DESTINATION SOUTH AFRICA A Quick Guide to Navigating the Business Market
FOREWORD Heathrow is pleased to support this practical guide to help UK firms export to South Africa. We have some of the best manufacturers and service companies in the world and we want Heathrow to play its part in supporting our country and its firms. This report is not just about getting to there – it contains advice on language, culture and market opportunities for when businesses land. The balance of the global economy is shifting, all the more so as the Eurozone struggles. Our nation is an island which has long depended on trade so successful UK firms are expert and innovative in promoting exports. But taking the first step in an unfamiliar market is challenging, particularly in a country with a culture different to our own. Where airlines can add new routes to exciting markets in Africa they do so. But the UK’s hub airport, Heathrow, is full. So whilst British firms can fly direct to many destinations in Africa, we are lagging behind our European and Middle Eastern neighbours. At a time of impressive economic growth in Africa, we risk being left behind. As the Prime Minister says, this is a global race – we cannot afford to lose.
Colin Matthews
Chief Executive, Heathrow
Africa’s recent and rapid economic growth has startled the world. Some are talking about the twenty-first century as “The African Century”. What is certain is that Africa’s economies today are among the fastest growing in the world. Its raw materials and resources are being targeted by global companies. Africa’s middle classes are growing fast and getting richer. But many investors wonder how they can get into these potentially huge markets. South Africa is an effective gateway to much of sub-Saharan Africa and plays an increasing role in the development of the entire continent. South Africa itself is already the biggest economy in Africa and traditionally best known for its mining sector. But its entire market is expanding and offers new opportunities for investors. Easily accessible, business-friendly and with first class infrastructure, South Africa provides a plethora of opportunities for British business. The UK needs to be a part of those emerging opportunities in order to continue to grow and thrive in South Africa and across the African continent. The Royal African Society supports this guide as a primer for British businesses looking to enter the South African market. As Britain’s prime Africa organisation, our goal is to promote Africa in business, politics, culture and academia. We work to foster better understanding and strong relationships between Britain, Africa and the world, and this guide provides a good starting point for greater cooperation and partnership between British and South African business people. The UK has strong historical connections with South Africa: business, academic, cultural, family and sporting links that have deepened and strengthened since South Africa became a democracy. As African economies continue to grow, the relationship between Britain and South Africa will be an increasingly important driver in bringing expertise and capital to the continent, driving its development and making it the most exciting emerging region in the world today.
Richard Dowden
Director, The Royal African Society
INTRODUCTION Acknowledgements We would like to extend our sincerest thanks to Derek Brown of AOMi; Avi Lasarow, Honorary Consul for The Republic of South Africa; and Richard Dowden from The Royal African Society for their valuable contributions to this guide. Additional thanks go to the Business Council for Africa, South African Chamber of Commerce (UK) and UKTI, as well as Desné Masie, Corporate Relationship Manager at The Royal African Society, for donating her time and expertise throughout the production of this guide. We would also like to extend special thanks to Asia House for facilitating the production of this guide.
Lucy Kentish Research and Editorial Charlize YuTing Cheng Graphic Design Caitlin Brophy Editor, Asia House
Entering a new market involves more than researching facts and figures of the economy, it means learning about customs, business practices and cultural nuances. Strong business links need to be made which requires time, effort and resources to open offices in a new market. Building long-term business relationships is important in South Africa, and to be successful in building such relationships faceto-face interaction is key. Destination South Africa has been produced, with the support of London Heathrow Airport, to give British businesses that are thinking of entering the South African market an idea of how and why to do business there. This guide offers more than just simple numbers; it includes key market opportunities, expert tips on business culture and a story from a British businessman who has succeeded in South Africa to serve as inspiration. The South African economy was originally built on its mining industry and now offers great diversity in trade and investment opportunities. South Africa is a destination of choice for UK businesses due to the minimal time difference and similar business culture, as well as the abundance of investment opportunities. South Africa’s recent membership to the Brazil-Russia-India-China (BRICs) group of developing nations has further demonstrated its relevance to the global economy. South Africa is overcoming many challenges, from race relations to crime, and is building a solid economic future. Alongside personalised market research there are many useful resources that can facilitate good working relationships in South Africa such as the UKTI, the South African Chamber of Commerce and the British High Commission to South Africa. Establishing a good foundation through comprehensive research and face-to-face interaction is essential for successful long-term business ventures in South Africa. This guide provides basic information to begin your journey to success in the South African business market.
MA
BOTSWANA
SOUTH AFRICA
NAMIBIA
SWAZIL AND LESOTHO
Overview The Republic of South Africa is divided into nine provinces and is a multi-ethnic country; its pluralistic society is reflected in its constitution which officially recognises eleven languages: Afrikaans, English, Ndebele, Northern Sotho, Sotho, Swazi, Tswana, Tsonga, Venda, Xhosa and Zulu. Located on the southern tip of Africa, South Africa shares land borders with Namibia, Botswana, Zimbabwe, Mozambique and Swaziland, while Lesotho lies entirely within its borders. Unlike most countries, South Africa has three capital cities: Pretoria the administrative capital; Cape Town the legislative capital; and Bloemfontein capital of the judiciary.
SOUTH AFRICA
51,189,307 Population
$384 billion
As a former British colony, South Africa’s financial and legal structures are strongly influenced by those of the UK, and despite English being the mother tongue of fewer than 10 per cent of the population, it is the language used in education, business, finance and government.
GDP (current US$)
2.2%
The South African Government has created initiatives to overcome the issues left by the apartheid laws, particularly a lack of skilled workers and racial diversity in the workforce. The Skills Development Levy promotes the training of locals while the Broad Based Black Economic Empowerment (BBBEE) promotes good corporate governance and equality in the workplace in larger companies that turn over more that R5 million per annum.
GDP Growth (2008-2012 average)
60%
Total Trade (proportion of GDP) World Bank 2012
South Africa has gained a leading international presence as a member of various regional and international organisations, such as the African Union, the Commonwealth of Nations and the United Nations, twice serving as a non-permanent member of the Security Council.
Market Sectors CIA World Factbook 2012
Agriculture 2.6 %
Services 68.1 %
There has been a heavy focus on the upgrading of infrastructure in South Africa, spurred on by the 2010 World Cup. South Africa has an extensive rail and road network, with the rail network serving the mining and heavy industries, and there are a number of airlines flying between the major cities.
Relationship between Trade and Flights in Key European Markets Industry 29.3 %
25,000 Millions
Millions Millions
OAG Max and UN COMTRADE Database, DESA/UNSD
Trade
Flights
4000
25,000
20,000
20,000
15,000
15,000
10,000
10,000
5,000 5,000 -‐ -‐ 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012
3000
UK Total
UK Travel
France 2000 TTotal France otal Germany Total Germany Total
France Travel
Netherlands otal Netherlands TTotal 1000
Netherlands France Travel
UK Total
0 2007
Germany Travel UK
Netherlands Germany 2008
2009
2010
2011
2012
AL AWI
Johannesburg
3.8 Million
Home to Africa’s largest stock exchange, Johannesburg is the capital of the wealthiest province in South Africa, Gauteng. Through manufacturing, retail and service industry sectors, the city generates 17% of the country’s GDP and is host to a large-scale gold and diamond trade. Johannesburg is served by the largest ‘dry port’ in the world, City Deep, and Africa’s busiest international airport, O.R. Tambo.
Durban
3 Million
With Africa’s busiest port and biggest container harbour, Durban is the second most important manufacturing hub in South Africa. Durban is home to large-scale industrial activity, satellite industries and a large chemical plant and boasts massive oil refineries as it is the drop-off point for most oil entering the country.
Port Elizabeth
1.2 Million
The Coega Industrial Development Zone (IDZ), based just 20km from Port Elizabeth, offers modern infrastructure for industrial investors and is situated on a modern deep water port, the Port of Ngphurha. The IDZ currently has six major construction projects including the DCD Group’s wind tower manufacturing plant.
Cape Town
3.6 Million
As South Africa’s second most populous city, Cape Town is home to the largest number of information technology companies in Africa, and has been named as the most entrepreneurial city in South Africa. The Western Cape Province, in which Cape Town is situated, is the centre of energy development for South Africa and there have been recent discoveries of oil and natural gas off the coast in the Atlantic Ocean.
Market Opportunities South Africa is ranked by the World Bank as an upper-middle income economy and is the largest and most sophisticated free market economy in Africa, with the Johannesburg Stock Exchange listed as one of the top 20 in the world. It is a member of the World Trade Organization, the Southern African Development Community, the G20 and the G8+5 and has recently joined the Brazil-Russia-India-China grouping of countries, all of which has contributed positively to South Africa’s economy. With a stable political climate and sound economic policies, South Africa represents a low risk investment destination. South Africa has an abundance of natural resources and is the world’s largest producer of platinum and chromium, its automotive industry offers low cost production and the commercial property market has been thriving since the 2010 World Cup. There are investment opportunities in a variety of sectors such as manufacturing, mining, agriculture, automotive, IT, chemicals, metal and textiles. Furthermore, the government’s introduction of the International Headquarter Company (IHQ) regime has reduced fiscal and regulatory barriers making South Africa a more attractive destination for multinational companies. South Africa’s diversified economy acts as a gateway to the rest of the continent, and its infrastructure facilitates easy access to neighbouring countries. With a coastline in the South Atlantic and Indian Ocean, South Africa’s ports offer a trans-shipment point between the emerging markets of South and Far East Asia, and Central and South America. The major trading partners with South Africa are China, the US, Japan, Germany and the UK.
Top Import Commodities to UK UN COMTRADE Database, DESA/UNSD 2012
US$ million Gold $771 Platinum $603 Waste and Scrap of Precious Metal
$351
Precious Metal Ores
$342
Diamonds $319 Other Commodities
$2,119
Top Export Commodities from UK UN COMTRADE Database, DESA/UNSD 2012
US$ million Diamonds $1,549 Motor Cars and Other Motor Vehicles
$592
Alcohol $284 Petroleum oils (other than crude)
$188
Medicaments $182 Other Commodities
$2,707
Cultural Guidance
Avi Lasarow
Honorary Consul for The Republic of South Africa and a Board Member of the South African Chamber of Commerce
South Africans do not like haggling over price, so it is important to start with a realistic figure.
South Africa is a country with a rich and diverse mix of cultures and people. There is no hardand-fast rule on how to conduct business in the country except to say that South Africans value working with people that they like and can trust. The country has eleven official languages, but most business is conducted in English. However, a greeting or an expression in one of the other official languages tends to receive a warm reception and is often encouraged. South Africans are generally relaxed in nature and can be direct in communication. South Africans prefer initial meetings, important discussions and negotiations to be done face-to-face rather than by email, letter or telephone calls. Business meetings should be scheduled well in advance, and confirmed by phone call in the days leading up to them. Travelling around South Africa’s cities can be difficult and time consuming and failing to account for this when planning a meeting, or travelling to a meeting, will undermine confidence. Business slows down during the summer holiday period from mid-December to mid-January and during the fortnight around Easter. When meeting foreigners for the first time in a business setting, South Africans will shake hands while making eye contact. Professional titles should be used until invited to use first names, and exchanging business
cards is standard. When greeting a woman it may be best to wait for them to extend their hand as some choose to nod their head instead. There are few women in senior positions in South Africa, so Western businesswomen may encounter some condescending attitudes. Conservative in dress, with suit and tie being almost uniform in business centres. The object of initial meetings is often to gauge character and personal rapport upon which an on-going partnership can be built. A formal introduction, such as a letter from a third party, may help you gain access to key decision makers. During the negotiation process it is important to remain calm and avoid interruption as this may be seen as rude. South Africans do not like haggling over price, so it is important to start with a realistic figure and aim for a mutually beneficial outcome. After a meeting, a letter or email should be sent summarising what was decided and the next steps to be taken. Networking can be crucial for long-term success as most businesses are looking for long-term business relationships. South Africans are welcoming and take pride in their country and relish introducing people to its opportunity and beauty. Showing an interest in the country is likely to be wellreceived.
Business Success Story Active Operations Management International (AOMi)
started operating in South Africa in 2009 when Barclays asked us to roll out business solutions with South Africa’s Absa Bank. This project required us to remain in country, and whilst there we realised that the market in South Africa offered a great opportunity for us to set up a subsidiary. I joined AOMi in 2009 having already been a resident in South Africa. My previous experience helped to set up the business as I knew what help and support were available locally. Registering with the necessary bodies is a rather easy process. The business environment in South Africa is very accommodating and entering the market there is straightforward. As a small start-up company we were exempt for 12 months from being measured against the Broad Based Black Economic Empowerment (BBBEE) initiative because we didn’t meet the qualification of having more than 50 employees or having a R5 million turn over per year. We found that there is a large population without necessary business skills and there is a big push within the country to develop these skills and create local employment. Employing locals is a sure way to gain respect and acceptance from local communities and there are further benefits to be reaped through a development
The business environment in South Africa is very accommodating and entering the market there is straightforward.
Derek Brown
Chief Executive Officer, AOMi Africa
initiative set up by the Government. This initiative allows our customers to recover up to 50% of the tax companies pay to the Skills Development Levy by employing and training locals. This means that it is more beneficial to employ locals as it allows us to save on costs and utilise local expertise. My advice to anyone wanting to set up a business in South Africa would be to hire locally and to budget for up-skilling and developing existing skills. It feels very normal to do business in South Africa English is spoken everywhere and there are no significant differences in business practice and etiquette, it is very similar to the United Kingdom, Europe and the rest of the West. We found that it is best to be present in South Africa to do business and it is very easy to travel to South Africa from the UK. There are lots of direct flights, almost all of which are overnight and take around 11 hours, and because there is only one or two hours’ time difference – depending on the season – flying there overnight is very convenient. You can also travel around the country with ease, all the major cities have a good road network and there is a network of local air traffic from and between cities, such as Johannesburg, Cape Town and Durban. Since setting up in South Africa, we have increased our client base and have expanded our operations to other parts of Africa such as Kenya, Mozambique, Zambia and Botswana. South Africa is a developing market and we look forward to expanding our practices further here and elsewhere in Africa.
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