South Africa
The Republic of South Africa as it is officially known is a burgeoning international market for trade and investment. Since the establishment of freedom from apartheid in 1994 the country has seen dramatic political, economic, cultural, and legal changes that have brought it to the forefront of international business. The economic picture of the country is a in a growth phase and will continue to be, if the conditions in other areas continue to improve. Though the progress is not an over
South Africa is a middle-income, emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; a stock exchange that ranks among the 10 largest in the world; and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region. (U.S. Central Intelligence Agency The World Factbook 2003)
In addition to all the positive aspects of the economic overview for South Africa the reality is that South Africa is on the brink of a major transition and transitions are not shouldered without conflict and strain.
However, growth has not been strong enough to lower South Africa’s high unemployment rate; and daunting economic problems remain from the apartheid era, especially poverty and lack of economic empowerment among the disadvantaged groups. High crime and HIV / AIDS infection rates also deter investment. South African economic policy is fiscally conservative, but pragmatic, focusing on targeting inflation and liberalizing trade as means to increase job growth and household income. (U.S. Central Intelligence Agency The World Factbook 2003)
South Africa, though in a growth phase (3% (2002 est) real growth rate) has serious disparities, not yet bridged by progress. With a Gross Domestic Product purchasing power parity of $432 billion (2002 est.) (CIA, WFB 2003) South Africa still has an estimated unemployment rate of 37% (includes workers no longer looking for employment) and an estimated 50% of the population lives below poverty level. The Gross Domestic Product- per capita, purchasing power parity is a low average of $10,000 and the lowest earning 10% of the population consumes 1.1% of the income while the highest 10% shares 45.9% (1994). The estimated inflation rate in 2002 was a relatively high 9.9%. There are an estimated 17 million people of the 42,768,678 total population who are economically active. (CIA, WFB 2003)
As of Thursday, October 28, 2004 currency exchange rates are reflective of growth:
1 South African Rand = 0.16243 U.S. Dollar
1 U.S. Dollar (USD) = 6.15650 South African Rand (ZAR)
Median price = 0.16164 / 0.16243 (bid/ask)
Minimum price = 0.15835 / 0.16003
Maximum price = 0.16264 / 0.16407
(FXConverter™: Classic 164 Currency Converter © 1997-2004 by OANDA.com.)
Additionally the strength of the Rand continues to grow as reflected in exhange rates over the last few years rand per U.S. dollar – 10.5407 (2002), 8.6092 (2001), 6.9398 (2000), 6.1095 (1999), 5.5283 (1998) (CIA, WFB 2003)
Politically the country is in the transitional phase out of the apartheid era and it an era of universal suffrage with a modern constitution. The constitution being slowly implemented since its inception in 1996 has marked a period of change that has left the historical white (minority) controlled infrastructure relatively unstable.
Despite obstacles and delays, an interim constitution was completed in 1993, ending nearly three centuries of white rule in South Africa and marking the end of white-minority rule on the African continent. A 32-member multiparty transitional government council was formed with blacks in the majority. In Apr., 1994, days after the Inkatha Freedom party ended an electoral boycott, the republic’s first multiracial election was held. The ANC won an overwhelming victory, and Nelson Mandela became president. South Africa rejoined the Commonwealth in 1994 and also relinquished its last hold in Namibia, ceding the exclave of Walvis Bay. (The Columbia Electronic Encyclopedia, Sixth Edition)
After almost three hundred years of white minority rule in South Africa the challenges are great as individuals, who do no remember a time in their lives or the lives of their parents that they were not subjugated. The realities of compromise and reconciliation between the differing factions of the freedom movement have been disappointing to some, yet for the most part people are taking an active role in the changes that need to be made to recover from the grave disparities that are present still today. Many years of defiance and struggle as a way of life has made the political climate in South Africa as heated and raw as can be expected, yet free elections ands universal suffrage is beginning to iron out the differences and freedom fighters begin to pave the way to living in peace.
In 1994 and 1995 the last vestiges of apartheid were dismantled, and a new national constitution was approved and adopted in May, 1996. It provided for a strong presidency and eliminated provisions guaranteeing white-led and other minority parties representation in the government. De Klerk and the National party supported the new charter, despite disagreement over some provisions; Inkatha followers had walked out of constitutional talks and did not participate in voting on the new constitution. Shortly afterward, de Klerk and the National party quit the national unity government to become part of the opposition, after 1998 as the New National party. The new government faced the daunting task of trying to address the inequities produced by decades of apartheid while promoting privatization and a favorable investment climate. (The Columbia Electronic Encyclopedia, Sixth Edition)
Challenges are many but with the strength of many leaders and the country’s commitment to the retention of self-government people are politically active and hopeful for the future. The basic problems in South Africa that need address for continued economic and cultural growth are the continued economic disparity between the rich and the poor and the dichotomy of the resulting social situation. Foreign investment is greatly needed as more jobs, with livable wages need to be made available to the less privileged in society.
As pressures related to international competition intensify, South African companies will be obliged to make rapid organizational and cultural changes, and these can only be effected through people. Unless the right people are in the right places at the right time with the right skills and attitudes, the necessary changes will not come about. The key to the desired result is, therefore, effective leadership. The South African situation, however, is incredibly complex, as many organizations in the productive system have been floating in an ocean of authoritarianism and bureaucratic hierarchies (Nel 1994:8-10). This situation demands that leaders recognize the dynamics of change and do a lot of pioneering to move their organizations away from today’s industrial conflict, low productivity, and lack of world competitiveness. (Grobler, 1996)
Culturally speaking the country is very diverse, as a result of many years of intensive international involvement in both industry and settlement in the country as a whole. But still mostly populated by indigenous African born citizens.
Figure 1: Population of South Africa by province and race (Source: Statistics SA 1998). (Tladi, Baloyi, & Von Boom 2003
A majority African/Black individuals people the country excluding the Western and Northern Cape provinces. Eleven official languages are spoken including Afrikaans, English, Ndebele, Pedi, Sotho, Swazi, Tsonga, Tswana, Venda, Xhosa, and Zulu, though most African people speak Afrikaans or English as a second language as these are the most widely used languages in the region. Many issues, with regard to international business are important with regard to language and cultural diversity, as new and old international markets must be aware and sensitive to changes in available workforce and demands for inclusion in growth made by those less fortunate. As the infrastructure, transportation and otherwise is strengthened care must be taken by international business owners and leaders to enforce the social/political standards of the new countrywide standards for inclusion and growth.
Though the country is nearly evenly divided on the issue of urbanization, there is a remarkable difference in income and standard of living among those who live in the cities and those who live in the rural area and rely upon agriculture or mining for subsistence. The standard of living within the urban regions is far greater than among rural dwellers.
South Africa has a fairly evenly distributed urban to non-urban population, only 53,7% of its population is estimated to live within an urban environment. There is increased migration to the cities, mainly due to a declining agricultural sector and growth in urban unemployment. Furthermore, declining precious metals prices and other factors, leading to possible retrenchments in the mining industry, exacerbate this situation. (Tladi, Baloyi, & Von Boom 2003)
Though the culture is clearly divided between the upper and lower portions of society based on income this can be clearly associated with the disparity that has existed between those in positions of power (urbanized nonwhites) and those in subjugation (African/Blacks and Coloured individuals). The challenges to bridge this gap are many and foreign investment can assist with this cause but it must be clear that increased further urbanization should be considered something to avoid rather than support as the break down in GDP, composition by sector makes clear that the challenges between the industries are already forcing an income disparity (agriculture: 4.4%, industry: 28.9%, services: 66.7% (2001) (CIA, WFB 2003) as industry and support for urban dwellers in the form of service staff are clearly at a great advantage over the agricultural field. Though the division of labor in the country reflects an slightly uneven distribution between agriculture and industry/service, (agriculture 30%, industry 25%, services 45% (1999 est.) it does not reflect such a broad disparity of income, or spending power and the urbanization numbers as well. (CIA, WFB 2003) As can be seen above 30% of the total working population holds only 4.4% of the total working capital in the country. This disparity must be addressed by investment and foreign business ventures.
Specific Foreign Business Opportunities
South Africa, as it is designated as an emerging nation, must also be viewed as an emerging economic entity and investment in South Africa must be accepted as untraditional. It is not longer the case that large corporate entities must invest in large global high profit business ventures, such as mining and the like. In the past few years it has become clear that investment in smaller market demands by smaller entities can assist the nation in development in far greater fashion. In the example provided her there has been an investment to meet the needs of a growing economy that can usher in a change in the ways in which traditional and non-traditional investors alike can benefit and in turn assist the country in beneficial development.
Still, there are opportunities for smart investors and entrepreneurs. Professional Carpet Systems, an Atlanta-based firm, last year sold a master franchising license to black South African brothers Kgosi and Mandla Letlape, allowing the brothers to establish franchises throughout the country. “They [Professional Carpet Systems] understood it’s a whole new ballgame out here,” Kgosi Letlape told BE. “[With a franchise] you’re buying into a system that works … You don’t have to start from scratch.” (Mack & Lowery, 1994)
Changes made today in the manner in which investments are planned and implemented in South Africa can greatly assist the country in its goals to reformulate the opportunity for its diverse population.
“Americans are flocking to South Africa,” commented Kathryn Leary, managing director of NMBC’s International Trade Program, at a recent Made in USA Southern Africa Trade Expo. At the expo, she lobbied for NMBC [National Minority Business Organization] member companies and conducted a study of the business potential for their products and services. (Reynolds, 1995, p. 37)
With this newly found interest in South African investment there have been some recommendations for large and small companies wishing to invest:
Robinson identified the following areas as potential profit makers: Construction, computer software / hardware, business consulting, public relations and marketing. According to the NMBC, the average South African company reports $150,000 to $200,000 in revenues. These South African firms, in turn, are seeking American partners with revenues of at least $250,000 and two to three staffers. To oblige South African comrades, the NMBC recently advanced its international trade efforts with a fact-finding mission to South Africa. (Reynolds, 1995, p. 37)
The business climate of the nation is clearly poised to accept foreign investment in existing firms already working in South Africa and in new ventures associated with underserved areas of he country. Challenges are great but the growth potential is clearly astronomical, with the right formulation and business strategy, and the inclusion of adding to the progress already made by the nation in growth for all.
Recommendations
Clearly the climate for business in South Africa has changed dramatically, with the political and social changes that have occurred in the country, and those changes are reflected in the international business opportunities in the country.
The process of South Africa’s reintegration internationally is well under way. Henceforth South Africa will be shaping its own destiny without the need to apologize, make excuses, or seek special favors (Ogilvie-Thompson 1993:10). However, this freedom is accompanied by a number of challenges. South Africa has some very important choices to make, the most urgent being the creation of wealth and jobs. This process can be enhanced by attracting foreign investors, increasing exports, and becoming a global competitor. (Grobler, 1996)
South Africa’s new emphasis on becoming a global competitor without all the spoils being directed at those who have been historically high achievers, mainly the non-white settlers remaining from subjugation and colonialism is in need. Sensitivity to this issue is paramount as growth occurs, and the natural progression of simply making the rich richer must be combated with intensity. Growth must be based on a business and social concept of inclusion and bridge building between the haves and the have nots and social welfare systems and help agencies must be strengthened not just by the South African government but by international players as well.
Even with renewed international interest, South Africa’s economy is a deformed one at best, having suffered from years of isolation. The country has been starved of access to important international markets. Domestically, money had been allocated to maintain segregation and white supremacy, which experts say resulted in the duplication of facilities, a bloated bureaucracy, rafts of regulations and corruption. That imbalance nurtured a private sector with investment concentrated on First World consumption. The business sector, experts say, has been afflicted with the “greenhouse” effect – business owners unable to diversify from the core businesses they were good at, like mining, used profits to buy industries in which they had no particular expertise. (Mack & Lowery, 1994)
One particularly important piece of the puzzle for anyone wishing to invest in South Africa’s newly opened doors is, sensitivity. New investors must take social welfare and the development of NGO partner service agencies into consideration when planning to reap the benefits of the countries changes. Within the country there have been and remain to be intensely underserved populations and in order to make healthy investments in the nation without gleaning and leaving investors must partner with individuals to provide services, for profit or not that might temper their own gain but will in the long run increase the health of the labor force and increase the strength of this emerging economy.
References
Boyd, L., Spicer, M., & Keeton, G. (2001). Economic Scenarios for South Africa: A Business Perspective. Daedalus, 130(1), 71. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
FXConverter™: Classic 164 Currency Converter © 1997-2004 by OANDA.com
Grobler, P.A. (1996). In Search of Excellence: Leadership Challenges Facing Companies in the New South Africa. SAM Advanced Management Journal, 61(2), 22+. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
Ladzani, W.M., & Van Vuuren, J.J. (2002). Entrepreneurship Training for Emerging SMEs in South Africa. Journal of Small Business Management, 40(2), 154+. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
Mack, G., & Lowery, M. (1994, August). South Africa Inc.; the Quest for Gold; the Rush Is on for Business Ventures and Investment Opportunities in Mandela’s New Democracy. Black Enterprise, 25, 15+. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
Mccoy, F. (1995, May). Doing Business in South Africa. Black Enterprise, 25, 58+. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
Morris, M.H., & Zahra, S. (2000). Adaptation of the Business Concept over Time: The Case of Historically Disadvantaged South African Owner/Managers. Journal of Small Business Management, 38(1), 92. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
Reynolds, R. (1995, February). South Africa: A Trade Haven? National Minority Business Council Develops Market-Entry Program for Minorities. Black Enterprise, 25, 37. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
Scott, C.R., Amos, T., & Scott, J.D. (1998). Affirmative Action as Seen by Business Majors in the U.S. And South Africa. SAM Advanced Management Journal, 63(3), 28+. Retrieved October 29, 2004, from Questia database, http://www.questia.com.
Thomas, A., & Bendixen, M. (2000). The Management Implications of Ethnicity in South Africa. Journal of International Business Studies, 31(3), 507. Retrieved
October 29, 2004, from Questia database, http://www.questia.com.
Tladi, Baloyi, & Von Boom 2003 South Africa, Chapter 3: the Social Environment
US Central Intelligence Agency The World Factbook 2003
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