Trade & Export Middle East - Country Focus - South Africa by Trade Export

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South Africa

BILATERAL TRADE

Industry watch

Interview

JANUARY 2013

FOCUS Interview

Exploring new possibilities South Africa is UAE’s key business and investment partner with bilateral trade growing and diversifying with each passing year. Aparna Shivpuri Arya got to interview H.E Yacoob Abba Omar, Ambassador of South Africa to the UAE, to know his views. Please give us a brief background on the trade relations between the UAE and South Africa?

South Africa and the UAE’s relationship is a strong, growing and developing one, presenting mutually beneficial and attractive opportunities. The UAE currently stands as one of South Africa’s core trading and investment markets, which we look forward to increasing with the help of South Africa’s pledges on investment stated in its Vision 2030 Plan. The UAE is the 24 th largest investor in South Africa, and is the largest trade partner in the GCC region.

What are the main products exported and imported between the two countries? The UAE is South Africa’s 21st largest export market. Oil is the biggest import from the UAE, whilst fast moving consumer goods (FMCGs) continue to dominate South Africa’s exports, with machinery and metal related products also growing in exports to this region. Agriculture is also a notable exporting sector to the UAE.

How has the trade relation evolved over the decades? The UAE is the largest trade partner in the GCC region to South Africa and the 21 st largest export market globally, with total bilateral trade equating to approximately USD 2 billion. UAE is considered one of the top ten countries in South Africa’s global exporting network, ranking as the 6th largest source of imports in the Middle Eastern region in 2011. The UAE is an economically strategic alliance to South Africa’s export network, aligning 42

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South Africa’s allegiance with emerging economies such as China and Russia.

For Middle Eastern companies, keen on investing in South Africa – what advice would you like to give them and which sectors and areas would you highlight? The first and foremost step that any prospective investor should follow if interested in investing into South Africa is to directly get in touch with the South African Mission in their country. The Mission will then be able to put you in touch with the correct contacts and facilitate creating the relationship with that contact as well as advise how to successfully get the best out of the opportunities and locations available.

The key sectors for investment in South Africa would be: Agro Processing, Renewable Energy, Automotive & Components, Power generation and distribution. Why invest in South Africa: • Close proximity to major markets by sea • Diversified Industrial sectors • Open economy • Sound business case for investment and profit • Gateway to Africa and markets of more than 200 Million consumers • Africa is the next big emergent after China and India • S o u t h A f r i c a i s o n e o f t h e m o s t sophisticated and promising emerging markets, offering a unique combination of highly developed first world economic

• • • •

infrastructure with a vibrant emerging market economy. South Africa is one of the world’s 26 th industrialised nations & 27 th largest economy South Africa has the largest economy on the African continent, accounting for approximately 25% of the continent’s GDP. According to the World Bank, South Africa ranked 35th out of 183 in the world for the ease of doing business in 2012. The JSE Securities Exchange is Africa’s largest and most developed Securities Exchange and one of the world’s top 20 exchanges

How many South African companies are in the UAE/Middle East?

South Africa companies are flourishing in the UAE. We can see this from the increasing number of business that have set up here and the ever growing interest of South African companies to attend trade shows, exhibitions and B2B events in seeking opportunities to set up and invest in the UAE. Stability in the UAE economy continues to encourage South African companies and individuals to invest and work in the UAE. We currently have over 200 South African businesses operating in the UAE, in sectors including: • Finance (FirstRand and Standard Bank) • Manufacturing (Denel) • Retail (Woolworths) • Construction (Murray & Roberts) • Hospitality (Southern Sun) • Logistics (Barloworld) • Aviation (South African Airways) • Energy (Sasol) • Food (Nando’s, The Meat Co, Butcher Shop & Grill)

What kind of investments is South Africa making in the UAE?

Which sectors offer potential for South African companies in the UAE and for Middle Eastern business in Sout h Africa? Of the 200 plus South African businesses operating in the UAE, the largest sectors include: oil, agriculture, energy, automotive, and fast moving consumer goods (FMCGs). Opportunities in these sectors within the UAE are increasing allowing South African businesses to create trading relationships. On the other hand, the energy sector within South

Africa is considerably growing thus creating a great opportunity for the UAE to work with South Africa in regards with renewable energy and sustainability, a pledge the UAE is keen to progress in the coming years.

How do you see the bilateral economic relation evolving in the coming years? Are there any agreements being signed? The 3 rd Meeting of the IRENA Council in the UAE was attended by the South African Deputy Minister of Energy – Barbara Thompson, who gave a unique perspective on the progress of the renewable energy sector in South Africa, its view on the leadership role being taken on by the UAE, and where they can both work together. We see this relationship further developing in the near future. The agreements already signed include: Air Services; Economic, Trade and Technical Cooperation; Police Cooperation; Defence; Joint Commission Agreement; Political Consultation; and Information Sharing on Money Laundering. Agreements in the pipeline include: Double Taxation, Protection of Investment, Mutual Legal Assistance, Extradition, Industrial Relations, and Higher Education. Mutual Recognition of Drivers’ Licenses. JANUARY 2013

FOCUS Bilateral trade

The gateway to Southern Africa

The UAE currently stands as one of South Africa’s core trading and investment markets and is the 24th largest investor in South Africa, along with being the largest trade partner in the GCC region. We bring you an overview of the bilateral trade relations.

he 3rd Meeting of the IRENA Council in the UAE was attended by the South African Deputy Minister of Energy – Barbara Thompson, who gave a unique perspective on the progress of the renewable energy sector in South Africa, its view on the leadership role being taken on by the UAE, and where they can both work together. South Africa remains the world’s top producer of minerals such as gold, platinum, rhodium, chrome, manganese and vanadium. South Africa holds 80% of global manganese reserves, 72% of chrome, 88% of platinum-group metals (PGMs), 40% of gold and 27% of vanadium. South Africa is ranked No.1 for the regulation of securities exchange, strength of auditing & reporting standards by WEF’s Global Competitiveness Report 2011/12. South Africa scored well in various categories according to the 2011/12 WEF’s World Competitiveness Report (138 countries ranked) with overall competitiveness we ranked 50th in place. 44

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Of 14 emerging markets; Australia, Canada, Russia, Mexico,China, Poland, Spain, India, Korea, Brazil, SA, Colombia Chile & Argentina South Africa is: • 2nd most sophisticated financial market • 2nd lowest effective business tax rate • 4th ranked for ease of accessing capital • 4th ranked i.t.o. the cost of capital • 6th ranked for infrastructure • 7th for FDI as a % of GDP (2008) • 8th ranked i.t.o labour productivity

South Africa is the 19th largest investor in the United Arab Emirates (UAE), having invested 1.6 billion AED (USD 435 million) since 2003. The largest investments were made in the financial services sector, followed by investments in the communications and pharmaceutical sectors. Of the 200 plus South African businesses operating in the UAE, the largest sectors include: oil, agriculture, energy, automotive, and fast moving consumer goods (FMCGs).

Opportunities in these sectors within the UAE are increasing allowing South African businesses to create trading relationships. On the other hand, the energy sector within South Africa is considerably growing thus creating a great opportunity for the UAE to work with South Africa in regards with renewable energy and sustainability, a pledge the UAE are keen to progress in the coming years. The UAE is South Africa’s 21 st largest export market; oil is the biggest import from the UAE, whilst fast moving consumer goods (FMCGs) continue to dominate South Africa’s exports, with machinery and metal related products also growing in exports to this region. Agriculture is also a notable exporter to the UAE. There are, in principle, no restrictions on foreign investors acquiring businesses or companies in South Africa. The introduction of capital or the acquisition of shares does not require the South African Reserve Bank approval, but the acceptance of foreign loans

FOCUS Bilateral trade

by South African residents (including a South African subsidiary or branch of a foreign company), is subject to prior approval being obtained. Approval is required for the repayment of foreign loans by South African residents. The requirements for a visa to be issued are as follows: • Passport valid for no less than 30 days after the expiry of intended visit • The passport must have at least two blank visa pages (one to endorse the visa and one for entry stamps). The original passport + one copy of all relevant pages must be submitted. • Identity photographs, application form to be fully completed, A vaccination certificate, if required, proof of financial means in the form of - bank statements, salary advices, undertaking(s) by the host’s) in the Republic, bursaries, medical cover, or cash available, including credit cards statements or travellers’ cheques to cover envisaged living expenses during

$435 Million South Africa’s investment in the UAE the South African host (with full contact details and South

All importers and exporters in South Africa are required to register with the Commissioner of the South African Revenue Services (SARS). A number of products are subject to export control and licensing. Most goods can be imported into South Africa without restrictions. However, the importation of certain goods specified

Most goods can be imported into South Africa without restrictions. However, the importation of certain goods specified by government notice is only permitted subject to the issuance of an import permit. All second hand goods including waste and scrap require an import permit. the sojourn in the Republic, applicants travelling by air must be in possession of a provisional return or onward flight booking. No fixed travel arrangements must however be made prior to the issuing of the visa. • F o r b u s i n e s s v i s i t s ( m e e t i n g s , negotiations, workshops, seminars, conferences and training) letters from both the UAE and the South African host company/organisation should be submitted. The letters should confirm the nature and duration of the visit. For tourist visits, a provisional hotel booking or travel itinerary is acceptable. For family visits, an invitation letter from 46

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by government notice is only permitted subject to the issuance of an import permit. All second hand goods including waste and scrap require an import permit. For goods subject to restriction, an importer will need the appropriate import permit before the goods are shipped. The International Trade and Administration Commission (ITAC) control the issuing of permits. Trade and Investment South Africa (TISA), which is a division of the Department of Trade and Industry, is responsible for the smooth facilitation and aftercare to investors and potential investors. The following are services that are provided by TISA to investors:

a) Investment Marketing – Marketing of investment opportunities and the promotion of packaged investment projects. TISA undertakes various local and foreign marketing initiatives where projects and opportunities can be presented to investors. b) Investment Information – For decision making and planning, foreign and local investors can obtain the following information: Information on the local economic and business environment; Information on investment opportunities within South African sectors and industries; Information on incentive packages; Information on the local regulatory and legal environment c) Business Facilitation and Aftercare Investors - especially foreign investors require assistance when exploring investment opportunities or when setting up operations in the country.

TISA can assist with the following: Facilitation of investment missions, including travel itineraries; Introduction of i nves tors to key s t akehol d er s in private and public sectors; Introduction of investors to potential joint venture partners and black economic partnerships; Guidance with plant/site locations; Facilitation in the obtaining of finance and incentives; Assistance with work permit applications, company registration and environmental impact studies; Logistical support for relocation; Business linkages and partnership with local and foreign companies; and Provision of specific solutions to any problems that may arise after the initial investment. World renowned accounting and auditing firms such as Price Water House Coopers, Ernst & Young, and Deloitte amongst others have a significant presence in South Africa and do provide a range of business services to potential investors in South Africa. Besides these big names, a number of South African companies, i.e. Edward Nathan Sonnenbergs, Werksmens, Eversheds as well as a number of smaller medium sized companies offer these business services as well.

FOCUS Industry Watch

Top gear

South Africa The automotive industry is one of South Africa’s most important sectors, with many of the major multinationals using South Africa to source components and assemble vehicles for both the local and international markets. We met up with Dr. Norman Lamprecht, Executive Manager, NAAMSA (National Association of Automobile Manufacturers of South Africa), to know more about this strategic industry.

r. Norman started by giving me a brief overview of the sector. “South Africa’s vehicle production is set to double to 1.2 million vehicles by 2020 under the new Automotive Production Development Programme (APDP) to be introduced in 2013. From this long term automotive policy development numerous investment opportunities for the world to focus on South Africa, as a key investment destination, will arise.” “Total automotive industry exports (vehicles and components) increased by AEDs 5.6 billion or 18.3% to AEDs 36.2 billion in 2011 from AED 30.6 billion in 2010. Expectations are that the total automotive export value could test the AED 50 billion level in 2012,” he further added. South Africa’s automotive industry is its largest manufacturing sector equating to 6.8% of the country’s GDP in 2011. Going forward under the APDP this figure could 48

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rise to 10%. Being the largest manufacturing for South Africa the automotive sector is regarded as strategically significant by the South African government in view of its growth prospects. In 2011 South Africa exported vehicles and components to 130 countries around the world with export value to 27 of these countries more than doubling from 2010 to 2011. The South African automotive industry enjoys significant advantages compared with many other exporting countries. Its flexibility in producing short runs, abundance of raw materials combined with expertise, advanced technology and established business relationships of parent companies ensures that the South African industry increasingly adds value to the global strategies of parent companies. South Africa produces 80% of Africa’s vehicle production and in particular for the automotive industry the country is

regarded as the trading gateway into the African continent. Recognised globally for its manufacturing craftsmanship and engineering prowess, the South African automotive sector currently accounts for 11.8% of South Africa’s total exports. Despite the current economic environment dominated by intense competition for exports, automotive exports increased by 18.3% in 2011 following the bolstering effect of South Africa’s significant ascension to the BRICS economic coalition as well as the free trade arrangements the country enjoys with the EU, the US and the 15-member Southern African Development Community. Currently South Africa has eight major OEM’s based in the country, namely BMW, Ford, General Motors, Mercedes-Benz, Nissan, Renault, Toyota and Volkswagen as well as various manufacturers of trucks and buses and over 400 automotive component suppliers.

Talking about investment opportunities, Dr. Norman is quick to point out the MIDP programme. “The Motor Industry Development Programme (MIDP) was implemented in September 1995 to entrench the outward orientation of the domestic automotive industry, thereby restructuring it to achieve international competitiveness. The programme ended on 31 st December 2012 and is succeeded by the Automotive Production Development Programme (APDP). The APDP aims to double vehicle production in the country to 1.2 million vehicles by 2020 and will reflect a quantum leap in terms of processes, technologies and the scale on which the industry currently operates.” “The emphasis under the APDP will seek to shift away from an export focus to one that emphasises scale in the production of vehicles as well as being supportive of the further development of world-class automotive component manufacturing. Numerous trade and investment opportunities will arise following the introduction of the APDP from 2013 onwards. The APDP includes a very attractive investment incentive for automotive investors consisting of cash grant of up to 30% and along with increased volumes will enhance the viability of investment projects in the country significantly,” he remarked. The exporting link for the majority of the multinational automotive components manufacturers in South Africa consists of the South African based OEMs (Original Equipment Manufacturers) and parent companies. Some of the locally owned component manufacturers have also been successful in obtaining OEM business, while many others focus on exports of replacement parts. In addition to the investment opportunities, the sector is further seen as appealing through the extensive technology, research, expertise and skills the South African automotive industry has to offer investors. So why should foreign companies invest in this industry? According to Dr. Norman, investing in South Africa not only gives investors access to the extensive

6.8% Contribution of the automotive sector to GDP in 2011 South African automotive sector but the opportunity to access various investment markets from the African continent. South Africa applies a no- restriction- on- foreigninvestment policy in its automotive sector, allowing investors to invest as much as they can afford into the sector. Additionally, South Africa’s admission into the BRIC grouping of emerging nations clearly gives the country an advantage in leveraging investment that are intending to flow through to the rest of the sector. In addition, South Africa’s seven commercial ports have expanded facilities to handle automotive exports and imports, enabling the country to act as a trading hub in and out of Sub-Saharan Africa. This allows the meeting of logistical requirements to service Europe, Asia and the USA. South Africa’s free trade agreements with the European Union and the European Free Trade Area (EFTA), the African Growth and Opportunity Act (AGOA) with the USA, as well as the preferential trade agreement with Mercosur, enable the country to position itself as the privileged link between these regions and Africa. The country’s consideration as a sub-contracting hub for automotive industry investments includes the following: • World class logistics suitable for import and export operations; • Excellent infrastructure; • Abundant and cost competitive labour; • First world business sector; • High quality office and business park facilities; • S u p e r i o r q u a l i t y p r iva te s c h o o l s , sophisticated cosmopolitan cities and unmatched quality of life;

• The common use of English; • Internationally competitive incentives and support measures; • Policy certainty and predictability with appropriate levels of support and investment incentives.

And how does one go about availing these facilities? There is a wide range of investment incentives available to South African-based companies, foreign or domestically owned. Incentives are administered by the Department of Trade and Industry (DTI) and are uniform throughout the country. Incentives are generally in the form of tax holidays, rebates and accelerated depreciation while cash grants, relocation grants and other incentives are available under prescribed circumstances. Dr. Norman then went on to elaborate about the set up of the automotive industry. “South Africa’s vehicle manufacturing industry is concentrated in three of the country’s nine provinces, namely Gauteng, the Eastern Cape and KwaZulu-Natal, and in close proximity to its suppliers. However, increasingly some automotive development is also taking place in the Western Cape and North West provinces. Provincial and local governments have trade, investment and tourism offices to promote economic activity in each region, many of which have their own Industrial Development Zones (IDZs) and development programmes. There are 283 municipalities focused on growing local economies and providing infrastructure and services.” “The first and foremost step that any investor should follow if interested in investing in the South African automotive sector is to get in touch with the South African DTI directly or via its foreign office representative at the South African Consulate in their country. The DTI will then be able to put you in touch with the correct contacts and facilitate creating the relationship with that contact as well as advise how to successfully get the best out of the opportunities and locations available,” he remarked. JANUARY 2013

FOCUS Industry Watch

In view of the South African automotive industry’s trade pattern, many opportunities of mutual benefit exist for foreign companies to collaborate with South African automotive component suppliers. The new Automotive Production Development Programme’s (APDP’s) vision to double vehicle production in the country to 1.2 million units by 2020 will ensure a major increase in business opportunities as well as enhance the viability of projects in the country significantly. The integration into the global groups of the South African subsidiaries provides opportunities for business, produces synergies in several areas and accelerates the exchange of knowledge, which will enable the domestic subsidiary to be more competitive in the global automotive environment . Consequently, component manufacturers using South Africa’s competitive advantages seek contact with outside partners for market access, technology, process knowhow, production rationalisation and other joint venture benefits. Opportunities also exist in collaborating with South African owned companies for similar reasons. Collaboration not only exists in the areas of Greenfield (new investments) or brownfield (joint venture) operations but various other types of industry co-operation to pursue include: • Technical collaboration in design of products, systems or production methods/layouts • Research and development • Supplier/customer relations • Joint production • Technology transfer • Licenses and patents • Marketing and co-operative promotion of projects and market sharing • Commercial representation • Franchising • Financing • Strategic alliance • Third country collaboration When I asked him about which particular sub-sectors within the industry offer investment opportunities, Dr. Norman answered, “The South African automotive 50

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Dr. Norman Lamprecht, Executive Manager, NAAMSA

industry, as everywhere else in the world, is strongly influenced by the OEMs. The industry’s structure and evolutionary path are therefore closely aligned with OEM strategies in both domestic and global markets. The increasing orientation o f O E M s towa rd s ex p o r t s h a s t h u s fundamentally changed the structure of their own operations as well as those of the automotive component industry. Key decisions about South Africa’s automotive business are made in Europe, the USA and Japan. South Africa’s participation in the World Trade Organisation (WTO), its competitive advantages and its special relationships with the EU and other trading regions has facilitated the industry’s integration into the global sourcing strategies of the multinational automotive corporations.” With the largest economy in Africa, South Africa is a key investment location, both for the market opportunities that lie within its borders and for the ability to use the country as a gateway to the rest of the continent. There are several factors that underpin the choice of South Africa as a “gateway”. • First, South Africa has for many years been one of the largest sources of foreign direct investment (FDI) for the African

continent. This experience in investing in the continent is one critical strength, leading other countries to engage with South Africa when considering investment decisions in Africa. • Second, South Africa has for many years adopted a developmental approach towards the African continent due to its awareness that its own development is intrinsically linked to that of the continent as a whole. Countries that are genuinely interested in the sustainable development of the continent therefore see South Africa as a partner, given its various interventions and programmes on the continent. • Third, South Africa is the biggest economy in the continent and is the most developed in terms of industrial economy, regulatory framework and financial sectors, to name but a few. South Africa also offers an excellent economic infrastructure that links it with the rest of the continent. It also has political and economic influence in Africa. Several global companies have accordingly chosen to locate their African headquarters in South Africa and have used the capabilities developed in the country to expand in the region. South Africa therefore serves as a platform to access the broader African opportunity. In addition, the country is increasingly being used as a shared services hub for companies’ African operations, especially for sub-Saharan countries. Dr. Norman concluded the interview by re i t e ra t i n g why S o u t h A f r i c a i s the ideal trade and business partner. “South Africa’s improved ranking in the World Economic Forum’s latest Global Competitiveness Index, climbing four places to 50 th out of 142 countries s u r veye d , w i l l f u r t h e r e n h a n c e t h e country’s competitiveness in attracting FDI, including from those countries that want to use South Africa as a base for their African operations.” I hope all this information will definitely prove useful to businesses in the Middle East looking at doing business in South Africa.