South Africa

Originally published: Apr-24-2006

Government

The Union of South Africa was created on May 31, 1910; became a sovereign state within the British Empire in 1934; became a republic on May 31, 1961; left the Commonwealth in October 1968; and rejoined the Commonwealth in June 1994. The current Constitution entered into force on February 3, 1997. The country is made up of nine provinces.

The South African government is a parliamentary democracy with three branches: Executive, made up of the president who is elected to a 5-year term by the National Assembly; Legislative, bicameral parliament consisting of a 400-member National Assembly and a 90-delegate National Council of Provinces; Judicial, including the Constitutional Court and the Supreme Court of Appeal.

Population

The population is estimated at 46.6 million, with a negative estimated population growth rate for 2006 of -0.4%. There are eleven officially recognized languages: Afrikaans, English, Ndebele, Sepedi, Sesotho, Swati, Tsonga, Tswana, Venda, Xhosa and Zulu.

Legal System

The South African legal system is based on Roman-Dutch law and English common law. While some of its law is contained in legislative enactments, much of South African law is not codified, but is based on common law sources which include case law and the decisions and writings of Roman-Dutch jurists. The decisions of the South African Courts given over the years constitute precedents which generally bind Courts in later cases involving comparable facts.

The two highest courts in South Africa are the Constitutional Court, which interprets and decides constitutional issues, and the Supreme Court of Appeal, which is the highest court for interpreting and deciding non-constitutional matters.

Economy

Currency: Rand (ZAR)

• Rand per Euro: 0.13511 (4/19/06)
• Rand per USD: 0.16533 (4/19/06)

Economic Indicators

(e) estimate (f) forecast

Comparative Economic Indicators (2002)

Source: Economist Intelligence Unit

Top Industries: minerals, mining, motor vehicles and parts, machinery, textiles, chemicals, fertilizer, information technology, electronics, other manufacturing and agroprocessing. World’s largest producer of platinum, gold and chromium.

Leading Markets (2004): US-10.2%, UK-9.2%, Japan-9%, Germany-7.1%, Netherlands-4%

Leading Export Commodities: gold, diamonds, platinum, other metals and minerals, machinery and equipment

Leading Suppliers (2004): Germany-14.2%, US-8.5%, China-7.5%, Japan-6.9%, UK-6.9%, France-6%, Saudi Arabia-5.6%, Iran-5%

Leading Import Commodities: machinery and equipment, chemicals, petroleum products, scientific instruments, foodstuffs

General Economic Situation

South Africa is the economic leader of Africa. It accounts for about 40% of the African continent’s gross domestic product, and 75 of Africa’s 100 most important companies. It has an abundant supply of natural resources and is, in fact, the world’s largest producer of platinum and gold, and the 5th largest producer of diamonds. It is also the 6th largest producer of wine in the world. Industry is diversified and the service sector flourishes at 65.2% of GDP, surpassing the mineral and energy resources sectors. Agriculture, which only represents 3.8% of GDP, employs 30% of the working population.

The country has a two-tiered economy: one that is sophisticated and based on manufacturing, mining and financial services; and one that is very poor, consisting of near-subsistence level agriculture. Judged by distribution of income and the high unemployment rate, South Africa ranks as one of the most unequal countries in the world. Only 13% of the population lives in “first world” conditions with an average per capita income of USD 26,000. 22 million South Africans live in third world conditions with a per capita income (for those working) of USD 825. Three-quarters of the "third world" population have with no access to electricity and running water, only one-half have a primary school education, and one-third of the children sufferf from chronic malnutrition.

The current government’s economic policy is fiscally conservative, but also pragmatic. Thus it focuses on reducing inflation and liberalizing trade as a means to increase the job market and improve household income. It also views economic restructuring through privatization as important for growth and employment in the long run. However, due to political push-back and strong union resistance, it has recently shifted its focus from pursuing wholesale privatization to developing profit oriented public sector enterprises.

Business Climate

The government of South Africa has a demonstrated commitment to open markets, privatization and a favorable investment climate. Its budgetary reforms, which have aimed at better reporting, auditing and increased accountability, along with structural changes to its monetary policy framework, have created transparency and predictability. The government has also significantly reduced tariffs and export subsidies, loosened exchange controls, cut the secondary tax on corporate dividends, and improved enforcement of intellectual property rights.

Foreign Investment: The government welcomes foreign investment. Policies that promote openness and raise productivity and growth are key objectives. The government has created a number of incentives for the potential investor, and all sectors are open with no governmental approval required.

Tariffs: In accordance with the Trade, Development and Cooperation agreement signed with the European Union in 2000, almost all products imported from the EU should be exempted from customs duties by 2012. South Africa is a member of the World Trade Organization (WTO) and U.S. products qualify for South Africa’s most-favored-nation tariff rates.

Conversion and Transfer Policies: Exchange controls have effectively been abolished in relation to non-residents, and the government is gradually relaxing the remaining controls applicable to residents. There is generally no limit on remittance of commissions, director’s fees, technical service payments, management fees, or the purchase of technology. If a South African company is 100% owned by non-residents, there are certain requirements that must be satisfied before a non-resident can transfer profits abroad. If a South African partner is part of the ownership of the company, the non-resident can transfer profits without any restrictions.

Dispute Settlement: South Africa is a member of the New York Convention of 1958 on the recognition and enforcement of foreign arbitral awards. The government applies its commercial and bankruptcy laws with consistency. South Africa is recognized by the International Chamber of Commerce, which supervises the resolution of transnational disputes.

Right to Private Ownership: Private property rights are strongly protected by South African law. Private entities are allowed to freely establish, acquire and dispose of interests in business enterprises.

Protection of Property Rights: The legal system protects and facilitates the acquisition and disposition of all property rights, such as land, buildings and mortgages. All agreements relating to payment for the right to use know-how, patents, trademarks etc. are subject to approval by the exchange control authorities. Owners of patents and trademarks may license them. Patents are granted for 20 years, usually with no option to renew. Trademarks are valid for an initial period of 10 years and are renewable indefinitely. The holder of a patent or trademark must pay an annual fee to preserve its validity.

Transparency of the Regulatory System: South Africa’s Companies Act provides for clear, transparent regulations concerning the establishment and operation of business.

Efficient Capital Markets and Portfolio Investment: South Africa’s banks comply with international banking standards.

Political Violence: Political violence is not a major issue in South Africa; however, criminal violence is high.

Corruption: South African law provides for prosecution of government officials who solicit or accept bribes. Official corruption is low.

Business Practices

Business customs in South Africa are generally similar to those in the United States and Western Europe. South African business people tend to dress conservatively. They are very punctual, but informal in their approach. Small talk is important and takes place both before and during a meeting, as South Africans like to get to know individuals better before entering into a business relationship.

Appointments should be made in advance of a business call. A light, warm handshake is the acceptable form of greeting when you meet and when you leave. Direct eye contact is also important.

Credit and Collections

• Collection Experience: Fair-Good
• Exchange Delays: 2+ months
• Preferred Credit Terms: Unconfirmed letter of credit
• Minimum Credit Terms: Sight draft

Risk Assessment

Coface Country Risk Rating: A3 - Adverse political or economic circumstances may lead to a worsening payment record that is already lower than the previous categories, although the probability of a payment default is still low.

Ducroire Delcredere Political Risk Rating: 3 (some risk)
Ducroire Delcredere Commercial Risk Rating: A (low risk)

Sources for further information on doing business in South Africa

Mbendi South Africa Overview: Information on subjects such as business opportunities and challenges, stock exchange, investment, trade, business travel, communications and agriculture. Detailed sections on various industry sectors.

The Index on Africa, Norwegian Council for Africa: Extensive links to all types of information on South Africa and all of Africa

SouthAfrica.info, International Marketing Council of South Africa: Extensive site with just about everything you want to know about South Africa.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including South Africa. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," March 2006.