Invest in South Africa 2015

Invest in

SOUTH AFRICA 2015

An official publication of the South African Government

CONTENTS

Contents Forewords and introductions 09 Jacob Zuma

President of South Africa

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Rob Davies South African Minister of Trade and Industry

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Maite Nkoana-Mashabane

South African Minister of International Relations and Cooperation

17 Obed Mlaba

South African High Commissioner to the United Kingdom

Why invest in South Africa 20 Open for business: the case for investment

With plenty to offer investors, South Africa attracts more foreign direct investment than any other country in Africa

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Economic zones for growth

South Africa is following the Asian example with a thriving industrial development zones (IDZs) programme and a recently approved Special Economic Zones Bill, which promises to boost investment

Investment opportunities by sector 32 Strategic priorities for growth and development

South Africa’s Finance Minister, Nhlanhla Nene, lays out the government’s spending plans for the medium term, and explains how they will help encourage growth and generate employment

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Upstream ambitions

As offshore exploration and shale gas prospecting gain momentum in South Africa, the government introduces initiatives designed to attract private capital to the oil and gas sector

INVEST IN SOUTH AFRICA 2015

CONTENTS

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Powering ahead South Africa’s drive towards renewable energy has the potential to create new businesses and generate thousands of jobs. It has also seen the development of one of the biggest privately funded renewable energy programmes in the world

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Advocate Ngoako A Ramatlhodi A viewpoint from the Minister of Mineral Resources

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The network effect

The South African Government has invested heavily to ensure its transport system remains the best in the region. But more improvements to roads, railways and ports are due to follow, and are expected to bring a number of benefits to the economy as a whole

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Thulas Nxesi A viewpoint from the Minister of Public Works

INVEST IN SOUTH AFRICA 2015

Engine of growth

Considered by many to be the engineering powerhouse of the African continent, South Africa has a flourishing manufacturing industry covering a range of subsectors.

Now, the country is looking to increase exports to its neighbours and across the world Incentives for innovation

South Africa already makes a valuable contribution to global scientific research, but the government aims to strengthen the bio-economy further with a plan to boost innovation in science, particularly in the fields of health, industry and agriculture

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Unlocking the potential of the internet economy

The South African Government has made investment in information and communications technology (ICT) a policy goal, but challenges must be overcome before the sector’s full potential can be realised

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This is where we add value To naTural resources For over six decades we’ve beneficiated natural resources by converting coal, and more recently natural gas, into liquid fuels, high-value chemicals and low-carbon electricity. Adding value to precious resources, is just one way we’re investing in South Africa’s success.

www.sasol.com

CONTENTS

Invest in

SOUTH AFRICA southafrica.newsdeskmedia.com

2015

EDITORIAL Editor-in-chief Barry Davies; Managing editor Jane Douglas; Chief sub-editor Victoria Green; Assistant editor Emily Eastman; Senior sub-editor Ka Yee Meck; Sub-editors Emilie Dock, Amanda Simms DESIGN AND PRODUCTION Art director Jean-Philippe Stanway; Art editor Herita MacDonald; Production and distribution manager Elizabeth Heuchan SALES Sales manager Laurie Pilate; Sales executives Afzal Miah, James Johnston, Alex Kaye MANAGEMENT Chief executive officer Richard Linn; President Paul Duffen Newsdesk Media publishes a wide range of business and customer publications. For more information please contact Richard Linn, chief executive officer

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Leading the way in Africa’s agribusiness A net exporter of primary food and beverage products, South Africa has the most advanced agribusiness sector on the continent. Opportunities abound for private investors wishing to expand operations or venture into a new market

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Building an equal society Some companies are taking a hands-on approach to educating South Africa’s future workforce. Including a viewpoint from Dr Bonginkosi Emmanuel Nzimande, Minister of Higher Education and Training

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Destined for greatness The South African tourism industry is thriving, with international tourist arrivals, average daily room rates and revenue from accommodation all on the rise.

But any further development must be carried out with sustainability and conservation in mind

How to invest in South Africa 110 South Africa: an investor’s guide A closer look at the rules and regulations surrounding foreign investment in South Africa, along with government incentives designed to encourage investment in specific sectors and regions

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Cover images: iStock Images, imageBROKER; Ariadne Van Zandbergen; Martin Harvey; Danita Delimont; Gallo Images/Alamy Printed by Cambrian Printers, managed by TU ink An official publication of the South African Government

South African High Commission to the United Kingdom South Africa House Trafalgar Square London WC2N 5DP United Kingdom

Tel: +44 (0) 20 7451 7299 Fax: +44 (0) 20 7839 5670 Web: www.southafricahouseuk.com Published by

www.newsdeskmedia.com Twitter: @newsdeskmedia 184-192 Drummond Street, London, NW1 3HP, UK Tel: +44 (0) 20 7650 1600 Fax: +44 (0) 20 7650 1609 © 2015. The entire contents of this publication are protected by copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means: electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. The views and opinions expressed by independent authors and contributors in this publication are provided in the writers’ personal capacities and are their sole responsibility. Their publication does not imply that they represent the views or opinions of the South African Government or Newsdesk Media and must neither be regarded as constituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements in this publication does not in any way imply endorsement by the South African Government or Newsdesk Media of products or services referred to therein. Currency conversions correct at the time of going to press.

Index of advertisers

INVEST IN SOUTH AFRICA 2015

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Makwande consists of two companies, namely Makwande Energy Trading (Pty) Ltd and Makwande Supply and Distribution (Pty) Ltd

Makwande Energy Trading (Pty) Ltd Makwande Energy Trading was founded in January 2007 and specialises in the trading of crude oil and petroleum products. Makwande Energy Trading has access to various qualities and quantities of crude oil and refined products. The team is highly experienced in risk management and with its strong network, Makwande Energy Trading is ideally positioned to face the market and all its intricacies.

Makwande Energy Trading has the knowledge, resources and infrastructure to ensure that transactions are executed at the best possible price and with an unrivalled level of service delivery.

Makwande Supply and Distribution (Pty) Ltd Makwande Supply and Distribution (Pty) Ltd started in 2009 and specialises in transportation and has its own fleet. Makwande Supply and Distribution complies with road transport HSEQ legislative requirements and is SQAS (Safety, Quality, Assessment System) certified.

At the wheel of Makwande is Nona Chili, who holds a Master’s degree in Economics from the University of Johannesburg. She has seventeen years’ experience in the oil industry and eight years in the banking sector.

Nona’s career in trading began in 1992 at First National Bank where she was a Foreign Exchange Trader. On leaving First National in 1997 she was employed by the Central Energy Fund (CEF) as a Foreign Exchange Trader and later moved to the subsidiary of CEF, Strategic Fuel Fund (SFF) as a Crude Oil Trader. In 2002, she joined TOTAL South Africa as a Crude Trading Manager, involved in term contracts and spot crude oil supply for refinery processing, risk management, shipping and operations. She later joined Rand Merchant Bank Commodities desk as Energy market structurer. On her right hand sits Sabatha Magongo who is an executive director overseeing the finance, strategic and business development activities of the group.

4th Floor West Tower, Maude Street Nelson Mandela Square Sandton, 2146

Tel: +2711 322 4440 Fax: +2711 322 4443 www.makwande.com

BEE Level

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FOREWORD

Jacob Zuma President of South Africa

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y fellow South Africans, friends and partners, it gives me great pleasure to introduce the second edition of Invest in South Africa.

Last year, South Africa celebrated 20 years of freedom and democracy.

This publication reflects on the road South Africans have travelled over the past two decades, and highlights the country’s plans as it hastens its drive towards prosperity and equity.

Enormous strides have been made in South Africa’s economic and social development. The population now enjoys better access to utilities, education, healthcare and infrastructure. Furthermore, between 1994 and 2013 we took our gross domestic product (GDP) from $136 billion to $400 billion and, today, close to half of the population is in the middle- to high-income brackets. We are also proud of our well-established democratic processes that have enabled five successful elections.

The government is now focusing on further developing the economy and creating jobs for the country’s youth. The National Development Plan: Vision 2030 sets out a coherent programme to draw on the energies of South Africans and build the country’s capabilities to produce tangible results. By 2030, we want poverty to be eradicated, unemployment to be less prevalent, and annual growth to reach an average of 5.4 per cent.

To achieve these goals, the government has developed bold and effective strategies to boost economic activity. For example, we have invested more than R1 trillion ($83 billion) in infrastructure since 2009, and have plans to invest a further R840 billion ($70 billion) over the next three years. We are engaging with a wide range of industries to develop sector-specific development plans and drive widespread growth.

We have also created the Small Business Ministry, which is providing clearly defined support to small, medium and micro enterprises and start-up businesses.

South Africa will require external investment to realise its development agenda, which is why we continue to lead the country’s international relations programme, premised on fostering mutually beneficial partnerships with various countries and regions of the world.

In 2013, 130 foreign companies expanded their investments or entered the South African market for the first time, contributing a total of $8.2 billion. The presence of these companies demonstrates that South Africa remains an attractive investment destination.

Our participation in the BRICS forum continues to yield results. The establishment of the New Development Bank was one of the highlights of the Sixth BRICS Summit held in Brazil in 2014, and represents a major advancement for the developing world. We will continue to use South Africa’s role in both BRICS and the G20 to promote and strengthen the interests of Africa across the world and deepen economic development and trade partnerships.

We are a nation at work. South Africa is open for investment, open for trade, and open for partnerships locally and worldwide. Together, let us move South Africa forward and reap the benefits of sustainable growth.

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Leading actuarial consulting firm enters the “Gateway to Africa” Milliman, the world’s largest independent actuarial consulting firm, opened its Cape Town office earlier this year. Practice leader David Kirk explains how the firm’s arrival will bring a new breed of consulting to South Africa and sub-Saharan Africa.

Q: What is the significance of Milliman opening an office in South Africa?

David Kirk: There are already actuarial consultants in South Africa doing a decent job, but there are not many global participants, especially not with an actuarial pedigree like Milliman. Not only does Milliman have a culture that insists on excellent quality and independence of thought, but—because it operates in every major global market—it can help import new ideas from all around the world. To date, most of the global players have been auditing firms with actuarial practices; by comparison, Milliman is devoted to actuarial consulting and related products and services, and has been for almost 70 years. The South African life insurance industry has already been influenced by ideas from the United Kingdom and Europe, but there are many other opportunities. Milliman is the largest healthcare actuarial firm in the world and can bring fresh ideas to our healthcare sector. Milliman is helping clients all over the world improve retirement security, so that’s yet another opportunity. The firm’s innovative products, including its cloud-based Integrate™ solution, are redefining actuarial modelling.

The firm is poised to introduce a wealth of new ideas to our markets as they become more robust and mature.

Q: South Africa has been called a “Gateway to Africa.” What is the significance of Milliman’s arrival beyond South Africa?

David Kirk: Cape Town is not just our physical location, but it’s also the place through which all of these new concepts are going to flow into the market. As we explored opening this office we kept hearing from people in the industry that they were looking forward to having another credible competitor in this space. There are untapped markets throughout the continent. The pace of regulatory change can be rapid, and the need for more actuarial involvement is clear. In many cases the demand for actuaries outpaces the supply of quality professionals. Many of these markets have traditionally been inward-focused and without much competition, and have only begun to look outward for inspiration. Of course any ideas need to be localized, which is why we’re building a deep bench of local talent that can ensure that bright ideas are customized to match the nuances of our markets.

For Milliman, South Africa is a logical next step in its global growth. South Africa is recognized as having a world-class financial service sector with a deep pool of skilled professionals. The country has one of the world’s highest insurance penetration rates and has recently been undergoing rapid regulatory changes as regulators look to better protect policyholders. The actuarial skills needed to facilitate this change have not traditionally been in place, which makes this market entrance particularly well timed.

Q: What most excites you about this opportunity?

David Kirk: International insurers see Africa as an enormous potential source of growth. Milliman is perfectly positioned to help both South African and international clients as they look to expand into Africa. We’re poised to provide a new standard of services, including due diligence on mergers and acquisitions, market feasibility studies, and advising clients once they’ve entered the country on how to better establish a presence. There is a need for a new approach, and I think global companies will appreciate the option of a consulting firm with a known brand that understands the details of these different markets. The fusion of local wisdom and global excellence is going to open up all kinds of new opportunities.

David Kirk, Managing Director Africa david.kirk@milliman.com Milliman is among the world’s largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe.

For further information, visit milliman.com.

FOREWORD

Rob Davies South African Minister of Trade and Industry

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hanges in world trade and investment patterns are transforming the global economy and geopolitical landscape. New pillars of growth are emerging alongside new market players, and South Africa has achieved significant progress as a result of its commitment to spur economic growth and prosperity.

In line with our local expansion targets, we have begun the process of rolling out our Special Economic Zones Programme. This will both attract new investment and support a broader developmental path which will encourage the geographic spread of our industrial capabilities into our regional economies. I am confident that these zones will attract increased investment from the private sector and contribute to financing the construction of new economic infrastructure in districts across the country.

There are also two new industrial development zones (IDZs), namely the Dube Trade Port and the Maluti-a-Phofung industrial development zone in Harrismith. Once the Special Economic Zones Act comes into operation, these zones will both be reshaped into special economic zones, and we are in the process of evaluating other areas that would also benefit from economic transformation.

To spark innovation and economic growth, we have initiated a wide range of programmes, and we are also supporting local manufacturers with a view to more inclusive growth and increased employment in the manufacturing industries. With sustainable economic activity comes a higher level of investment, which drives up export quotas and ensures South Africa’s place in international markets. This increased activity will also create the much-needed jobs and skills development. We have implemented a number of programmes that underpin the creation of successful industrial development zones, and I am confident that we will continue to harness the collective industrial capacity of South African firms.

Of all the countries in Africa, we are the European Union’s largest trading partner, and our composition of exports to Europe is becoming increasing diverse as we move away from commoditybased products to a more balanced export portfolio. We also participate in substantial trade activity with our neighbours in Africa, and China, Japan and the United States are important trading partners.

South Africa is in a prime position to expand regional, continental and international business.

We therefore welcome the growing investment interest from new and current global partners to join us in our endeavours. To this end, we will continue to facilitate and foster trade and investment by providing a business environment that is conducive for the business person. Our presence in international markets relies on our ability to maintain a stable climate for commerce and industry.

INVEST IN SOUTH AFRICA 2015

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DENEL – A POWERHOUSE IN DEFENCE TECHNOLOGY AND ADVANCED MANUFACTURING

The South African defence and aerospace industries are poised to enter an era of sustained growth by taking advantage of initiatives within the local environment and opportunities for collaboration and joint ventures with international partners.

Denel is the leading company in the African defence sector with a proven record as a high-performing technology powerhouse, a global player in the defence and aerospace environments, and the capacity to expand its role in the broader manufacturing sector.

As a state-owned company Denel has a primary mandate to supply the South African defence and security environment with strategic technology capabilities, products, services and support. With a solid history of more than 40 years Denel has been responsible for the design, development, industrialisation and manufacturing of innovative defence and aerospace products that are globally recognised as leaders in the industry.

Proven products The Rooivalk combat helicopter has been deployed with significant success in support of South African and international forces participating in peacekeeping operations on the African continent. The performance of the Rooivalk has focused renewed global attention on the unique capabilities of Denel in a highly competitive technology environment.

In recent months the South African National Defence Force has awarded Denel Land Systems, a division in the group, a multiyear contract to produce the Badger infantry combat vehicle which will be the mainstay of the country’s future landward defence capabilities.

The company’s recent acquisition of BAE Systems Land Systems South Africa signals its strong intention to maintain its leadership role in the fields of armoured vehicles, mechanised infantry support, and the design and integration of combat turrets.

The Denel Mechem Casspir NG2000 mine-protected vehicle with its iconic V-shaped hull has found ready acceptance in international markets, especially in Africa. Mechem is globally renowned for its humanitarian activities in the fields of demining, battle area clearance, explosive ordnance disposal and field management services.

The group’s division responsible for unmanned aerial vehicles (UAVs) and missile technology, Denel Dynamics, has become a global leader in these niche, high-technology markets. The new Seeker 400 UAV will go into production in the next 12 months, following a series of successful flight tests.

Global partnerships The establishment of the BRICS alliance between South Africa, Brazil, Russia, India and China has given impetus to Denel’s international collaboration with the Brazilian defence industry in the development of the A-Darter surface-to-air missile. Tawazun Dynamics, a joint venture in the United Arab Emirates, has commenced with the production of the Al-Tariq glide-bomb kit for export markets.

Denel Aerostructures is a direct supplier to Airbus and is responsible for extensive work packages on the A400M airlifter, which is being delivered to various international clients over the next decade.

Future innovations Recent policy decisions taken by the South African Government will have far-reaching implications for Denel’s future and ensure its sustainability and profitability.

The aerospace industry is singled out in the Industrial Policy Action Plan (IPAP) for its potential to contribute towards industrial growth, foreign revenue earnings, local technical capability, employment generation and improvements in South Africa’s national competitiveness.

Building on its proven capabilities in the aerospace and aviation sectors Denel recently announced an initiative to develop South Africa’s first locally designed and manufactured passenger aircraft to serve regional destinations.

The South African Regional Aircraft (SARA) project with the country’s Aerospace Sector Development Plan has identified aerospace as a priority sector. It is also set to contribute immensely to research and development, and skills development among the next generation of university students and young engineers.

Through its leadership in R&D and innovation Denel is growing from being a predominantly defence company into a broader technology group which utilises its accumulated skills, knowledge and expertise to add value to a high-tech engineering and manufacturing programme and contribute to South Africa’s comprehensive initiatives to revitalise the country’s infrastructure.

www.denel.co.za

FOREWORD

Maite Nkoana-Mashabane South African Minister of International Relations and Cooperation

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ellow South Africans, friends and partners of South Africa, I am delighted to welcome you to Invest in South Africa 2015.

South Africa has made huge progress in its two decades of freedom. Our society is characterised by democracy, and we have made a steadfast commitment to address the triple challenges of unemployment, inequality and poverty.

This commitment is a key facet of Operation Phakisa, an initiative designed to bridge the gap between policy and implementation, and fast-track the progress of our National Development Plan, which was launched in 2012. Initially, Operation Phakisa – which means ‘hurry up’ in Sesotho – will be implemented in the ocean economy and health.

The former will focus on unlocking the untapped economic potential of the oceans surrounding our shores, which it is anticipated will add R177 billion ($14.7 billion) to our gross domestic product (GDP) and create around one million jobs. As we explore the opportunities off our coastline, we plan to develop areas including shipping and shipbuilding, offshore oil and gas exploration, and fish-farming industries.

In the health sector, the initiative will pilot the Ideal Clinic Initiative, which is intended to expand service delivery in clinics nationwide. In collaboration with provinces, districts and clinic managers, we will set guidelines for development and improvements in healthcare.

Underpinning progress and developing our economy will not only bring benefits to South Africa, but also to the wider African continent. South Africa is considered one of the world’s most promising emerging markets. To strengthen regional integration, we are moving towards fully implementing a free trade area between 26 eastern and southern African nations, which will create a market of almost 600 million people with a combined GDP of $1 trillion.

A further move to spur economic growth is the agreement with our fellow BRICS nations to establish a development bank during our sixth annual summit. The bank, to be headquartered in Shanghai, China, will prioritise finance for infrastructure and sustainable development projects, among other aims.

Closer to home, we will continue to encourage increased intra-African investments, which we hope will define the new Africa model. More frequently, we are seeing investments of this nature taking place, with the resultant wealth and job creation a boon for Africa’s economy as a whole. More and more countries in Africa are aligning their national policies, further reinforcing unity on the continent.

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INVEST IN SOUTH AFRICA 2015

FOREWORD

Obed Mlaba South African High Commissioner to the United Kingdom

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t is with great pleasure that I welcome you to Invest in South Africa 2015 – an opportunity to highlight the array of investment prospects across the country’s business sectors, outline our goals and showcase South Africa’s achievements.

Last year, South Africa celebrated two decades of freedom and democracy, during which the country held five peaceful elections, enjoyed strong economic growth and made major progress in improving access to healthcare, education, electricity and water – achievements that underpin the government’s plans for the future. As we look to the next 20 years and move towards becoming a more knowledge-based society, equipped to compete and succeed in the changing economic landscape, we have a commitment to foster more opportunities for growth, advancement and learning.

Running parallel to these objectives are the dual aims of eliminating poverty and reducing income inequality – goals that are charted in Vision 2030 of the National Development Plan, which outlines the aim of creating 11 million jobs within the next 15 years.

This target is supported by South Africa’s focus on creating a fertile environment for foreign private investment – in any economy, the expansion of private-sector presence is a key determinate in the rate of job growth, and greater private-sector involvement in South Africa will ensure that we continue to be recognised as a global competitor. With this in mind, the government has been working with the business community to remove obstacles to commercial growth, and success can already be seen in South Africa’s position as the world’s 13th most attractive destination for foreign direct investment.

South Africa has numerous characteristics that make the country an appealing investment destination. Located at the southernmost tip of the continent, we are a gateway to markets across Africa, and a large formal sector provides a sizeable consumer market and considerable pool of diverse talent and skills. In addition, our financial, legal and telecommunications sectors meet the highest international standards.

South Africa’s ties with its international partners are invaluable, and they have come to the fore as emerging economies position themselves to take a more prominent role in the trajectory of global development. We are a member of BRICS and the G20, and we will persist in ensuring complementarity between the objectives and activities of South Africa and our global partners.

With even greater cooperation, unity, coherence and transparency across our economy, there is little doubt that South Africa’s vibrant markets will continue to attract SMEs and multinationals alike.

I am hopeful that we will form even stronger bonds with members of the international community – an approach that will not only support South Africa as a prosperous democracy, but also bring benefits for all as we work jointly to deliver sustainable development and security.

INVEST IN SOUTH AFRICA 2015

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Our innovative business model places the principles of ownership, diversity and human appreciation at the very heart of a multinational healthcare business. We call it broad-based economic integration (BBEI), and it is a rerun of a 100-year-old experiment from the United Kingdom that aimed to achieve similar goals in reducing the disparity and distance between people within a home goods and food retail business.

Our first five years’ results, which have seen our in-market turnover double and employees triple, are directly attributable to our model, which drives cohesiveness and shared purpose in a diverse team of people. It puts each team member to positive action, prompting them to value those around them, as well as the impact they have on each other. This has been hard work, and the running of our model is almost a full-time job in itself. That said, the continued success of the UK’s John Lewis Partnership acts as a clear beacon to keep us going, particularly when times are tough.

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Doing business in South Africa

Our commitment to the South African Government’s objectives of local empowerment and economic transformation is demonstrated in our being the first healthcare company to envisage giving its entire permanent workforce the benefits of co-ownership in their own company, at no cost to the employees. Because our business will

be owned in trust by all permanent employees, they will share the responsibilities of ownership, as well as its profit, knowledge and power. Any profits remaining after the deduction of operating requirements, investments and social responsibility are split as an equal percentage of pensionable salary between employees, in recognition of our company’s philosophy that those who work hard to ensure the sustainability of a business deserve to benefit from its profits.

Doing business in South Africa holds amazing opportunities, as well as significant challenges for those inspired to come and make the very best of what is possible. Multinational healthcare companies have an immense responsibility towards the patients and healthcare professionals that they serve worldwide, as well as their shareholders, and this requirement for corporate responsibility will only increase in South Africa as we approach the introduction of our planned National Health Insurance programme. South Africa is also an ideal gateway to other Southern African markets, and wellstructured, socially conscious business models are welcome in markets such as Namibia and Botswana.

Our partnership model encourages responsibility from the inside out, in our interactions with each other, as well as with our customers and the end users of our medical devices. The success of our business depends as much on the quality of our products as it does on

the determination and passion of our team members. It is for this reason that we prefer to market and sell technologies with either established proven clinical and health economic outcomes, or a genuinely innovative approach to treatment that is suited to the South African marketplace.

Our vision is to become the most successful employee-owned business in South Africa. If you would like to learn more about our experiences, you are most welcome to contact us.

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WHY INVEST IN SOUTH AFRICA

Open for business: the case for investment As an economic and investment stronghold of Africa, with a diverse and dynamic economy, South Africa offers global investors unique opportunities. Government initiatives are also under way to bolster the country’s infrastructure and trade, writes Dianna Games

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n an era of emerging-market ascendancy, South Africa’s vibrant private sector, competitive economy and strong economic links with the rest of Africa have placed it in the frame for global investors. The international goodwill accorded to South Africa after its successful transition to democracy in 1994, as well as prudent financial management, have put it in good stead. The country has maintained its position as one of sub-Saharan Africa’s most sophisticated economies, and become a springboard for business into the rest of the continent, ideal for multinationals looking for opportunities within the country itself and beyond.

With gross domestic product (GDP) projected to have reached $370 billion at the end of 2014, South Africa’s diversified economy has long been the biggest in Africa, falling into second place only recently behind Nigeria, whose economic rebasing initiative put its GDP at $510 billion. South Africa accounts for around two-thirds of Southern Africa’s economy and is a primary source of manufactured exports to the region, with a trade balance strongly in its favour across Africa, bar a few oil-producing states such as Nigeria and Angola from which it sources crude oil.

Benefits for investors Its strong industrial base, good incentives, highly developed economic infrastructure – particularly in the legal and banking environment – and relatively good physical infrastructure are also appealing to investors. Moreover, the EY Africa Attractiveness Survey 2013 rated South Africa as the most attractive destination on the continent in which to do business.

The government, cognisant of pervasive challenges such as unemployment and inequality, has drawn up several initiatives

Downtown Johannesburg at sunset. In 2013, professional services firm EY named South Africa as the most attractive country in Africa in which to do business

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INVEST IN SOUTH AFRICA 2015

AGE FOTOSTOCK SPAIN, S.L./ALAMY

WHY INVEST IN SOUTH AFRICA

INVEST IN SOUTH AFRICA 2015

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WHY INVEST IN SOUTH AFRICA

with the aim of forging a better future for the country. Key among them is the New Growth Path, an initiative launched in 2010, which was principally designed to create five million jobs over the following 10 years and ensure employment equity. The government says that investment in key areas – water, housing, energy, transport and communication – will create jobs through the supply chain and in maintaining facilities.

The plan also includes a comprehensive industrial framework that envisages investment in the five main sectors the government sees as being integral to the country’s future development: mining, agriculture, manufacturing, tourism and the green economy. Its success depends not only on investment, but also on better and more efficient governance, as well as the active participation of the private sector in creating jobs.

This initiative is complemented by another, the National Development Plan, which provides a map for development up to 2030, taking into account widespread feedback from South Africans on what is holding back the country’s development.

Another plank of South Africa’s policy future is the Industrial Policy Action Plan (IPAP), which sets out actions and time frames

In 2013, South Africa was the top recipient of foreign direct investment flows into Africa, capturing $8.2 billion to promote long-term industrialisation in South Africa and Africa, expanding production in value-adding sectors offering the potential for high employment and multiplier effects.

Another area receiving specific attention is infrastructure.

The Presidential Infrastructure Coordinating Commission (PICC), steered by President Jacob Zuma, is tasked with developing a 20-year infrastructure pipeline to support investment in South Africa and economic development. It will drive 18 strategic integrated projects (SIPs) covering more than 150 specific infrastructure interventions in rail, roads, ports, dams, energygeneration plants, transmission and distribution of electricity, and broadband and social infrastructure.

International partners South Africa is currently undergoing changes in its investment agreements with foreign countries. To bring a new trade-policy investment landscape into force, legislation was published in 2013 that aimed to move away from bilateral investmentprotection treaties with individual countries and towards general legislation aligned with the state’s other objectives, according to the Minister of Trade and Industry, Rob Davies.

As bilateral treaties signed after 1994, mostly with European Union countries, come up for renewal, they are being cancelled to be replaced by safeguards for investors embedded in the constitution. Although this has sparked concern among investing nations, the government says that the new legislation is in line

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with international law and best practice, drawing on innovations in new-generation investment agreements being negotiated by the United States, Canada and others with their trade partners.

High unemployment and relatively low growth rates – an average of 3.3 per cent in 2010-11, 2.5 per cent in 2012 and just 1.9 per cent in 2013 – have been catalysts for the state to find ways to address the challenges it faces, which have been exacerbated by a slowdown in major Western economies, counted among South Africa’s top trading partners.

Despite the concerns about low growth rates, it must be considered that South Africa is coming off a much higher base than other African countries, which are enjoying much higher growth but are significantly less developed. South Africa has a wealth of quality assets that have continued to attract interest from other parts of the world. In 2013, it was the top recipient of foreign direct investment (FDI) flows into Africa, capturing $8.2 billion out of a total of $57 billion in FDI, according to the United Nations Conference on Trade and Development (UNCTAD). Most of the FDI flows into South Africa in 2013 were due to ‘greenfield’ investments involving the construction of facilities, particularly in the consumer-goods sector. Not only does the country have a developed retail industry, but it is also the source for a significant volume of goods imported by other African countries, and particularly those in the southern region.

Investments in the region by South African companies are rising sharply as well. The stock of direct investment in the rest of Africa equals approximately five per cent of the country’s GDP, up from one per cent before the global financial crisis, according to the International Monetary Fund. The growth in African markets has helped to push growth locally as companies invest at home to expand capacity in order to meet demand elsewhere.

South Africa’s strong links to the rest of the continent in terms of exports and projects, as well as the African footprint of its biggest companies, are part of its growing attraction for investors, particularly those from the emerging markets seeking competitive advantage on this fast-growing continent. Deals in recent years such as Marriott International’s purchase of the 116-hotel Protea Hospitality Group and US giant Wal-Mart’s acquisition of retail group Massmart are just a couple of examples of the interest shown in South Africa’s growing multinationals.

The Johannesburg Stock Exchange (JSE), meanwhile, is a popular destination for foreign capital looking for good returns in frontier economies. Some of its top performers, such as the mobile telecommunications company MTN and brewer SABMiller, also have a significant footprint in the rest of Africa.

Key sectors The mining industry, which underpins South Africa’s industrial development and accounts for up to two-thirds of exports, has experienced well-documented challenges, and its contribution to GDP has gone down over the years. Canada-based think tank the Fraser Institute ranks the country the 53rd most attractive mining jurisdiction out of 112 in terms of mining investment potential. Traditionally focused on gold and platinum production, South Africa is now seeing investment in other minerals, such as manganese. Two of the world’s largest mining companies, BHP

INVEST IN SOUTH AFRICA 2015

WHY INVEST IN SOUTH AFRICA

South Africa’s global competitiveness Score (1-7) Basic requirements (40% of overall score)

4.3

1

Institutions

4.5

2

Infrastructure

4.3

3

Macroeconomic environment

4.5

4

Health and primary education

4.0

Efficiency enhancers (50%)

4.4

5

Higher education and training

4.0

6

Goods market efficiency

4.7

7

Labour market efficiency

3.8

8

Financial market development

5.4

9

Technological readiness

3.9

10

Market size

4.9

Innovation and sophistication factors (10%)

4.1

11

Business sophistication

4.5

12

Innovation

3.6 Institutions

Innovation

Infrastructure

Despite the challenges of agricultural trade, South Africa remains competitive in many products, and it has had strong export links to developed-country markets for more than a century.

In 2012, for the first time, the African continent became the leading destination for South African agricultural products, taking 31.2 per cent of exports against 29.9 per cent to the European Union. The northwards expansion of South Africa’s retail chain has been a major driver of this growth.

BMW, Ford, Volkswagen and Toyota are among the leading car manufacturers that have set up production bases in South Africa The automotive industry is another economic success story that has been the product of direct government intervention using incentives and other support to grow something from the ground up. Despite South Africa’s distance from many markets, it creates high-quality products that are globally competitive, drawing some of the world’s biggest car manufacturers to the country to produce components and assemble vehicles for the local and international markets. BMW, Ford, Volkswagen, Toyota and Tata are among those who have set up production bases in the country.

5

Business sophistication

4

Macroeconomic environment

3 2

Health and primary education

1

Market size

Higher education and training

Technological readiness

Financial market development

Labour market efficiency

South Africa

Goods market efficiency

Sub-Saharan Africa

Source: the World Economic Forum’s Global Competitiveness Report 2014-2015

Billiton and Anglo American, have sizeable investments in the mining and beneficiation of the metal.

Tourism is a priority sector, given its connection to the broader economy and job creation. The country is a leading destination for holidays and, in 2013, had its highest ever number of tourists – nearly 10 million. It has a broad product offering that goes well beyond beaches and game reserves to include wine and food, golf tours, the conference industry and even medical tourism.

INVEST IN SOUTH AFRICA 2015

Forward thinking In addition to the traditional areas of investment, South Africa is branching out into new sectors. The country, which is currently dependent on coal and imported crude oil, is positioning itself as an oil and gas producer, and interest in its potential in this context is at an all-time high. Some of the world’s largest oil multinationals, such as ExxonMobil, Royal Dutch Shell and Anadarko, are signing up for exploration licences for crude oil and natural gas off the east and west coasts.

Moreover, South Africa has an estimated 7.3 per cent of the world’s shale gas resources, the exploitation of which could have a significant impact on the country’s future trajectory by unlocking cheap energy resources.

Another non-traditional sector that is showing good growth is renewable energy. In three bid rounds, the government has approved 64 projects valued at $10 billion, which will produce 3,900 megawatts (MW) from renewable sources for South Africa’s energy mix. Power utility Eskom will buy power from the new plants in terms of power purchase agreements signed with the producers and backed by the government.

In spite of its challenges, South Africa remains one of the top destinations for investors interested in emerging markets. It is successfully straddling linkages with its traditional trade partners in the developed world, its new friends in the global South such as China – now its biggest trading partner globally – and neighbouring countries. If the challenges that are constraining the country’s further development can be tackled, the sky’s the limit for this diversified and resilient economy.

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GRANT DUNCAN-SMITH

WHY INVEST IN SOUTH AFRICA

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INVEST IN SOUTH AFRICA 2015

WHY INVEST IN SOUTH AFRICA

Economic zones for growth Thanks to a range of incentives, South Africa’s economic zones have already attracted billions of rand in investment.

Now, the government is looking to expand on these with new legislation, as Jasper Rijkaard explains

The Cerebos salt pans and Coega Harbour at the Coega industrial development zone. New legislation is expected to boost economic zones through a number of support measures

I

f there is one lesson to be learnt from East Asia, it is the role of exports in driving economic growth.

Taiwan, Japan, the Republic of Korea, and China, as well as Singapore in South-East Asia, all built their success on the back of an export drive.

Of all the interventions that supported growth, the creation of economic zones has proved especially fruitful. These include industrial development zones

INVEST IN SOUTH AFRICA 2015

(IDZs), in which inputs such as efficient infrastructure and tailored services are clustered together with streamlined administrative processes. In special economic zones (SEZs), incentives are applied to geographically specific locations, which do not apply elsewhere in the country, with the goal to encourage companies to invest at a higher rate than might otherwise be the case. Inland special economic zones, meanwhile, are attempts to spread the benefits into areas that may, due to their distance from export points, not otherwise flourish.

Africa is increasingly looking to the Asian example, with countries such as Ethiopia, Ghana, Zambia and Nigeria all experimenting with economic zoning. As China develops, emerging economies are competing for a share of the 85 million manufacturing

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WHY INVEST IN SOUTH AFRICA

jobs that could eventually be relocated to other countries as wages rise in China.

As Africa’s most industrialised economy, South Africa was one of the early movers, with an IDZ policy launched under the Manufacturing Development Act of 1993, which sought to promote the competitiveness of South African enterprises by leveraging investment in export-oriented manufacturing. The IDZ programme gathered pace in the early 2000s, while, in 2014, the government approved a Special Economic Zones Bill, which promises to boost domestic and foreign investment in new labour-intensive areas.

Industrial development zone successes Coega, East London and Richards Bay have attracted 42 operational investments worth R4 billion ($333 million), which created 5,000 direct jobs and

Existing zones The country currently has five IDZs: Coega, East London, OR Tambo Richards Bay and Saldanha Bay. The Coega IDZ, located in the Eastern Cape, is the largest in southern Africa and was South Africa’s first. Agro-processing, automotive, business processes, energy, metals and logistics are among the sectors engaged there.

Adjacent to the deep-water Port of Ngqura, Coega was established in 1999, formalised and re-zoned between 1999 and 2002, and built between 2002 and 2006, with the first investor taking occupation in 2007. Coega has made investment history by becoming the first South African IDZ to sign 10 clients, with an investment value totalling just over R1.8 billion ($150 million) in the 2013/14 financial year.

Richards Bay IDZ is set on the north-east coast, from where it connects to Mozambique’s capital, Maputo, and the East Africa region, as well as the international sea port at Richards Bay, a region boasting raw materials assets (heavy minerals, pine, and both eucalyptus and wattle trees, used for pulp and paper), and where output includes processed and intermediate goods, as well as heavy-duty vehicles.

The East London IDZ, which was established in 2003, is an industrial park, and includes companies in the automotives, agro-processing and aquaculture sectors, while Dube Trade Port, located 30km from Durban, has an international airport, cargo terminal, warehouses, offices, hotels, agriculture and retail sectors.

The Special Economic Zones Bill promises to boost domestic and foreign investment in new labour-intensive areas Saldanha Bay Industrial Development Zone and OR Tambo are the most recent. Located in Western Cape province, the former received its permit in October 2013, and is envisaged as an oil, gas and marine-repair engineering and logistics services complex for the hydrocarbons industry, which could prove attractive as South Africa looks to lure in oil and gas companies to explore its underexploited offshore reserves. As for the latter, approvals have been granted for an IDZ at OR Tambo, leveraging the trade access of South Africa’s largest airport.

INVEST IN SOUTH AFRICA 2015

43,000 construction jobs

While IDZs and SEZs are appealing to investors, the practice is harder than the theory. One issue is that such zones can tend to emerge in better-connected regions, which are often less in need from a developmental perspective. Even in China, inland areas have lagged as coastal zones have boomed.

The early objectives behind IDZs aimed to place South Africa-based manufacturing in a globally competitive position.

However, they are now also part of a broader strategic framework spearheaded by Rob Davies, the Trade and Industry Minister, which places a high priority on industrial development as a means of providing jobs. Indeed, the National Development Plan through to 2030 identifies nine key challenges, of which three could in part be addressed by well-executed economic zoning: lack of work, inadequate distribution of infrastructure and the unequal spatial pattern of development.

This legislation promises to boost SEZs through a raft of support measures, such as 15 per cent corporate tax (down from 28 per cent normally), building tax allowances, employment incentives, and VAT and duty exemptions. The draft bill could also provide the regulatory scaffolding to ensure that economic zones are part of an integrated plan, rather than becoming disconnected business enclaves. It recommends establishing an advisory board and expands powers for the minister to create zones. Such incentives could help counter the other business challenges faced in South Africa, which include currency volatility, high electricity prices and the deteriorating atmosphere in labour relations.

New arrivals While measures to improve the current SEZs and IDZs are in play, there is also – in parallel – an ambition to roll out the programme to additional regions. When the South African Department for Trade and Industry released its draft bill in 2012, it invited the nine provinces to submit proposals. Davies publicly stated that the IDZs so far had been biased towards coastal regions.

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RICHARDS BAY INDUSTRIAL DEVELOPMENT ZONE

gateway to

world markets The Richards Bay Industrial Development Zone (RBIDZ) is a purpose-built, secure industrial estate on the North-Eastern, South African coast, linked to the international deep-water port of Richards Bay. RBIDZ is tailored for the manufacturing of goods and production of services. The RBIDZ is deemed a Special Economic Zone (SEZ) and aims to encourage international competitiveness through world-class infrastructure, tax, VAT and duty free incentives to qualifying entities.

The following sectors have been identified as key to economic development in the RBIDZ: • ICT and Electronics • Processing of Coal, Metals and Aluminium • Special Purpose Machinery • Paper and Wood Products • Food and Food Products (Agro-processing) • Chemicals • Maritime • Renewable energy • Oil and Gas Benefits of investing in RBIDZ: • Automotive Incentive Scheme offered for automotive component manufacturers • Tax and duty free rebates • Capital Project feasibility programme for capital goods manufacturers • Critical infrastructure programme • Export Marketing and Investment assistance for export market development of South African products and services • Income tax allowance Incentive

The Richards Bay Industrial Development Zone (Pty) Ltd Captains Walk Building, Pioneer Road, Tuzi Gazi Waterfront, Richards Bay P O Box 712, Richards Bay 3900 Tel: +27 35 788 0571 • Fax: +27 788 0578 Email: info@rbidz.co.za • www.rbidz.co.za

Available opportunities for companies investing in RBIDZ: • A gateway to international markets • A platform tailored to manufacturing • Possibility of business partnerships and linkages with well-established companies in the area (joint venture investments) Comparative advantage: • Close proximity to the deep-water port • Availability of Natural Resources • Agglomeration of Primary Producers • Reasonable land rentals and values • Mineral beneficiation

GRAEME WILLIAMS/MEDIACLUBSOUTHAFRICA

WHY INVEST IN SOUTH AFRICA

Many have responded positively and, in time, IDZs or SEZs could be created in provinces and regions with limited industrial activity at present, such as Limpopo, North West province, Mpumalanga and Free State. They have published feasibility studies and discussion documents outlining how economic zoning could be implemented.

Located in the Eastern Cape, the Coega Industrial Development Zone is the largest in southern Africa Limpopo, South Africa’s northernmost province, is eyeing the construction of two SEZs, one focusing on logistics and coal beneficiation, and the other on platinum beneficiation. In Mpumalanga, an agro-processing zone is planned, while a July 2014 document submitted by Rob Davies and the Free State Development Corporation and published in the government gazette outlined a goal to create an industrial zone that would grow into the Maluti-A-Phofung SEZ. Indicative timelines

INVEST IN SOUTH AFRICA 2015

Construction work on the N1 freeway north of Musina in Limpopo, South Africa’s northermost province. Proposals for the construction of two special economic zones in Limpopo could create a considerable rise in industrial activity in the province

suggest the signing up of ‘critical tenants’ will be followed by building completions, with full roll-out in early 2016.

Between proposals and execution there is a long path, of course. Typical obstacles include cost and schedule overruns, the strategic shortcomings of remote locations, and the risk that SEZs and IDZs end up competing against each other and potentially bidding downwards in terms of tax breaks, which may carry its own risks for the government.

The key lesson from Asia is that, while economic zoning has its risks, the successful innovators are those whose governments are prepared to monitor success, changing course and reviewing policies and guidelines if they are found not to work. Investors have already raised ideas and suggestions for the South African regulatory frameworks – for instance, calling for the greater availability of grants along with the traditional tax breaks, and a longer period for tax exemption. A consultative approach with investors, and careful monitoring of development benefits, could see South Africa win the growth its economy needs.

31

CRAIG CAMPBELL/MOOD BOARD/REX

INVESTMENT OPPORTUNITIES: FINANCE PERSPECTIVE

Strategic priorities for growth and development

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INVEST IN SOUTH AFRICA 2015

INVESTMENT OPPORTUNITIES: FINANCE PERSPECTIVE

In his 2015 budget speech,the Minister of Finance, Nhlanhla Nene, laid out the government’s spending plans for the medium term, and explained what support they would offer South Africa’s economic development

A

s outlined by President [Jacob] Zuma in the State of the Nation Address on 12 February, Cabinet has agreed on nine strategic priorities to be pursued this year, in partnership with the private sector and all stakeholders. They include: • resolving the energy challenge; • revitalising agriculture; • adding value to our mineral wealth; • enhancement of the Industrial Policy Action Plan; • encouragement of private investment; • reducing workplace conflict; • unlocking the potential of small enterprises; • infrastructure investment; • support for implementation of the National Development Plan through in-depth, results-driven processes, known as Phakisa laboratories. The first of these laboratories focused on the oceans economy, including offshore oil and gas exploration and aquaculture opportunities. Already, this has led to investment of R9.6 billion [$800 million] in Saldanha Bay. Our primary challenge is to deal with the structural and competitiveness challenges that hold back production and investment in our economy. The most important of these is the security and reliability of energy supply. Electricity constraints hold back growth in manufacturing and mining, and also inhibit investment in housing and raise costs for businesses and households. Mainly for this reason, our projected economic growth for 2015 is just two per cent, down from 2.5 per cent indicated in October last year. We expect growth to rise to three per cent by 2017.

Consumer price inflation peaked at 6.6 per cent in June last year. It has subsequently declined to just 4.4 per cent last month, and is expected to average 4.3 per cent in 2015, laying a foundation for economic growth.

Higher growth is possible, if we make good progress in responding to the electricity challenge or if export performance is stronger. The best shortterm prospects for faster growth lie in less energyintensive sectors such as tourism, agriculture, light manufacturing and housing construction. These are also sectors that employ more people, and so they

contribute to more inclusive growth. Efforts to support these sectors have to be intensified.

Progress in agriculture and manufacturing employment requires a constructive labour relations environment, and well-targeted support for emerging enterprises. While the manufacturing sector has largely underperformed in recent years, there has been an encouraging growth in investment since 2010, particularly in upgrading machinery and equipment. The turnaround in footwear and textiles is also welcome, and should boost job creation over the period ahead. In agriculture, we have seen investment and export growth in horticultural products such as grapes, citrus and tree nuts.

Tourism and related services, oil and gas development, communications and information technology also offer many opportunities. Although our fiscal position is constrained, there are considerable financial strengths on which South Africa’s growth strategy can build.

• Interest rates have remained moderate, which reflects the credibility of fiscal and monetary policy and the favourable inflation outlook. The capital market rates at which government and the corporate sector borrow have declined over the past year, signalling continued investor confidence in the South African economy.

• The exchange rate depreciated by 11 per cent against the US dollar in 2014, after declining by 15 per cent in 2013. This, coupled with low inflation, contributes to our trade competitiveness, and partially offsets the deterioration in commodity prices.

• Our banks and other financial institutions are well capitalised. South Africa has a buoyant capital market, is open to foreign investors, and is a major contributor to foreign direct investment elsewhere in Africa. Our company law and tax frameworks are robust, and we have excellent property market institutions.

The first phase of implementation of the National Development Plan [NDP] is elaborated in Government’s medium-term strategic framework.

If we remain united and energized around its implementation – government, labour, business and all South Africans – we will continue to make progress towards a just and prosperous future.

Economic development Our support through the budget for economic development is wide-ranging, as it must be if we are to diversify our growth and broaden participation.

Infrastructure investment is one of the South African Government’s strategic priorities for 2015, and substantial spending is planned for the medium term

INVEST IN SOUTH AFRICA 2015

33

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Innovation and technology change are at the heart of this development strategy. Support for the oceans economy has been allocated R296 million over the next three years. This will enhance our climate change research and management of ocean resources. South African science and technology also continues to benefit from our leading role in the Square Kilometre Array astronomy partnership, which will spend approximately R2.1 billion over the next three years.

Minister [Grace Naledi Mandisa] Pandor is guiding our science councils towards more effective partnerships with industry and academic institutions.

R2.7 billion has been allocated over the medium term under the Mineral Policy and Promotion programme to promote investment in mining and petroleum beneficiation projects. R108 million has been allocated for research and regulatory requirements for licensing shale gas exploration and hydraulic fracturing.

Government will continue to strengthen support for agricultural development and trade, under Minister [Senzeni] Zokwana. The projected conditional allocation to provinces over the medium term is R7 billion. Access of emerging farmers to finance will be expanded, in collaboration with the Land Bank.

Since the inception of the recapitalisation and development programme in 2008, 1,459 farms have been supported, and 4.3 million hectares have been acquired for redistribution. A further 1.2 million hectares will be acquired over the next three years, and R4.7 billion is allocated for recapitalisation and development of farms. Establishment of the Office of the Valuer General in Minister [Gugile] Nkwinti’s department will assist in the orderly implementation of land acquisition and redistribution activities.

Employment and enterprise development Unemployment remains our single greatest economic and social challenge. Government continues to prioritise measures aimed at generating employment.

These include tax incentives for employment and investment, support for enterprise development, skills development and employment programmes.

R10.2 billion has been allocated over the MTEF period to manufacturing development incentives and support for growing service industries, such as business process outsourcing. Under [Trade and Industry] Minister [Rob] Davies’ oversight, the Manufacturing Competitiveness Enhancement Programme will spend R5.4 billion and will assist 1,450 companies with financial support to upgrade facilities and skills development. Special economic zones are allocated R3.5 billion over the medium term, mainly for infrastructure development. The work of Minister [Derek] Hanekom’s department in promoting tourism continues to be supported. Over

36

ARIADNE VAN ZANDBERGEN/ALAMY

INVESTMENT OPPORTUNITIES: FINANCE PERSPECTIVE

Harvesting season at a citrus farm in Clanwilliam, Western Cape. In recent years, South Africa has seen investment and export growth in horticultural products such as grapes, tree nuts and citrus fruit

the MTEF period, Minister [Lindiwe] Zulu’s new Department [of Small Business Development] will spend R3.5 billion on mentoring and training support to small businesses.

The Jobs Fund will spend R4 billion in partnership with the private sector on projects that create new employment, support work-seekers and address structural constraints to more inclusive growth. The community work programme will be extended to all municipalities. Its allocations increase by 21 per cent a year. The Department of Environmental Affairs has an allocation of R11.8 billion to fund more than 107,000 full-time equivalent jobs and 224,000 work opportunities through environmental EPWP [Expanded Public Works] programmes.

South Africa is open to foreign investors, and is a major contributor to foreign direct investment elsewhere in Africa A total of R590 million has been allocated to the Green Fund over the medium term, for strategic environmental projects in partnership with the private sector.

Transport, energy and communications We have all been reminded of the importance of infrastructure investment and maintenance over the past year. It is not just an inconvenience when the lights go out; there is a cost to the economy in production and income and jobs foregone.

INVEST IN SOUTH AFRICA 2015

INVESTMENT OPPORTUNITIES: FINANCE PERSPECTIVE

Nhlanhla Nene Minister of Finance

S

outh Africa’s long-term economic prospects are dependent on sustaining high levels of public investment, and increasing private-sector investment and reducing consumption so that a greater share of investment can be financed from domestic savings. The third factor is rapid growth in exports and maintaining a competitive real exchange rate to boost economic output and job creation.

Private-sector investment has remained subdued since the onset of the global financial crisis in 2008. This is reflected in our economic performance. The private sector is the biggest contributor to economic activity. It accounts for more than two-thirds of investment and research-and-development expenditure. It also employs about three-quarters of workers.

Businesses drive economic growth through, among other things, investment, innovation and knowledge transfer. Therefore, if we are to achieve faster economic growth, we need vibrant markets and a thriving private sector that is investing in the country’s productive capacity.

So we are focused on crowding in private-sector investment by continuing support for business via incentive programmes, public-private partnerships, promoting entrepreneurship, taking steps to improve labour relations, and improving urban environments and reinvesting in cities.

Many South Africans regularly experience other kinds of infrastructure failure: unreliable water supplies, roads that are impassable when it rains, trains that break down, or poor telecommunication linkages. These are large, long-term, costly challenges, and so the work of Minister [Elizabeth Dipuo] Peters, Minister [Tina] Joemat-Pettersson, Minister [Siyabonga] Cwele, Minister [Nomvula] Mokonyane and Minister [Ebrahim] Patel in securing maximum value out of available funds is especially critical. We are able to make substantial contributions through the fiscus to infrastructure services over the MTEF period: • R1.1 billion is allocated for the upgrade of the Moloto Road to improve safety and mobility on this road.

• The Passenger Rail Agency’s R53 billion 10-year renewal programme is now in progress. The first 44 new train sets, or 528 coaches, will be delivered over the next three years.

• Over R80 billion is allocated to over 220 water and sanitation projects and for local roads.

• R105 billion will be spent on housing and

INVEST IN SOUTH AFRICA 2015

We are reducing infrastructure bottlenecks and increasing dialogue to bolster confidence and trust between public- and private-sector stakeholders.

As the impact of these changes take hold, the outlook for gross domestic product (GDP) growth is set to improve over the medium term, rising to three per cent by 2017, informed by easing infrastructure constraints, a recovery in private investment and accelerating export growth.

Yes, there are risks to the economic growth outlook. These include a stuttering global economic recovery, and uncertainty around monetary policy in developed economies has raised the risks around capital outflows. Homegrown delays in addressing infrastructure impediments and any slippage in our efforts to reduce the fiscal deficit would exacerbate these risks.

However, South Africa has strong institutions to help us absorb shocks. We have a floating exchange rate and an inflation-targeting regime, which allow the currency to absorb much of the impact of shocks, rather than real activity. Predictable monetary policy reduces policy uncertainty and provides an important further source of discipline in wage-setting. Our open capital account allows for counter-cyclical domestic-capital flows.

In conclusion, the fiscal framework laid out in the 2014 Medium Term Budget Policy Statement (MTBPS) re-establishes a sustainable foundation for public finance in order to support investment-led growth in future. We have to ensure that fiscal discipline is applied, but that programmes which lay the foundation for future growth are not endangered.

associated bulk infrastructure requirements.

• Over R18 billion in electrification funding will provide for 875,000 households to be connected to the grid or to receive off-grid electricity.

• R1.1 billion is allocated for broadband connectivity in government institutions and schools.

Investing to transform our urban space National government is working closely with metropolitan municipalities to invigorate urban development. As the NDP emphasises, realising the economic dividends of urban growth requires a new approach to providing infrastructure, housing and public transport services, while overcoming the spatial divisions of apartheid. This budget recognises the need to assist cities in mobilising the finance required for more rapid infrastructure investment and maintenance.

Extracts from the 2015 budget speech by Nhlanhla Nene, South Africa’s Minister of Finance, delivered on 25 February 2015

37

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Burgan Cape Terminals: bringing security of fuel supply to South Africa Shane Jegels CEO of Gulfstream Energy Security of fuel supply is an intrinsic requirement for economic development, growth and job creation.

The South African Government recognises this and it is an imperative supported by the National Development Plan. Indeed, measures to enhance security of supply are a particular focus of the Energy Security Master Plan – Liquid Fuels (2007) and the Draft Strategic Stocks Petroleum Policy (2013), and include encouraging additional storage and distribution facilities.

In response to a clear need for security of supply and associated flexibility of supply in the Western Cape, Transnet National Ports Authority awarded Burgan Cape Terminals a 20-year contract to develop and manage fuel storage and distribution facilities at the Eastern Mole of Cape Town Harbour.

Burgan Cape Terminals is a blackempowered and independent South African oil storage company.

■

used for the storage and distribution of fuels. Burgan will rent spaces to companies for storage of their fuel product. It has already signed long-term (10-year) contracts with oil companies, who jointly aim to throughput up to 805,000 cubic metres a year. They will mainly offtake their products from the Chevron Oil refinery. In case of shortfall, customers have the option

Competition in the form of a terminal that operates outside the oil majors will foster greater choice to import product, subject to the regulations governing the fuel industry.

Burgan’s state-of-the-art truck-loading facility will allow for efficient and swift distribution to end users with

limited impact on the surroundings.

The development advances both local transformation and foreign investment.

Mseleku says the development will provide opportunities for transformation and foreign investment, which have been identified as important for economic growth and development in the National Development Plan.

Burgan’s empowerment shareholders are well-known black empowerment investment company Thebe Investment Corporation (15 per cent) and Jicara, a newly established entirely blackowned broad-based black economic empowerment (BBBEE) company with experience in the downstream petroleum sector (15 per cent).

Commenting on the deal, Vusi Khanyile, Chairman of Thebe Investment Corporation, says: “This is a great partnership of skills, expertise and experience and I am extremely excited about the potential that the fuel terminal

About the facility

Muziwandile Mseleku, Chief Executive Officer of Burgan Cape Terminals, says: “The new facilities to store and distribute fuels at an efficient location in the port will contribute to enhanced security of supply levels in the region. It will allow for greater flexibility in storage, importation and further distribution at times and circumstances where this is desirable and is in keeping with relevant fuel industry regulations.”

The fuel storage facility in Cape Town Harbour will be multipurpose and be

View of Burgan Cape Terminals at the Eastern Mole of the Port of Cape Town, with Table Mountain behind

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Left to right: Zukie Siyotula, CEO of Thebe Capital; Muziwandile Mseleku, CEO Burgan Cape Terminals; and Govert Rietema, Global Business Development Director at VTTI BV

can unlock, both for Thebe and for South Africa. This investment allows us to increase our focus on the growth that will come from the energy sector and complements our existing portfolio and strategy perfectly.”

For this project, Burgan entered into a joint venture with Rotterdam-based VTTI, which owns 70 per cent of Burgan and operates, develops and acquires refined petroleum product and crude oil facilities and energy infrastructure assets on a global scale. The company is owned half by MISC Berhad, a Malaysian-based shipping company, and half by Vitol, a multinational primarily engaged in the exploration and production of oil, as well as refining, shipping and distribution.

Collaboration for development

Govert Rietema, Director of Global Business Development at VTTI BV, says: “We are so pleased to be able to share our extensive global experience with our local partners and look forward to working together.”

Mseleku says, “We are very proud to partner with Thebe Investment Corporation and VTTI. Thebe has an exceptional track record as a pioneering black-owned investment company that is known for its active investment philosophy. VTTI is one of the world’s top

fuel storage infrastructure developers and its experience in and focus on developing storage facilities safely and reliably will be of enormous benefit for this project.”

The introduction of independent fuel storage and distribution facilities in Cape Town will also, for the first time, facilitate scalable and reliable access for emerging black fuel marketers to a market that has historically been closed to new entrants.

In the past, black-owned independent wholesalers of fuel have had limited access to commercial storage for imports and local distribution in South Africa.

One of the long-term tenants of the development will be Gulfstream Energy, a 100 per cent black-womanowned independent fuel marketer which has signed a three-year throughput agreement with global commodity traders Tradimex to store 120 million litres per annum with Burgan Cape Terminals.

Shane Jegels, CEO of Gulfstream Energy, explains, “This is immensely significant, not only because access to an independent terminal will open the market for black-owned companies to become sustainable, but also because it will foster competition in the Western Cape and ensure better security of fuel supply.”

Gulfstream Energy resells more than 20 million litres of fuel per month,

around one per cent of the country’s total consumption.

Infrastructure used to produce, import and distribute product in the Western Cape is currently limited. Jegels believes competition in the form of a terminal that operates outside the oil majors will foster greater choice, better service and could even lower the cost of fuel.

Mseleku says: “We are excited to have signed an independent marketer so early in our engagement with potential tenants.

This shows a clear demand and need for access to fuel storage and distribution facilities that can be used by both oil majors and independent marketers in the region. We are also exceptionally proud to be supporting a new black-empowered entrant to the market.”

Economic impact

Mseleku continues: “The development of the fuel storage facility in Cape Town will not only address the country’s need to increase fuel infrastructure and capacity, but it will also have a positive effect on the economy, on global skills transfer and on the transformation of the local energy sector.”

It is anticipated that the construction phase of the project will create between 110 and 130 contract jobs, with an average duration of 18 to 22 months.

Approximately 21 operational jobs would be created once the facility is fully operational.

Muziwandile Mseleku CEO of Burgan Cape Terminals T: +27 83 326 9682 Stijn van Zelst Project Manager of Burgan Cape Terminals T: +27 72 564 3170 E: info@burgan.co.za W: www.burgan.co.za

GRANT DUNCAN-SMITH

INVESTMENT OPPORTUNITIES: OIL AND GAS

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INVEST IN SOUTH AFRICA 2015

INVESTMENT OPPORTUNITIES: OIL AND GAS

Upstream ambitions Offshore petroleum exploration and onshore shale gas prospecting are gaining momentum in South Africa, offering great investment potential. The government is also ramping up initiatives to attract private capital, writes Jeremy Bowden

W Tugs position semi-submersible rig Transocean Marianas in Table Bay off the coast of Cape Town. South Africa has proven crude oil reserves of just 15 million barrels, but signs suggest that offshore basins surrounding the country could hold many more recoverable reserves

hile South Africa currently has little in the way of oil and gas production, it has considerable potential, in both onshore shale deposits and deep-water basins – areas that are now being opened up by advances in technology. As a result, the country has seen a recent surge in exploration, setting the upstream oil and gas sector on course for growth. Permits to explore offshore acreage have been snapped up over the past three years, while shale gas extraction licences are expected to be issued later this year.

South Africa has proven crude oil resources of just 15 million barrels. These are located in the declining Oribi, Oryx and Sable fields in the relatively shallow waters of the Bredasdorp Basin off the west coast, which are operated by state-run oil company PetroSA. However, only a small fraction of its 191,000 barrels per day (bpd) production comes from these reserves, with the majority produced in the form of synthetic fuels, derived from coal and natural gas using advanced conversion technology. This consumes most of South Africa’s 39 billion cubic feet per year (bcf) of natural gas output, which comes from the PetroSA-operated

INVEST IN SOUTH AFRICA 2015

Mossel Bay field off the south coast, along with 127bcf imported by pipeline from Mozambique. The remaining liquids come from Sasol’s coal-to-liquids plant.

For the rest of its oil needs, South Africa is heavily reliant on crude imports, so signs that shale deposits and offshore basins surrounding the country could hold substantial recoverable resources are particularly welcome. The promising offshore prospects have recently attracted interest from super-majors such as Total, Shell, ExxonMobil and Chevron, along with explorers such as Anadarko, BHP Billiton, Falcon and a fair number of other, smaller companies, including Silver Wave Energy, Impact Africa and leading local private operator Sasol.

Shale opportunities Also, PetroSA is planning to improve the productivity of its F-O gas field offshore Mossel Bay through the use of hydraulic fracturing (fracking), a technique that, it is hoped, will also open up the resources locked in the giant onshore Karoo shale basin. South Africa has an estimated 390 trillion cubic feet (tcf) of technically recoverable shale gas resources – the eighth largest in the world. All of the resources are located in the Karoo Basin and are comprised of extensive deposits of organic-rich shales, including the Whitehill (211 tcf), Prince Albert (96 tcf) and Collingham (83 tcf) formations.

The South African Government has decided to support the development of shale gas. A recent temporary moratorium on shale gas exploration provided sufficient time for the government to

41

This is where we Transform gas inTo elecTriciTy Through South Africa’s first stand-alone gas-to-power plant, that converts natural gas into low-carbon electricity, we’re reducing pressure on the country’s power grid. Being able to self-generate up to 70% of our own electricity requirements, is just one way we’re investing in South Africa’s success.

www.sasol.com

INVESTMENT OPPORTUNITIES: OIL AND GAS

augment all existing regulation affecting the development of shale gas, and to introduce international benchmarks and best practices in finalisation of the regulations for shale gas, in order to, inter alia, protect the environment and water. So far, the government has published draft technical regulation for petroleum exploration, including hydraulic fracturing, based on the American Petroleum Institute standards.

Conventional oil and gas statistics (2014)

Oil production (barrels per day)

The Saldanha Bay Industrial Development Zone is expected to attract foreign direct investment of $774 million over 25 years The industry is currently awaiting the publication of final regulations and the conversion of existing Technical Cooperation Permits (TCPs) into shale exploration licences, which are expected to include requirements for local content in procurement, manufacturing and shareholding. The government has finalised infrastructure development legislation that would shorten project approval times.

Favourable investment climate While the deep-water and unconventional shale resources are welcomed, they do not contain cheap, easy-to-recover oil and gas. The investment required will be substantial, and involves the latest skills and techniques. To achieve this, the South African Government is determined to provide a friendly and generous environment to attract private capital from the best international companies in the sector.

The government is encouraging development of an indigenous oil and gas services sector through initiatives such as the Saldanha Bay Industrial Development Zone. It is hoped that Saldanha will evolve into a regional hub for upstream development by establishing a ‘one-stop shop’ free port. It is the first of its kind for the oil and gas sector in South Africa, and is expected to attract foreign direct investment of R9.3 billion ($774 million) over 25 years, primarily from companies specialising in oilfield services, oil rig operations, logistics, storage and blending, ship repair and engineering.

Opportunities in South Africa could be further enhanced through rising oil and gas exploration in neighbouring countries, where unconventional resources have also been identified. Large resources in Botswana of coal bed methane, estimated at 196tcf, are believed to be located in the central Kalahari

INVEST IN SOUTH AFRICA 2015

Proven oil reserves (million barrels)

191,000

Share of world

Gas production (cubic metres per year)

0.22%

15

Share of world

0.001%

970,000,000 Share of world

Proven gas reserves (cubic metres)

0.03%

27,160,000 Share of world

0.00001%

Unconventional gas statistics (2014) There is significant potential for discovery in coal bed methane and shale gas Unit

Number

Global ranking

Coal bed methane resources*

tcf

20-30

12

Shale gas technically recoverable resources**

tcf

390

8

Shale gas potential reserves***

tcf

30

–

tcf: trillion cubic feet * Energy Tribune and other sources ** US Energy Information Agency and other sources *** Petroleum Agency of South Africa Source: South African Oil & Gas Alliance

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Richards Bay, Durban, Cape Town, Saldanha Bay, Walvis Bay

www.dormac.net • Email: ship@dormac.net

INVESTMENT OPPORTUNITIES: OIL AND GAS

Tina Joemat-Pettersson Minister of Energy

E

accelerate the pace of oil and gas exploration, to develop the green economy as well as to exploit our vast coal deposits through clean technologies. We are finalising the Gas Utilisation Master Plan, which forms part of South Africa’s integrated energy plan, and this takes a view up to 2050 of the energy industry that will meet the future needs of our country.

We are seeking to improve transparency in the petroleum market by instigating a regulatory accounting system for the sector that determines appropriate margins for petrol at wholesale, retail, secondary-storage and secondary-distribution level. Our hope is to eliminate inefficiencies and uncontrolled costs, and to enhance relations between oil companies and retail firms.

With regard to clean, renewable energy sources, various programmes are under way, including the Solar Water Heater programme, which aims to roll out one million solar water units in the residential sector; the solar photovoltaic and wind programmes have been developed to take advantage of the natural resources we have in abundance.

We have revised the regulatory framework for introducing new power-generation capacity through independent power producers (IPPs), to the extent that since 2011 about 4,000 megawatts of green power has been successfully negotiated for connection into the national grid.

SASOL

nergy is a catalyst for economic growth and transformation, and the energy sector is vital to the continued growth of South Africa’s economy. The energy sector is a topic high on the development agenda, and we are looking to diversification as a measure towards sustainability. To this end, we are developing gas – including shale gas, for which South Africa has significant potential – renewables, coal, hydro and nuclear power. We are committed to improving regional interconnectivity through the development of transmission corridors within the Southern African Development Community (SADC) by advancing policies and legislation to support these initiatives. Within the next decade, we plan to introduce some 9.6 gigawatts of nuclear energy to the power grid.

It is important that households have access to power, and with this in mind we have implemented programmes including the Integrated National Electrification Programme, intended to connect on an annual basis some 260,000 households to the electricity grid and through off-grid technologies.

South Africa is blessed with natural energy resources, and integrated plans are in place to enhance energy efficiency, to

section of the Karoo Basin. Namibia has substantial offshore resources, including the Kudu gas field, while recent world-scale gas finds offshore Mozambique represent a major opportunity.

Further downstream, South African refining capacity and infrastructure are already well developed.

The country processes imported crude primarily from Organization of Petroleum Exporting Countries (OPEC) suppliers in the Middle East and West Africa, with a

INVEST IN SOUTH AFRICA 2015

Workers at a plant owned by Sasol. The company has a number of operations in South Africa, including a joint-owned pipeline connected to Mozambique

crude distillation capacity of 485,000bpd. There may be opportunities associated with refinery improvements resulting from a move to tighter environmental fuel standards by 2017, although low refinery margins mean operators are hesitant to invest. PetroSA and China’s Sinopec are jointly funding a study into the construction of a new 400,000bpd refinery at Coega near Port Elizabeth.

The government plans a new multi-fuel pipeline between the coastal city of Durban and the main inland demand centre of Johannesburg, which will replace the existing ageing infrastructure, and increase capacity. Other pipelines include the 535-mile, 524-million cubic feet per day gas import line from Mozambique, owned by Sasol, and the Mozambique and South African governments. Plans are in place to double the line’s capacity, while Sasol and Shell have proposed building a second gas import pipeline, connecting Namibia’s Kudu gas field to the Mossel Bay complex and proposed Coega refinery.

Having applied advanced conversion technology to tackle its lack of conventional oil production in the past, South Africa now looks set to benefit from advanced deep-water and shale extraction technology, which could free the country from its dependence on domestic coal and crude imports.

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INVESTMENT OPPORTUNITIES: POWER AND RENEWABLE ENERGY

Powering ahead The South African Government’s plans to boost the country’s renewable and nuclear energy output will help to put an end to power shortages and transform energy markets, writes Michael Cassell

S

outh Africa’s economic potential has, for decades, been stifled by an inability to provide enough electricity to meet national demand. But, in recent years, the country has made great strides towards overcoming chronic power shortages and setting an example that the rest of Africa may be about to follow.

The issue of tight power supplies came to a head in 2008 when blackouts, brought about by longstanding underinvestment in the generation and distribution of electricity, inflicted huge disruption on the country. But the crisis also brought about a determination in the government to solve the problem and give South Africa the opportunity to show its real economic muscle.

Drive to renewables

Solar panels being installed on a roof. South Africa’s plans to diversify its energy mix have resulted in the creation of one of the world’s biggest privately funded renewable energy programmes

48

The result has been the creation of what could be the most successful public-private partnership in Africa for more than 20 years. In fact, it has already seen the creation of one of the world’s biggest privately funded renewable energy programmes, part of a national energy plan extending beyond the renewable sector and encouraging the creation of a new generation of independently owned power plant operators. In another bold initiative, the South African Government has given the go-ahead for a second generation of nuclear power plants.

Until now, the focus has been firmly on the plan to boost South Africa’s renewable energy output from a

meagre one per cent of the country’s total energy mix to as much as 12 per cent by 2020, which would rank it among the global top 15 countries for renewables implementation. With three out of a planned five bidding rounds now complete – the third having been expanded and a fourth, for 1,000 megawatts (MW), under way, with deals due to be signed in July 2015 – the renewables programme has secured investment of $14 billion, involving the provision of 3,922MW of new generating capacity. A total of 64 projects have been awarded so far to private-sector operators, and the first power plants are already on line. The renewables programme is also being given a boost by a recent government invitation for bids for the financing, construction, operation and maintenance of small-scale renewable energy facilities, together adding 100MW to renewables capacity.

An early change of heart, in which the government switched strategy from a dependence on feed-in tariffs to competitive tenders, gave rise to fears that the programme could falter. But participants – and, most recently, the World Bank – have concluded that power prices are becoming increasingly competitive (windgenerated electricity tariffs, for example, fell by around 42 per cent and solar by 68 per cent between rounds one and three of the bid process), while the speed of implementation has been stepping up.

Overall, the programme is generally judged to have been highly successful. In particular, it has been praised for its fairness, transparency and certainty – vital components for investor confidence. Any mistrust of the public sector, often held by private business, seems to have been largely overcome.

The drive to renewables in a country that has historically depended largely on ‘dirty’ coal is also bringing with it the creation of new businesses and the potential for tens of thousands of new jobs. Last August, for example, saw the opening by Jinko Solar

INVEST IN SOUTH AFRICA 2015

PAUL BRADBURY/GETTY IMAGES

INVESTMENT OPPORTUNITIES: POWER AND RENEWABLE ENERGY

INVEST IN SOUTH AFRICA 2015

49

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ENEL: Renewable Solutions

Moldova Noua, Romania – EGP wind power plant, 48MW capacity

Enel is Italy’s largest power company and Europe’s second listed utility by installed capacity. It is a leading integrated player in the power and gas markets of Europe and Latin America, operating in 40 countries worldwide to oversee the power generation of about 99GW of net installed capacity, as well as distributing electricity and gas across a network spanning around 1.9 million kilometres and serving some 61 million customers.

■

Business overview

In 2013, Enel posted revenues of aproximately €80.5 billion, EBITDA of around €17 billion, and net ordinary income in the vicinity of €3.5 billion.

As of 31 December 2013, the Group has more than 71,000 employees and operates a wide range of hydroelectric, thermoelectric, nuclear, geothermal, wind, solar and other renewable power plants.

Over 42 per cent of the power generated

by Enel last year was carbon free.

important of Enel’s shareholders is the Italian Ministry of Economy and Finance, which holds 31.24 per cent of the Company’s shares. A further 14 shareholder companies are listed on the stock exchanges of Italy, Spain, Russia, Argentina, Brazil, Chile and Peru.

Enel’s commitment to values – embodied in its code of ethics, its sustainability report, as well as the adoption of international best practices promoting environmental protection, transparency and corporate governance – has attracted international investment funds, insurance companies, pension funds and ethical funds to its rank of shareholders.

Global presence

Having completed its international expansion, Enel is now actively engaged in consolidating its acquired assets and further integrating its businesses.

Enel is strongly committed to the development of renewable sources and to the research and development of new, environmentally friendly technologies.

Enel Green Power is the Group’s listed company dedicated to the development and management of power generation from renewable sources, operating 8.9GW of installed capacity from hydro, wind, geothermal, solar and biomass in Europe and America.

Shareholding structure

Listed on the Milan stock exchange since 1999, Enel has more shareholders than any other Italian company, with 1.2 million retail and institutional investors. The most

Upington, South Africa – ESSE PV Power Plant, 10 MW capacity – 3Sun thin-film modules

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Istia, Italy – ESSE PV Power Plant, 1.4MW capacity – 3Sun thin-film modules

ENEL Green Power (EGP) business overview

Founded in December 2008, EGP is a global leader in renewable energy generation, with an annual production of 29.5TW/h, meeting the energy consumption of more than 10 million families and avoiding 16 million tonnes of CO2 emissions every year. EGP has some 752 operational plants in 16 countries in Europe and America. The company’s generation mix includes the main renewable sources: wind, solar, hydro, geothermal and biomass. Enel Green Power also devotes special attention to technological innovation and research.

The solar sector

Enel Green Power’s installed solar capacity totals about 268MW, and is mainly distributed across Italy, North America, Greece and the Iberian Peninsula. In this context, the company believes it is important to establish technological partnerships as well as developing innovative business models – such as franchising – that have brought about significant development of distributed generation in the company’s home country.

Integrated value chain: solar joint ventures 3Sun and ESSE

As far as the latest generation of photovoltaics (PV) is concerned, the 3Sun factory operates in Sicily and produces innovative PV panels. Currently, the factory employs 300 qualified staff and has a PV panel production capacity totalling 220MW per year. It produces

amorphous silicon multi-junction thinfilm PV panels suitable for high average temperatures, meeting demand in the solar-energy global market.

Enel Green Power and Sharp Solar Energy (ESSE) was established as a Rome-based multinational joint venture in 2010, to implement the build, operate, and own (BOO) business of photovoltaic independent power producer plants in the regions of Europe, the Middle East and Africa, utilising the photovoltaic modules produced by 3Sun. ESSE’s installed capacity is about 50MW, of which 20MW is produced in Italy, 20MW in Greece and 10MW in South Africa.

The 10MW project in Upington in the Northern Cape Province, South Africa, was awarded in May 2012 (round two of the Renewable Energy Independent Power Producer Procurement Programme [REIPPPP] tender) and was connected to the grid in May 2014.

EGP in South Africa

Enel Green Power RSA is the Enel Group company dedicated to the development and management of electricity generation of renewable sources in South Africa.

Based in Johannesburg, Enel Green Power RSA benefits from the Enel Group’s synergies and expertise in many areas, especially in wind and solar power.

Enel Green Power RSA is implementing the wind and solar photovoltaic projects awarded in round three of the REIPPPP for, respectively, 199MW and 314MW, overall totaling 513MW. The photovoltaic power plants are: Adams (82.5MW) located in Northern

Cape Province; Paleisheuwel (82.5MW) in Western Cape Province; Pulida (82.5MW) in Free State Province; and Tom Burke (66MW) in Limpopo Province. The wind power plants are Nojoli (88 MW) located in Eastern Cape Province and Gibson Bay (111MW) in Eastern Cape Province.

The plants are located in different areas of the country depending on the solar and wind resource availability.

Power plant construction will soon begin, ready to launch operations in 2015 or 2016.

EGP has always been committed to diffusing a culture of sustainability and is currently providing free courses for both PV installers and sellers. EGP is also exploring the possibility of entering the retail market.

All data included herein was updated on 31 December 2013, unless otherwise stated.

www.enelgreenpower.com

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Sonnedix is a global Independent Solar Power Producer (IPP) with a proven track record of delivering high-performance and costcompetitive solar photovoltaic plants to the market. Sonnedix currently owns 29 solar photovoltaic power projects located in five continents and eight countries, representing 554 megawatts of controlled capacities in operation, under construction or in the final phases of permitting.

Sonnedix holds the firm belief that the potential of the solar power sector is vast and that the future is a world where the price of solargenerated electricity will almost always be cheaper than that of energy generated using fossil fuels.

Sonnedix is focused on promoting social and economic growth in South Africa by playing a major role in solar energy development. We are working on maximizing the level of local content for the construction of our facilities as well as creating jobs with a specific focus on local employment and skills development. Our projects will continue to benefit local communities after construction by, for example, providing funding for educational programmes.

South African Operations Sonnedix has been active and investing in South Africa since 2012.

Along with our local development partner, we successfully participated in and qualified for the Department of Energy’s REIPPP Programme in 2013, with a large-scale 86 megawatt peak-capacity solar photovoltaic project in the Northern Cape, near the city of Prieska. We are working on closing all project arrangements in order to start the construction of the power plant in early 2015.

Sonnedix is looking at South Africa as a long-term market to invest in.

We strongly believe that bringing our experience and track record as a global solar IPP will contribute to solving South Africa’s peak energy needs and, at the same time, bring clean affordable electricity to the people and communities of the country.

Sonnedix South Africa team with partners and contractors

THE PRIESKA PROJECT KEY FACTS

Capacity: 86 megawatt peak capacity Number of solar modules: 300,000 Total length of all cables: 900 km Annual electricity production: 170,000 megawatt-hours Equivalent household consumption: 30,000 Equivalent driven distance by electrical car: 1 billion km

Sonnedix Solar South Africa Holdings (Pty) Ltd

ExecuJet Business Centre, Tower Road, Cape Town International Airport, 7525 | Tel: +27 21 200 7831 | Website: www.sonnedix.com

INVESTMENT OPPORTUNITIES: POWER AND RENEWABLE ENERGY

Sources of energy supply (projected) 100

Capacity installed in gigawatts (GW) Photovoltaics

80

Concentrated solar power Wind power Hydropower

60

Nuclear power Open-cycle gas turbine Combined-cycle gas turbine

40

Coal

20

0 2010

2015

2020

2025

2030 Source: Department of Energy, South Africa

– the fourth largest solar-panel maker in the world – of a new plant in Cape Town. Around 250 jobs will be directly created, with others to follow in secondary industries. The government says that, so far, more than 14,000 jobs have been created by the renewables programme. It has insisted on tough ‘local content’ requirements throughout, which have been geared up as the bid process has progressed, embracing everything from components to finance.

Financing structures The issue of finance has, inevitably, been crucial to the success of South Africa’s energy generating and distribution strategy, and will continue to be so. The first three rounds of the bid process have attracted a wide variety of domestic and international project developers, sponsors and equity shareholders.

The renewable projects so far given the go-ahead have involved more than 100 shareholder entities, with almost half of them participating in more than one scheme. While the most common financing structure has been project finance, a significant share has been accounted for by standard corporate financing deals. The majority of debt funding has originated from commercial banks, and pension and insurance funds. The banking sector, which is the largest and most sophisticated on the continent, has played a significant role in the success of the programme so far; it is highly liquid, offers long-

INVEST IN SOUTH AFRICA 2015

term debt and understands project finance. No less than 86 per cent of all finance for bid projects has been raised in South Africa. Five large South African banks have dominated the lending.

Now that the policy is well established and many of the early uncertainties have been removed, it seems increasingly likely that a growing number of international finance houses and, in addition, foreign utilities struggling to grow their home market shares may take an increasing interest in the opportunities offered within South Africa.

Nor will the potential be confined to the renewables sector, considering that the South African Government has recently been gearing up to procure new electricity capacity from independent power producers (IPPs) in the non-renewables sector. A tender has been published for the appointment of transaction advisers as well as programme and project managers for the design, development and implementation of an IPPs’ programme, covering the construction and operation of new power plants fuelled by coal, gas, industrial cogeneration facilities and hydropower plants. In plans to tackle medium-term electricity shortages, the government is hoping to procure 800MW of cogeneration (heat and power) capacity, which could be generated from biomass and industrial waste. In addition, there are plans for 2,500MW of coal generation involving the development of another, large-scale coal-fired plant to be operated by the state utility Eskom, as well as for more natural gas projects.

Commitment to nuclear Perhaps the government’s commitment to end power shortages is best demonstrated in its decision to further develop its nuclear power capacity. South Africa currently has only one nuclear power station – the 1,800MW station at Koeberg – but now it is in the pre-procurement stage of the construction

The renewables programme is generally judged to have been highly successful, praised in particular for its fairness, transparency and certainty of a new fleet of nuclear power stations, potentially injecting billions of rand into the construction sector and creating new jobs. Once a competitive bidding process begins, it could be six years or more for the first generating units to produce power.

South Africa’s commitment to nuclear has triggered enormous interest among countries with experience in nuclear energy. Intergovernmental framework

53

SIEMENS

INVESTMENT OPPORTUNITIES: POWER AND RENEWABLE ENERGY

Jeffreys Bay Wind Farm in the Eastern Cape.

Wind-generated electricity tariffs have fallen by around 42 per cent as the renewable energy bidding process has progressed

JORDI MATAS/DEMOTIX

Koeberg nuclear power station, north of Cape Town, is the only nuclear power station in Africa, but that is set to change with the South African

agreements have so far been signed with Russia, China, France, Korea and the United States, and ‘vendor parade workshops’ have followed, in which delegations from these countries showcased their offerings in various aspects of the nuclear value chain.

The South African Government sees nuclear power as part of an energy mix that also includes coal, gas, solar, wind and hydro, as outlined in the Department of Energy’s Integrated Resource Plan 2010-30.

China is already involved in the renewable energy sector. In 2011, state-owned China Longyuan Power Group Corporation signed a private partnership agreement with Cape Town-based Mulilo Renewable Energy to spearhead the construction of wind farms.

The US is also keen to participate. Last year, South African engineering and construction group Sebata signed a memorandum of understanding with Westinghouse Electric to prepare for the “potential construction” of new nuclear plants in the country.

A similar deal has been agreed between the US company and the South African Nuclear Energy

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Government having given the go-ahead to a second generation of nuclear power plants

86%

of all finance

for renewables bid projects has been raised in South Africa

Corporation (Necsa) in respect of local fabrication of nuclear power components.

The competition between the US and Russia to do business across the African continent has never been more intense and their primary focus so far has been on helping to meet its growing energy needs. But they can, themselves, expect to face competition from operators and investors both within South Africa and beyond, who have already shown their remarkable appetite for the country’s renewables programme.

Now that South Africa’s energy policy is being expanded and accelerated, potential participants will feel much encouraged by the country’s having achieved targets critics initially believed may have been overambitious.

South Africa itself has experienced a sharp learning curve in creating and driving public-private partnerships that have managed to overcome many of the initial obstacles. The last few years have provided enough evidence to encourage investors from outside the country’s borders to regard South Africa as an attractive place to do business in the energy industry – and to compete with its own financing institutions for market share. Consequently, the country can look forward with confidence to the implementation of a national energy strategy that is able to extinguish the energy gap that has held back its economic and social development.

There is another welcome bonus. Important lessons are now being learnt by South Africa, as well as other emerging markets that are contemplating developing their energy sectors. South Africa’s fast-developing expertise could also soon provide the country with significant business opportunities further afield, across the rest of the African continent.

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As one of the largest South African-based diversified resources groups, we at Exxaro strive for operational excellence to enable us to reach a key goal of achieving significant growth. We are proud to be the second-largest coal producer in South Africa with production of 40 million tonnes per annum and our business interests also include titanium dioxide, ferrous and energy commodities. We live by our brand promise of “powering possibility� as we create opportunities and make contributions that benefit our country and all our stakeholders.

EXX_118019

POWERING POSSIBILITY

INVESTMENT OPPORTUNITIES: MINING AND MINERALS

Advocate Ngoako A Ramatlhodi Minister of Mineral Resources

S

ince South Africa’s affirmation as the wealthiest mining jurisdiction in the world, there have been two significant discoveries of Platinum Group Metals (PGMs), which extend the northern limb of the Bushveld Igneous Complex further to the Waterberg. Whilst we have had a well-established culture and infrastructure supportive of mining development for well over a century, South Africa presents with renewed vigour a value proposition for the investment fraternity that integrates mining, which is a catalyst for economic development, into the broader national economy, including industrialisation, advancement of local content and so on.

The country is the latest frontier for oil and gas prospects, both off- and onshore. The noteworthy potential of shale gas in the Karoo sediments presents unprecedented game-changing opportunities for investment and South Africa’s energy security.

Koffiefontein diamond mine in Free State province. South Africa has a diverse range

IMAGEBROKER/ALAMY

of mineral resources, including gemstones and precious metals, among others

The President of South Africa, His Excellency JG Zuma, directed a multi-stakeholder six-week process known as Operation Phakisa, which sought to augment the development of the nation’s vast ocean’s economy in an orderly and coordinated fashion. The initial findings of the process indicate an estimated nine-billion-barrel offshore oil resource potential. We are working tirelessly with our stakeholders to take advantage of the development of this resource, and are certain that this new and untapped area is exciting for investors and the people of South Africa alike.

The firm foundations of our regulatory reform have provided a climate for accelerated development of the industry, especially through the opening of opportunities that were previously inaccessible.

The current process of amending the Mineral and Petroleum Resources Development Act draws from the benefit of implementing the Act for just over ten years. This window has allowed us to enhance our regulatory framework in a manner that, inter alia, supports our justiciable Constitution, provides for security of tenure, enriches regulatory stability, integrates the industry into the national economy, optimises the development impact on areas proximate to mining operations as well as the major labour-sending areas, and benefits the workers. I intend to have the final steps of amending to be concluded during this year.

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INVESTMENT OPPORTUNITIES: TRANSPORT AND LOGISTICS

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INVESTMENT OPPORTUNITIES: TRANSPORT AND LOGISTICS

The network effect

South Africa already has the best transport system in the region, but further improvements are on their way following investment from the government, writes Dominic Dudley

I Cape Town International Airport: improvements were made during preparations for the 2010 FIFA World Cup

f you need to fly between two cities in Southern Africa, there is a good chance your best option will be to go via Johannesburg’s OR Tambo International Airport, whether or not you are aiming for South Africa itself. The airport has the greatest number of connections in the region and is an important hub.

And what is true in a regional context is also true domestically. South Africa’s transport and logistics infrastructure is a key reason why investors rank the country as the most attractive destination for investment on the continent. According to consultancy firm EY’s attractiveness survey Africa 2014: Executing Growth, 77 per cent of investors questioned said that transport, logistics, utilities, wireless infrastructure and communications all had an impact on their investment plans in urban centres. Indeed, good transport links mean that companies can easily

INVEST IN SOUTH AFRICA 2015

target South Africa itself while using the country as a base for exploring the wider region. But, although it may have a better transport system than neighbouring countries, there is still room for improvement, and the government has invested heavily in recent years to help ensure the country maintains its lead.

In the build-up to the 2010 FIFA World Cup, for example, facilities were upgraded at OR Tambo International and Cape Town International airports.

Moreover, an entire new airport was built at Durban, King Shaka International, replacing another airport when it opened shortly before the tournament. Since then, more investment has followed. In the Department of Transport’s Strategic Plan 2011/12-2013/14, a total of R262 billion ($21.8 billion) was earmarked for transport and logistics projects.

A key area is public transport, and the fruits of some recent investment efforts are already visible, including the Gauteng Freeway Improvement Project and a series of bus rapid transport systems across the country. Much more will follow in the coming years, not least as a result of a series of major contracts having been signed recently for new freight and

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INVESTMENT OPPORTUNITIES: TRANSPORT AND LOGISTICS

Case study: Bombardier Transportation Bombardier has been involved in a number of projects in South Africa, including the ongoing refurbishment of existing fleets, the Gautrain rapid rail link and, recently, one of the country’s largest resignalling projects.

Aubrey Lekwane, the Chief Country Representative of Bombardier in South Africa, says that the country offers attractive prospects for businesses.

“Political and economic stability in the region make it a special hub to invest in long-term capital projects and develop strong local partnerships,” he says. “South Africa is also well positioned for export opportunities to the rest of the sub-Saharan Africa market.”

Owned 26 per cent by South Africans and wholly managed by a local team of executives, Bombardier tends to work with other companies on its South

African projects. Lekwane says this is a positive, as it “makes us a well-established local supplier to our customers, and the option of partnering with companies or joining consortiums enables us to fulfil further requirements, such as social economic development targets, skills transfer and so on.”

In order to establish a longstanding business relationship, a company’s strategy must correlate with what the market of the country needs. Lekwane says that this is certainly the case with Bombardier, which has worked in South Africa since 1995, as its “worldwide strategy is to leverage our technology leadership to respond to our customers’ needs, capture the full potential of fastgrowing markets, and develop new business models to adapt to changing market requirements.

Our strategy already complements

South Africa’s development objectives for leading innovative transport solutions, such as the Gautrain project. Our strategy also supports localisation fulfilment, skills and technology transfer.”

There is plenty of scope for projects in the future too, with the government’s National Infrastructure Plan meaning that “policies are being developed for the long term. Nearly all the bid requests lead to competitive adjudication and bid closure.”

While Bombardier has established itself in the South African market, Lekwane notes that there are challenges to overcome, too. “Localisation requirements are very demanding,” he says, “but Bombardier already has extensive experience in the successful transfer of skills and technology to many countries, including the BRICS.”

The Department of Transport has earmarked R262 billion ($21.8 billion) for transport and logistics projects South Africa has a 21,403km national road network that is maintained by the parastatal SANRAL

GRANT DUNCAN-SMITH

INVEST IN SOUTH AFRICA 2015

However, Lekwane is confident in the company’s strengths in relation to the competition.

“We believe that Bombardier will outperform competition in terms of compliance with local requirements,” he says. “We are happy to see a radical change and increased investment in the rail industry since the advent of the new democratic dispensation.

South Africa and the rest of the continent are now embarking on significant capital investment in energy, ports and rail of nearly $60 billion annually. We are positioning Bombardier to capture a significant part of the rail market.”

With advice for companies thinking of investing, he says: “Compliance with localisation objectives and familiarisation with labour market and regulatory policies are essential.”

passenger trains. These trains are a critical element of the country’s transport mix, with metrorail commuter trains doing over 540 million passenger trips per year.

The Passenger Rail Agency of South Africa (Prasa) is responsible for Metrorail services, as well as for the Shosholoza Meyl intercity services, and it is currently in the process of replacing its ageing fleet of trains.

A major contract was signed in October 2013 by the Gibela consortium – which includes France’s Alstom as the majority shareholder alongside two local firms, Ubumbano Rail and New Africa Rail – to deliver 600 passenger trains between 2015 and 2025. Moreover, Gibela will provide technical support and spare parts for 18 years. Gibela will directly employ around 1,500 people, while there is the potential for thousands of indirect jobs to be created as well.

Prasa has also signed a number of contracts to upgrade the rail network’s signalling system, including a R1.1 billion ($92 million) deal with the Bombardier Africa Alliance consortium, led by Canada’s Bombardier, and a contract with France’s Thales to supply rail signalling for 46 stations, as well as 250km of rail lines within the Western Cape region.

The Gautrain high-speed service around Johannesburg is arguably the most high-profile

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INVESTMENT OPPORTUNITIES: TRANSPORT AND LOGISTICS

element of South Africa’s rail system. Planning began in the late 1990s, but it was not until September 2006 that construction work started, with the full system opening in June 2012. Now, with uptake increasing after more than two years of successful operations, there are proposals to expand, with a new east-west line from Boksburg to Honeydew, and another north-south line from Mamelodi to Naledi.

The country’s freight railway services are also getting an overhaul. The key actor in this area is the state-owned Transnet, which is undertaking a fleetrenewal programme with four suppliers delivering 1,064 diesel and electric locomotives at a total cost of R50 billion ($4.2 billion). China South Rail and Bombardier Transportation will supply 599 electric locomotives, while General Electric and China North Rail will build and supply 465 diesel locomotives.

As well as providing freight rail services, Transnet is involved in running the country’s ports. Its divisions include the Transnet National Ports Authority, which is the landlord for eight ports around the country, while the Transnet Port Terminals (TPT) division operates 16 terminals at seven of those ports.

There are plans to upgrade and expand facilities at most of these sites, including the container terminals at Durban and Ngqura, and build a new port on the site of the old Durban International Airport. The port at Richards Bay will also be expanded to enable it to handle growing levels of bulk cargoes, while a series of short-, medium- and long-term plans are set to improve facilities at East London, Port Elizabeth, Cape Town and Saldanha in the coming decades.

“South Africa is well positioned to service the world’s key trade routes as global trade recovers, and TPT is preparing for this growth by investing in new capacity ahead of demand,” said Zeph Ndlovu, TPT’s General Manager for KwaZulu Natal, at the Africa Ports and Harbours conference in July 2014.

Transforming the road network The more prosaic world of road transport has also been benefiting from investment. According to Williams, road accidents are estimated to cost the economy R306 billion ($25.5 billion) a year. The government has committed to halving the number of road deaths by 2020. An important element of that commitment will involve improving the condition of the roads, particularly key trunk routes. The South African National Roads Agency (SANRAL) is responsible for maintaining and expanding the country’s 21,403km national road network. Its most high-profile scheme is the Gauteng Freeway Improvement Project, which was launched in 2008 and covers a network of roads linking Johannesburg, Pretoria and Vereeniging.

SANRAL’s strategic programme for 2012/132016/17 features plans for three new toll roads with

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The Logistics Performance Index: South Africa Customs

Infrastructure

5 3.11

4

3.20

3 2 1

Timeliness

3.88

3.45

3.30

International shipments

3.62 Logistics and competence

Tracking and tracing

Source: the World Bank

Road accidents are estimated to cost the economy

$25.5 billion a year. The government is committed to halving the number of road deaths by 2020

SANRAL’s strategic plan for 2012/13-2016/17 features plans for three new toll roads at a cost of

$1.8 billion

including the N1-N2 Winelands Toll Highway, the N2 Wild Coast Toll Highway and the N21 Cape Town Ring Toll Highway.

Two other toll roads are already being built – the N17 from Springs to Ermelo and the R30 from Bloemfontein to Kroonstad – and six more are under consideration

The Rea Vaya bus rapid transit network will eventually cover 330km and reach

80%

of Johannesburg’s residents

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INVESTMENT OPPORTUNITIES: TRANSPORT AND LOGISTICS

a combined cost of R22 billion ($1.8 billion): the N1N2 Winelands Toll Highway from Cape Town, the N2 Wild Coast Toll Highway from Durban to East London, and the N21 Cape Town Ring Toll Highway. Two other toll roads – the N17 from Springs to Ermelo and the R30 from Bloemfontein to Kroonstad – are already being built, while six more are under consideration.

The services that run on the country’s roads are also benefiting from investment. Since 2009, the Rea Vaya bus rapid transit network has been plying the streets of Johannesburg. Two phases have been developed so far and more are planned. The long-term aim is to develop a 330km route network, reaching more than 80 per cent of the city’s residents. The city of Rustenburg, in North West Province, is also developing RRT, a rapid transport system, which aims to provide services from the end of the financial year

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The Port of Cape Town is being expanded as part of Transnet’s programme to upgrade and expand facilities at most of its sites across South Africa

in 2016. In Cape Town, the authorities have been putting the MyCiTi transit system in place, while a rapid transit system known as A Re Yeng is made its debut in November 2014 in the City of Tshwane.

The benefits of these improvements should be felt throughout South Africa’s economy. Speaking at the launch of Transport Month in October 2013, Transport Minister Dipuo Peters described the growth of bus rapid transport systems as “a catalyst for urban regeneration, reconnecting isolated nodes and bringing disconnected communities closer to economic opportunities”. The same could be said in respect of the transport network as a whole. The range of improvements that are currently being made to the national passenger and freight rail systems, as well as the ports and airports, should benefit the wider economy in the coming years.

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Saab: Your helping hand in Africa “If it can be imagined, it can be done” Anne Lewis-Olsson Vice President Communication, Africa Saab

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A conflict-free Africa by 2020 is a tall order, but by working together and by taking into consideration the African Union’s goals and objectives, we can strive to achieve a vision that would change the lives of millions.

For Saab, as a defence and security company, our focus is keeping people, communities, societies and nations safe through long-term partnerships that provide innovative defence, security and support solutions that identify and address changing threats.

Our view on how to make society safer changed dramatically following the events that shook society after the turn of the millennium. We realised that modern-day threats tend to be less obvious than before and are constantly changing. We also learned that societies need to react and respond to situations more rapidly and with more agility to become more effective.

Today, Saab is present in Somalia, with a number of employees carrying out third-party maintenance for the United Nations. The personnel lives

in a Saab camp within the UN perimeter. Saab can also provide support through integrated mobile field facility infrastructure turnkey solutions, whether the requirements are part of peacekeeping missions, national border security, search and rescue, or air transportation with the Saab 340 and Saab 2000 aircraft. Saab is able to design and provide capable and costeffective field infrastructure specific to Africa’s needs. Our modular solution designs are adaptable and suitable for multiple purposes, including the provision of accommodation, medical life support facilities, communication, security, as well as maintenance services. It therefore provides the full solution for a peacekeeping mission.

Saab’s training and simulation facilities offer police, coastguards, military and non-governmental organisations working in disaster management the opportunity to train together in a multinational context, which is key to ensuring a successful peacekeeping operation.

Saab offers industrial cooperation and empowers communities by contributing to increasing local employment, education and social economic development. In the long run, they will create tangible results in the form of established capabilities,

skills injection and secondary industrial effects, such as supplier development, local procurement and, eventually, export. The long-term approach is also key to building a defence capability that can withstand the test of time and secure a safer continent over the coming years.

As a builder and provider of defence capability for sovereign governments on the continent, Saab has made large investments in local industrial and technical capabilities and has also invested heavily in the people of the countries on the African continent, where it has had a long-term involvement. Africa will only prosper and grow – and its foundation for the future will only be stable – if partners and investors are properly rooted on the continent. Saab stands ready to support the AU and the UN in peacekeeping and humanitarian missions by providing a broad range of products and services on a worldwide basis.

E: hakan.ekvall@saabgroup.com

INVESTMENT OPPORTUNITIES: CONSTRUCTION AND INFRASTRUCTURE

Thulas Nxesi Minister of Public Works

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ome to one of the most advanced construction sectors on the African continent, South Africa is making great strides in establishing world-class infrastructure. Underpinned by the strength of our economy, we will continue to develop the industry, support both domestic and foreign construction firms operating in South Africa, and expand connectivity by upgrading old and establishing new infrastructure.

Improving South Africa’s infrastructure is central to the country’s future development. In order to have the means available to provide basic services such as electricity, water, sanitation and transportation, we will be launching projects intended to upgrade our infrastructure, as well as implementing entirely new projects. By enhancing connectivity for these sectors, we are aiming to diversify short-, medium- and long-term

A construction site in Sandton, Johannesburg. Projects are being launched across the

DOUGLAS HOLDER/GETTY IMAGES

country to improve South Africa’s infrastructure and meet rising demand for services

development options. Improving networks also contributes to one of my department’s priority areas: the creation of six million employment opportunities for poor and unemployed people.

To achieve this, we are launching a number of job-creation programmes and delivering public services and infrastructure that enable people to enter work.

With more people living in urban areas, we are seeing a parallel rise in demand for reliable services and infrastructure, and we are welcoming investment to deliver on these needs. We need to expand capacity in economic and logistical infrastructure to safeguard the South African economy, and we expect that the prioritisation of important strategic infrastructure projects will have a positive impact on the perception of potential investors to our country.

An infrastructure fund with our fellow BRICS nations that will provide capital for infrastructure projects is being considered, and we have introduced multiple proposals and programmes aimed at generating funds to inject into beneficial public projects.

These processes are ongoing, but I am confident that the future of South Africa’s public works is bright. As we continue working in these areas, we can build social capital, raise employment rates and elevate living standards across the country.

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INTERVIEW

Unlocking Africa’s economic potential Gilberto Rodrigues CEO, Mota-Engil Africa

On 24 November, Mota-Engil Africa floated on the Euronext stock exchange in Amsterdam. The listing, which put the market capitalisation of the company at a little less than €1.2 billion ($1.4 billion), marked the beginning of a new stage in the evolution of the largest division in Portugal’s biggest construction group.

The flotation also provided further evidence of the emergence of Africa’s construction sector as one the fastest-growing markets in the world, and of the increasing importance of MotaEngil Africa within it. Gilberto Rodrigues, Chief Executive Officer of the company, says the listing is the result of a plan that was put in place four years ago.

“What we are doing now is harvesting the fruits of that strategy,” he says. “First and foremost, we’ve been able to tackle larger projects; secondly, we’ve been able to expand from six to 11 countries and into new industrial sectors; thirdly, we’ve been

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The company is well placed to work with all the African economies that are growing at upwards of seven per cent a year better able to manage our capital and improve the efficiency of our operations, and this created a better performance for clients in the private sector.

“We want to move up the value chain, by which I mean we want to be closer to the developer, so that rather than working as a normal contractor, we want to be more of an engineering, procurement, construction company. And as African governments become more sophisticated in their procurement, we expect to handle more PPP projects.”

One project that brings together all the strands in this growth strategy is the $3.5 billion deal Mota-Engil Africa struck in June with Sundance Resources, the Australian mine operator that is developing the Mbalam-Nabeba iron ore scheme in Cameroon and the Republic of Congo. The deal involves designing and building a 510 km railway from the Cameroon mine to the port of Lolabe, as well as a 70 km rail spur line to its sister facility in the Congo. Mota-Engil Africa will also design and build a

deep-water port terminal capable of handling 400,000-tonne China-max vessels.

Rodrigues says this kind of scheme is key to unlocking the economic potential of African countries. “The first thing you have to build is roads because people have to be able to move, but in terms of sustainable growth, energy is paramount: you need it to develop industry and that creates employment. I’m not just talking about the massive opportunities in minerals and oil and gas, I’m talking about developing a balanced economy, and for that you need to have energy.”

On the subject of employment, Mota-Engil Africa stresses its roots in the continent. Although its head office is now located in Johannesburg, it began life as an Angolan timber company in 1946, and 68 years later it employs 14,500 Africans and only 1,000 expatriates. As part of that engagement, the company undertakes a lot of social responsibility projects, such as donating ambulances and medicine to hospitals and supporting church organisations that look after children. It also plays a large part in developing the human capital of the countries where it works. Rodrigues says: “It’s part of our strength to use and promote local resources, to engage local engineers and economists and accountants and all kinds of tradespeople, to motivate and make them believe in the company. We are here to stay and we need staff that can tackle any kind of challenge.”

This combination of local understanding and long experience means that dealing with the logistical challenges of working off-road and off-grid have become normal. And it means that the company is well placed to work with all the African economies that are growing at upwards of seven per cent a year, and that will be spending a high percentage of their national budgets on infrastructure.

However, the company’s fortunes are not tied to national infrastructure schemes. Indeed, 70 per cent of its clients are in the private sector, and the aim is to prioritise those countries with economic activities that are driving the national economy, which in the immediate future means oil and gas. Rodrigues says he has set the target of increasing turnover from its present level of $1.4 billion to $3 billion by 2017. Given the company’s position and expertise, it seems a reasonable ambition.

www.mota-engil.pt

INVESTMENT OPPORTUNITIES: MANUFACTURING

VOLKSWAGEN SOUTH AFRICA/MEDIA CLUB SOUTH AFRICA

Engine of growth

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INVESTMENT OPPORTUNITIES: MANUFACTURING

A diverse manufacturing base is key to South Africa’s transformation into an advanced economy. The government is investing heavily in infrastructure in order to drive progress and to strengthen the country’s economic position in Africa, writes Ruari McCallion

S

outh Africa has the second-largest economy on the continent measured by gross domestic product (GDP), as well as one of the highest per capita rates for GDP, so it is not surprising that it has the largest manufacturing sector. What sets South Africa’s industry apart from that of the rest of the continent is its diversity. Many other countries in Africa rely heavily on one particular segment – for example, oil and gas support, metals and minerals or agricultural servicing. South Africa has all of these and much more besides. It is the engineering powerhouse of Africa and well positioned to develop its local industry and export connections – which may come as a surprise for those who look at the map from a purely northern-hemisphere perspective.

South Africa is located on major global maritime trade routes, from South Asia to the Middle East and the Far East to Europe, as well as the more obvious connections with Australia and South America.

Innovation and investment

The Volkswagen plant in Uitenhage is the largest car factory in South Africa.

The automotive sector is becoming an increasingly important part of the manufacturing industry

INVEST IN SOUTH AFRICA 2015

The country’s manufacturing base has developed significantly since the 1920s, when state corporations were established to generate electricity and produce steel. South African scientists and engineers from Sasol refined the technology for creating synthetic fuel, in which synthetic oil and gas are extracted from coal through a gasification process that also produces ammonia, pitch, alcohol and paraffin. Sasol is one of the world’s leading coal-to-liquid fuel producers.

Engineering and manufacturing continue to be based mainly in the Eastern and Western Cape provinces, Mpumulanga province, and in the industrial area around Johannesburg. Historically, a lot of the country’s industry was geared towards domestic needs, such as the requirements of the mining and minerals sectors. For example, its output of iron and steel up to the 1990s was approximately one per cent of the world’s total and easily enough to satisfy its own internal market. However, things have changed a great deal over the past two decades and South Africa now has flourishing automotive, chemicals, metals, textiles, clothing and footwear, and packaging sectors, with companies such as Siemens and Nampak well represented. The country is looking outwards, to export to its neighbours and across the world.

The automotive segment (see box on page 73) is rapidly becoming a leading and valuable element

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INVESTMENT OPPORTUNITIES: MANUFACTURING

of the country’s manufacturing sector, while the longer-established metals industry represented a fifth of manufacturing as a whole in 2012, according to a recent report by Deloitte. South Africa’s manufacturing output is increasingly technology intensive, with high-tech manufacturing sectors – such as machinery and scientific equipment, as well as motor vehicles – enjoying a growing share.

However, it has also been observed that some of the country’s factories look like museums of old-time production methods; a lot of machinery is indeed overdue for replacement.

Upgrading and incentivising The need for improved productivity is recognised as urgent. As a result, South Africa’s Department for Trade and Industry (DTI) has established a programme of incentives, grants and loans to support growth and promote competitiveness. These come under the Manufacturing Investment Programme, which

INVEST IN SOUTH AFRICA 2015

The factory floor of Hip Hop, a fashion label located in Cape Town.

The textiles and clothing industry is receiving particular attention from the government

was introduced in 2008, and, more recently, the Manufacturing Competitiveness Enhancement Programme (MCEP). According to the DTI’s website, the latter is intended to encourage manufacturers to “upgrade their production facilities in a manner that sustains employment and maximises value-addition in the short to medium term”. It is comprised of two sub-programmes: Production Incentive, which is the largest component, and Industrial Financing and Loan facilities. These are managed by the DTI and the Industrial Development Corporation, respectively.

The Production Incentive sub-programme offers support to companies for capital investment; green technology and resource efficiency improvement; feasibility studies; enterprise-level competitiveness improvement; and cluster interventions.

Industrial Financing and Loan facilities are under two headings: the Working Capital Facility and the Industrial Policy Niche Projects Fund. The former offers working capital of a maximum of R30 million

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INVESTMENT OPPORTUNITIES: MANUFACTURING

South Africa’s automotive sector has been identified as one of the country’s most important industries. It is also growing rapidly; in 2010 it represented almost six per cent of the country’s GDP, and the 271,000 vehicles reported to have been shipped to other countries accounted for 12 per cent of South Africa’s manufactured exports.

The automotive sector is a major employer; more than 300,000 South Africans earn their living by working within it. Most – around 200,000 – are employed in retail and aftermarket roles; 28,000 work directly for original equipment manufacturers; and a growing number – more than 65,000 – are employed in component manufacturing. Around 7,000 work in tyre manufacturing.

Major car manufacturers with bases in South Africa include BMW, Ford, General Motors, Mercedes-Benz and Volkswagen.

Heavy commercial vehicle manufacturers include Iveco, Isuzu Trucks and MAN.

The component industry is key to the successful development of South Africa’s automotive sector, especially its embedded value.

If components are imported from abroad, the value they represent remains elsewhere, which also represents cost and inflexibility.

There are around 200 component manufacturers in South Africa, including Arvin Exhaust, Bloxwich Industries and Corning. Catalytic converters have traditionally been the country’s main export item, but other parts include engines, silencers, radiators and exhausts.

Having identified the automotive industry as a chief driver of prosperity for the country, the Government of South Africa has created initiatives specifically designed to encourage its growth and to attract foreign direct investment (FDI). The Automotive Production and Development Programme is designed to boost production to 1.2 million vehicles per year by 2020, and to strengthen and deepen the local component industry. The

© COPYRIGHT BMW AG, MUNICH (GERMANY)

The key to growth: South Africa’s automotive industry

BMW is one of the major car companies established in South Africa. The automotive sector employs more than 300,000 in a range of roles, from sales to component manufacturing

plan includes fiscal incentives: the Local Assembly Allowance (LAA) will allow vehicle manufacturers with a plant volume of at least 50,000 units per annum to import a percentage of their components duty free.

There is also support available to help increase the levels of local added value.

($2.5 million) for a period of up to four years, at a preferential fixed interest rate of six per cent. The latter supports projects that have been identified by the DTI and other government agencies as focusing on new areas, not covered by other programmes, with the potential for job creation, diversification of manufacturing output and contribution to exports.

Textiles and clothing is an area receiving particular attention, in the hope that it will be revived in the face of competition from Asia.

Education, training and skills Investment in skills is also needed. “We have a better skills base [than] the rest of the continent,” says Sinethemba Zonke, a consultant with africapractice.

That is a good foundation, but the South African Government recognises that there are deficiencies, and is investing heavily in education and training.

Among the initiatives Zonke highlights are the SETAs – Sector Education and Training Authorities – which

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The metals industry represented

1/5

of manufacturing in 2012

There are challenges to the growth of the automotive industry, such as skills levels, but these are being addressed in a structured way. South Africa is already the largest automotive manufacturer in Africa. The experience of other countries suggests that this will help lift the entire economy, as it grows stronger.

have been under the control of the Department of Higher Education and Training since 2009. The main targets of this initiative are school leavers and those seeking to relearn or enhance their skills. South Africa may have to deal with the challenge of too much of its engineering plant being antiquated, but this could also prove to be an opportunity, because it offers a chance to skip several evolutionary stages straight into the 21st century. And even an automated facility requires skilled operatives.

“Automation is happening all over the world, but there is still the requirement for a well-educated workforce,” Zonke says. Modern practices such as lean manufacturing and six sigma are increasingly found across all industries.

“South Africa has the infrastructure, in the shape of modern and renewed ports and rail,” he concludes.

“The government is hoping, by unleashing the resources and developing the skills of the people, to unleash the potential of the country.”

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INVESTMENT OPPORTUNITIES: SCIENCE AND TECHNOLOGY

MIKE HUTCHINGS/REUTERS

Incentives for innovation

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INVESTMENT OPPORTUNITIES: SCIENCE AND TECHNOLOGY

Adequate support for science and technology is needed for South Africa to continue its history of discoveries in this field. Anna Demming charts the potential areas for specialisation, and the programmes and funding available

“S

outh Africa’s prospects for improved competitiveness and economic growth rely, to a great degree, on science and technology,” stated the Department of Science and Technology (DST) in 2008 when the Innovation Towards a Knowledge-Based Economy 10-year plan was first outlined. Today, the government continues to pursue strategies to shift from a primarily resource-based to a knowledge-based economy.

The country has an impressive legacy for science and technology inventions, which include the world’s first digital laser; the first full-body X-ray scanner; the CAT scan; the speed guns used in sport; and solar cells that use a cheaper metal alloy, which is thinner than products currently on the market. Recent joint Nobel Prize winners in the physical sciences include Sydney Brenner (2002) for “discoveries concerning genetic regulation of organ development and programmed cell death” in the physiology or medicine category, and Michael Levitt (2013) for “the development of multiscale models for complex chemical systems” in the chemistry category.

After several years of decline in research and development (R&D), investment measures are now in place to reverse this trend. A national survey released

by DST in April 2014 reported that the total spending on R&D was R22.2 billion ($1.8 billion) in 2011/12, which is around 0.76 per cent of the country’s GDP. Then Science and Technology Minister Derek Hanekom was reported as saying: “We anticipate that we are turning the corner and starting to increase the level of investment in R&D once again in South Africa.”

Government support Alongside government funding, financial incentives are in place to stimulate investments from the private sector. In 2006, DST introduced a 150 per cent tax break on operational R&D expenditure for companies undertaking scientific and technological R&D. The administration of this financial incentive was improved in October 2012 through implementing pre-approval for expenditure that would qualify. The government has other direct funding support programmes too, in the form of matching grants to industry and public The South African site of the Square Kilometre Array, near Carnarvon in the Northern Cape province. This international project aims to help answer major scientific questions, for example how the universe came into being

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INVESTMENT OPPORTUNITIES: SCIENCE AND TECHNOLOGY

South Africa’s Bio-economy Strategy: the roles of different stakeholders

Governance and strategic oversight

Implementation and operational support

Industrialisation and economic development

Government departments

All stakeholders

Venture capital Industrial partners PPPs Entrepreneurs Markets CBOs

Implementing agencies Research councils Higher-education institutions Community-based organisations (CBOs) Public-private partnerships (PPPs)

• Generate knowledge and develop • Policy development and advocacy • Facilitate and coordinate integration of implementation plans • Support and regulate research, development and innovation (RDI) competencies and programmes

new technologies

• Pilot scale-up, industrialisation

• Develop and implement RDI

and commercialisation

competencies and programmes • Generate new products and processes • Human capital development (HCD),

• Support of SMEs/SMMEs (small, medium and micro-sized enterprises) • HCD and job creation

technology transfer and job creation • Community engagement and beneficiation

• Community beneficiation

• Technology demonstration/pilot

agency funding. There are also other kinds of support besides funding. The Technology Innovation Agency helps commercialise mature technologies with the aid of government funding, and the National Intellectual Property Management Office offers advice and guidance for managing and exploiting intellectual property arising from public funding.

DST also nurtures links between universities and industry with calls for applications for funded projects on research identified in the private sector.

In addition, partnerships are fostered between industry and most universities, such as the Nelson Mandela Metropolitan University, so that students work on real-life research problems posed by private companies, ranging from technology challenges in mining, to genomics for forestry and food preservation.

Focus subjects In 2008, the 10-year innovation plan outlined five ‘grand challenges’ to focus on: the ‘farmer to pharma’ value chain to strengthen the bio-economy; space science and technology; energy security; human and

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Source: Department of Science & Technology, South Africa

The Bio-economy Strategy

social dynamics; and global-change science with a focus on climate change. Many of the key R&D topics in South Africa fall in line with these five challenges.

Activity is also high in advanced manufacturing, ICT (information and communications technology) and advanced mineralogy to add value to the country’s wealth of mined resources, ranging from diamonds for gemstones to palladium for catalysts.

Imraan Patel, Deputy Director General for Socio-Economic Innovation Partnerships, describes some of the reasons behind the focus on various areas.

“Bioeconomy was identified 10-15 years ago as an area that needs to be focused on – it’s also a growth area internationally,” he explains.

Patel also points out that South Africa is the third most biodiverse country in the world, while strong indigenous knowledge and capabilities in subjects neglected elsewhere – certain diseases,

After several years of decline in R&D, investment measures are now in place to reverse this trend

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INVESTMENT OPPORTUNITIES: SCIENCE AND TECHNOLOGY

agricultural stresses and characteristics identified in foresight studies – provide a further advantage.

South African research contributes significantly to developments in genomics, HIV and cell biology, with many of the top cited papers in these areas originating from researchers in South Africa.

The country aims to grow bio-economic activity to five per cent of the economy, focusing on health, industry (such as catalysts for biofuels) and agriculture (such as ultra-resistant crops).

South Africa’s location at the southern tip of the continent makes it a useful point from which to track satellites for organisations such as NASA. Patel describes two aspects of the country’s space science and technology programme: “There are the manufacturing opportunities – as lots of engineering and technology goes into these projects and we work with lots of partners in that. And there’s the R&D for the cameras in the satellites and so on.”

South Africa’s use of satellite images for crop and disaster management provided an incentive for further investment in the sector, resulting in today’s state-of-the-art satellite imaging programme, which produces image data with a very high level of detail.

By contrast, says Patel: “There is... no incentive for other countries to provide data at the level of detail and granularity that we need.” DST was able to help a spin-off company from Stellenbosch University, SunSpace, which was starting out in this area but experiencing financial difficulties.

There can be a tendency for developing countries with fast-growing economies to heavily bias funding

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South Africa has made significant contributions to research in specialist areas of science, such as genomics and cell biology

towards applied R&D, which seems to promise a more immediate economic return than basic science.

These types of funding models often face criticism for weakening the research landscape.

Patel emphasises the efforts to provide balanced support for applied and basic science. He also points out that some big projects are difficult to categorise as either, citing the Square Kilometre Array, a flagship element of the space science programme. Although the primary aim to identify how the universe arose constitutes basic science, implementing the project poses weighty applied R&D, technology and engineering challenges.

Science parks Founded in 2001, the Innovation Hub in Gauteng is the first internationally accredited science park in Africa. It provides a local knowledge-intensive community that promotes a culture of innovation, while the close proximity of companies aims to encourage collaboration and cross-fertilisation, as well as stimulating professional competitiveness. Sectors prominent among the companies in the Innovation Hub include ICT, biosciences and green technologies.

Even before the Innovation Hub, South Africa was embracing the science park model; Professor Christo Viljoen, then Dean of the Faculty of Engineering at Stellenbosch University, put down a proposal for a Technopark in 1985. The result was Stellenbosch Technopark, which has a wellestablished and highly sophisticated business infrastructure. It offers incubation space for

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INVESTMENT OPPORTUNITIES: SCIENCE AND TECHNOLOGY

Grace Naledi Mandisa Pandor Minister of Science and Technology

S

outh Africa’s science and technology sector is expanding and becoming an increasingly vital part of our economy, revolutionising the method by which our goods and services are produced and traded. To build on the global presence of South African industry, we need to leverage these valuable areas – an especially important objective as we move away from dependency on our resources towards becoming a knowledgebased society. We are Africa’s most advanced economy, and science and technology play a core role in upholding this status. It is important that we invest in human capital that will contribute to innovation, through education, building and maintaining a skilled workforce, and fostering a fertile environment for the generation of new ideas.

Within education, we need a strong university system that contributes to a vibrant and dynamic higher education sector bound to South Africa’s science and technology needs. There is a long way to go, but we are making promising progress – with the government attaching scholarships to education programmes, it is timely to ensure that institutions have the capacity to absorb

some of Stellenbosch University’s spin-off companies and a range of high-tech commercial institutions, in particular agro-food, energy, healthcare and medicine, advanced engineering (mining technology and mineral processing), and ICT (software development).

Talks are currently under way with China to collaborate in a new science and technology industrial park in South Africa in order to stimulate high-tech manufacturing industries. South Africa is already home to five other science parks, including: Coega Technology Park in Port Elizabeth, which focuses on advanced engineering, automotive component manufacture and banking ICT; Softline Technology Park in Sandton, which accommodates primarily IT businesses; and Highveld Techno Park near Johannesburg, which concentrates mainly on advanced engineering, electronics and ICT, business development, support services and statistics.

our scientists and technology experts. To harness innovation and nurture the knowledge and skills of South Africans, the government has set a target of 100,000 additional PhDs by 2030 in the National Development Plan. We hope that this, and other such moves, will encourage advancements and improve research and development across all industries. Commissioning research at the doctoral level is crucial for developing the technological innovations that will attract greater levels of foreign direct investment and grow our economy.

Support for our scientists is central to enhancing the science and technology sector, and we are dedicated to fostering conditions that are conducive to scientific and technological enterprises. South Africa recently launched its first accelerator mass spectrometry laboratory, which our scientists will use to conduct valuable research in areas such as cancer research and climate change.

South Africa has the resources and capacity to be globally competitive in the science and technology arenas. What we need to do now is enhance our current partnerships and form new ones to expand institution building. This will ensure that South Africa’s vast pool of talent is absorbed into the economy, contributing to domestic growth and giving us an internationally competitive advantage across economic sectors.

On top of private and public contributions to

Collaborations and foreign investment On top of private and public contributions to R&D spending, as much as 12-15 per cent comes from foreign investments. As one of the BRICS nations, alongside Brazil, Russia, India and China, South Africa is one of the five emerging economies likely to make a significant impact in the global arena.

Of these five, Brazil, India and South Africa, as

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R&D spending, as much as

15%

comes from foreign investments

the southern hemisphere members, have formed a programme called Cooperation in Science, Technology and Innovation. The three countries set aside a portion of their budgets specifically for the projects of scientists collaborating in the member states. South Africa’s recent engagement with EUREKA, a network of 40 countries in Europe, has strengthened links with that continent as well. “Joining the EUREKA network signals an important trend where cooperation with Europe is moving beyond research cooperation to technology-development cooperation between companies in South Africa and Europe,” Patel points out. Over the past 20 years, South Africa has also signed agreements for cooperation in science and technology with several countries in Africa, Europe, Asia, North and South America, and Australia.

Several of the big science and technology multinationals – including IBM, a consulting and technology corporation originating from the United States, and Cisco, an ICT company of US origin – have already demonstrated significant interest in South Africa, and many more are in discussions to build R&D labs, such as Hisense, a Chinese electronics company. “We are building on our strengths,” says Patel. “Companies come to South Africa and see the capabilities in terms of indigenous knowledge and interaction with communities.”

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The Orlando Pirates Learning Centre supported by Acer has also made the facility available to teachers and adults to enable them improve their IT Literacy skills too.

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Maths pre & post testing 2013 High school

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Acer Africa (Pty) Ltd Block A, Metropolitan Office Park 82 Wessel Road, Rivonia T: (+27) 011 233 6100 www.acer.co.za

© 2014 Acer Inc. All rights reserved. Acer and the Acer logo are registered trademarks of Acer Inc. Other trademarks, registered trademarks, and/or service marks, indicated or otherwise, are the property of their respective owners. All brands and product names mentioned herein include trademarks of their respective companies and are used solely to describe or identify the products

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INVESTMENT OPPORTUNITIES: ICT

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INVESTMENT OPPORTUNITIES: ICT

Unlocking the potential of the internet economy Access to information and communications technology in South Africa is on the up, providing the potential to bolster innovation. Pamela Whitby charts how far the country has come, and where challenges remain

L The Telkom Joburg Tower in Johannesburg is owned by the South African communications services provider. The country’s ICT sector has seen significant investment of late

ess than a decade ago, internet access in South Africa was patchy and slow, as well as being more expensive than in most other countries. “When we launched here, this was an appalling operating environment for an e-commerce player,” says Stephan Ekbergh, a Swedish entrepreneur who set up a base for his online travel agency, Travelstart, in Cape Town in 2006.

Though by no means perfect, today the situation is quite different, thanks to a number of factors. For one, since 1993, the South African Government has made investment in information and communications technology (ICT) a fundamental policy goal. Given the diverse nature of the sector – which, in South Africa, spans broadcasting, postal services, telecoms and IT – that hasn’t always been easy. One of the major challenges to ICT investment has been the fact that

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each sector in South Africa is governed by its own legislative and regulatory particularities. Recognising this as a limitation, and the need to establish an enabling policy environment, the country has looked to other emerging markets, such as Brazil, China, Malaysia and India, for guidance. Although the sector remains a work in progress, these efforts are paying off, with significant investment in ICT coming from both local and international players.

The country is also finalising a White Paper on Integrated Nation ICT policy, paving the way for the modernisation of the sector. The policy is expected to be ready by the middle of this year.

Boosting capacity According to research firm BMI-T, over the past two decades cumulative capital expenditure in mobile and fixed networks in South Africa reached R132.4 billion ($11 billion) and R101.8 billion ($8.5 billion) respectively. Notable foreign direct investments have included Vodafone UK’s investment in Vodacom, Indian group Tata’s in Neotel, the Japanese NTT Group’s in Dimension Data and Saudi Oger’s in Cell C. The 2010 FIFA World Cup, which required substantial multimedia resources, provided another boost. The

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INVESTMENT OPPORTUNITIES: ICT

result is that prices have fallen, new data bundles and packages have emerged and, with connections to the world via five submarine cables, South Africa now has access to multiple terabytes of bandwidth.

“It’s no longer a question of inadequate capacity.

We’ve got more capacity on our eastern and western seaboard than we could ever utilise,” says Stafford Masie, a South African technology entrepreneur who, in 2009, left his role as Google’s first country manager to launch Thumbzup. In partnership with local bank ABSA, the firm’s plug-in solution, the Payment Pebble, converts a mobile device into a platform to accept credit and debit card payments.

Innovating for the African environment is what excites entrepreneurs like Masie – and there are many like him in South Africa. Joe Botha, a tech entrepreneur who, in 2012, was named one of the notable 200 Young South Africans by the Mail & Guardian newspaper, says that examples to follow could be Start Up Chile and the United Kingdom’s Seed Enterprise Investment Scheme.

Yet innovation continues to flourish. This has been particularly evident in the banking arena, with First National Bank (FNB) having been named the world’s most innovative bank in 2012. “I don’t see banks doing what we [in South Africa] are doing anywhere else in the world,” says Masie. “I mean, we have real-time identification engines, real-time mobile apps that run off different platforms, which just isn’t the case in the US.” In fact, today, the line between what constitutes a bank or a telco is increasingly blurred, and this is a theme that is playing out across the continent.

David Bikhado Ofungi, founder and chief executive of Dero Capital, believes migration to digital channels has provided tangible benefits to the consumer, but there is still room for innovation because, to date, it’s mostly been a case of migrating rigid products from physical branch to phone or PC. “True transformation of financial services will happen when there is a concurrent increase in return on savings and reduction in the cost of borrowing,” he says.

Challenges and opportunities Yes, ICT has facilitated change, but there remain terrestrial challenges that Masie says require urgent attention. Among these are a need for: greater publicand private-sector investment in national backhaul links (connections to sub-networks); a deeper understanding of the economics of South Africa’s darkfibre (unlit fibre-optic cable) assets; faster allocation of the radio spectrum; and, given the problems associated with the legacy of copper infrastructure (slow connectivity, and targeting by copper thieves), local loop unbundling (opening up local networks to multiple operators) and better last-mile connectivity.

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Catering to the needs of South Africa’s diverse kaleidoscope of people presents another challenge to innovation. “There are those who aren’t connected, there are those who are connected but not literate, [there are] those that are connected and literate but not using technology to its full potential, and then there are the highly tech savvy,” he says.

With challenge, however, comes opportunity, so where are the big breaks going to be? For Ekberg, who believes that the future is e-commerce, the biggest investments have to be in infrastructure. “For a progressive country, this is a no-brainer,” he says.

The Department of Telecommunications and Postal Services (DTPS) certainly sees the ‘internet economy’ – which today contributes just two per cent to GDP – as one of the new building blocks of the South African economy. This internet industry is forecast to rise to 2.5 per cent by 2016 and, in time, is expected to match the construction sector, which boosted the country’s coffers by an estimated R120 billion ($10 billion) in 2011.

But there is still a way to go to meet the objectives of South Africa Connect, the country’s national broadband plan, with its stated aim of a “seamless information infrastructure” by 2030.

According to The State of Broadband 2013: Universalizing Broadband, a report by the UN Broadband Commission, just over a quarter of households enjoy internet access. While 2.2 out of every 100 people enjoy fixed-broadband subscriptions, well below the global average of 9.1, there has been more progress with mobile broadband, where penetration rates are above the global average of 22, with 26 in every 100 people connected.

The lack of competition in South Africa may be infuriating on many levels, but, for new entrants, it’s an advantage because it means that customer

Private participation in South Africa Private investment in telecommunications infrastructure projects ($ billion) 2.5

2.0

1.5

1.0 2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: the World Bank: Private Participation in Infrastructure Project Database

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INVESTMENT OPPORTUNITIES: ICT

Faith Muthambi Minister of Communications

S

outh Africa has long been considered a centre for information and communications technology (ICT) development, and many of the world’s biggest companies in this field – including Microsoft, Hewlett-Packard and IBM – maintain a strong presence in the country.

As Minister of Communications, my first task is to stabilise and solidify the new national communication strategy. This encompasses the establishment of the Department of Communications and the dissolution of the Government Communications and Information System (GCIS), with the new department combining the GCIS with other corporations under one ministry with a common purpose.

Going forward, a key aim is to increase public awareness of government work and the benefits it delivers. We have allocated just over 63 per cent of our funds to medium-term objectives, which include implementing stakeholder management programmes and achieving greater administration and governmental coordination. Part of this spending will go to the

acquisition costs remain low. “Most people in South Africa see their relationship with businesses as a one-night stand,” says Ekberg, who found that, by treating customers with respect and delivering an outstanding – but not necessarily the cheapest – service, he would be rewarded with loyalty.

The same is true for employees. “If you treat people well, provide training and give them a career path, then you will have a committed, loyal and service-driven team,” says Ekberg, whose yearly staff turnover has not yet hit double digits. This could explain why South Africa today is a popular destination for business process outsourcing (BPO), with many international players, such as Lufthansa and O2, setting up call centres in Cape Town.

On the bigger service-delivery stage, Masie points to infrastructure as a service (IAAS) or platform as a service (PAAS) as potentially the biggest investment plays. “Yes, we do have ISPs [internet service providers], and we do have neutral exchange points, but those haven’t grown up yet to be IAAS or PAAS providers,” says Masie.

Exporting innovation What he doesn’t expect to see emerging from South Africa, or indeed the African continent, is another Google, Facebook or Skype. Rather, his belief is that we’ll see “the Facebook of healthcare, the Google of

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monthly Vuk’uzenzele newspaper, which highlights government programmes and achievements in 11 official languages. The department is also responsible for the South African Broadcasting Corporation (SABC), the public broadcaster; the Media Development & Diversity Agency (MDDA), which works to broaden access to the media; Brand South Africa, which promotes South Africa through a proactive marketing and communication strategy; and contentclassification authority the Film and Publication Board (FPB).

Improving connectivity across South Africa is crucial to the country’s continued development. We have allocated R21.8 million ($1.8 million) to deliver information and communications technology services to disadvantaged communities, and we have plans to implement more than 6,500 development communication projects in the medium term.

In order to remain globally competitive, improvement is needed in mobile and fixed-line broadband speeds and broadband adoption rates, particularly outside of large urban areas.

My vision for our communications future is an environment characterised by a strong relationship between the government, media and service providers, to facilitate communication between the people of South Africa and beyond its borders.

water purification, the Skype of agriculture”. Against this backdrop, firms need to be focused on finding tangible solutions to address human issues that could be applied globally – this is where it gets interesting. “Investors shouldn’t only be thinking about what they can bring here; they should be thinking about what they can replicate from here and export elsewhere,” Masie says. Not forgetting the wider African and emerging-market story, Travelstart has used the experience gleaned from its Cape Town base as an example for venturing into the rest of Africa and other emerging markets.

A further challenge – and potential opportunity – is the dearth of physical data centres on the continent. “If somebody sends an email via Gmail in South Africa today, that packet travels up a seaboard and is either hitting Marseille or Lisbon or switching through London and then coming all the way back down,” he says.

So is there an opportunity to create a true content-distribution network that would allow for a caching service of some kind for big multinational vendors? Masie thinks so and believes this would “unlock enormous potential in Africa”.

Not everything has been figured out yet, but the genie is out of the bottle for ICT in Africa: the capacity exists, the government is making the right moves – and the private sector is joining the party.

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INVESTMENT OPPORTUNITIES: FOOD AND AGRICULTURE

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INVESTMENT OPPORTUNITIES: FOOD AND AGRICULTURE

Leading the way in Africa’s agribusiness With the most advanced agribusiness sector on the continent, South Africa offers an environment in which existing participants can expand operations and would-be investors can explore new ventures, writes Pamela Whitby

Sprawling vineyards near Stellenbosch in the Western Cape. South Africa’s agribusiness sector is a net exporter, with wine exports to China recording a 34 per cent increase between 2009 and 2012

O

n a misty winter morning, hundreds of trucks are backed up the hill that descends into Pietermaritzburg, KwaZulu-Natal’s capital.

It is the last leg of the journey on the N3 toll route, connecting the economic hub of Johannesburg with Durban, one of the busiest ports in the southern hemisphere. Many of the trucks would have started their journey in Johannesburg, while others could be carrying processed food and beverages from the factories en route for local consumption, but also for export. The household names – SABMiller, Nestlé, Shoprite, Checkers and Tiger Brands –

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splashed across the vehicles tell the story of South Africa’s advanced agribusiness sector. Unlike much of the rest of Africa, South Africa is not only self-sufficient in nearly all of its major agricultural products, but it is also a net exporter of primary food and beverage products, which includes everything from freshwater aquaculture to exotic and indigenous meats, as well as wine, nuts, herbs and fruit.

An advancing sector “South Africa has the most advanced agribusiness sector on the continent and, what is more, it compares favourably with international best practice. In fact, we are generally a net exporter of products,” explains Dr John Purchase, Chief Executive Officer of Agbiz, South Africa’s Agricultural Business Chamber, an organisation representing around 75 agribusiness companies with a presence in Southern and South Africa. From agro-processors such as Nestlé and Tiger Brands, to seed and technology suppliers such

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INVESTMENT OPPORTUNITIES: FOOD AND AGRICULTURE

as Monsanto and Syngenta, there are agribusinesses invested up and down South Africa’s value chain.

Indicating just how advanced the sector is, primary agriculture contributes just 2.5 per cent to gross domestic product (GDP). In the rest of Africa, that figure can be anything between 40 and 60 per cent.

Meanwhile, agribusiness in South Africa contributes 15 per cent to GDP, which, according to Statistics South Africa, makes it the third largest contributor to the economy within the manufacturing sector, after chemicals and metals.

Gateway to the continent According to Purchase, agro-processing opportunities across the continent represent the biggest potential market for local and multinational food companies currently operating in South Africa,

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Shoprite, Africa’s largest food retailer, attributed a recent 10.5 per cent rise in turnover to the company’s strong growth across the African continent

but also for those looking for new ventures. To highlight the point, a World Bank report indicates that, by 2030, the continent’s agribusiness sector could be worth as much as $1 trillion. But there is also a significant opportunity for commercial farming.

Today, Africa is home to around 60 per cent of the world’s uncultivated agricultural land and a large portion of its natural resources, yet it only delivers 10 per cent of the world’s food. “Africa needs processing capacity and to create value chains, and to add value in those chains,” says Purchase, noting that this kind of development requires access to finance, technology and markets.

The opportunities are clear, too, when looking from a demographic point of view. Africa has a youthful and growing population, and a rising middle class. Indeed, according to a report by the African Development

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INVESTMENT OPPORTUNITIES: FOOD AND AGRICULTURE

Senzeni Zokwana Minister of Agriculture, Forestry and Fisheries

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ur agriculture, forestry and fishery sectors are extremely diverse, producing a vast range of goods including exotic fruits, teas, wines, meat and fish. We produce some 40,000 tonnes of cotton each year and are the largest producer of mohair in the world. The export of these goods is an important part of the South African economy, and our counter-seasonality to Europe has enabled us to become and remain competitive in the global food market.

South Africa is home to a dual agricultural economy, relying on both commercial and subsistence farming. There is a strong base for our commercial sector and the majority of our agriculture sector is comprised of small, rural operations. With this in mind, it is important that we improve access to markets for smallholder

farmers by fostering an equitable, food-secure economy. My department is committed to reinvigorating our strategic value chains by promoting agro-processing. By making advances in this area, we will also create more job opportunities and be able to export larger shipments of goods. In addition to agro-processing, we have also identified aquaculture as a priority sector. In 2013, we launched an R800 million ($66 million) incentive programme for marine and freshwater aquaculture projects, which aims to stimulate investment in this largely untapped sector. Currently, South Africa contributes around one per cent of Africa’s total aquaculture production, but we hope to significantly increase this figure.

Looking to the future, I am confident that agriculture and related sectors will continue to contribute to job creation, food security and the overall long-term prosperity of South Africa.

Farming and fishing will remain vital components of our domestic economy, with some five million people directly or indirectly relying upon farming for income.

Sales in the South African retail sector 2013 sales ($ billion)

2014 sales ($ billion; estimate)

2008-13 annual growth rate

2013-18 annual growth rate (forecast)

Convenience stores

2.0

2.1

8.4%

2.7%

Discounters

0.3

0.3

19.5%

4.0%

Hypermarkets

1.9

2.0

9.1%

5.6%

Supermarkets

16.5

17.1

8.4%

4.7%

Traditional grocery markets

18.2

19.2

10.4%

4.6%

Independent small grocers

7.9

8.3

9.3%

4.6%

Grocery retailers

40.6

42.4

9.3%

4.5% Source: Euromonitor International

Bank, by 2010 the middle class had risen to nearly 350 million people – 34 per cent of the population.

In addition, with the World Bank estimating GDP growth of over five per cent in 2014, as well as per capita incomes rising, Purchase points to another opportunity: the supermarket phenomenon.

One of the most notable moves of recent times was Walmart’s majority acquisition of Massmart Holdings, a company that operates in more than 350 stores in South Africa and 11 other sub-Saharan countries.

Another example is South African supermarket chain Shoprite. It is currently Africa’s largest food retailer, with a total of 167 supermarkets operating in South

INVEST IN SOUTH AFRICA 2015

Africa, as well as operations in 14 other African countries and Indian Ocean islands. It recently announced a 10.5 per cent rise in turnover, which was attributed to strong growth across Africa.

But there is still work to do on the broader African story. While progress is being made on the Tripartite Free Trade Area agreement, which would create an integrated market across Southern and East Africa – with a combined population of almost 600 million people and a total GDP of $1 trillion – it is slow.

There are still many hindrances, such as tariff and non-tariff barriers, overcomplicated customs procedures and what Purchase calls the “spaghetti bowl of trade agreements” that crisscross each region.

The good news is that the government is committed to facilitating trade into Africa, making land more productive, creating more efficient intra-African trade and adding value in secondary and tertiary agricultural markets. All these factors are essential to food security, which underpins all other development.

While the broader African story may dominate the headlines, there are still opportunities in South Africa for food, beverage and agriculture players. Post 1994, South Africa’s black middle class grew significantly, but, since 2009, this growth has tapered off and many people still live in poverty. According to Statistics South Africa, 10.2 million live in extreme poverty and 23 million in moderate poverty. If the National Development Plan’s ambitious targets to eliminate poverty by 2030 are met, this could represent a burgeoning market in South Africa, says Robyn Collins, a food sector analyst at Renaissance Capital.

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PETER MENZEL/SCIENCE PHOTO LIBRARY

INVESTMENT OPPORTUNITIES: FOOD AND AGRICULTURE

Many opportunities exist, according to Salman Kajie, Head of Agribusiness Investment Unit at Wesgro, Cape Town and the Western Cape’s tourism, trade and investment organisation. For example, international uptake of products such as rooibos (redbush) tea and olive oil suggest that there are opportunities for value addition. “Strategic investments, from foreign and domestic sources, are being placed here,” says Kajie, “and as an indicator of investor confidence, companies with an existing footprint in the region are expanding their operations, not just to supply the local market, but also to capitalise on Africa’s robust growth.”

South Africa’s food and beverage sector is also open to investors from new and fast-growing markets

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Tea plantation workers sort through freshly picked leaves. South Africa’s tea exports include rooibos (redbush) tea, which is unique to the country

such as China. According to the Western Cape Department of Agriculture, wine exports to China increased by 34 per cent between 2009 and 2012, which could explain why Perfect (China), a maker of health foods and personal care products, recently acquired a 21-hectare wine estate in the province.

Unsurprisingly, the South African Government is committed to growth in this sector. Speaking to farmers from the United States, Russia and Portugal at an international agricultural conference in early 2014, South Africa’s then Deputy Minister of Agriculture, Forestry and Fisheries, Dr Pieter Mulder, pointed to the need for the country to create new agricultural opportunities to ensure that the sector continued to grow. While exports of agricultural

INVEST IN SOUTH AFRICA 2015

INVESTMENT OPPORTUNITIES: FOOD AND AGRICULTURE

Case study: Nestlé Corporate Affairs Director at Nestlé South Africa, which is also responsible for Botswana, Namibia, Lesotho and Swaziland, 90 per cent of the company’s products in South Africa are consumed in the region. With average capital expenditure of between R400-500 million ($33-42 million) a year, Nestlé South Africa has strong roots here, but, like many other companies in the sector,

RICHARD WAREHAM NASSEN/ALAMY

Nearly a hundred years ago, the first Nestlé products arrived on South African shores and, since then, the company has not looked back. Today, the multinational food and beverage firm has 14 factories and distribution centres across South Africa, which manufacture and distribute everything from infant milk to cereal, noodles, chocolate, coffee and iced tea. According to Ravi Pillay,

it also sees opportunities beyond South Africa’s borders.

While Pillay points out that there are challenges to address, with that comes opportunity.

“This is a very competitive sector and one of the biggest challenges we face is unblocking inefficiencies in the value chain,” he says. Today, the two biggest issues facing the company are power and water – on which food production depends – especially in the smaller towns in which they operate.

What has helped immensely, according to Pillay, is the close relationship that Nestlé enjoys with Trade and Investment South Africa (TISA), a divison of the Department of Trade and Industry, which provides investment support. “We also work closely with municipalities to ensure that our requirements are met,” he adds.

Whereas labour unrest has proved a thorny issue for other sectors, Pillay says that quarterly meetings that encourage open

products between 2012 and 2013 may have increased by 16.4 per cent, imports also rose by 12.3 per cent throughout the same period.

Two notable areas that have been identified for growth are the fast-growing sectors of aquaculture and biofuels. In 2013, for example, the Department of Trade and Industry (DTI) launched an R800 million ($66 million) incentive programme for marine and freshwater fishing projects. In addition, from October 2015, it will become mandatory for South Africa’s fuel producers to blend petrol and diesel with biofuels to encourage investment in the sector.

No easy ride There are undoubtedly opportunities in the sector, but the tricky issues of land reform and labour continue to surface. When it comes to land reform, it is a case not of when, but of how. “It’s been very important to establish more black farmers and to transform the sector with more people of colour,” says

INVEST IN SOUTH AFRICA 2015

Exports of agricultural products between 2012 and 2013 increased by

16.4%

dialogue with the Food and Allied Workers Union have helped keep productivity at high levels while maintaining good relations with its workforce. “We have a good track record of minimal worker disruptions,” he says.

Nowhere is the need for corporate social responsibility stronger than it is in South Africa, and central to the firm’s broader strategy is the desire to create shared value. Nutrition, water and rural development underpin everything the firm does, says Pillay: “The idea has been to look at the whole value chain and look at where we can add value.”

One example of this is Nestle’s global blueprint for a new type of modular factory that can be built in half the time, for around half the price of a traditional factory.

“The thinking is that, by taking factories closer to the people, Nestlé has the dual impact of reducing the price of the product costs and creating jobs in societies where unemployment is high,” he says.

Agbiz’s Purchase. While some will point to land reform and farm murders as the reasons for an ‘exodus’ of commercial farmers to other parts of Africa, Purchase is more upbeat: “Many South African farmers are diversifying their operations into other parts of Africa, in particular in Zambia and Mozambique, which has created enabling policy environments for investment.”

In the case of commercial farming, Purchase holds a strong view on the need to avert what’s been characterised as just another ‘scramble for Africa’.

“Africa needs investment, but this has to take place within certain protocols, like those developed by the Food and Agriculture Organization [of the United Nations] and the OECD [Organisation for Economic Co-operation and Development], or yes, it could just become a land grab and another form of colonisation,” he says. For Purchase, the importance of investors working to support smallholders and create value chains in the communities they enter cannot be stated strongly enough.

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King Sabata Dalindyebo TVET College Our vision is to be a leading institution that provides high-quality programmes responsive to South Africa’s socio-economic needs KSD TVET College is situated in Mthatha, the economic hub and capital of the erstwhile Transkei homeland. This area forms part of the five inland Special Economic Zones and Industrial Development Zones in the OR Tambo District on the eastern side of the Eastern Cape Province. This area is earmarked to create one of the vibrant, more competitive and productive regional economies. Geographically, Mthatha is strategically located at grid reference 31° 33’ 33,09” S and 28° 42’ 11 54” E and is the gateway to the Wild Coast.

Historically, Mthatha is the (rural) home of the former president Dr Nelson Rolihlahla Mandela. The college is located approximately 35km from his home in Qunu and 68km from his birthplace Mvezo on the banks of the Mbashe River.

The college is named after his cousin King Sabata Dalindyebo who died on 7 April 1986 and was buried in exile (Zambia) and then reburied at his home, Bumbane. The Eastern Cape Province and subsequently the OR Tambo District Municipality boast of being the ‘home of legends’ where several political stalwarts were born and bred.

■

Campus locations

KSD TVET College is one of the eight colleges in Eastern Cape Province of South Africa. It serves the greater OR Tambo District and neighbouring municipalities. It has seven campuses, namely: Mapuzi, Mthatha, and Zimbane

Campuses in the KSD Local Municipality; Libode and Mngazi campuses in the Nyandeni Local Municipality; Ngcobo Campus in the Ngcobo Local Municipality of Chris Hani District; and Ntabozuko in the Mbashe Local Municipality in Amathole District Municipality. These campuses are coordinated at the central office that gives support to the ‘core business’, which is teaching and learning.

The college curriculum can be divided into three schools, namely: Business Studies, Engineering Studies and Occupational School. The programmes offered across these schools are broad categories covering pre-grade 12, National Curriculum Vocational (NCV), post-grade 12, report 191 programmes and learnership and skills programmes.

These programmes afford students a head start for careers in the intermediate level of the country’s economy. KSD TVET College has about 8,293 students.

Preparing for the future

The college’s goal is to prepare students for employment, self-employment and articulation to higher education. The ultimate objective is to address the triple challenge of unemployment, equity and improvement of living standards. Students have an opportunity to get hands-on practical coursework at the college in workshops, simulation rooms, computer laboratories and Work Based Exposure (WBE), done with the cooperation of local businesses and industries.

In order to qualify for certification and diplomas, students have to satisfy the practical component through Work Integrated Learning (WIL) as required by the National Skills Development Strategy III (NSDS III), making the slogan ‘turning every working place into a training space’, often chanted by Minister of Higher Education Dr B E Ndzimande, a reality. The college works with several Sector Education and Training Authorities (SETAs) to achieve this objective.

King Sabata Dalindyebo TVET College also prepares engineering students for apprenticeship and artisanship programmes. To this effect, the college hosted the Eastern Cape launch of ‘2013: the Year of the Artisan’, driven from the office of deputy minister Mr M Manana with the slogan ‘It’s cool to be an artisan’.

King Sabata Dalindyebo TVET College R61 Queenstown Road, Mthatha, 5099 South Africa Key contact person: Zigqibo Kahla, Marketing and Communications Manager E: professorkahla@gmail.com T: 047 505 1000 or 076 017 5591 F: 047 536 0932 W: ksdfetcollege.edu.za

© COPYRIGHT BMW AG, MUNICH (GERMANY)

INVESTMENT OPPORTUNITIES: EDUCATION

Building an equal society South Africa’s education sector still faces major challenges, but significant progress has been made over the past two decades. Stefanie Durbin explores some ways in which the private sector can get involved

BMW’s Maths, Science and Technology Excellence Project deploys mobile laboratories across South Africa. The German car manufacturer is among the 36 per cent of Fortune 500 companies in the country rolling out training programmes to produce high-skilled workers

T

he opportunities for investors to benefit while also supporting South African society by investing in the country’s education system are plentiful, as are the short- and longterm rewards for both. The sector is now primed for injections of funding, innovation and knowledge transfer in order to take the next steps towards becoming a knowledge economy.

From 19 different education systems in 1994, South Africa now operates just one matriculation examination, and 2013 pass rates were the highest yet, at 78.2 per cent, exceeding the Department of

INVEST IN SOUTH AFRICA 2015

Basic Education’s (DBE) target. However, critics point out that those who passed the school-leavers’ exam or ‘matric’ represented only around 40 per cent of those who enrolled in grade one, and that only 12 per cent attained the scores required for entrance to university.

Students’ performance in mathematics and sciences – the building blocks of a competitive knowledge society – is especially lacking. According to the National Planning Commission, around 80 per cent of schools are underperforming.

The government points out that the current situation is partly a legacy of policies that were in

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ULRICH DOERING/ALAMY

INVESTMENT OPPORTUNITIES: EDUCATION

place during the apartheid era, and is working hard to achieve the quality that the nation demands. In 2014, the curriculum was revised to include more challenging topics, such as probability and statistics in maths classes, and the structure of examinations was changed. The country’s language compensation policy – awarding those whose first language is not English or Afrikaans additional marks, in order to compensate for not being able to write the exam in their first language – is also being phased out. This concurrent raising of standards and tightening of pass requirements is believed to have led to a slight drop, to 75.8 per cent, in the matric pass rate for 2014. However, at 403,874, the number of passes is still far higher than it was even as recently as 2009 (see chart opposite).

In order to increase the proportion of students reaching matric level in the future, the government is working to improve basic skills such as numeracy and literacy, considered the key foundational skills for successful learning. One innovation to

96

Students gather on the steps of the University of Cape Town campus. In 2013, 12 per cent of school-leavers achieved the results required for entrance to university

this end has been the introduction of the Annual National Assessment, which tests students in grades one to six and grade nine on their achievements in literacy and numeracy.

With a view to providing meaningful alternatives to the matric as well, technical education is being prioritised and developed in line with labour market needs. The National Development Plan demonstrates an increasing policy focus on Further Education and Training (FET) colleges, learnerships (which combine structured learning with practical work experience) and apprenticeships, for example.

Other initiatives and reforms include the setting up of various task teams to explore ways of improving the education system, such as the task team on maths, science and technology, and the task team on pass requirements; the consolidation of institutions of higher education; and the upgrading of standards for educators. Creating

Technical education is being developed in line with market needs

INVEST IN SOUTH AFRICA 2015

INVESTMENT OPPORTUNITIES: EDUCATION

The number of South Africans passing matriculation since 1970

500,000

439,779

450,000

403,874

400,000

334,718

350,000

283,294

300,000 250,000

191,000

200,000 150,000 100,000 50,000 0

43,000 1970

1990

more spaces in the country’s universities is also an urgent priority, but budget constraints and a lack of qualified teachers make this difficult to achieve.

While the majority of demand for school places falls on the public sector, the private sector also has a role to play. Multinational corporations (MNCs) and independent schools have been responding to educational needs by offering South Africans choice and quality for some time.

Corporations building skills Many MNCs operating in South Africa have found recruiting skilled workers a difficult assignment.

Highly skilled workers are in particular demand, and companies are often forced to import employees to fill high-skill positions. In response, approximately 36 per cent of Fortune 500 companies in the country have rolled out programmes to train and employ students in order to foster a skilled workforce, according to the Brookings Institution.

The BMW South Africa Maths, Science and Technology (MST) Excellence Project is a case in point. For more than 20 years, BMW Centres of Excellence have been deployed to participating schools around the country. The results have been encouraging. According to the vehicle manufacturer, more than 40,000 learners and 148 educators have

INVEST IN SOUTH AFRICA 2015

2000

2009

2013

2014

received training in these mobile laboratories, with the MST class of 2013 garnering 37 distinctions in maths and physical science in the matric.

The project also supports students who aspire to continue studying in information and communications technology (ICT), engineering, and commerce fields by providing bursaries for tertiary-level study. On graduation, the company offers trainee programmes at BMW and the possibility of full-time positions.

Other MNCs have taken a comparable approach.

German engineering firm Siemens invested $9 million to build a high school in Nelson Mandela’s home village of Mvezo. The curriculum at the Mandela School of Science & Technology, the region’s first high school, is focused on engineering, technology, natural sciences and agriculture. Once again, the company’s intention is for talented graduates of the school to eventually become employees of Siemens South Africa, thereby meeting the company’s unfilled requirement for skilled employees.

Another major contributor to the sector, the German chemical company BASF, supports numerous education initiatives in South Africa, including science, maths and work training programmes. In a similar vein, Royal Dutch Shell has equipped 45 schools in KwaZulu-Natal province with science laboratories, and supports literacy and numeracy

97

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A beacon for African scholars

The University of Fort Hare (UFH) is one of the most prestigious high-level educational facilities on the continent of Africa. Previously named the South African Native College, the University was established in 1916 thanks to the efforts of Dr James Stewart, who, in 1878, called on the Inter-Colonial Native Affairs Commission to provide African people with a tertiary education.

Today, however, the institution is distinguished by its non-racial character.

It fulfils a crucial role in the preservation of Africa’s intellectual heritage, and nurtures the development of new talent and academic research for the benefit of its students, scholars and the wider community.

■

Contributing to society

UFH encourages open political and socio-economic discourse and is committed to the fight for an equal and just society. The University’s honour roll boasts many notable graduates, including Nelson Rolihlahla Mandela, Archbishop Desmond Tutu, Sir Seretse Khama, Zachariah Keodireland Matthews, Barney Pityana and Thandi Orleyn.

In Mandela’s words, UFH is “a beacon for African scholars from all over Southern, Central and Eastern Africa. For young black South Africans like myself, it was Oxford and Cambridge, Harvard and Yale, all rolled into one.”

The University has made several contributions to the scientific, cultural and economic development of society.

Among many projects and initiatives,

extensive and long-term research on the impact of fire on grazing fields has been carried out, which will help people understand how fire can be used to control bush encroachment without affecting rangeland conditions.

To help tackle the South African housing shortage in a sustainable manner, UFH has developed ‘green’ buildings designed to self-regulate indoor temperature and humidity levels throughout the year, thereby reducing annual energy consumption. UFH is also running a pilot project to build houses that employ both active and passive systems to produce their own energy, as well as regulating internal temperatures.

UFH has embarked on a community outreach programme where renewable energy technology is used to improve the standard of living in otherwise impoverished rural communities. In addition, the 150kVA biomass gasifier project saw the construction of South Africa’s first commercial biomass gasification plant, which uses waste from a sawmill to power a bakery where members of the community bake bread and sell it for profit. The project ran alongside a skills development programme that trained 11 community members to bake bread through a Sector Education and Training Authority (SETA) accredited course, four community members in business management, and 11 community members to run the biomass gasifier power plant.

In 2016, UFH will celebrate its centenary. To mark this occasion, the

University has planned the extension of its library and the construction of a postgraduate centre on the Alice Campus in Eastern Cape, which will help redefine UHF’s role as the producer and disseminator of new knowledge.

The indicative cost for both stands at R450 million ($40.9 million) and funding is currently being raised.

Forward thinking

UFH has been shaped by Africa’s past and is committed to the continent’s future. It has positioned itself at the centre of the social, political, economic and cultural revolution that is unfolding in the region, both by stimulating it and responding to it. Its research agenda and academic curriculum will continue to adapt to the needs of society, and the university will continue to engage with and partner with the wider community.

Zintle Filtane Director: Institutional Advancement University of Fort Hare T: +27 (0) 40 602 2610 (Alice) T: +27 (0) 43 704 7554 (East London) M: +27 (0) 76 591 3433 E: zfiltane@ufh.ac.za W: www.ufh.ac.za

Together in Excellence

INVESTMENT OPPORTUNITIES: EDUCATION

Dr Bonginkosi Emmanuel Nzimande Minister of Higher Education and Training

S

outh Africa is one of the most sophisticated, diverse and promising emerging markets globally. Strategically located at the tip of the African continent, South Africa is a key investment location, both for the market opportunities that lie within its borders and as a gateway to the rest of the continent, a market of about one billion people.

The South African Government has introduced wide-ranging initiatives to promote training and skills development, and fast-track the building of world-class skills and competences.

The South African National Development Plan highlights that by 2030, South Africa should have access to education and training of the highest quality, leading to significantly improved learning outcomes. The education and training system is envisaged to play a greater role in building an inclusive society, providing equal opportunities and helping all South Africans to realise their full potential, in particular those previously disadvantaged by apartheid policies, namely black people, women and people with disabilities.

In order to realise this goal, the Department of Higher Education and Training has started to create a post-school education and training system that provides a range of accessible alternatives for young and older people in all post-school education and training institutions where different parts of the education and training system work together, allowing learners to take different pathways that offer high-quality learning opportunities with clear linkages between schools, technical and vocational education and training (TVET) colleges, universities, other providers of education and training and the world of work.

The post-school system comprises all education and training provision for those who have completed school, those who did not complete their schooling, and those who never attended school. It consists of the following institutions, which fall under the purview of the Department of Higher Education and Training: • 26 public universities; • 50 public TVET colleges • public adult learning centres; • private post-school institutions (registered private TVET colleges and private higher-education institutions); • the Sector Education and Training Authorities (SETAs) and National Skills Fund; and • regulatory bodies responsible for qualifications and quality assurance in the post-school education and training system: the South African Qualifications Authority and the Quality Councils.

Since the establishment of the Department of Higher Education and Training in 2009, we have made many important advances.

INVEST IN SOUTH AFRICA 2015

The National Student Financial Aid Scheme (NSFAS) is a flagship programme, which has enabled more than 1.4 million students from disadvantaged families to access higher-education opportunities, that is currently responsible for disbursing funding to 205,000 first-time entering and continuing eligible students at our 26 universities, and 200,000 students at 50 TVET colleges.

In January 2014, the Department launched the White Paper for Post-School Education and Training, which defines the Department’s focus and priorities, and enables it to shape its strategies and plans for the future. The White Paper aims to create a responsive system that addresses broader societal and developmental objectives by expanding access, improving quality, increasing diversity and creating opportunities for workplace-based learning.

The Department has expanded enrolments in all post-school institutions, especially for blacks and other previously disadvantaged individuals. The expansion has been most pronounced in the TVET colleges, where headcount enrolments have increased by over 130 per cent. Three new universities and the National Institute of Humanities and Social Sciences have been established.

A turnaround strategy in the TVET colleges is in place and is improving the quality of learning and management. In the university sector, the Department is prioritising the development of infrastructure for the historically disadvantaged institutions, support for teaching and learning and the production of the next generation of academics. The Department has maintained a strong focus on strengthening the production of schoolteachers over the past five years. In the next five years, the Department will expand the focus from basic-education teachers to include the production of teachers and lecturers for the whole system, including early-childhood development, TVET colleges, public universities and planned community colleges, which will make provision for youth who leave school without being able to access opportunities for further education, and adults who wish to study further.

The Department has emphasised bridging the gap between theory and practice in vocational and professional education through increased workplace learning wherever possible, and all employers have to come to the party. Particular attention has been given to artisan development with SETAs, who have been brought closer to the colleges and universities and are working to build partnerships between themselves, educational institutions and employers. We have also been investing in the establishment of a skills-planning mechanism that will ensure that we are able to predict the demand for skills and adjust our supply pipeline to deal with these demands.

The Department’s international relations strategy outlines its aims and goals for the internationalisation of higher education and training. Internationalisation provides an opportunity to enhance the quality and effectiveness of education offerings through the

101

Pearson in South Africa Pearson is the world’s leading learning company, with 40 000 employees in more than 80 countries working to help people of all ages make measurable progress in their lives through learning. We provide learning materials, places of learning, technologies, assessments and services to teachers, professionals and students.

In South Africa, Pearson has an established presence in the print textbook sector and in higher education. Pearson South Africa has a staff complement of approximately 1700 people, two thirds of whom work in CTI, our Higher Education institute. The company has eleven offices in South Africa, headquartered in Cape Town.

South Africa’s best-known and most-respected names in publishing - Longman, Heinemann and Maskew Miller - were merged to form Pearson South Africa in 2010. In 2013 alone, Pearson distributed over 23 million textbooks into schools across South Africa, and trained over 80 000 teachers.

Print and Digital Pearson produces some of South Africa’s most effective secondary school resources. The products work because they’re developed by teachers and tested in real classroom situations.

Our print books are published in every national language of South Africa, recognizing this is an important contribution to society. Our products now extend to resources for technical and vocational colleges and universities, providing textbooks, e-learning content and tutorial materials.

Institutions of Higher Learning As part of the company’s organic growth and investment in fast-growing economies, Pearson acquired the Midrand Graduate Institute (MGI) and CTI Education Group in 2010. Today, this group has 13 campuses and over 14 000 students across South Africa.

The Pearson Marang Education Trust The Trust was launched in 2008 and works via a District Partnership Programme that adopts a holistic approach toward school improvement by supporting under-performing schools to become steadily achieving schools, capable of sustaining ongoing development. The work of the Trust has grown from 16 schools at inception of the programme to over 1700 schools across South Africa in 2014.

Digital Products and Services Pearson has undertaken the development of a digital solution where learners are able to experience a new and innovative way to learn in an interactive and engaging learning environment. This allows for learners and teachers to have: • Increased engagement through front-of-class teaching and self-paced, individual learning assets • Increased collaboration and development of critical 21st Century skills such as digital literacy, problem-solving, critical thinking • Individual diagnostic assessments to identify learning needs for every learner • Individual feedback and tracking of each learner which enables personalised learning • Time-saving and instant feedback assessment tools • New experiences brought into the classroom, like Science experiments or virtual field-trips • Continued learning and support outside of the classroom through mobile learning opportunities

Contact us For more information please contact us on +27 (0)21 532 6000 or pearsonza.enquiries@pearson.com Learn more at www.pearson.co.za

INVESTMENT OPPORTUNITIES: EDUCATION

sharing of best practices in teaching, learning and research. Our institutions pursue their own international partnerships, and many universities and colleges have exchange programmes with foreign institutions. These engagements strengthen our system and enable us to remain comparable to other strong higher-education and training systems around the world.

Given the benefits that we accrue from our international engagements, the Department has an education attaché in Paris to work specifically with the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the International Labour Organization (ILO), and bilaterally with Switzerland, Germany and the European Union. The idea is to optimise South African

South Africa’s basic education system has

12 million 400,000 25,000

students teachers

schools

The Annual National Assessment tests the literacy and

7 million

numeracy skills of more than

programmes. Meanwhile, with a focus on furnishing underprivileged students with the skills necessary to compete in the global ICT business arena, enterprise application software provider SAP Africa’s laboratory at Johannesburg’s CIDA ICT Academy trains students in using SAP software.

Independents in demand While the motivation behind investments from MNCs in the education system may be driven by a requirement to develop skilled employees in order to staff their South Africa operations, there is another movement that is making inroads in the sector, which is focused on developing skills and transferring knowledge to the underserved and disadvantaged regions of the country: independent schools.

Independent schools are considered a popular and effective remedy for the education system’s ailments.

Absolute numbers are hard to ascertain: a September 2013 Department of Basic Education (DBE) statistical report tallied about 1,600 independent schools

104

students

participation and international cooperation with these entities in order to secure the achievement of our objectives.

Education has long been recognised as a route out of poverty and a way of promoting equal opportunities. The achievement of greater social justice is closely dependent on equitable access by all sections of the population to quality education. Just as importantly, widespread and good quality education and training will allow more rapid economic, social and cultural development for society as a whole. This is why education and, in the case of South Africa, educational transformation remains an apex priority for government in order to build a skilled and capable workforce to support an inclusive growth path.

with 514,000 learners in the country, but regulatory agency Umalusi counts 3,500 such schools. Their numbers may be hard to count, but their popularity is plain to see. The DBE estimated that the number of students enrolled in these private schools soared by 76 per cent between 2000 and 2010, when many public schools closed, and by more than 118,000 students between 2009 and 2012.

The growth of the independent school movement has been attributed to parental choice and societal demand. Black students are the majority (73 per cent) of enrollees in independent schools, with many coming from disadvantaged communities. Most independent schools charge students low to medium fees (about $2,340 per year or less), and can be run as either non-profit or for-profit. Either way, many of the best-known schools – BASA, Curro Holdings, SPARK Schools, Nova Schools, Meridian and Crawford – have long waiting lists and are expanding to accommodate the high demand for placement.

Around 730 independent schools and 161,000 learners are represented by the Independent Schools Association of Southern Africa (ISASA). Of these, about 30 per cent receive government subsidies under the South African Schools Act (SASA). The act also grants independent schools charging low to medium fees eligibility for government subsidies, which are calculated by determining the percentage of the school fees as a ratio of the provincial average estimate of expenditure per learner (PAEPL). To apply for the subsidy, independent schools must have been registered for one year and show proof of compliance with the Norms and Standards for School Funding.

School ‘adoption’ and contract schools The two additional options for investors interested in teaming up with governmental entities include school ‘adoption’ and contract school programmes.

The Adopt-a-School programme integrates private funds and expertise into public schools, which are managed by the education department. Each case

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MIKE HUTCHINGS/REUTERS

INVESTMENT OPPORTUNITIES: EDUCATION

is different, but, in general, an adopted school takes on the Whole School Development scheme, which works with various non-governmental organisations (NGOs) to enable stakeholders and management to oversee curricula and resources, and educators to build confidence in their areas of expertise.

The Adopt-a-School Foundation claims to have seen improvements in maths and science, matric and Annual National Assessment results in adopted schools. Some of these schools have also been outfitted with new libraries and science laboratories as a result of the programme. A wide range of local and international companies have adopted schools around the country, including well-known international firms such as L’Oréal, Volkswagen and Deloitte.

Taking the opposite tack, contract schools are developed along the lines of a public-private partnership (PPP), where the government finances schools while a private provider manages them.

Although contract schools have not yet taken off in South Africa, the South African think tank Centre for Development and Enterprise (CDE) spearheaded a feasibility workshop on the subject in August 2013.

The ensuing report, The Missing Sector, examines successful case studies from other countries where this type of school has been implemented, and recommends

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Students from Cape Town study using a free wireless connection through a programme led by Google. A number of international firms have provided expertise to schools in South Africa

introducing contract schools to South Africa. The report argues that such schools have attracted funding and creativity from the private sector, elevating the overall performance of the public school system in countries with education systems and issues similar to those of South Africa. The CDE report also asserts that contract schools work to increase educational choices and provide pathways out of poverty for a sizeable number of poor children at a relatively low cost.

The final benefit of contract schools, according to the CDE, is that, because they operate with autonomy, innovation is encouraged. This is an important contribution to development. Increasing innovation fuels the R&D sector for the education system and the country as a whole – the foundation of the knowledge economy to which the country aspires.

By supporting developments in the education sector, investors have the opportunity to play a significant role in the creation of an equal society in South Africa. In addition, because a country’s economic growth is highly dependent on a fully functioning education system, investing in education creates positive outcomes for all parties: it generates a better business environment, as well as increasing workers’ incomes – resulting in consumers who are then able to purchase more goods and services.

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INVESTMENT OPPORTUNITIES: TOURISM AND HOSPITALITY

Destined for greatness Already a popular tourist destination, South Africa is diversifying its tourism and hospitality sector, with new business models to balance the needs of the country with those of the 21st-century traveller, writes Pamela Whitby

F

A cable car on Table Mountain, Cape Town.

South Africa’s varied natural landscape is one of the country’s major draws for tourists

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rom the beach to the bush to some of the highest mountains in sub-Saharan Africa, from wine-tasting to township tours, shark dives and the ‘big five’ safari animals, South Africa has a diverse, vibrant and growing travel and tourism sector.

In a significant move, Marriott International completed its R2 billion ($166 million) acquisition of Protea Hospitality Group in 2014, making it the largest hotel group on the continent, with 79 hotels in South Africa and 37 elsewhere.

“This represents a massive vote of confidence in the way we manage the sector, as well as the prospects for future growth,” says Derek Hanekom, South Africa’s Minister of Tourism.

It is also yet another sign that this country on the southern extremity of the continent is widely viewed as the springboard into the rest of Africa. Marriott, for one, has publicly stated that it plans to have more than 150 hotels across 16 African countries by 2020, and its pan-African goals are not unique. In aviation, fast-growing low-cost carrier FastJet, which currently flies three domestic routes in Tanzania and four international routes across Africa, has its sights set on being a pan-African carrier and flying across all

the major regions of the continent. Of course, South Africa is very much part of that agenda. “This would be inconceivable without a base in South Africa flying both domestically and regionally,” says Richard Bodin, the company’s Chief Operating Officer.

While the rest of Africa might be the endgame, Hanekom argues that South Africa’s tourism sector is “far from overdevelopment”. To put some numbers behind this, global tourism grew by five per cent in 2013. But over the previous two years, international tourist arrivals in South Africa rose by 7.4 per cent to reach just under 10 million people. South Africa also has one of the highest return visitor rates from Europe for a long-haul destination. Indeed, 50 per cent of visitors choose to return to South Africa, which “creates a robust and reliable upstream reservoir of future international arrivals”, according to Hanekom.

It is not as though international investors have only just recognised the potential. Since 1993, a number of foreign players have established a presence in the country, including the Legacy Hotel Group, the Hilton Hotel Group, IFA Hotels and Resorts, Leisurecorp, Carlson Rezidor and InterContinental Hotel Group.

Of course, the rush to invest in the sector was helped by the 2010 FIFA World Cup, resulting in a temporary oversupply of accommodation. However, according to Hanekom, this has now steadied, with a recent report from PwC showing that revenue from all accommodation categories rose by 14 per cent in 2013. That came on the back of an increase of 8.4 per cent in average daily room rates, solid growth in international arrivals and recovering occupancy.

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SOUTH AFRICAN TOURISM

INVESTMENT OPPORTUNITIES: TOURISM AND HOSPITALITY

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SOUTH AFRICAN TOURISM

INVESTMENT OPPORTUNITIES: TOURISM AND HOSPITALITY

STELLENBOSCH WINE ROUTES/MEDIA CLUB SOUTH AFRICA

uShaka Marine World, which houses the largest aquarium in the southern hemisphere, is one of Durban’s key attractions Vineyards near Stellenbosch, where an initiative was recently launched to bolster the wine tourism sector

With the story of Africa’s rising middle class and its growing propensity to travel gathering momentum, new opportunities are arising all the time. “An area that is currently attracting much interest and where there is room for investment is South Africa and Africa’s airline industry – particularly with regard to intra-regional African travel and lower-cost carriers – which is still largely under-serviced,” says Hanekom.

On this point, Bodin and Hanekom agree. “Africa represents the greatest opportunity for aviation on the globe. Everywhere else in the world has gleefully accepted the low-cost model and Africa is the last bastion to benefit from the revolution,” says Bodin.

While South Africa is very much on FastJet’s agenda, the airline has prioritised establishing its second base (after Tanzania) in Zambia, which, Bodin says, is well on the way to being approved. A Kenyan operation is next on the cards. One of the reasons for South Africa falling down the list of priorities is that the current lack of competition in Zambia makes it easier for companies to quickly gain a foothold.

Another major factor, however, is the number of restrictions on ownership in South Africa. “The law as it stands at the moment is that no international company can ever own any more than 25 per cent

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of a South African airline, which creates its own challenges for our business plan,” Bodin explains.

While there may be high-flying challenges for South Africa, on the ground, things seem to be moving faster. While the World Cup helped to modernise infrastructure with new airports, high-speed rail links and bus rapid transit systems, many people still rely on taxis. That is something on which Uber – the cashless driver-hailing mobile app that has met with opposition from regulators in Europe – is hoping to capitalise. In the few months since Uber launched in South Africa, its success has reportedly exceeded expectations, and the firm recently moved to meet demand by offering a second, more affordable service, which would cut costs by a further 35 per cent.

New business models are increasingly playing a role in the tourist’s journey – for example, the ‘sharing economy’, where individuals can offer goods or services directly, as well as new online distribution channels and platforms such as mobile phones.

Hanekom cites significant growth in bookings via online travel agencies as an example. In 2011, there were 152,000 international passengers that booked with SA Tourism’s partner online travel agencies, but, by 2013, that figure had risen by 87 per cent.

“These trends are not passing us by,” he says.

Stephan Ekbergh, a Swedish entrepreneur who launched his online travel agency TravelStart in South Africa in 2006, says the e-commerce market in the country may be small – and this has its limitations – but customer acquisition costs are considerably lower than they are in Europe. “It was much easier to build a culture here, where service really does matter, than it was in Europe, which is much more price-sensitive.

That was very energising,” he says.

Wine tourism

International tourist arrivals in South Africa rose by an average of

7.4%

in 2011 and 2012

Anybody who works in one of the world’s most competitive sectors will know the importance of service. Annareth Bolton, Chief Executive Officer of American Express-sponsored Stellenbosch Wine Routes – which represents more than 200 wine and grape producers and recently formed a joint venture with marketing agency Stellenbosch 360 – knows all about service, the challenges of scale and the power of new business models. “What we realised is that organisations here [in Stellenbosch] have been working in isolation for too long. We are all trying to achieve the same thing but with limited funds,” she says.

The Stellenbosch Wine Experience campaign aims to establish South Africa as the leading wine tourism destination on the continent by creating partnerships between the wine and tourism industries. Bolton believes that using digital platforms such as Facebook, Instagram and a blog that brings partners such as South African Airways, SA Tourism and Thrifty Car

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INVESTMENT OPPORTUNITIES: TOURISM AND HOSPITALITY

Derek Hanekom Minister of Tourism

S

outh Africa is one of the most sophisticated, diverse and promising emerging markets globally.

Strategically located at the tip of the African continent, South Africa is a key investment location, both for the market opportunities that lie within its borders and as a gateway to the rest of the continent, a market of approximately one billion people.

Home to a wealth of natural and man-made attractions, South Africa draws visitors from around the globe – not only from our traditional markets, such as Germany and the United Kingdom, but also from emerging markets where the demand for overseas tourism is on the rise.

South Africa is the economic powerhouse of Africa and forms part of the BRICS group of countries with Brazil, Russia, India and

China. It has a favourable demographic profile and its rapidly expanding middle class has growing spending power.

Due to the increasing pressure on our natural resources worldwide, there is a clear understanding that the triple bottom line – or people, planet and profit – is paramount. Good corporate governance requires that social development, environmental protection and profit generation are carefully balanced. In the tourism sector, empowerment of our greatest asset, namely our people, through skills development and training is very pivotal. Likewise, responsible tourism practices are central to the way we manage the sector.

Globally, the tourism sector is credited as a major contributor to growth and development, and South Africa possesses the tourism resources to underpin economic growth. Efforts to strengthen the tourism industry will ensure that South Africa remains globally competitive, welcoming greater numbers to our country year by year.

South Africa’s unrivalled scenic beauty and reputation for delivering value for money render it an attractive leisure and business travel destination.

Rental on board enables these organisations to pack a stronger punch and have a better chance of being heard in a competitive sector.

While the wine sector is a relatively small aspect of the travel industry, there have been some notable foreign direct investments. In 2003, Laurence Graff, Chairman of Graff Diamonds International, acquired the Delaire Graff Estate and has since transformed it into a luxury destination. More recently, Yangzhoubased Perfect (China) acquired the Val de Vie estate in the Western Cape, making it the first Chinese investment in South Africa’s wine sector.

South Africa tourism in figures Inbound tourism

2011

2012

2013

Arrivals (millions)

8.3

9.1

9.6

Tourism expenditure in the country ($ billion)

10.71

11.20

10.47

Travel ($ billion)

9.52

10.00

9.24

Passenger transport ($ billion)

1.19

1.21

1.22

Departures (millions)

5.50

5.03

–

Tourism expenditure in other countries ($ billion)

8.40

7.14

6.49

Travel ($ billion)

5.28

4.07

3.42

Passenger transport ($ billion)

3.11

3.08

3.06

Outbound tourism

Source: World Tourism Organization. ©UNWTO, 9284400515

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“The wine industry is obviously very attractive to foreigners as a lifestyle, but there is also massive social and economic impact, with job creation, education, skills development and so on,” says Bolton. According to the Western Cape agriculture department, wine exports to China increased by 34 per cent between 2009 and 2012.

What else do prospective investors need to know?

While the government has made tourism one of the six core economic pillars in the New Growth Path strategy, and is committed to building strong yet light-touch public-private partnerships, this comes with a caveat. “For us, tourism growth and social inclusion go hand in hand, and when we partner with industry, we also look to them to help us transform our economy,” says Hanekom.

It is important for investors to understand the country’s position. “We are not a cheap, masstourism destination; we are a value-for-money destination, and so we are not chasing mass tourism like parts of Southern Europe,” says Hanekom, who believes that it is important to maintain a sense of place and authenticity in any offering. “That’s why we carefully manage the footprint of tourism in conservation areas, sensitive ecosystems and local communities.”

South Africa seems committed to finding the perfect balance between conservation and tourism.

“Our tourism depends on biodiversity conservation, and conservation depends on tourism for financial sustainability,” says Hanekom. Long may it last.

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HEMIS/ALAMY

South Africa: an investor’s guide

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HOW TO INVEST IN SOUTH AFRICA

In order to encourage and facilitate investment, the South African Government has established an investment promotion agency and implemented a range of incentives and financing mechanisms across the spectrum of industries

S

outh Africa is a diverse and sophisticated emerging market with enormous potential for foreign direct investment (FDI).

The country’s financial structure is robust, with a large and active stock exchange, and its banking, telecommunications and legal sectors are well developed. South Africa also has a favourable demographic profile and an expanding middle class.

To attract FDI and develop local direct investment, the government has established an investment promotion agency known as Trade and Investment South Africa (TISA). Among other functions, the unit provides investors with relevant information about the domestic business climate and offers dedicated aftercare services. It organises trade missions, and facilitates funding and government support. The unit is also responsible for regional promotion strategies for exports and increasing export supply and sales to and from South Africa.

Establishing a business Local and foreign companies running businesses in South Africa are treated equally, with two main exceptions: there are local equity requirements for banks and financial institutions, and businesses with non-resident ownership or control equal to or greater than 75 per cent are restricted in terms of how much they can borrow.

Foreign companies, with the exception of banking and insurance companies, may establish a place of business and operate in South Africa without having to form a separate, locally incorporated company.

Establishing a branch requires registration as an ‘external company’ within 20 days of commencing business activities in the country. Additional approval must

be sought for the running of import and export activities. Furthermore, capital of at least R2.5 million ($207,783) is needed to start a business in South Africa. Likewise, to invest in an existing business, a capital contribution of at least R2.5 million is required.

Foreign investors can acquire South African shares, bonds and money-market instruments, among others. Moreover, non-residents can purchase listed and unlisted securities without permission from the South African Reserve Bank.

Tax incentives A host of investment incentives and financing mechanisms have been developed with the aim of expanding the private sector: Research and development – Keen to promote the development of existing and new products, techniques and processes, the government is offering a range of research and development (R&D) incentives. Companies undertaking scientific and technological R&D are eligible for a 150 per cent tax deduction for operational costs. This applies to firms of all sizes and across the full range of sectors, as long as they are registered in South Africa. To qualify, companies must apply to the Department of Science and Technology before commencing R&D. Depreciation – Investors can benefit from special depreciation allowances on plant and machinery, hotel equipment, buildings and farming.

Infrastructure development – A tax deduction may be granted for new and unused assets to taxpayers involved in constructing pipelines, transmission lines

Johannesburg is home to several multinationals’ headquarters. Foreign companies, with the exception of banking and insurance firms, can operate in the country without having to form a separate, locally incorporated company

INVEST IN SOUTH AFRICA 2015

and railways. The allowance is 10 per cent of the cost per annum for pipelines to transport natural oil, and five per cent for transmission lines and railways.

Urban development allowance – Taxpayers that are refurbishing an existing building or constructing a commercial or residential building in an urban development zone are entitled to an allowance. In the case of refurbishments to existing buildings, the allowance is equal to 20 per cent of the costs incurred, deductible in the year of assessment in which the building being improved is being used solely for the purposes of the taxpayer’s trade. A further 20 per cent allowance is available for each succeeding assessment year.

For the construction of new buildings, extensions or additions, the same allowance is granted in the first year, and eight per cent of the cost in each of the following 10 years of assessment.

Public-private partnerships – Grants have been established to encourage privatesector investment in infrastructure in partnership with the public sector.

Industrial development zones (IDZs) – To date, South Africa has five designated industrial development zones: Coega, East London, Richards Bay, OR Tambo and Saldanha Bay, which are all supported by special arrangements and systems to boost investment in labour-intensive areas.

Industrial policy projects – An income tax allowance is available for industrial policy projects, whether greenfield (involving the construction of facilities) or brownfield (involving the purchase/leasing of existing facilities). The extent of the additional investment allowance depends on whether the project has ‘preferred’ or ‘normal’ status. Preferred-status projects qualify for an allowance equal to 55 per cent of the cost of new and unused manufacturing assets, or 100 per cent if the project is located in an IDZ. Projects with normal status are eligible for an allowance equal to 35 per cent of the cost of new and unused manufacturing assets, or, if located in an IDZ, 75 per cent. Companies may deduct the cost of training employees – up to R36,000 ($2,990) per employee,

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HOW TO INVEST IN SOUTH AFRICA

Income tax: small businesses Taxable income

Rate of tax

R0-67,111

0% of taxable income

R67,112-365,000

7% of taxable income above R67,111

R365,001-550,000

R20,601 + 21% of taxable income above R365,000

R550,001 and above

R59,451 + 28% of the amount above R550,000

Turnover tax for microbusinesses

Trade agreements

Taxable turnover

Rate of tax

R0-150,000

0% of taxable turnover

R150,001-300,000

1% of taxable turnover above R150,000

R300,001-500,000

R1,500 + 2% of taxable turnover above R300,000

R500,001-750,000

R5,500 + 4% of taxable turnover above R500,000

R750,001 and above

R15,500 + 6% of taxable turnover above R750,000

South Africa is a signatory of several trade agreements, including:

Taxation of capital gains Maximum effective rate of tax Individuals and special trusts

13.3%

Companies

18.6%

Other trusts

26.7% Source: National Treasury, South Africa

with a total of R20 million ($1.7 million) available for normal-status projects and R30 million ($2.5 million) for those with preferred status.

Manufacturing Investment Programme – The Manufacturing Investment Programme (MIP) was designed to sustain enterprise growth, stimulate investment and increase employment. It provides investment support by offering a grant worth up to 30 per cent of the value of qualifying costs (machinery, vehicles and so on). The grant is available for projects that involve the establishment of a new production facility, the expansion of an existing production facility, or an upgrade of an existing clothing and textile production facility.

The headquarter regime – This allows the free flow of funds through the country with minimal tax incidence, making it an ideal

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innovative technology products and/or processes, the SPII offers three schemes: SPII Matching Scheme – a reimbursive grant of between 50 and 75 per cent of direct costs; SPII Partnership Scheme – a grant to match up to 50 per cent of development costs where these exceed R10 million ($830,917); and SPII Product Process Development Scheme – a non-repayable grant of up to R2 million ($167,063), of 50-85 per cent of qualifying costs incurred during the technical development phase.

holding company location for businesses wishing to invest in Africa. A headquarter company is subject to corporate income tax of 28 per cent, but is exempt from both dividend and capital gains tax, and some transfer pricing rules. It is also exempt from thin-capitalisation rules, and is entitled to benefit from South Africa’s broad tax treaty network.

Intellectual property – South Africa is a member of most international conventions for the protection of intellectual property.

Therefore patents, trademarks, copyrights, and industrial designs and models are all legally recognised. Intellectual property rights are managed by the National Intellectual Property Management Office.

Support Programme for Industrial Innovation (SPII) – Designed to provide financial assistance for the development of

Preferential market access agreements: • Southern African Customs Union (SACU); • European Union/South Africa Trade Development and Cooperation Agreement (EU/SA TDCA); • SACU-European Free Trade Association; • SACU-Common Market; • Bilateral agreements with Mozambique and Zimbabwe.

Current trade negotiations: • WTO Doha Development Agenda; • SACU-India; • SADC-EAC-COMESA. Non-reciprocal: • Growth and Opportunity Act (AGOA); • Generalised System of Preferences (GSP).

Visas There are several types of visas available for those wishing to invest in South Africa. Temporary work permits include: the intra-company transfer work permit, which is applicable when an individual, already employed by the company, is transferred to a branch, subsidiary or affiliate for 24 months or less; the quota work permit, when an individual meets specific skill requirements; and a general work permit, if an employer advertises a job and a foreign national is the most suitable candidate. Permanent work visas allow individuals to establish a business and invest in existing companies.

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Index of advertisers Acer................................................................................................................ 2 & 80 Airports Company South Africa................................................................................. 60 Blue Chip Mining Solutions..................................................................................... 57 Burgan Cape Terminals (Pty) Ltd.............................................................................. 38 Denel.................................................................................................................... 14 Dormac Marine, Offshore & Industrial Engineering..................................................... 44 Durban, KZN South Africa....................................................................................... 24 Eastcape Midlands College...................................................................................... 98 Enel Green Power................................................................................................... 50 Exxaro................................................................................................................... 55 G4S...................................................................................................................... 10 Impact Oil & Gas.................................................................................................... 46 King Sabata Dalindyebo TVET College...................................................................... 92 Kjaer Group........................................................................................................... 72 MA Tool & Die........................................................................................................ 70 Makwande............................................................................................................... 8 Milliman................................................................................................................ 12 Mota-Engil Africa.................................................................................................... 66 Motlekar Holdings................................................................................................... 34 Pearson............................................................................................................... 102 Phenomenal Group................................................................................................. 28 Richards Bay Industrial Development Zone............................................................... 30 Saab........................................................................................................... 64 & 116 Sasol............................................................................................................... 6 & 42 Sonnedix............................................................................................................... 52 TUB...................................................................................................................... 76 Umsinsi Health Care............................................................................................... 18 Univeristy of Fort Hare................................................................................ 100 & 114 University of Kwazulu-Natal Extended Learning......................................................... 94

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The The University University of of Fort Fort Hare Hare Together in Excellence The vision

The University of Fort Hare is a vibrant, equitable and sustainable African university, committed to teaching and research excellence at the service of its students, scholars and wider community.

The mission

The mission of the University is to provide high-quality education of international standards contributing to the advancement of knowledge that is socially and ethically relevant, and applying that knowledge to the scientific, technological and socioeconomic development of our nation and the wider world.

Alice Campus

1 King Williams Town Road Private Bag X1314 Alice, 5700 Tel: +27 (0) 40 602 2441

Bhisho Campus PO Box 1153

Independence Avenue Bhisho, King Williams Town Tel: +27 (0) 40 608 3460

East London Campus Private Bag X9083, 50 Church Street East London,5200 Tel: +27 (0) 43 704 7105