Overseas Market Profiles - South Africa

An Expert's View about Business Environment in South Africa

Posted on: 1 Jul 2012

Recent Developments
•South Africa’s economy posted a year-on-year (YOY) growth rate of 2.1% in the first quarter of 2012, after gaining 2.9% YOY in the previous quarter. The IMF expects South Africa’s GDP to expand at around 2.7% in 2012.
•South Africa’s consumer price surged to 6.1% YOY in April 2012, moderating from the recent high of 6.3% in January 2012. The unemployment rate stood at 25.2% in April 2012. South Africa joined the third summit of BRIC in April 2011 to become the fifth member of the prominent group of emerging economies (also including Brazil, Russia, India and China). Importance of the BRICS is underscored by the their fast economic growth, and their combined size in terms of population, GDP and geographic area.
•Hong Kong's exports to South Africa fell 4.6% YOY to US$231 million in the first four months of 2012, while imports declined 8.6% YOY to US$470 million in the same period.

Current Economic Situation

South Africa, the largest economy in Africa, registered a 3.1% GDP growth in 2011. Amidst the uncertainty over the global economy, in particular the developed economies, the South African economy posted a 2.1% YOY growth in the first quarter of 2012, moderating from the 2.9% growth rate in the previous quarter. The IMF expects South Africa’s GDP to expand at around 2.7% in 2012.

South Africa, a country well known for its precious metals and agricultural products like fruit and wine, has transformed from an agriculture- and mining-dominated economy into a sophisticated manufacturing- and services-based economy, with services comprising about 70% of the country’s GDP in 2011. The agricultural and mining sectors accounted for 2.3% and 9.7% of the country’s economic outputs respectively.

The manufacturing sector accounted for 13% of the South Africa’s GDP in 2011. The manufacturing industries in South Africa comprise automotives, chemicals, metal and processed food. Electronics and textile products manufacturing can also be found in South Africa. Manufacturing sector grew 2.4% in 2011, down from 5.4% in 2010.

Among various service sectors, telecommunication has been one of the bright spots in South Africa since the government liberalised the sector in 2004. South Africa’s mobile penetration has already surpassed the 100% mark. Telecom operators, such as MTN and Telkom, have expanded to other African countries. As a major supplier of ICT-related products and services to southern Africa, South Africa is a major gateway for overseas companies tapping into the southern African market. In addition, the government launched a new campaign named the National Tourism Sector Strategy (NTSS) in March 2011, with the aim to boost the economy.

With a high rate of English proficiency and an advanced telecommunication infrastructure, South Africa is an upcoming business process outsourcing (BPO) destination. In the past five years, five of the world’s top 10 BPO firms have established BPO centres in South Africa. The South African government recently announced that it would offer various tax incentives to outsourcing companies committed to hiring a certain number of employees.

With over 50 million people, South Africa is one of the most populous countries in Africa. With a sizable population, along with a relatively high per-capita income (US$8,343 in 2011) and strong private consumption (around 60% of South Africa’s GDP), South Africa is one of the most attractive consumer markets in Africa. Nonetheless, the labour market has remained in the doldrums, with the official unemployment rate reaching 25.2% in April  2012. High unemployment is expected to be a persistent economic issue in South Africa in upcoming years.

South Africa’s consumer inflation climbed to 6.1% YOY in April 2012, moderating from the recent high of 6.3% in January 2012.

External Trade

South African imports and export registered double-digit growth in 2011. Indeed, China is the largest trading partner of South Africa. The share of China in South Africa’s imports has increased from 10% in 2006 to over 13% in 2011, reflecting the increasing attractiveness of Chinese products in the country.

Trade Policy

South Africa is a member of the World Trade Organisation (WTO). Imports originated from other WTO members, including Hong Kong and the Chinese mainland, are subject to the country's most-favoured-nation (MFN) tariff rates. In addition to import tariffs, most goods are subject to a value-added tax (VAT), where the standard rate is currently set at 14%. However, VAT on goods imported for use in manufacturing or resale by registered traders can be claimed as an input tax reduction. Payments of import duties and VAT can be deferred if the goods are put in bonded warehouses.

South Africa may initiate anti-dumping or countervailing investigation and impose duties when unfair trade allegations are substantiated. A number of China-origin products, such as iron/steel-made bolts and nuts, are currently subject to anti-dumping duties when imported into South Africa. However, there are no anti-dumping measures against Hong Kong products at present.

Most goods can be imported into South Africa without a permit, except for certain goods like foodstuffs, petroleum products, chemicals, second-hand goods, finished machinery and gold. Import permits are usually issued by the Department of Trade and Industry, and are used mainly to collect information rather than to limit trade.

South Africa has good trade links in the region and abroad. The African Growth and Opportunities Act (AGOA) of the US allows some 6,500 kinds of South African products to be exported to the US under its general system of preferences (GSP) until 2015. South Africa has also signed a free trade agreement (FTA) with the EU, which came into force in 2000. Under the FTA, 95% of South African exports to the EU receive preferential access. South Africa is also a member of the South Africa Customs Union (SACU), comprising Botswana, Lesotho, Namibia, and Swaziland.

New Member to BRICS

South Africa joined the BRIC Summit in April 2011 to become the fifth member of the exclusive emerging market group, previously comprising Brazil, Russia, India and China. Being a member of BRICS is seen as allowing South African business to gain better access to the BRIC market, which comprises more than 40% of the world’s population.

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Posted: 01 July 2012

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