Establishing a presence in South Africa

South Africa – The leading emerging African economy

Edward Dreyer Edward Dreyer

Africa’s economic output has almost tripled since 2003, and the IMF forecasts that seven of the 10 fastest-growing economies in the world over the next five years will be in Africa. Ranked by the World Bank as an upper-middle-income country, South Africa is the largest economy in Africa.

Growth in sub-Saharan Africa is estimated at around 4.8% last year and is expected to average around 5.8% this year. Africa’s rising middle class, growing urbanisation, growth in information and communications technology and rising consumer spending is an important driving force.

Africa already accounts for about 18% of South Africa’s total exports and nearly 25% of SA’s manufactured exports. To boost intra-African trade, the South African Treasury has proposed a new holding company strategy that will make doing business in Africa easier for South African-based companies. Measures are proposed to relax cross-border financial regulations and tax requirements on companies. Similar measures will apply to foreign companies wanting to invest in Africa using South Africa as their regional headquarters.

South Africa is the leading emerging economy on the African continent, with the most modern and extensive infrastructure in Africa, and with the best equipped and most efficient network of ports in Africa. South Africa’s main ports are located in Cape Town, Durban, Port Elizabeth, East London and Richards Bay. The port of Durban is the busiest port in Africa and the largest container port in the southern hemisphere, handling over 2.698 million TEUs (twenty foot equivalents) during 2012. Containers handled at Durban represented 62% of the total number of containers handled at South African ports.

South Africa was a founding member of the General Agreement on Tariffs and Trade (GATT, 1947) and is an active member of the World Trade Organisation (WTO). Since 1994, tariffs have been reduced and non-tariff barriers to trade phased out, making South Africa more globally competitive. South Africa’s global economic strategy focuses on improving the country’s export performance by dismantling barriers to trade and gaining increased market access.

South Africa participates in a number of preferential trade relationships, both on a multilateral and bilateral level. South Africa has preferential access to European markets under the European Union (EU) – SA Free Trade Agreement, and also has preferential market access to the trading bloc MERCOSUR (Brazil, Argentina, Paraguay and Uruguay).

BRICS
South Africa was admitted to the BRIC group of countries of Brazil, Russia, India and China in 2011. Trade within the group reached $282 billion last year.

China has remained South Africa’s largest trading partner for three consecutive years since 20009, and South Africa is now China’s largest trading partner in Africa. The bilateral trade volume exceeded $49bn, an increase of 34.9% from 2011.

China occupies a pre-eminent position in South Africa’s foreign relations. In 2010 SA entered into a Comprehensive Strategic Partnership with China, in which a number of co-operative agreements were signed covering trade, investment, mining, energy, infrastructure and technology.

In July 2012 South Africa assumed the position of co-chair of the Forum on China-Africa Co-operation (FOCAC) an effective mechanism and important platform for African countries to engage with China.

The China-Africa Development Fund which aims to support Chinese companies entering the African market emanated from the 2006 FOCAC Summit, funded by the Chinese government through the China Development Bank.

South African Airways (SAA) started a direct flight from Johannesburg to Beijing in 2012 offering a more convenient connection between the two countries.

Southern African Customs Union (SACU)

  • South Africa is a member of the SACU which allows for duty and quota-free access to the markets of member states.
  • The SACU comprises of Botswana, Lesotho, Swaziland, Namibia and South Africa.
  • While SACU entered into a free trade deal with the four-nation European Free Trade Association on 1 July 2006, its negotiations with the United States for a free trade agreement have stalled.

 

The Southern African Development Community (SADC)

  • SADC members include Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. Membership of Madagascar is currently suspended after the coup d’état led by the former mayor of Antananarivo.
  • The SADC Trade Protocol was developed as part of a strategy to stimulate industrial development, boost trade and investment and to liberalise intra-regional trade in goods and services among member states.
  • The SADC Free Trade Agreement will be fully implemented in 2012 which will make more than 90% of the trade in this region duty-free.

 

East African Community (EAC)

  • Negotiations on a wider Free Trade Area (FTA) between the SADC, COMESA and the East African Community are on track to meet the deadline of 2014.
  • The most advanced regional economic community is the East African Community, which includes Kenya, Tanzania, Uganda, Burundi and Rwanda. The East African Community has established its own customs union, a common market and good progress has been made toward implementing the free movement of labour, capital, goods and services.
  • This is a market of 150m people with a combined GDP approaching $100bn and a GDP growth rate in excess of 6% in the past decade.

 

The African Growth and Opportunity Act (AGOA)

  • The African Growth and Opportunity Act (AGOA) offers eligible, lesser-developed sub-Saharan African countries (excluding South Africa) duty-free and quota-free access to the United States market for apparel made in Africa from African, or imported textiles under the 3rd country exemption.
  • The current African Growth and opportunity Act expires in 2014. It is likely to be replaced with a new duty-free, quota-free (DFQF) Bill. The 3rd country exemption clause which expires in September 2014 is currently being considered for extension.
  • AGOA also extends the US General System of Preferences (GSP) duty-free benefits to a wide range of over 7,000 products, including mineral fuel (coal), machinery, vehicles, agricultural products, fruit and vegetables, iron, steel and certain automotive components.
  • Total US imports from South Africa reached US$9.5bn in 2011, those entering duty –free under AGOA were $4.6bn, an increase from $1.5bn 2010.