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Moving to South Africa as an entrepreneur

At a glance

  • Considerable economic potential is beginning to be realised
  • Trans-shipment point for markets in Central and South America and newly industrialised nations of south Asia and Far East
  • Booming tourist industry outperforms all other economic areas
  • Investment incentives and investor protection schemes available
  • Cost of living and running a business much lower than Europe
Moving to South Africa as an entrepreneur

Though still emerging from the shadows of the apartheid era, which ended in 1994, South Africa has rich resources, numerous investment opportunities and a government dedicated to economic and social reform.

The UK is one of the country's top trade and investment partners, with 8% of South African exports going to the UK, a percentage surpassed only by Japan and the US. Many products already enjoy duty-free status and tariffs were phased out under the EU/SA Cooperation Agreement effective since 2000.

While the EU is mired in debt and the US deficit ceiling is repeatedly raised, this emerging economy boasts an enviable debt-GDP ratio. At 36%, it's debt as a percentage of national income is dwarfed by that of the UK (86%) and US (103%), and leaves South Africa considerable scope for infrastructure investment. The Seacom cable installed along the southeastern coast, which saw broadband speeds soar by 1,000%, is a case in point.
 
Most South Africans were disadvantaged by apartheid and need to become active participants in the domestic economy for it to flourish. With unemployment high and skilled workers at a premium, the Black Economic Empowerment scheme remains a central plank of government policy.

Tokenism

Empowerment policies give the previously disadvantaged preferential access to job opportunities, learning programmes and procurement activities. Progress has been hampered by tokenism, where white business people, eager to win state bids, offer black business people generous contracts to pose as empowerment partners, but buy them out as soon as the bids are won.

South Africa acts as a trans-shipment point between Central and South America and south Asia and the Far East

Despite this, corruption in South Africa is nowhere near as endemic or as crippling as in other African nations.

Yet while Thabo Mbeki took steps to redefine South Africa's image when president, more must be done to expand the middle class - and so include more black people - to bridge the gap between rich and poor and create a world-class economy and business environment.

Until the government can ensure this succeeds by introducing stricter guidelines for empowerment and revamping the education system, foreign investors will continue to be wary of South Africa.
 
For the brave, though, a modern infrastructure and sophisticated financial markets present many investment opportunities.

A gateway to a southern African market of 185 million people, South Africa manufactures and transports the majority of goods heading to that region. It also acts as a trans-shipment point between the emerging markets of Central and South America and the newly industrialised nations of south Asia and the Far East.

South Africa's trade and industrial policy is in the process of fundamental change, moving away from a highly protected, inward-looking economy towards an internationally competitive one.

Positive developments include a significant reduction in tariff barriers; a consistently competitive exchange rate; removal of restrictions on the investments available to foreigners and requirements for government approval; increased labour market flexibility; introduction of investment incentives; and an increase in technology transfer.

 

Incentive schemes include the Strategic Investment Plan, which offers the investor an allowance that may be used to offset taxable income; the Small and Medium Enterprise Development Programme, which gives a cash grant to entrepreneurs setting up new ventures; the Foreign Investment Grant, a cash grant to assist investors from abroad with the cost of relocating new machinery and equipment to South Africa; and the Skills Support Programme, a cash grant to support businesses engaging in skills development programmes.

In addition, the UK and South Africa share an Investment Promotion and Protection Agreement, a government-to-government treaty designed to encourage investor confidence and investment flows by setting high standards of investor protection applicable in international law.

It includes provisions for non-discriminatory treatment by the host state, compensation for expropriation, unrestricted remittance for profits and international arbitration in the event of an investor-host state dispute.

Investment opportunities

Prime investment opportunities in South Africa include the privatisation and restructuring of ports, airports, railways and rail operators; the automotive industry; telecoms; IT; electronics; water; healthcare; education and training; tourism; creative industries; sports and leisure; and agriculture.

Setting up in South Africa, investors pay considerably lower legal, accounting, management consultancy and advertising fees than in most developed economies.

Perhaps the most attractive South African investment is property, which is considerably cheaper than in the UK. For a modest amount you can buy a house in an affluent area with easy access to primary, secondary and tertiary education of a decent standard, as well as sports and recreation facilities. The general cost of living is low.

Despite the ongoing political and economic improvements, South Africa is still a country afflicted by high crime rates, with violent crime a particular problem. But this hasn't put the tourists off.

Indeed, the country's tourism industry is outperforming all other sectors of the economy, meaning related service industries can be lucrative for the foreign investor. South Africa notched up a record 8.4 million foreign tourist arrivals in 2010 an increase from seven million in the previous year.

With more visitors coming from North and South America, Asia and the Middle East, South Africa is looking to expand its brand beyond a five-star tourist image centred around the expensive Cape Peninsula and safaris in private game reserves. Tourist packages are being diversified to include lower cost itineraries and three- and four-star accommodation.

A unique opportunity to demonstrate these advances - not to mention gain access to funds to accelerate and expand on them - arose in 2010, when South Africa hosted the football World Cup. This has already sparked a race to build facilities across the country, undoubtedly a boon for the construction industry.

Read about the legal obstacles to doing business in South Africa here.

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