South African-American Chamber of Commerce

www.sauschamber.comDoing Business in South Africa

An Interactive Presentation on the Risks & Opportunities of Doing Business in South Africa

Presented by Spencer Sterling

South African DemographicsThe Rainbow Nation• South Africa is a nation of diversity, with over 50-million people and a wide variety

of cultures, languages and religious beliefs. • According to the mid-2011 estimates from Statistics South Africa, the country's

population stands at 50.5-million, up from the census 2001 count of 44.8-million. • Africans are in the majority, making up 79.5% of the population, while white

people and coloured people each make up 9.0% and the Indian/Asian population 2.5%.

POPULATION GROUPSThe African population is made up of four broad groupings: • The Nguni, comprising the Zulu, Xhosa, Ndebele and Swazi people. • The Sotho-Tswana, who include the Southern, Northern and Western Sotho

(Tswana people). • The Tsonga. • The Venda.

Demographics, cont.White South Africans include:• The Afrikaners, descendants of Dutch, German and French Huguenot who came to

the country from the 17th century onwards. • English-speakers, descendants of settlers from the British Isles who came to the

country from the late 18th century onwards. • Immigrants and descendents of immigrants from the rest of Europe, including

Greeks, Portuguese, Eastern European Jews, Hungarians and Germans. • "Coloured" South Africans (the label is contentious) are a people of mixed lineage

descended from slaves brought to the country from east and central Africa, the indigenous Khoisan who lived in the Cape at the time, indigenous Africans and whites. The majority speak Afrikaans.

• The majority of South Africa's Asian population is Indian in origin, many of them descended from indentured workers brought to work on the sugar plantations of what was then Natal in the 19th century. They are largely English-speaking, although many also retain the languages of their origins. There is also a significant group of Chinese South Africans.

The Political Structure of South Africa

• The Republic of South Africa is a unitary, parliamentary republic. The President of South Africa is both head of state and head of government; in the same manner as the prime minister of other nations, the President is elected by the National Assembly (the lower house of the South African Parliament). Provincial legislatures govern in respect of each of the country's nine provinces.

• The parliament has two chambers, which elect the president. The National Assembly has 400 members, elected for a five year term. The National Council of Provinces has 90 members, elected for a five year term by the provincial parliaments. The National Assembly and Provincial Councils are elected when General Elections are held.

• Members to the local governing councils in the municipalities and mayors are elected in municipal elections.

• Since the end of apartheid, South Africa's politics has been dominated by the African National Congress (ANC). The ANC received 65.9% of the vote during the 2009 general election and 62.9% of the popular vote in the 2011 municipal election.

• The main challenger to the ANC's rule is the Democratic Alliance, which received 16.66% of the vote in the 2009 election and 24.1% of the popular vote in the 2011 municipal election.

Economic OverviewThe Upside

• South Africa is the economic powerhouse of Africa, leading the continent in industrial output and mineral production and generating a large proportion of Africa's electricity.

• The country has abundant natural resources, well-developed financial, legal, communications, energy and transport sectors, a stock exchange ranked among the top 20 in the world, and a modern infrastructure supporting efficient distribution of goods throughout the southern African region.

• South Africa has a world-class and progressive legal framework. Legislation governing commerce, labour and maritime issues is particularly well developed, and laws on competition policy, copyright, patents, trademarks and disputes conform to international norms and conventions.

• The country's financial systems are sophisticated and robust. The banking regulations rank with the best in the world, and the sector has long been rated among the top 10 globally.

Economic OverviewThe Upside, cont.

• Not only is South Africa itself an important emerging economy, it is also the gateway to other African markets. The country plays a significant role in supplying energy, relief aid, transport, communications and investment on the continent. Its well-developed road and rail links provide the platform and infrastructure for ground transportation deep into Africa.

• South Africa’s GDP rose by 5.4% in 2006, 5.1% in 2007, 3.1% in 2008, 3.8% in 2011 and is expected to remain just below four percent at 3.9% for 2012.

• However, South Africa needs sustained growth of at least 7 percent a year over a 20-year period to significantly reduce unemployment and poverty.

Economic OverviewThe Downside

Energy supply• The biggest immediate threat to South Africa's continued economic growth is a

capacity constraint that has arisen precisely because of the country's strong economic performance in recent years.

• This growth, coupled with the rapid industrialisation and mass electrification programme of the last decade, finally led, in January 2008, to demand for electricity outstripping supply.

• The resulting power cuts prompted the government to move quickly to address the crisis. The response plan includes spending about R343-billion over five years to fund a new generation of power stations, as well as a raft of measures to reduce residential and industrial demand.

Unemployment• The IMF report has identified the long-standing issue of unemployment as one of

the biggest challenges to economic growth in the country, along with poverty, large wealth disparities and a high incidence of HIV/AIDS.

Economic OverviewThe Downside, cont.

Corruption• The ruling African National Congress (ANC) says it is very worried. The “scourge” of

corruption was “far worse than anyone imagines…at all levels of government”, admits Kgalema Motlanthe, the country’s vice-president. Too many “comrades” regard election to public office as simply a chance to get rich, concedes Gwede Mantashe, the ANC’s secretary-general. “We must move away from a culture of greed and self-enrichment to one of transparent accountability,” says its treasurer, Mathews Phosa.

• In the latest index of perceived corruption from Transparency International, a Berlin-based monitor, South Africa does quite well, coming 55th on a list of 180 countries. But corruption is a large and growing problem, entangled with a culture of black entitlement to compensate for past suffering under apartheid.

Major Industrial SegmentsMining and Minerals in South Africa• South Africa is a world leader in mining. The country is famous for its abundance of

mineral resources, accounting for a significant proportion of world production and reserves, and South African mining companies are key players in the global industry.

South Africa’s Automotive Industry• South Africa's automotive industry is a global, modern industry that manufactures and

distributes vehicles and components locally and worldwide. The sector accounts for about 10% of South Africa's manufacturing exports, making it a crucial cog in the economy.

South Africa's Tourism Industry• South Africa's scenic beauty, magnificent outdoors, sunny climate, cultural diversity and

reputation for delivering value for money have made it one of the world's fastest growing leisure - and business - travel destinations.

ICT and Electronics in South Africa• The leader of information and communication technology development in Africa, South

Africa is the 20th largest consumer of IT products and services in the world.

Economic StatisticsGDP Growth 4.6% (Q1 2010)

Inflation (CPI) 4.6% (May 2010)

Labour Force 17.32 million economically active

Main Industries Mining (world's largest producer of platinum, gold, chromium), automobile industry, metalworking, machinery, textiles, iron and steel, chemicals, fertiliser, foodstuffs, commercial ship repair

Exports $67.93 billion (2009 est.)

Export Goods Gold, diamonds, platinum, other metals and minerals, machinery and equipment

Main Export Partners

Japan 11.1%, United States 11.1%, Germany 8%, United Kingdom 6.8%, China 6%, Netherlands 5.2% (2008)

Imports $70.24 billion (2009 est.)

Import Goods Machinery and equipment, chemicals, petroleum products, scientific instruments, foodstuffs

Main Import partners

Germany 11.2%, China 11.1%, United States 7.9%, Saudi Arabia 6.2%, Japan 5.5%, United Kingdom 4% (2008)

Infrastructure ExpansionSouth Africa’s R800bn Infrastructure Drive• South Africa is set to spend over R802-billion on infrastructure development over

the next three years as part of a government drive to ease bottlenecks and reduce costs in the economy, "crowd in" private investment and improve access to export markets

• Of the R802-billion, R292-billion will be invested in South Africa's energy sector, R226-billion in transport and logistics, R39-billion in hospitals and clinics, and R32-billion in education infrastructure

Available Business StructuresSole Proprietorships• The sole proprietorship is the simplest and most common form of business,

conducted by a single individual owner (the “sole proprietor”). Sole proprietors can conduct business under their own name by simply doing business, for example, as “Jane Jones”. A sole proprietor can also do business under a trade name such as “Jane’s Jet Skis” or “Supreme Skis”.

• A sole proprietorship has no limited liability for the owner, and it is therefore important to note that the business owner’s liability includes his own personal assets.

• Net profit of the sole proprietorship is viewed as personal income of the business owner and taxed in his personal name according to the income tax tables of South African Income Tax Law.

• If a sole proprietor operates under a trade name or fictitious name, the sole proprietor is usually required to file a form (a “trade name certificate”) in the city / province where the business is located.

• A sole proprietorship may have employees and is permitted to carry on most types of businesses.

Available Business Structures, cont.Close Corporations• A close corporation (CC) is similar to a private company as it is a legal entity with its own

legal personality, perpetual succession and a tax payer in its own right. The owners of a close corporation are called members. Membership is restricted to natural persons and, under certain conditions, to trusts. Such members do not hold shares but have a member’s interest in the entity. This member’s interest is expressed as a percentage. The minimum number of members is 1 and the maximum number of members allowed is 10. From a taxation perspective, the close corporation is treated in a similar manner as a company. This is a common form of business entity for smaller businesses.

Private Company Limited (Pty Ltd)• This business entity is treated by law as a separate legal entity and has to register as a tax

payer in its own right. It is required by the Companies Act No 61 of 1973 to perform rights and duties of its own. The owners of a private company are shareholders. A company may not have an interest in a close corporation. The Act restricts the number of shareholders in a private company to a maximum number of 50. The rights and obligations of the shareholders vis-a-vis each other and vis-a-vis the company are set out in a shareholders agreement. The name of a private company must end with the words ‘(Proprietary) Limited’ or ‘(Pty) Ltd’.

Doing Business in South Africa

• Are you an entrepreneur, or a business owner? Are you looking for a market, either local or national for your product in South Africa? Or are you seeking a potential investor in South Africa for your project or business in the USA? If so, there are a number of “one-stop investment shops” in South Africa that offer a variety of services to those interested in conducting business in South Africa.

Doing Business in South Africa, cont.

• The Department of Trade and Industry • Regional Investment Agencies • The Johannesburg Stock Exchange– With world-class technology and world-class

surveillance the JSE, the 18th largest exchange in the world by market capitalisation, offers investors a truly First World trading environment.

Doing Business in South Africa, cont.

Top Class Investment Expertise• There's a wealth of world-class expertise to help an investor establish a

business in South Africa. Legal, financial, banking and accounting firms are supported by Chambers of Commerce, national embassies and government offices.

• Here in Atlanta, your First-Stop-One Stop-Shop, when you are thinking about establishing commercial, cultural or sporting relationships with South Africa, is the South African-American Chamber of Commerce.

• Become a member and we will help you get connected with one of the most interesting and exciting countries on Earth.

The South African-American Chamber of Commerce

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