Investment Opportunities in South Africa

By Derick Kirk

Over the past few years, it has been proven, time and again, that the local South African economy has the unique ability to bounce back from setbacks, whether big or small, helping boost international investor sentiment. now smart global players are quite rightly shifting their focus to South Africa’s rich investment potential. So, what makes South Africa a destination of choice for mega investors like Amazon, Procter & Gamble, Google, Coca-Cola and Heineken?

A simple answer to the question: South Africa is deeply committed to make investment a priority! The South African government and an envoy of leaders including Phumzile Langeni, Jeff radebe, Derek hanekom, mcebisi Jonas, Trevor manuel and Jacko maree are tirelessly working at promoting abroad the favourable conditions for large and medium scale investment in the country.

Not only does the present government and its agencies offer very attractive funding incentives and tax breaks in several key growth sectors, but they have also created designated Industrial Development Zones (IDZs) where investors can take advantage of significant import duty reductions and rebates, along with a myriad of groundbreaking infrastructure building incentives. Wisely, in South Africa, the “Business as usual” approach has fallen by the wayside to pave a road for a more flexible and attractive “Business Unusual” environment.

Mining - Deep Rewards

Traditionally the mining sector has been the backbone of the South African economy, contributing to a substantial portion of the GDP. The South African Department of mineral resources and the US Geological Survey estimate that south Africa possesses ore reserves amounting to a value of more than $2.5-trillion, with 16 commodities ranked in the Top 10 internationally.

The sector’s well-established infrastructure, along with convenient transport networks have historically been huge draw cards for big investment - this includes the value chain as a whole. herein lies true gold for the medium and smallscale investor, in particular. mining optimisation, IT support, tooling and catering are some of the areas of opportunity within the mining sector.

Looking back in history at the California gold rush, many a fortune was made not only by actual mining, but by tapping into needs related to mining like timber, transportation, materials and clothing. Levi strauss, the vanderbilt dynasty and J.P. morgan are still striking gold more than a century after the actual gold rush dried up.

Agriculture - The Art of Growth

Another important growth sector is Agriculture. South Africa is already on the cutting edge when it comes to the internet and telecoms needed to digitise processes. This means there is a basket of opportunities ripe for the picking for investors in the sector. Agricultural development, digitisation of agricultural systems, mechanisation of production, the science and technology needed for greater crop yields and greater profitability and again, the sector’s value chain make up part of this offering.

A great advantage is that the South African agricultural sector is particularly diverse in its product offering and the locations where production or growing takes place. Leading, existing product offering include maize, wheat, sugar, sorghum, livestock and viticulture are all ideal choices for investors who strive for lower risk, relatively low yield investment.

Up for consideration for maverick investors are newer crops like south Africa’s own rooibos, boegoe and opportunities in a well-regulated cannabis/hemp industry. many agricultural regions fall within IDZs, where investors can doubly enjoy the tax and duties benefits and support of government when it comes to the import of components and tooling need needed for mechanisation.

The Automotive Industry - Accelerated Growth

The automotive industry is by no means new in South Africa, with motor manufacturing stretching back almost a century to the 1920s. for decades the government has closely guarded and supported its motor industry by having local content targets and implementing hefty excise on fully imported vehicles. Light motor vehicles were imported in complete Knockdown Kits (CKD) and assembled locally to avoid import duties. Only in the early 2000s were import duties adjusted to make fully importing a vehicle financially viable.

Over the years the local automotive industry survived unchanged relatively well. But things have changed in recent years because the way the global automotive industry has done business has shifted. All major motor brands have in some way moved production abroad to take advantage of competitive workforces and manufacturing environments. To rev up growth and investment in the sector government has introduced The Automotive Investment scheme (AIS).

The scheme aims to develop the automotive sector through investment in new and/or replacement models and components that will increase plant production volumes, help sustain employment and strengthen the automotive value chain in general. A very tangible benefit is that qualifying investor can obtain a non-taxable cash grant of twenty percent (20%) of the value of qualifying investment in productive assets and twenty five percent (25%) of the value of qualifying investment in productive assets by component manufactures and tooling companies as approved by the Department of Trade and Industry.

In addition, a non-taxable cash grant of five percent (5%) may be made available for projects that maintain their base year employment figure throughout the incentive period, and achieve at least two of the following economic requirements: tooling; research and development in South Africa; employment creation; strengthening of the automotive value chain; value addition or empowerment.

Business Outsourcing - Opportunity Calling

The Covid-19 pandemic made remote work the new normal. This has been just one of the factors that has fuelled South Africa’s business process outsourcing’s exponential growth in the recent past. many global giants have taken advantage of South Africa’s favourable time zone alignment with Europe coupled with the nation’s English language proficiency to offering good quality voice-driven contact centres for their clientele that are locally based.

Additionally, South Africa’s, intellectual property and data privacy legislation is up to date, the legal system provides protection and its established insurance, banking and telecommunications sectors have strong legal and product similarities with the UK, Europe, Australia and the US.

It’s really no wonder that South Africa is one of the fastest growing BPO industries in the world and a region where you can get a big bang for your investment buck. call centre operation and staffing is just the tip of the iceberg when it comes to business outsourcing. rapidly growing financial services, administration services, creative staffing, human resources, to mention but a few are outsourcing opportunities that investors should investigate.

Location, Location, Location

Parties with an eye on investing in the manufacturing industry would be wise to take advantage of government designated Industrial Development Zones within South Africa These manufacturing strongholds, all located close to large ports, benefit from attractive tax and duty exemptions specifically created in an effort to attract foreign Direct Investment and stimulate the export of value-added commodities. The three main IDZs for manufacture in South Africa are Coega and East London in the Eastern Cape, and Dube in KwaZulu-Natal.

The Automotive Industry has a mature infrastructure in the Eastern Cape where Volkswagen, ford and the Mercedes-Benz factories have operated for much of the past 50 years. In Kwa-Zulu Natal manufacture interests focus predominantly the electronics, petrochemical, white goods and food manufacture industries. Let’s not forget that as with mining and agriculture investment opportunities extend into the value-chain of all these industries.

In short, with intensive support from SARS and the government, manufactures will have import duties wavered on materials, components and tooling need in manufacture. There are also infrastructure building grants and lucrative incentives for investors within IDZs. spread across numerous provinces, potential investors can pick and choose when it comes to the location or region where they choose to invest.

The Dawning of South Africa's Golden Era

Without evening scratching the surface of real estate, financial and banking services, research and development and more, South Africa has an unlimited wealth of untouched opportunities for both foreign and local investors.