Known for its cultural and scenic diversity, South Africa is an ideal travel destination. Now, in a booming economy, Australian exporters are finding gold at the end of this African rainbow. Nukte Ogun reports.
Post-apartheid South Africa’s economic upswing has been remarkable. Following years of economic isolation, South Africa’s financial market has become Africa’s powerhouse and, with a well-established democracy and a modern infrastructure, is fast becoming a viable option for Australian exporters.
Australians benefiting from South Africa’s revival are distributing more than $1.8 billion worth of export goods. While the main exports are currently coal, crude petroleum, passenger motor vehicles and medical supplies, South Africa’s growing market offers a multitude of opportunities.
"The middle income sector is the fastest growing in the market," says Jay Meek, Austrade’s Johannesburg-based senior trade commissioner. With many South Africans now receiving an education, they are better placed to increase their spending. Exporters, however, should keep in mind that for goods to sell in the South African market they have to be competitively priced. "Pricing is important because of the currency in South Africa, which is weaker in comparison to the Australian dollar," says Meek.
Since the end of apartheid in 1994, South Africa has thoroughly developed its financial, legal, communications, energy and transport sectors. Making the South African market even more appealing to Australian exporters is the similar, small, open economic structure and familiar common law legal system.
This straightforward approach to business is encouraging for exporters. However, methods of product promotion are vastly different. With limited media outlets, avenues for product promotion are numbered. "Launches are very big, and handing out leaflets at traffic lights is very popular," says Meek. "South Africans tend to be very tactile and like to get a firm understanding before they endorse a product."
South Africans are regarded as friendly business partners. Laidback in their business attitude, they have a tendency to conduct relaxed and informal meetings. It’s not common for South Africans to exchange business cards at the beginning of a meeting. Many will not offer their card at all or will only offer it at the end of a meeting, signalling a wish for further discussions.
The laidback attitude doesn’t however amount to a completely hassle-free business environment. The phrases ‘just now’ and ‘now’ are often used in relation to when a task will be completed. This does not necessarily mean ‘straightaway’, and businesspeople should try to settle on an exact time.
Securing appointments in South Africa can also be difficult, with contacts sometimes taking a while to reply. Sending a fax to explain the context of your request, prior to calling, can be a useful method for speeding up the process, and confirming all appointments is a necessity.
Security & Empowerment
More seriously, Ben Ford, senior economist at Export Finance and Insurance Corporation, says "a potential impediment to investment" is crime, in particular property crime. Security is still a concern in some parts of South Africa and business visitors should expect delays and plan ahead to deal with them. Transport arrangements need to be made in advance, with time set aside for security procedures. Many companies and all government buildings require visitors to sign in and pass through a metal detector before gaining entrance.
Among the more significant hardships exporters will face in South Africa are the social challenges still present after over a decade since apartheid ended. Unemployment is still widespread, as is poverty, inequality and the HIV/Aids pandemic.
The difference between white and non-white earnings remains extreme. A legacy of apartheid segregation is the still common and acceptable practice of referring to the different racial groups as ‘blacks,’ ‘whites’ and ‘coloureds’.
The South African Government is committed to reducing the high discrepancy in earnings and furthering black economic empowerment (BEE). "Exporters need to understand the business environment, particularly around black economic empowerment," says Meek. BEE is especially significant for companies planning to deal with the Government. Exporters will need to train black workers at all levels within the business and be prepared to work with other BEE companies.
The Government is currently simplifying the tariff system by merging the numerous tariff levels, but the success of this has been limited. While some tariff barriers have been reduced, others have instead risen.
The Government plays a direct role in the economy and generally prefers locally produced products. Nevertheless, South Africa’s economy is reliant on foreign direct investment to boost growth, so foreign proposals are not excluded.
With South Africa hosting the 2010 Soccer World Cup, the Minister of Finance, Trevor Manuel, has highlighted the importance of increasing investment in infrastructure. Having gained considerable experience during the Sydney 2000 Olympic Games and the Melbourne 2006 Commonwealth Games, Australian companies will be well-placed to make the necessary sport and transport upgrades.
Australian companies will also find the opportunity to export specific consumer goods. South African consumer needs range from the basics to higher quality goods and services. Exporters will notice Australia and South Africa produce similar products. "Successful new products are typically those that offer niche benefits," says Ford. Goods with a current demand include: giftwares, homewares, babycare and sporting merchandise. And rugby, cricket and soccer are the most popular sports in South Africa.
South Africa’s economy has shown its resilience and is benefiting from its longest expansion on record. With a strong GDP at 4.5 percent, low inflation at 5 percent, solid international reserves and public finances, the future is looking bright.
"South Africa is generally regarded as a good place in which to do business from both a global and African point of view," says Ford. South Africa is considered to be a platform for businesses to launch into the rest of Africa. "The World Bank’s Doing Business survey ranks South Africa as 29th globally and 1st in Sub-Saharan Africa."
Developing a business in South Africa requires careful research and a sound market analysis. As Ben Ford says: "If you have identified an export niche and have the drive, commitment, and support to make it happen, then the payoff could be quite good."
Population: 46.9 million (2005)
Official languages: Afrikaans, English, IsiZulu, IsiXhosa, Sepedi, Setswana, Sesotho, Xitsonga, Swazi, Tshivenda, IsiNdebele
Australian exports to South Africa (2005–06): $2.21 billion (key sectors: medical supplies, coal, crude petroleum, passenger motor vehicles
Australia-South Africa two-way trade: $3.829 billion
Key growth sectors: agriculture, automotive, banking and financial services, infrastructure, mining, services trade, tourism, textiles.