South Africa has always been an attractive investment destination to investors seeking to expand their business activities into Africa and 2023 is no different. With Africa being a large and lucrative market to break into when done correctly, South Africa presents itself as a promising gateway.
Confidence in South Africa as an investment destination
South Africa is a thriving democracy with an advanced and diverse economy, a sophisticated and well-regulated financial sector, and extensive transport, telecommunications and energy infrastructure. South Africa’s government continues to work hard to create a dynamic and enabling business environment that will promote South Africa as the best investment destination amongst foreign countries looking to expand their business activities into Africa.
In 2018, South Africa embarked on an ambitious investment drive, which aimed to raise $100 billion in new investment over five years. — which at the time translated to R1.2 trillion — over five years. To date, the investment drive has achieved 95% of this target in investment commitments over the last four years whereby 2023 will be the last instalment of the Presidential Investment Conference. This confirms the continued interest in utilising South Africa as an investment destination from both foreign and local companies.
As part of the investment drive, the country is intensifying efforts to improve the business environment. The government has further put in place a “very attractive package of incentives” administered by the Department of Trade Industry and Competition (DITC) with the main aim to assist potential investors in identifying opportunities and facilitating a seamless investment process.
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World-class infrastructure and logistics
South Africa is the best performer in Africa for trade facilitation logistics. The transport sector is a key contributor to South Africa’s competitiveness in global markets. South Africa’s world-class infrastructure and undeniable position as a foothold into the rest of Africa. According to the Logistics Performance Index (LPI), South Africa has the highest trade logistics performance in Africa.
The country’s network of roads and highways has a total length of 750,000 kilometres resulting in long distances having to be covered to reach the more remote parts of the country. The air and rail networks are the largest on the continent while South Africa’s port efficiency has improved considerably as a result of investment in new assets such as ship-to-shore cranes and other supporting handling equipment.
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Largest presence of multinationals
South Africa has one of the most sophisticated business environments in sub-Saharan Africa and strong state institutions, which are key to its status as a regional economic powerhouse and often the first country that multinationals consider when expanding their business activities into Africa.
Another strong pulling factor for multinationals to set up companies in South Africa is the country’s resilient and stable banking sector. The private business regulatory climate is also regarded to be one of the most conducive in Africa while the tax regime is progressive and includes several incentives for non-South Africans.
South Africa prides itself to be an investment-friendly environment and has piqued interest amongst global investors through increasing engagement and networking. As one of the most open economies in the world (exports and imports collectively represented approximately 51% of GDP in 2020), and with preferential access to numerous global markets.
Many multinational companies also use South Africa as a gateway to the rest of Africa due to the number of trade incentives that have been set in place between the African countries. One such example is The African Continental Free Trade Area (AfCFTA) which provides manufacturers based in South Africa the opportunity to increase the volume of trade with the balance of the continent. As it stands, more than 37% of goods made in South Africa are destined for other African countries.
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Manufacturing Hubs
According to The DITC South Africa’s well-established manufacturing sector presents numerous opportunities to potential investors that are considering South Africa as a potential investment destination. The sector’s diverse industry means investors are spoilt for choice towards which industries they wish to explore.
South Africa’s manufacturing sector presents multiple reasons why South Africa remains an attractive investment destination. The sector is well-established, possesses advanced technologies to produce quality goods and is strategically placed to provide businesses with access to the rest of the African continent.
In 2022, the manufacturing industry increased by 1.5% in the third quarter, contributing 0.2 of a percentage point to the country’s overall Gross Domestic Product GDP growth. An impressive 7 of the 10 manufacturing divisions reported positive growth rates in the third quarter, (Stats SA). The value added by manufacturing to the GDP in South Africa was measured at approximately 545,507 million South African rand in the third quarter of 2022.
Of the 10 manufacturing divisions, the largest positive contributions were made by the motor vehicles, parts and accessories. This is mainly due to South Africa housing some of the world’s biggest automotive companies including Mercedes-Benz, Nissan, BMW, Ford, and Toyota to name a few. The favourable government policies, ease of doing business, low tariff rates, reasonable labour practices and availability of low-cost skilled labour all contribute to why these worldwide brands chose to invest functional plants on South African soil. The vehicle and component production forms an integral part of the economy and has accounted for nearly 30 percent of the country’s manufacturing output.
Other top manufacturing divisions are that of the petroleum, chemical products, rubber and plastic products. While niche industries such as food processing, beverages, motor manufacturing and wood products have reached maturity, there remain further ripe opportunities for foreign direct investment.
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Internet
When it comes to the internet, South Africa is one of Africa’s leading markets alongside Nigeria. Over the past century, South Africa has worked hard to position itself strategically as a hub for Africa’s digital economic revolution. South Africa’s internet quality remains the best in Africa. South Africa is ranked amongst the top-performing countries according to the Digital Quality of Life (DQL) Index. The study considers a country’s internet affordability and quality, electronic infrastructure, security, and how digitally advanced its government is.
The boom in internet traffic in South Africa has been supported by higher speeds and improved fibre infrastructure. Driving internet traffic growth is the need for large file transfers, cloud computing and remote working resulting in the country’s average speed increasing three-fold between 2016 and 2021, from 6 Mbps to almost 18 Mbps.
This has not gone unnoticed by tech companies. Netflix, for example, announced an investment of $60 million at the annual South Africa Investment Conference, in a bid to help South African creatives bring high-quality stories to a global audience. With that said, there is still a lot of room for improvement – presenting opportunities to foreign investors looking to expand into Africa.
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Emerging market
The South Africa of today [2023] is one of the most sophisticated and promising emerging markets globally. This is mainly due to the unique combination of a highly developed first-world economic infrastructure and a huge emergent market economy that has given rise to a strong entrepreneurial and dynamic investment environment.
South Africa’s dream of emerging as an economic powerhouse, capable of using all the talent and brainpower at its disposal, while alleviating poverty and significantly lowering the staggering unemployment numbers, is an achievable reality. The world has shown its solidarity and aid behind this sentiment by investing and making significant pledges in a bid to cement its support towards South Africa.
Furthermore, the increased growth in purchasing power opens new opportunities for both consumers and foreigners looking to enter the market. South Africa’s economy was originally based on agriculture and mining, but this has changed over the years. With services and manufacturing now contributing the greatest share to GDP. The country’s economy is reasonably diversified with key economic sectors including mining, agriculture and fisheries, vehicle manufacturing and assembly, food processing, clothing and textiles, telecommunication, energy, financial and business services, real estate, tourism, transportation, and wholesale and retail trade.
Conclusion
South Africa has set itself apart as an emerging economic hub. South Africa remains an investment destination of choice for many global corporates, with more than 180 Fortune Global 500 companies having a footprint in the country.
With developed first-world economic infrastructure and a growing emerging market, South Africa’s investment potential lies in its diversity of sectors and industries, South Africa is also a major trading nation, exporting and importing billions worth of goods globally every year.
InterGest South Africa has been assisting multinational companies to enter the market successfully for the past 20 years. Our services and systems are designed to assist the exporting company in the establishment and administration of a foreign branch, subsidiary, or a direct selling organisation. From market entry through to the setup, recruitment, financial administration (accounting, payroll, tax), management of subsidiaries and sales organisation, identification of local sales partners, and legal services, we are able to assist multinational companies at all stages of their business journey into Africa.
For a full range of our services, click here: https://intergest.co.za/our-services-administrative-experts/
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Sources:
https://businesstech.co.za/news/finance/649255/big-surprise-for-south-africas-economy/
