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South Africa is an innovative, resource-rich and well-diversified economy which acts as a gateway to Sub-Saharan Africa. “There are great opportunities here for businesses in sectors such as manufacturing and energy,” explains Alex.
“We already have a number of major international motor manufacturers based here, and the government is currently making serious efforts to encourage other firms to come here to boost our economy and create jobs.”
Incentives to set up local production facilities and to export to the wider world are considerable, he adds, and may in some cases offset the cost of setting up a manufacturing facility over a five- to 10-year period. “The government has also removed a lot of the restrictions on taking money out of the country.”
South Africa has a youthful population, with more than 56m inhabitants. Unemployment, however, is arguably the biggest issue facing the nation at the moment, with the high jobless rate creating both economic and social costs.
As the country transitions away from natural resources and opens up its energy market, there are excellent opportunities for businesses in renewables and power supply, Alex adds.
“Eskom, the public utility, has until very recently had a monopoly on power generation and distribution,” he explains. “The government has now passed legislation that will mean more energy is delivered from renewable sources. The aim is to move away from dependency on coal-fired power plants to increase the contribution of wind and solar power.”
While historically South Africa’s economy has been based to a large degree around the extraction of its mineral deposits, falling prices and increasing difficulties in the viability of mining have reduced the importance of the sector in recent years.
Elsewhere, South Africa’s financial sector is well developed, Alex points out. “Banking is one of our major strengths, and our regulatory regime is known to be one of the strongest in the world,” he says. “This gives foreign investors considerable peace of mind.”
The flipside of this high level of regulation means that it can be especially challenging for new businesses to access capital, with security requirements on loans being particularly stringent. But South Africa also boasts a strong venture capital market, with funds flowing into areas such as FMCG (fast-moving consumer goods), manufacturing and renewables in recent years.
While the process of setting up a new business in South Africa can involve a considerable amount of red tape, Alex says that the process is generally fairly quick and inexpensive.
Penalties for late filing of tax returns can be punitive, while a corporate tax rate of 28% puts South Africa slightly higher than the global average but in line with its African peers.
Alex adds that it is vital foreign businesses understand the Black Economic Empowerment (BEE) laws that have been adopted over the past two decades. “It can be very difficult to do business in South Africa with the government and also with larger corporates if you are not BEE-compliant,” he explains. BEE involves an assessment of each business to gauge the extent to which it engages in practices such as buying from black-owned companies or employing black workers or executives.
There is not too much bureaucracy attached to hiring workers, although employment laws in South Africa can make it more of a challenge to let staff go, Alex adds.
And while the country does have some problems with crime, the quality of life in South Africa – and the welcome its inhabitants extend to foreign visitors – is unrivalled, he says. “The weather is phenomenal, the food is great and we have such a wide variety of tourist attractions and landscapes,” Alex explains. “The cost of living is relatively inexpensive, and this is an incredibly multicultural country.”
Access a world of resources, connections and expertise to help your international plans
Selling into, supplying or setting up operations in South Africa can be a step into the unknown. At Grant Thornton, we have the experience to guide you. Our South Africa International Business Centre director can co-ordinate access to international teams, resources and global delivery, while also helping you forge valuable trading relationships in the South African market.