SOUTH AFRICA’S INVESTMENT SOUTH AFRICA’S INVESTMENT ENVIRONMENTENVIRONMENT

TRADE AND INVESTMENT

SOUTH AFRICA

A division of the Department of Trade and Industry

November 2005

SOUTH AFRICA’S SOUTH AFRICA’S INVESTMENT ENVIRONMENTINVESTMENT ENVIRONMENT

TRADE AND INVESTMENT SOUTH AFRICAA division of the Department of Trade and Industry

2006

OverviewOverview

1. South Africa at a glance

2. Africa, SADC and South Africa

3. Macro-Economic Overview

4. Investment Performance

5. SA Business Environment

6. Export Performance

7. Specific Investment Opportunities

8. Incentives

9. Services for Investors

10. How to contact us

South Africa at a glanceSouth Africa at a glance

• Area 1,219, 090 kms

• Population 44,8m

• Currency R1 = 100 cents

• Time GMT + 2 hrs

• Head of the State President Thabo M Mbeki

• 11 Official languages with English the business language

• Total GDP 2004 R1 374 bn (US$ 213 bn)

• GDP 2004 per capita R29 422 (US$ 4 568)

• Real GDP Growth 3.7% (2004)

• Inflation (CPIX) 4.3% (annual 2004 average)

• Exports Gold, minerals, diamonds, metals and metal

products, food, automotive components

• Main trading partners Germany, USA, China, Japan,

France

Africa, SADC and South AfricaAfrica, SADC and South Africa

Macro-Economic StabilityMacro-Economic StabilityFiscal Policy

Source: SARBSource: SARB

Government Expenditure, Revenue and Fiscal deficit

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

(Rm

)

-8-7-6-5-4-3-2-10

Gov. Revenue Gov. Expenditure Fiscal Deficit (% of GDP)

Macro-Economic StabilityMacro-Economic StabilityMonetary policy

Interest Rates and Inflation

0

5

10

15

20

25

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Nominal Real Inflation

Source: SARBSource: SARB

Macro-Economic PerformanceMacro-Economic Performance

Key Macro-Economic Indicators

-5 0 5 10 15 20 25

Fiscal deficit (% of GDP)

Real merchandise exports (% of GDP)

CPIX(% change)

Bond Yield (10 yrs and over)

Nominal prime rate

Real GDP growth

1990 2004

Source: SARBSource: SARB

Macro-Economic PerformanceMacro-Economic PerformanceCountry Moody's Sovereign Long- S&P's Sovereign Long-

Term Debt Rating Term Debt RatingForeign Currency Foreign Currency(2004/5) (2004/5)

Rating Rating

Poland A2 BBB+

Mexico Baa2 BBB-

South Africa Baa1 BBB+

Thailand Baa1 BBB

Philippines Ba2 BB

India Baa3 BB

Turkey B1 B+

Brazil B2 B+

Source: Moodly’s; S&PSource: Moodly’s; S&P

Macro-Economic OutlookMacro-Economic Outlook

2005 2006 2007 2008 2009 2010

Real GDP growth (%) 4.3 3.8 3.2 4.3 4.5 4.6Inflation (CPIX) ( % change) 4.6 5.5 5.7 4.9 4.6 4.4Prime overdraft rate (Nominal) 10.7 12.7 12.5 10.7 11.0 11.5R/$ Exchange rate 6.3 7.2 8.0 8.5 9.0 9.4R/Euro Exchange rate 8.5 9.4 10.10 10.5 10.8 11.1Merchandise exports, current prices (R billion) 306.5 354.7 400.0 449.0 503.8 574.5Merchandise imports, current prices (R billion) 355.8 410.9 449.4 507.1 579.4 662.4Fixed capital formation, constant 1995 prices (R billion) 193.9 209.8 223.0 245.0 270.0 293.6Source: BER

Source: BERSource: BER

Business EnvironmentBusiness EnvironmentLegal and Financial Markets

• World Class Legal Framework– Substantive legal framework particularly in commercial, labour and

maritime law regimes– Advanced legislation relating to competition policy, copyrights,

patents, trademarks, and disputes– Independence of judiciary is guaranteed by the Constitution

• Financial System / Markets– Financial system is robust and well regulated– Four of South Africa’s banks are in the world top 500– The Johannesburg Stock Exchange (JSE) is the 17th largest in

the world– South African commercial banks have wide presentation in Africa

Business EnvironmentBusiness EnvironmentLabour Market

• New Labour Legislation since 1994

– Labour Relations Act

– Skills Development Act

– Skills Development Levies Act

– Employment Equity Act

• Labour Bargaining Council

– The Council played a major role in the reduction of worker

days lost due to strikes.

– The Labour Relations Act provides for collective bargaining

Institutes, which leads to increased flexibility in the labour

market.

Business EnvironmentBusiness EnvironmentInfrastructure

Roads & Rail– Extensive road and rail network across South Africa which connects with

Sub-Saharan African region

Ports– Strategic ports are located in Durban, Cape Town, Port Elizabeth, East

London, Richards Bay, and Saldanha Bay. – Together these handle over 13,000 vessels and 188 million tons cargo a

year.

Telecommunications– SA ranks 23rd in telecommunications development, and 17th in internet use in

the world – SA has the largest and most developed telecommunications network in

Africa – There are 4.8 million installed fixed lines in 2003– Growth in SA’s mobile phone market is among the highest in the world

Investment PerformanceInvestment Performance

A large part of the inflow in 2001 was as a result of the buy-out of De Beers minority shareholders

A large part of the inflow in 2001 was as a result of the buy-out of De Beers minority shareholders

FDI into South Africa

-10000

0

10000

20000

30000

40000

50000

60000

70000

Source: SARBSource: SARB

Investment PerformanceInvestment PerformancePercentage Share of FDI by Sector

as at 31 Dec 2003

35%

25%4%

7%

29%

Mining & Quarrying Manufacturing

Trade & Accomodation Transport & Communication

Financial & Business Services

Source: SARBSource: SARB

Sector Sub-sectorAgro-processing Fisheries and Aquaculture, Floriculture, Fruit and Vegetable Processing Plants,

Juices, Meat Processing, Wine Production, Confectionery, Indigenous Teas and Natural Fibres

Automotives Interiors, Engine Parts/Components, Electronic, Drive Train Components, Body Parts

and Aluminium Components

Chemicals and Allied Industries

Fine and Specialty Chemicals, Inorganic and organic Chemicals and

Pharmaceuticals, Consumer formulated chemicals and bulk formulated chemicals

Business Process Outsourcing & IT Enabled Services

Call Centres, Back Office Processing and Shared Corporate Services

Electro Technical Automotive Electronic Manufacturing, Upgrade of Micro Chip Plant, Contract

Manufacturing

Tourism Hotels and self-catering holiday resorts, Adventure-, Eco-, Sport- Conference- and

Cultural tourism, Gaming, Infrastructure development, Leisure Complexes and World

class golf courses

Investment OpportunitiesInvestment Opportunities

Source: DTI/TISA Source: DTI/TISA

Sector Sub-sectorClothing, Textiles, Leather and Footwear

Cotton Spinning, Weaving and Knitting, Industrial Textiles, Middle- to high-end apparel wear, Production of other natural fibre textiles

Mining and metal based industries

Aluminum smelter capacity, Capital equipment: machine tool manufacturing and petrochemical equipment, Downstream processing and value-adding of iron, carbon steel, aluminum, platinum group metals and gold, Ferro-alloys, gold and stainless steel

Aerospace, Rail and Marine Aerospace: Rotor and fixed wing aviation equipment and services, Helicopters and aircraft components, Aviation training services for African airlines, IDZ at Johannesburg International Airport, Warehousing for aircraft parts

Rail: Rolling stock and services for the domestic market, Estimated R7 billion Gautrain which includes infrastructure development and rolling stock, Rail infrastructure of the African continent through NEPAD and Rehabilitation of low density rail line

Marine: Development of boat yards and wet docks/floating docks, Joint ventures with local shipyards, Manufacture of boats, yachts and catamarans, fleet racing boats, Custom-made vessels (tugs) and Training schools

Investment OpportunitiesInvestment Opportunities

Source: DTI/TISA Source: DTI/TISA

Potential Investments in Potential Investments in National Infrastructure over the next 5 yearsNational Infrastructure over the next 5 years

• Electricity: R95 billion/ €12 billion

– Rehabilitation of three power stations; plus the construction of two

peaking plants (R15 billion/ € 1,8billion)

• Transport: R40, 8 billion/ €5 billion

– In Durban Harbour, the expansion and redesign of Pier 1 and the

widening of the entrance will cost R2, 9 billion/ € 360 million

– The container terminal at Ngqura and the expansion of the Cape

Town Container Terminal will cost R2, 6(€325 million) and R1, 4(€175

million) billion respectively.

– The new Multipurpose Pipeline from Durban to Gauteng will be a R3

billion(€375 million) investment.

Potential Investments in Potential Investments in National Infrastructure over the next 5 yearsNational Infrastructure over the next 5 years

• In product terms Eskom’s demand for steel and cement per annum

in the next few years is 60 000 and 1 million tons respectively.

• The construction of the pipeline will require anywhere between 75

000 and 90 000 tons of steel.

• Spoornet will spend some R8 billion/ €1 billion on locomotives,

wagons and equipment.

IncentivesIncentives

Incentive Benefit Main Conditions

Small and Medium

Enterprise

Development

Programme

Cash grant of up to 10% of

qualifying assets

Investments of less than R100m;

benefit decreases with size of

investment

 

Support Programme

for Industrial

Innovation 

50% of the direct cost incurred in

development

Development must be a significant

technological advance and have

commercial advantage over existing

product

Industrial

Development Zone

 

Exemption from VAT when

sourcing goods and services

from South African customs

territory and duty-free imports of

raw materials and inputs for

export

Prospective IDZ operator

companies must apply for permits

to develop and operate an IDZ

IncentivesIncentives

Incentive Benefit Main Conditions

Foreign Investment

Grant

Foreign entities may qualify up to

a maximum of R3m 

Only new machinery, equipment

acquired from abroad and required

to establish a manufacturing project

in SA will be considered

Critical

Infrastructure Fund  

Infrastructure projects intended

to service IDZ, shall qualify for a

grant of 30% of the qualifying

infrastructure development cost

The minimum qualifying

infrastructure development cost is

R15m 

the dti’s Investment Servicesthe dti’s Investment Services

• Information on Investing in SA and Business Environment

• Detailed Sector Information

• Finance to Explore Investment Opportunities in SA

• Facilitating Direct Government Support in the form of

Investment Incentives

• Investment Facilitation

• After care – ongoing contact

• the dtithe dti Call Centre: 0861 843 384

• the dtithe dti Switchboard: 012 394 0000

• Website: www.thedti.gov.za

• Postal Address: Private Bag X 84

Pretoria

0001

the dti’s Contact Detailsthe dti’s Contact Details

Thank YouThank You