
generation, this large demographic hasn't been very engaged in the political
process and those that are politically involved are not satisfied with the
established ruling parties.
However, the readiness or competitiveness of South Africa
is strong and a good fit for foreign direct investments. This is due to South Africans having the
right to the various levels of public education. As a result, there is a large pool of young
and educated workers found in this country that will take to on-the-job
training and retain the newly acquired knowledge.
Risks to business development is the South African
government. On the one hand, the South
African political system, led by the African National Congress (ANC) has been
the overwhelming majority for the past 20 years. During this period, the South African governmental
and legislative system has the trends toward legislation that may be favorable
to business development of a manufacturing company due to a mixed economic
system. However, since Nelson Mandela
left office in 1999, Mandela's successors have been sorely flawed. Corruption within the ANC has become more
flagrant. With this being said, another
possible risk in business development is the overall legislative and regulatory
climate in South Africa since corruption is not regulated.
Location. Found on the southern tip of the African
continent, South Africa has the main exports of platinum, diamonds, gold, and
uranium which have an impact on business of a manufacturing company (Central
Intelligence Agency, 2013). A
possible risk in business development for a US-based manufacturing company is
the distance between the North American and African continents. However, the readiness of South Africa in
global business is strong for establishing a local office and develop a local
management team (Daniels, Radebaugh, and Sullivan, 2013).
Climate. The climate in South Africa is mostly
semiarid and subtropical along the east coast.
The competitiveness of the country in global business is strong due to
this climate since in the day it is normally sunny and in the night it is
normally cool yielding ideal work conditions.
For example, South Africa's climate is as such that it has a positive impact
on business by allowing a flourishing wine industry in the southwest part of
South Africa (Central Intelligence Agency, 2013). Along the southeast coast, there is
enough rainfall which provides South Africa green landscape for another
flourishing gardening industry (Central Intelligence Agency, 2013).
Infrastructure. South Africa has a number of highways,
airports, seaports, and other facilities for its infrastructure. Accessibility to South Africa by sea is
strong due to its eight commercial seaports in South Africa (Central
Intelligence Agency, 2013). Before
the Panama Canal, South Africa was the home of one of the biggest shipbuilding
and ship repair places due to the number of unsuccessful attempts transiting
the Horn of Africa off of South Africa's southern tip. A possible risk in business development is
for ocean freight shipments to and from South Africa that are unable to transit
the Panama Canal due to the long transit times (Central Intelligence Agency,
2013).
The competitiveness of South Africa is strong from an
aviation standpoint due to the country's five international airports, two of
which are in the nation's largest city, Johannesburg. Furthermore, South Africa's readiness in
global business is strong due to the country's extensive network of highways
that connect ground transportation throughout the country. Most of these highways were upgraded in preparation
for the 2010 World Cup. These upgrades
created new bus lanes that have shorten commuting times. Also, South Africa has its first high speed
rail link as part of the build up for the World Cup (RSM International Limited,
2013).
As a result of South Africa's expansive infrastructure,
the natural resources that originally built their economy can be exported with
little resistance. It's infrastructure
has an impact on business of a manufacturing company by allowing goods and
services to be moved in a more streamlined fashion on the one hand and lower
absenteeism and increased labor productive on the other hand (RSM International
Limited, 2013).
Social Environment. South Africa has a total of 11 official
languages including English, Afrikaans, Sesotho, Setswana, Xhosa and Zulu (Adam, 1997) . On
the one hand, the readiness of the country in global business is strong due to
the majority of South Africans able to communicate in English. However, on the other hand, a possible risk
in business development is a lack of continuity from a historical standpoint
between these different languages (Adam, 1997) . Another
example of the readiness of South Africa is the country's demographics. For example, South Africa's Caucasian
settlers demographic, known as Afrikaners, come from industrialized nations to
a greater extent from the Netherlands, Germany, France and to a lesser extent
from England, Scotland, and Ireland. As
a result, a foundation conducive for business was established in the 19th and 20th
century. However, in the middle of the
20th century that the Afrikaners instituted apartheid, which alienated the rest
of the demographics because of their race (Adam,
1997) .
A
direct correlation to the end of apartheid that shows the readiness of South
Africa as a country in global business are the growth of the black middle
class. As a result, South African has alleviated pressures of
welfare spending (BBC News, 2013). Considering that Xhosa and Zulu are the local
African groups that comprise of the majority of the South African population,
having a growing black middle class is an indicator of the readiness of South
Africa in global business in the 20 years since the end of apartheid. While this is a much needed economic improvement,
barely 40% of working age in South Africa have jobs. Yet, while South Africa is a country
considered rich in resources, 33% in South Africa live on less than $2 a day (The
Economist, 2013). Many in South Africa
consider race that was the biggest division in South Africa's past, however,
the economic disparity among much of South Africa is what will keep the country
divided in the future (Bourdain & Freeman, 2013).
One
other example that shows the competitiveness of South Africa in global business
is their desire to obtain the finer things in life. As South Africans continue to acquire more
and more wealth, they will desire better smart phones, faster high speed
internet, and other technological advances that established developing
countries have for example (Bourdain & Freeman,
2013).
While
the Afrikaners were the ruling class until the mid-1990s and the blacks were
the majority in South Africa, there is also a mixed culture comprising of ancestry
of Europeans and other indigenous African and Asian people are known as Cape
Coloreds. Those receiving this
classification aren't necessarily black, just not Caucasian. Much of this consists of a sizeable Muslim
community in South Africa's metropolitan areas such as Johannesburg (Bourdain & Freeman, 2013).
Another possible risk in business development is South
Africa's trends in population since it has
excess mortality due to AIDS. Life
expectancy is lowered (65 years and over equate to 6.1%). Another risk is South Africa's youthful
demographic. Nearly 50% of the
population in South Africa is under the age of 24 meaning that involvement in
the political process is low. Many of
the younger South Africans do not support the current politicians. This demographic does not have the passion as
their parents once did for the political process due to the oldest of this age
group being born after apartheid was abolished (Central Intelligence Agency,
2013).
Known
as the "Born Free" generation (Bourdain &
Freeman, 2013), this bottom-heavy age structure has a good fit for
foreign direct investments such as those from fast-foods giant, McDonalds. McDonalds has 177 restaurants in South Africa
and with this youthful age group, this trend is attracting other foreign direct
investment from Burger King in who plans to enter the South African market in 2014
(Joy, 2013). Not only do companies from
the U.S. see the readiness of South Africa in global business, but also does
the rest of the African continent. South
Africans see their country as a beacon of hope for the rest of the African
continent due to people from other African nations going to South Africa in the
past 20 years when apartheid was finally abolished (Bourdain
& Freeman, 2013).
Along with its natural resources, one of the brightest
signals that shows the readiness of South African in global business is their high
literacy rate. This is due all South
Africans having the right to basic education, adult basic education, and
further education. South Africa has one
of the highest rates of public investment in education in the world. These education levels combined with South
Africa's population trends impact business positively for a manufacturing
company to conduct a foreign direct investment.
South Africa is globally competitive since not only will local staff be
young and impressionable to take to training, but also educated enough to
retain the knowledge and provide solid workmanship (BBC
News, 2013).
A possible risk in business development in South Africa's
cultural environment that has the impact on the business of a manufacturing
company is limited amounts of skilled capacity in engineering, technology, and
economic disciplines. While the South
African public sector provides funding for educational programs and the pathway
to education by South Africans has little to no resistance; skilled engineers,
technology, and economic professionals are few in numbers (Heinrich Boll Stiftung,
2013).
Cultural Environment. With literacy being one of the brightest
signals in South Africa, corruption throughout the African continent one of the biggest signals
for concern since these African countries rank as the most corrupt region in
the world with 90% of the countries scoring as very corrupt (Dell, &
Heimann, 2012). On the other hand there
is a traditional African concept known as Ubuntu. This is widely respected in South Africa that
emphasizes people's allegiances and relations with each other. Qualities associated with this is
interdependence, unity, collective work and responsibility (Ubuntu Africa,
2013).
While corruption in a threat to business development in
South Africa, the South African's attitudes towards social institutions such as
family, church, labor, and other organizations are similar to those found in
other Western countries that were established and grew to prominence in the
20th century. From a religious
standpoint; Protestants, Catholics, and other Christians comprise of nearly 80%
of the religions found in South Africa. From
a public sector stand point, the South African government is a republic meaning
that it is a sovereign state where politicians are elected. These show South Africa's readiness in global
business due to the degree of sophistication necessary to operate a government
where politicians are elected has a direct correlation to a government where
the economy is strong (Central Intelligence Agency, 2013).
The readiness on business of a manufacturing company in
South Africa in global business is strong because English is one of South
Africa's official languages. As a result,
English-speaking nations are able to communicate and make few alterations to
packaging of imported and exported products due to this main common value. Trade barriers have been minimized in some
cases for products coming from those countries of Botswana, Lesotho, Namibia,
and Swaziland to South Africa known as the Southern African Customs Union
(SACU) (Charalambous, 2012).
The cultural factors found in South Africa have
constituted informal trade barriers in the past due to apartheid. For example,
Israel offered to provide aid to South African blacks which bothered the ruling
white South Africans. In 1962, the
United Nations passed a resolution condemning South Africa and their apartheid
policies. As a result, there was a
voluntary arms embargo and in the 1970s, South Africa received a number of
economic sanctions (Coutsoukis, 2004). This may be a possible risk in
business development since historically South Africa was viewed in a negative
light at the global level.
Economic Situation. The readiness of South
Africa in global business in terms of its economic situation for global business
is strong. This is due to the fact that South
Africa has the largest economy in the African continent with a Gross Domestic
Product (GDP) of approximately US$364 billion in 2010 (Central Intelligence
Agency, 2013). South
Africa's current economic situation is a middle-income, emerging market with an
abundant supply of natural resources; well-developed financial, legal,
communications, energy, and transport sectors and a stock exchange that is the
15th largest in the world.
Despite these findings, there are possible risks in
business development due to South Africa's economic situation. In 2007, their economy began to slow in terms
of growth due to a electricity crisis.
South Africa's economic growth further slowed due to the global
financial crisis which reduced the prices of commodities, South Africa's main
export. This combined by a global demand
for commodities falling off caused South Africa's GDP to fall by 2% which
hasn't recovered since then. South
Africa has budget deficits which is 40% of their GDP that has prevented them
on dealing with pressing economic problems such as controlling inflation and
unemployment of nearly 25%. In 2012,
South Africa's real growth GDP rate was at 2.5% and the inflation rate is 5.7%. Inflation rates have risen due to
the commodities boom which went into effect prior to the global financial
crisis. In 2007, South Africa
implemented the National Credit Act to curb reckless lending practices. While there have been bank defaults on loans
due to the fallout of the global financial crisis, nothing that was too
alarming for South Africa because of the National Credit Act. Rising food and fuel prices are no different
in South Africa than the rest of the world but are worse due to high interest
rates (Heinrich Boll Stiftung,
2013).
New developments and trends for South Africa's economic
situation are the global financial crisis has reduced prices and world demand
of commodities. While South Africa has
survived the collapse of the commodities markets, credit crunch, and bursting
of assets bubbles, analysis debate if South Africa is insulated from world
financial markets. This is due to
foreign investors now being able to send back to their home country funds which
was the problem that came from the apartheid era to prevent capital flight. The ratio of capital to risk-weighted assets
of the average South African bank's capital adequacy is above 12%, a benchmark
that European banks are expected to clear.
While there have been large numbers of panicked withdrawal of funds in
the U.S. and Europe on the global level, there are no signs of a loss of
confidence taking place in South Africa.
South Africa's exports are approximately 50% to the U.S. and the Euro
Zone, and the other 50% to China. While
the price of precious metals such as coal have plunged along with demand in the
U.S. and the Euro Zone, the demand and price has not been hit so hard in China (Heinrich Boll Stiftung,
2013).
South Africa's currency, the Rand, has collapse in line
with global equity markets, however, since mining production comprises of over
half of the nation’s exports, and mining in South Africa is
struggling, the strength of the South African Rand will improve as the mining
situation improves. (Future Currency
Forecast, 2014).
Political Environment. South Africa's current
political environment is led by Jacob Zuma, of the African National Congress
(ANC). The ANC's governmental and
legislative system has the trends toward legislation that may be favorable to
business development of a manufacturing company due to a mixed economic
system of command and market that the
ANC influences (Daniels et al., 2013).
A
risk to business development is the current political scene which has a lot of
bitter fighting. Mandela served as
president from 1994-99. His successors
have been considered sorely flawed. For
example ,corruption within the ANC has become more flagrant (The Economist,
2013). As a result, the political party
that fired South Africans from white rule, the ANC, is not universally admired in recent
years. The ANC is being criticized for
corruption, political cronyism resulting in opposition parties gaining
strength. In short, the political party that led the country after apartheid is
now considered to proceed awkwardly and uncertainly
at present. In the 20 years since the
abolishment of apartheid, South Africa's political environment has been
considered a demographic experiment and like most things, in need of a tune up (Bourdain & Freeman, 2013). This of course is a risk to business
development.
Another threat to business development are formal trade
barriers like tariffs, import and export regulation has restricted business to
and from South Africa. There is a lack
of coordination across government ministries and regulatory authorities has
caused delays in authorizing trade for new products. For example, one South African retailer spent
three years getting permission to export processed beef and pork from South
Africa to Zambia (South Africa'.info. 2013).
One of the country's biggest assets, iron ore mining, had a bitter
dispute between a foreign direct investor and a local investor. While the country's constitutional court
upheld the foreign direct investor's forfeited stake for a local investor's
stake in the iron ore mining company, another public agency, the South Africa
Department of Mineral Resources, granted that same forfeited stake to a
different local investor with political connections as the reason (Charalambous,
2012).
The signs of a convoluted public sector interfering with
business development is obviously a risk, however there are signs that the
ethical climate for business of a manufacturing company in South Africa is
improving. In May 2011, The Ministry of
Finance announced that South Africa had established a Multi-Agency Work Group
(MAWG) to coordinate and investigate corruption-related supply chain management
practices in an effort to emphasize openness, effective competition and fair dealings
in the public sector (South Africa'.info. 2013).
The public sector in South Africa's attitude towards
corruption and unethical business practices are improving. The 9th and 10th least corrupt country in
2012, Canada and Netherlands, had a score of 84. South Africa's scored 42 out of 100 in
2013. By no means is South Africa
setting the standard for a public sector in terms of a lack of corruption,
however in comparison to some of the other counties in Africa, two countries
from the Sub Saharan African region that made the top 10 list of the most
corrupt countries in the world, which are Sudan with a score of 13 and Somalia
with a score of 8 (Standard Bank Group, 2012).
Legal Environment. Intellectual Property
in South Africa is a newer concept that is being enforced by following the
model carried out by the U.S. This fact
combined with the high level of corruption in the country's public sector is a
risk to business development. However, in
South Africa, intellectual property protection is granted and facilitated by the
Companies and Intellectual Property Registration Office (CIPRO). This organization is responsible for the
registration of patents, trademarks, designs, and copyright. Also, this organization also keeps track of
patents, trademarks, designs, and copyrights in South Africa (Heinrich Boll Stiftung,
2013).
Another threat to business development is the overall
legislative and regulatory climate in South Africa is one of which corruption
is not regulated. There are four
classifications of enforcement, which are active enforcement mainly found in
developed countries, moderate enforcement and little enforcement found in newly
developed countries and developing countries.
There are eight countries in the world that have no enforcement. Active enforcement is considered an adequate
deterrent to foreign bribery whereas moderate and little enforcement indicates
stages of progress in enforcement, but are still inadequate and lastly, no
enforcement which is no deterrent for foreign bribery. (Dell, & Heimann,, 2012).
The
political and legal environment analysis would not be complete without
mentioning what Nelson Mandela contributed to South Africa in these areas. In Mandela's passing, South Africans feel as
though they currently have the correct foundation to move forward. This foundation was overseen by Mandela who
is given credit for engineering the transformation of South Africa's political
and legal environment that saw the country become a multiracial free-market
democracy with little bloodshed (The Economist, 2013). In comparison to the rest of the African
continent, South Africa has the readiness in global business from a legal
standpoint due to the current foundation put in place 20 years ago Dell &
Heimann, 2012).
Summary. Based on the above
analysis, the attractiveness of South Africa for new business development by a
U.S. manufacturing is strong. South
Africa is located where natural resources are abundant, the climate is
favorable for business, and the infrastructure is robust. English is the main language, a foundation
conducive for business has been in place since European settlers began
migrating to South Africa in the 1800s.
Also, South Africa has a youthful workforce that has adequate education. A political system that is socialist
capitalism, and a legal system that is on the verge of developing a
intellectual property protection system are other indicators that South Africa
is an attractive country for new business development.
Johannesburg is the largest city in South Africa and
referred to as the economic powerhouse of the country (Bourdain,
& Freeman, 2013). This place would
be ideal for setting up a multinational corporation as it has two of the five
international airports found in South Africa making air freight and air travel
easily accessible. Also, this place has
a very diverse population meaning that a multinational corporation will have a
wide variety of candidates for the various positions needed for the local
workforce. While there are a
ample number of possible risks in business development, with all things
considered, South Africa's readiness and competitiveness is good for global
business.
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http://daniel-j-stone.blogspot.com (C) 2009-14
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