# Presentation: 306755

## South Africa:  Alive with Opportunities

- 		U.S. Commercial Service
-  South Africa

## SSA Projected Economic  Growth in 2007 - IMF  

## SSA Economic Growth 2001 - 2006

## Sources of Growth – Commodity Prices

## Improved External Balances

## Governance Improvements? 

## Dramatic Declines in Inflation

## U.S. Imports from SSA

## U.S. Exports to SSA

## Regional Importance within Africa

- 6% of the population (46.9 million)
- 24% of continent-wide GDP
- 50% of electrical generation
- 45% of mineral production
- 50% of purchasing power

## Political Importance                within Africa 

- South Africa sits as a non-permanent member of the United Nations’ Security Council
- Leader in the Southern African Customs Union (SACU)
- The Key member state of Southern African Development Community (SADC)
- Pre-eminence with Nigeria and Algeria in the African Union (AU)

## Southern Africa Customs Union

- Botswana
- Lesotho
- Namibia
- South Africa
- Swaziland

## Southern African Development Community 

- Angola
- Botswana
- Democratic Republic of Congo
- Lesotho
- Madagascar
- Malawi
- Mauritius

- Mozambique
- Namibia
- South Africa
- Swaziland
- United Republic of Tanzania
- Zambia
- Zimbabwe

## So Why Do Business in South Africa? 

- Cost-effective gateway to SADC (160 million customers)
- Largest African market
- Stable political and macro economic climate
- High quality physical & communications Infrastructure
- Highly developed financial, legal, & energy sectors
- Value - added logistics

## Macro Economic Growth 

- Economic growth in 2006 at 5 percent, trending up
- Inflation at 4 percent, trending down
- SAG enjoys small budget surplus, however ...
- Savings are low, current account is in deficit (6% of GDP)
- FDI into South Africa 1994-2006, $30 billion
- Stock exchange ranks among worlds 20 largest, index expanded 47 percent in 2006

## Drivers of Growth - Infrastructure

- Fixed Capital Investment had fallen to 15 % of GDP
- Government is planning USD 50 billion upgrade
- Electricity generation, USD 20 billion
- Transportation upgrade, USD 6 billion
- Communications upgrade 6 billion
-   Private sector plans another USD 50 billion capex
- Manufacturing
- Mining / Metallurgy
- Tourism

## 2010 FIFA World Cup Soccer

- The largest sporting event – larger than the Olympics
- Building or refurbishing nine municipal stadiums
- Upgrading urban transport systems
- Upgrading airports
- Dramatically improving communications backbone
- Investing in security networks
- Upgrades of tourism facilities: hotels, lodges, car rental, catering, retail, franchise, etc.

## Drivers of Growth - Black Economic Empowerment

- BEE is designed to create economic opportunity for historically disadvantaged groups.
- It is the law – government procurement, licensing, permitting, government ownership of shares
- Has lead to a surge in Black urban middle class
- Has created growth opportunities in all consumer goods and services sectors
- BEE is a bedrock for political stability in South Africa

## BEE Scorecard

- Ownership 			20 percent
- Management Control		10 percent
- Employment Equity 		15 percent
- Skills Development		15 percent
- Preferential Procurement	20 percent
- Enterprise Development	15 percent
- Socio-Economic Dev.		 5 percent

## Status of BEE

- Great Progress
- Clean water 68%  to 88 %
- Electricity 58 % to 80 %
- Home ownership 71 %
- 2 million homes built since 94
- SA Institute of Race Relations

- Still a Long Way to Go
- 2.5 – 12 million foreigners
- 50 people murdered/day
- 8 m (26/40%)  unemployed
- 90 % black hh expend 2,500
- 54%  new jobs are informal
- HH debt = 70% income
- 1,000 AIDS deaths/day
- 1/3 females between 16 and 25 have HIV/AIDS

## Drivers of Growth – Trade and Foreign Investment 

- South Africa’s trade is equal to 46 percent of GDP
- Relatively low tariff rates, few NTB
- Free Trade Agreements with EU
- Growing investment from India, GCC and China
- Strong commodity prices flatter growth
- Growing regional trade
- On-going negotiations with U.S, 2nd largest partner

## Inhibitors of Growth

- Severe skills shortage due to apartheid education
- Rigidities in the labor market
- Lacking flexibility to hire and fire
- High wages
- High levels of crime, high cost of security
- Anti-competitive behavior in some industries
- Excessive government control in some industries
- Corruption

## South Africa and the United States – Partners in Trade

- South Africa and the United States:  Partners in Trade
- The Numbers
- $ 4.5 Billion: U.S. Exports to South Africa (2006)
- $ 7.5 Billion:  SA Exports to the United States (2006)
- $ 11.9 Billion in two-way trade (2006)
- $5.0 Billion:  U.S. investment into South Africa (2005)

## South Africa and the United States:  Partners in Trade

## South Africa and the United States:  Partners in Trade

**South Africa and the United States:  Partners in Trade**

- The U.S. is the second largest foreign direct investor in South Africa.
- The U.S. is the largest source of new foreign direct investment since the 1994 transition to democracy.
- 600 U.S. Companies have a presence in South Africa.

## South Africa and the United States:  Partners in Trade -Largest US Investors

**South Africa and the United States:  Partners in Trade -Largest US Investors**

- Chevron
- Coca Cola
- Dow Chemicals
- IBM
- 3M
- Goodyear
- Ford
- McDonalds
- Eli Lilly
- General Electric
- General Motors

- Minute Maid
- Nike
- Colgate-Palmolive
- Deloitte & Touche
- Levi Strauss
- Microsoft
- Dell
- Sara Lee
- Caterpillar
- HP

## South Africa and the United States:  Partners in Trade 

- Airport/Ground Support Equipment
- Automotive Parts/Service Equipment
- Electrical Power Systems
- Medical Equipment
- Mining Equipment
- Pollution Control Equipment
- Safety/Security Equipment
- Telecommunication Equipment
- Telecommunication Services

- Best Prospects for U.S. Exporters

## Barriers to Entry

- Cost of doing business, bad infrastructure, ports
- Price based purchasing, little emphasis on quality
- Informal, unstructured tendering procedures
- Poor standards, conformity compliance
- Skills shortage
- Corruption – over or under invoicing
- Financing – high risk if do not demand cash
- Parallel imports and counerfeiting

## Business in South Africa

- Must do proper due diligence
- Companies should register IPR - territoriality
- Confidentiality agreements are binding
- LOI, MOU can be binding if not explicit
- Contract should include mediation or arbitration
- Jurisdiction can be an issue
- Do you have appropriate insurance coverage
- Draconian protections for labor