Investment Incentives in South Africa

by: Emanuel Baisire

George Mason University

Investment Incentives in South Africa

South Africa Key Facts: Area: 1.2 million sq. km. (470,462 sq.
mi.),Germany, France and Italy

Population: 46.6 Million (2004) GDP: $213 Billion (2004) Real GDP growth rate (2004): 3.7%. GDP per capita (2004): $3,480 Exports: US $ 45.9 Billion (2004) Imports: US $ 41.6 Billion (2004) Inflation: 4,3% (2004) Unemployment ( September 2004):
27.8%.

S. Africa accounts for 38% total SubSahara Africa GDP

2

Investment Incentives in South Africa Economic policy

Promoting equity with growth

Growth, Employment and Redistribution Strategy Liberalisation of exchange controls- no controls on foreigners Inflation targeting to stabilise key price movements Black Economic Empowerment Small Business Development Geographic spread of economic activities

Investment Incentives in South Africa

Unlike, other developing nations , 65% of S. Africas GDP (Sector) is in Service sector and 21% in Agriculture and Mining sector

Economic overview
Components of GDP
Community & personal serv. 23%

Agri. forestry & fishing 3% Mining & quarrying 7% Manufacturing 18% Construction 3% Transport & com. 10% Electr. gas & water 3% Trade & accomm. 13%

Financial & bus.serv. 20%

Source: SARB

Investment Incentives in South Africa

South Africa identified key economic sectors to act as the engine for economic growth

Automotive Agro-processing Chemicals Clothing and Textiles Marine, Rail and Aerospace Tourism Minerals, Metals and Capital Equipment

The South African Investment Environment

Financing Investments

Investment Incentives
Small and Medium Enterprise Development Programme (SMEDP) Critical Infrastructure Fund (CIP) Skills Support Programme (SSP) Industrial Development Zones (IDZ) Medium and long term insurance Export finance for capital goods and projects Foreign investment guarantees (FIS) Export and Investment Financial Assistance Scheme (EIFAS) Marketing Support

The South African Investment Environment

Financing Investments

Offerings for investors

Offerings for exporters

Investment advisory services Information on specific

investment opportunities

Export information and advice Market

information

Export information and advice Market

information

Financial contribution for

investors to visit potential companies and sites in South Africa

Financial assistance for exporters to

conduct market research

Removing obstacles for investors Information and advice on

investment incentives

Financial contribution for exporters to

market their products abroad

Logistics support: removing export

bottlenecks

After-care

Matching South African companies with

foreign buyers

The South African Investment Environment

Foreign Investment levels remain below average of other emerging markets despite improved macroeconomic conditions and modern infrastructures

60

FDI: Investments in South Africa (US $ Billion)

52.15

FDI Inflow In U.S $ Billion

50

47.39 43.1 40.14

40

30

4.32
20

10

0 1999 2000 2001 2002 2003

Source: World Investment Report 2004

The South African Investment Environment

U.K. Is the dominant source of FDI ,while the U.S. is the largest portfolio investor in South Africa

30

FDI Stock in South Africa by Country of Origin in 2003

25
25

20
US $ 15 Billion

10

1
Malaysia

1
Switzerland

1
France

0
UK U.S Germany Netherland

Source: SARB

Investment Incentives in South Africa

Investment in South Africa tend to be resource-seeking( food-processing and mining) and market-seeking (Telecom and services) in nature

Types of FDI into South Africa in 2002 US$M Mergers and Acquisitions Business Expansion New (Greenfield) 774.7 570.10 413.82

Intention to Invest expressed by company Investment

339.50 15.50

10

Source: BusinessMap online South Africa FDI database

Investment Incentives in South Africa

South Africa has managed to respond positively to Globalization after several years of sanctions due to apartheid.

Trade Relations

Solidifying relations with traditional markets

EU-SA: A free trade agreement between the European Union and SA for specified products .
EU to eliminate tariffs on 95% of S.Africa Imports in a 10 year period, S. Africa to eliminate tariffs on 86% of EU imports in a 12 year period.

AGOA: Duty-free and quota-free access to US market for apparel and a range of non-apparel
products. S. Africa AGOA exports increased to $1.8 Billion in 2004.

Non traditional markets

Brazil Asia

Regional Strategy

SADC: Trade agreement with SADC member in 1999, and implementation began in
2000. Provide duty-free treatment for 85% of trade by 2008 and 100% by 2012.

Africa:

S. African firms have invested heavily in many African states. E.g $ 1.1 billion in Mauritius, $1.4 billion in Nigeria, $ 605 M in Uganda etc.

11

The South African Investment Environment

Challenges:

Stagnant Market:

S. Africas low average growth rate of 3% have discouraged potential Investors in mass production projects

Regional Instability:

Political turmoil in Zimbabwe and civil conflicts in Africa makes foreign Investors to perceive S. Africa as risky

High Crime Rate: Raises the cost of doing business i.e. High Insurance cost, security cost e.t.c. Labor Policy:
S. Africa s labor is over-regulated and inflexible which is a constraint to investment

HIV/AIDS:

S. Africa is one of the countries most hit by HIV, with 5 million HIV infected population, 20% of the 15-49 year (Work-force) is infected .

12

Soccer World Cup 2010

Thank you
13