Gateway to the region

Gateway to the entire Southern African region, South Africa is a major industrial power positioned at the southern tip of the subcontinent, physically larger than the combined countries of Germany, France, Italy, Belgium and Holland. This is a country that is well known for its abundance of sunshine and friendly people and as an ideal host nation.

The Constitution of South Africa comprises national, provincial and local spheres of government that are both interdependent and interrelated. In terms of this constitution, the country is divided into nine self-governing provinces, each with its own legislature, premier and members of the executive council. Each province features its own distinctive landscape, vegetation and climate, with variances therein.

The second largest provincial economy in the country, KwaZulu-Natal itself is a coastal province and home to two of Africa’s largest and busiest seaports. Dube TradePort, home of the greenfield King Shaka International Airport, is a catalyst for global trade and a portal between KwaZulu-Natal and the world. It is the only facility in Africa that brings together an international airport, a cargo terminal, warehousing, offices, a retail sector, hotels, and an agricultural area. Located 30km north of Durban, Dube TradePort is positioned between the two biggest sea ports in Southern Africa, and linked to the rest of Africa by road and rail.

Banking and financial aspects

South Africa’s highly competitive banking and finance industry is as technologically sophisticated as any in the world, with the high-tech first-world service sector able to accommodate the most demanding needs of business, shipping agencies and foreign investors. The country’s bankers, financial advisers, lawyers, tax consultants and experienced chartered accountants are able to advise foreign banks on legal issues and guide them through regulatory requirements with ongoing auditing services.

The South African Reserve Bank oversees the banking services industry, while the Financial Services Board governs the non-banking financial services industry. South Africa’s principle financial service markets comprise the JSE Securities Exchange, the SA Futures Exchange, and the Bond Exchange of South Africa. Once approval is obtained for foreign loans, commercial banks monitor and report on receipt and usage of the loan funds. The well-established Johannesburg Stock Exchange (JSE) is ranked among the twenty largest in the world in terms of market capitalisation, providing opportunities for private investment in large South African companies, with volumes and foreign purchases having increased dramatically. It also offers the opportunity to smaller, newer companies to seek investors through the Development Capital Market as well as a Traded Options Market for dealings in financial futures.

The financial market sees several established banking institutions, with four major groups controlling the bulk of the total banking assets. Flexible working relationships exist between local and foreign banks in this private enterprise system, and associations and alliances have continued to grow, with an increasing number of foreign banks in operation through fully active representative offices. Ideally located to service both European and southern African clients comprehensively, financial institutions are able to offer a full range of banking activities, including trade finance, foreign exchange trading, offshore banking and trust management. Commercial banks provide assistance to exporters in securing payments, while certain major financial institutions have international trade divisions offering more specialised services. The specific aim of small business units lies in assisting entrepreneurs, with innovative development initiatives offered.

Economy and Statistical Overview

KwaZulu-Natal is the second largest economy in the country. It contributes around 16% towards the GDP of the country. The capital city is Pietermaritzburg. Manufacturing, trade, business services and transport communications are the largest and strong growth sectors of the provincial economy.

  • Main cities and towns: Durban, Ulundi, Eshowe, Newcastle, Richards Bay
  • Capital: Pietermaritzburg
  • Premier: Mr Senzo Mchunu
  • Population: 10.7 million (2014 mid-year estimates)
  • Languages: isiZulu: 77.8%, English: 13.2%, isiXhosa: 3.4%, Afrikaans: 1.6%, Other: 4%
  • Population density: 113 people per square kilometre
  • Economically active population: 3.2 million (Q2:2014)
  • Area: 94,361 square km
  • Share of total SA area: 7.7%
  • GDPR: R470,3-billion (US$48,7bn) (2013)
  • Contribution to RSA GDP: 16.0% (2013)
  • Per capita GDP: R43,960 (US$4,556) (2013)
  • Gini coefficient: 0.64
  • Gross value added: R280,0 billion
  • Repo rate: 5.75% (Jul 2014)
  • Bank Lending Rate: 8.5% (Quarter 4 2012)
  • Investment hotspots: Durban, Richard’s Bay
  • CPI, Inflation: 7.2% (Jun 2014); SA 6.6%
  • Nominal exchange rate (R/US$): 9.6502 (2013); 8.2099 (2012)

Aluminium conversion and fabricated products, automotive components, conversion (emphasis on export-oriented investment), electronics, engineering, metal works, petrochemicals, wood and wood products.south-african-business-overview-2

This province offers a highly competitive advantage in capital intensive manufacturing, transport, storage and communications, as well as finance and business services. It is also well positioned in agriculture, forestry and fishing, agricultural resource-intensive manufacturing sectors; and in the tourism and accommodation sectors.

Boasting the highest export propensity and the highest level of industrialisation in the country, the economic structure in KZN is based on a large manufacturing sector in which growth is driven by the paper and paper products industry, and ferroalloys (such as aluminium) and other chemicals. Further significant subsectors include motor vehicles and component manufacture, printing and publishing, food and beverage production, non-electrical machinery, iron and steel, wood furniture, and textile and clothing.

KwaZulu-Natal’s emergence as a hub of industrial development in sub-Saharan Africa may be attributed to its unmatched natural resource endowments, exceptional productive capacity, well-developed first-world infrastructure and advantageous coastal location. Economic activity is concentrated in the metropolitan areas of Durban, Pietermaritzburg and Richards Bay, with the coastal belts utilised for sugar cane plantations and subtropical fruit and vegetables.

Two of Africa’s sea ports are found in KZN, and the world class King Shaka International Airport and the Dube Trade Port, provide a key competitive advantage and ensure the province’s importance for economic growth, effectively repositioning the country to increase its share of the global market.

Investing in KwaZulu-Natal

Reasons to Invest in KwaZulu-Natal

  • In close proximity, and within easy access of South Africa’s two largest ports – Durban and Richards Bay and King Shaka International Airport;
  • A large labour pool;
  • Diverse culture;
  • Gateway to other African countries;
  • Low land and building costs;
  • World-class transport and telecommunications infrastructure;
  • Advocacy and lobbying for investor incentives; and Idyllic climate.

Trading opportunities

south-african-business-overview-3Long, traditional ties have been developed with South Africa’s top trading partners and other important focus markets, with double taxation agreements and memoranda of understanding signed with various countries. Growing increasingly important as a trading partner of the European Union, South Africa is additionally a full member of the World Trade Organisation, while strong political and economic links within the African continent and membership of the Southern African Development Community offer trading opportunities within southern Africa. Companies locating in South Africa not only have the opportunity to source their inputs at very competitive prices but often have a domestic market for their products and services. Investors can use South Africa and particularly KwaZulu-Natal with its excellent infrastructure and logistics mechanisms as a gateway to take products and services to the rest of Africa.

South Africa’s increasing international presence has led to several trade agreements being negotiated with other countries. Facilitating the growth of the country’s export markets, these favourable agreements have opened up innumerable opportunities for companies based here to increase their international trade:

The African Growth and Opportunity Act provides potentially huge opportunities for a variety of the country’s economic sectors, from manufacturing to agriculture, to access the enormous US consumer market on a duty and quota-free basis on approved products, for a period extended to 2015.
The Trade Development and Customs Agreement with the European Union sees a positive trend in trade flows developing between South Africa and the EU, with the aim of zero duty.
Negotiations are in progress between the five-nation Southern African Customs Union and the four-country European Free Trade Association. A proposed US/Sacu agreement was also finalised in 2004, with both of these covering the entire range of trade and trade-related issues (including market access, tariff and non-tariff barriers, intellectual property rights, investment, competition and government procurement).

The comprehensive US/Sacu free trade agreement is the second most significant trade relationship exercise after Agoa between the US and African countries, increasing the number of products that Sacu members can export to the US market. With a more balanced and equitable Sacu pact having already been signed by leaders of member states towards the end of 2002, the International Trade Administration Commission now oversees implementation of the Sacu agreement as well as other multilateral and bilateral trade agreements.

Exporting a range of products and services to a diversity of markets, South African trade has weathered adverse international conditions fairly well. With specific trade and investment requirements being met, the country has fast become one of the most popular trade destinations.

Some Investment Opportunities

  • Aluminium conversion and fabricated products;
  • Automotive parts and components;
  • Beneficiation and value-addition of resources;
  • Electronics;
  • Business process outsourcing;
  • Engineering;
  • Petro-chemicals;
  • Chemicals;
  • Wood products;
  • Food processing; and
  • Clothing, textiles, leather and footwear

As the largest economy in Africa, South Africa is a major industrial power and world leader in the production and export of minerals, exhibiting convincing manufacturing strengths. Economic and social policies are ensuring the international reintegration of the economy and the creation of an environment for sustained export growth and healthy net capital inflows. South Africa is numbered in the top seven best-performing economies in the world and is placed third in terms of industrial production growth.

Since the dawn of democracy, South Africa’s gross domestic product has been growing at almost 3% per annum. Despite the current unpredictable global environment and South Africa’s categorisation as an emerging economy, the economy bounced back to 2.8% in 2010, after plunging -1.7% in 2009. The recession was the first one after 56 quarters of continuous expansion, the longest expansionary growth in the history of South Africa.

south-african-business-overview-4Key reasons behind this above-average performance are the increasing competitiveness of South African industry and an improvement in the domestic demand for goods and services. Export diversification is also a major factor that has contributed to progress, with manufacturing – a dominant and robust sector in this diversified economy – expected to retain its strength. Other strong sectors include finance and business services, commerce, mining and agriculture, while the tourism industry and its associated conferencing capabilities are playing an increasingly important role in development of entrepreneurial activities. There is additionally a superior and well-developed transportation and communications infrastructure.

Foreign direct investment multiplied by 21 times, compared with the previous five years.

 

Doing Business in SA

Banking and financial aspects

South Africa’s highly competitive banking and finance industry is as technologically sophisticated as any in the world, with the high-tech first-world service sector able to accommodate the most demanding needs of business, shipping agencies and foreign investors. The country’s bankers, financial advisers, lawyers, tax consultants and experienced chartered accountants are able to advise foreign banks on legal issues and guide them through regulatory requirements with ongoing auditing services.

The South African Reserve Bank oversees the banking services industry, while the Financial Services Board governs the non-banking financial services industry. South Africa’s principle financial service markets comprise the JSE Securities Exchange, the SA Futures Exchange, and the Bond Exchange of South Africa. Once approval is obtained for foreign loans, commercial banks also monitor and report on receipt and usage of loan funds. The well-established Johannesburg Stock Exchange (JSE) is ranked among the largest in the world, providing opportunities for private investment in large South African companies, with volumes and foreign purchases having increased dramatically. It also offers opportunities to smaller, newer companies to seek investors through the Development Capital Market as well as a Traded Options Market for dealings in financial futures.

The financial market sees several established banking institutions, with four major groups controlling the bulk of the total banking assets. Flexible working relationships exist between local and foreign banks in this private enterprise system, and associations and alliances have continued to grow, with an increasing number of foreign banks in operation through fully active representative offices. Ideally located to service both European and southern African clients comprehensively, financial institutions are able to offer a full range of banking activities, including trade finance, foreign exchange trading, offshore banking and trust management. Commercial banks provide assistance to exporters in securing payments, while certain major financial institutions have international trade divisions offering more specialised services. The aim of small business units lies in assisting entrepreneurs, with innovative development initiatives offered.

south-african-business-overview