Mandela Day
 

Trade and Investment
 

South Africa is always open for business in every conceivable economic sector. With a stable democratic government, sound financial security and a transparent and highly regulated banking sector, the country is a haven for investors.

South Africa is in an excellent economic position due to strong commodity prices, low interest rates and faster global growth. As a result, plenty of opportunities await international investors in all sectors of the economy and throughout the country. South Africa holds immense potential as a representative of the continent and offers easy access to inter-continental and East-West trade.

South Africa’s large skilled labour force comes from a variety of universities, colleges as well as a well-developed corporate training sector. A strong union structure provides protection the constitution and supports employee labour rights.

Important and innovative work is ongoing in a wide number of fields, including biotechnology, Nano-technology, indigenous/traditional medicine, sports science, and many more.

Overview
South Africa has the third largest economy in Africa after Nigeria and Egypt and is ranked by the World Bank as an upper-middle income country, along with Mauritius, Botswana, Namibia, Angola and Gabon in sub-Saharan Africa. The economy is dualistic, with a sophisticated industrial and financial sector existing side by side with a large underdeveloped informal sector.

South Africa’s economy has traditionally been rooted in primary sectors – the result of a wealth of mineral resources and favourable agricultural conditions. However, the economy has been characterised by a structural shift in output over the past four decades. Since the early 1990s, economic growth has been driven mainly by the tertiary sector, which includes wholesale and retail trade, tourism and communications. South Africa is currently moving towards a knowledge-based economy, with a greater focus on technology, e-commerce and financial and other services.

The sectors that contributed to South Africa’s GDP in 2013, and have kept the economic engine running are:

  • Agriculture: 2.4%
  • Mining: 9.2%
  • Manufacturing: 11.7%
  • Electricity and water: 3.0%
  • Construction: 3.7%
  • Wholesale, retail and motor trade: 16.6%
  • Transport, storage and communication: 8.0%
  • Finance, real estate and business services: 21.52%
  • Government services: 17.0%
  • Personal services: 6%

Increasingly, the “Green Economy” is taking prominence as the country is moving away from traditional coal-fired power stations to cleaner energy production. South Africa’s strategy is to make cleaner, more efficient use of the country’s abundant, low-cost coal reserves in the near term while at the same time expanding the use of low-emission energy technologies and renewables.

The country has an abundant supply of minerals, an established manufacturing base, a modern infrastructure, well-developed legal and financial systems, good communications and a stock exchange among the top 20 in the world. Although traditionally primary and secondary, based on mining and agriculture, South Africa’s economy has undergone a structural change over the last 40 years. Today, the tertiary sector – including financial services, retail and wholesale trade, tourism and telecommunications – comprises over two-thirds of economic output.

The South African economy has transformed over the past two decades. Despite the significant problems that the country continues to face, it is a wealthier society, with greater access to economic opportunity and reduced levels of poverty. Since the end of apartheid, South Africa has experienced GDP growth of between 2.5-3 percent per year, double the average growth from 1976-93. The net effect of 20 years of economic expansion – combined with effective anti-inflation policies – means that there are far fewer people in the lower-income brackets than before. The rise in average incomes has doubled tax revenues, allowing the government to substantially expand the social welfare net and the provision of basic services.
 
 

Macroeconomic Policy
Government’s stated intention is to encourage business activity, investment and job creation by providing a stable economic environment with low interest rates, a modest budget deficit, moderate inflation and a competitive currency. Investment incentives and industrial financing assistance are offered as a means of actively seeking foreign direct investment.

The New Growth Plan (NGP), launched in 2010, aims at restructuring the economy to provide greater and more inclusive growth. The NGP’s ambitious goal is to create 5 million new jobs by 2020 and lower the unemployment rate from 25 percent to 15 percent. However, neither goal is achievable at the current and projected rates of GDP growth.
The key areas targeted for job creation include infrastructure development, agriculture (and agro-processing), minerals (and mineral beneficiation), manufacturing and tourism. A longer-range National Development Plan (NDP), the product of discussion between government, business and labour, launched in 2012, hopes to create 11 million new jobs and reduce poverty substantially by 2030.

Monetary and Fiscal Policy
The South African Reserve Bank (SARB) is responsible for formulating and implementing monetary policy. Its primary objectives are keeping inflation within a targeted rate of 3 to 6 per cent and maintaining a stable, competitive currency. The Bank is opposed to intervention to manipulate the exchange rate.
Money market operations between the Bank and the commercial banks are an integral part of the process of setting interest rates. In January 2014, the repo rate was raised by 50 basis points to 5.5 percent, pushing the prime rate to 9 percent.
On the fiscal side, the reduction of budget deficits and the achievement of surpluses before the 2008 recession reflected the government’s determination to maintain fiscal discipline. The current budget confirmed the Treasury’s intention to rein in public spending and gradually reduce the proportion of GDP consumed by government.

Taxation
South Africa has a residence-based tax system, which means residents are – subject to certain exclusions – taxed on their worldwide income, irrespective of where their income was earned.
Non-residents are, however, taxed on their income from a South African source, but subject to the provisions of international agreements for the avoidance of double tax.
In broad terms, tax is levied on taxable income, which is calculated as gross income excluding certain income of a capital nature less exemptions and permissible deductions.

Exchange Control
The South African Reserve Bank (SARB) is the custodian of the country’s official gold and foreign-exchange reserves. The bank is responsible, on behalf of the Minister of Finance, for the day-to-day administration of exchange controls in South Africa.
South Africa does not impose exchange controls on non-residents, but exercises exchange controls over residents and transactions entered into between residents and non-residents.

Banking Industry
As at the end of December 2014, 34 banking institutions – 10 locally controlled, 6 foreign controlled, 14 registered branches, 3 mutual banks and 1 cooperative bank – were reporting data to the Bank Supervision Department of the SARB.
There were also 39 authorised representative offices of international banks in South Africa. By December 2014, 2 banks were in liquidation namely Islamic Bank Limited and Regal Treasury Private Bank Limited.

Trade Agreements
The South African Government’s economic development strategy aims to accelerate growth and industrial development along a path that generates decent jobs. The Government, through the Department of Trade and Industry (the dti), seeks to support the objectives of industrial development and upgrading, employment growth and increased value-added exports by negotiating trade agreements with other countries. The International Trade and Economic Development Division (ITED) within the dti is the section responsible for such trade negotiations.
These agreements take different forms. List below the various trade agreements that South Africa is party to:

Preferential market access agreements:

  • Southern African Customs Union (SACU)
  • Southern African Development Community (SADC) FTA
  • European Union/South Africa Trade, Development and Cooperation Agreement (EU/SA TDCA), now aligned to the SADC/EU Economic Partnership Agreement (EPA)
  • SACU-European Free Trade Association (EFTA) FTA
  • SACU-Southern Common Market (Mercosur) PTA
  • Bilateral agreements with Mozambique and Zimbabwe

Current trade negotiations:

  • World Trade Organization’s Doha Development Agenda
  • SACU-India PTA
  • SADC-EAC-COMESA Tripartite FTA

Non-reciprocal agreements:

  • Africa Growth and Opportunity Act (AGOA)
  • South African products qualify for preferential market access (i.e. no or substantially reduced customs duty) under the Generalized System of Preferences (GSP)

USEFUL LINKS
Government departments

Investment promotion agencies

Business information services

Chambers of commerce and industry
 
HE Mr D E Malcomson
High Commissioner
More Information
South African Revenue Services
South Africa Reserve Bank
Department of International Relations and Cooperation
Statistics South Africa
Wines of South Africa
Study in South Africa
Proudly South African
Legal Services in South Africa
South African News
 
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