An In-Depth Study of the South Africa as

a Possible International Market

Kimberly Buchanan

Park University

IB315

Spring 2013

Introduction South Africa is a country of contrasts: urban versus rural, white versus black, traditional versus modern. This country report will slowly peel back the layers of the country known as South Africa. It will begin by introducing the reader to an overview of the country that will include the demographics, major products, and factors that allow the country to be unique among other countries. It will, then, introduce the reader to the aspects of the culture of South Africa. Third, the report will provide information about the political and legal environment in South Africa. Finally, it will shed light on the economic environment of South Africa.

Brief Overview of South Africa The Republic of South Africa is a country unlike any other. The changes this country has with stood, the demographics of its people, and the industries that are continuing to grow make for a wide array of factors that benefit the country of South Africa. Few countries are as influenced by as many cultures as the country of South Africa. The country was first influenced by the Dutch (Boers) traders who used a small section of the land as a form of refueling center during the trip to the Spice Islands in 1652 (Central, 2013). This “stopover point” was the establishment of the city that is now known as Cape Town (Central, 2013). Further influences occurred when the discoveries of gold, in 1886, and diamonds, in 1867, was discovered in the area. This led to a vast immigration to the area from peoples who had never lived in the area and also led to an enslavement of the native people (Central, 2013). The Republic of South Africa gained its independence on May 31, 1910 (Central, 2013). In more recent history, the first election of multi-racial candidates occurred in 1994 (Central, 2013). The current ruling party is the African National Congress, who is presided over by Jacob Zuma (Central, 2013). There are approximately 48,601,098 people in the country (Central, 2013). When looking at the percentage of races, 79% of the people are black, 9.6% are Caucasian, 8.9% are colored, and 2.5% are Indian/Asian (Central, 2013). The majority of the population range from birth to 54 years old (Central, 2103). The average number of years for the people of South Africa is 25.3 years old, which correlates with the substantial number of people being under the age of 55 (Central, 2013). The major cities of South Africa include Johannesburg (3.607 million inhabitants), Cape Town (3.353 million inhabitants), Ekurhuleni (3.144 million inhabitants), Durban (2.387 million inhabitants), and Pretoria, the capital of the country, (1.404 million inhabitants) (Central, 2013). The current exchange rate is as follows: $1 U. S. dollar to 9.23 South African Rand [R] (Convert, 2013). Major products for the country of South Africa include agriculture, agriprocessing, the automotive industry, the chemicals industry, information and electronics industries, the metal industry, and textiles, clothing, and footwear industries (Manufacturing, n.d.). Agriculture and agriprocessing is as varied as the climates in the country. The products include a range of “crops, livestock, and fish are to be found” (Manufacturing, n.d.). This industry “contributes approximately R124 billion to South Africa’s GDP and employs 451,000 people in the formal sector. Exports of processed agricultural products amounted to R17.2 billion in 2001” (Manufacturing, n.d.). This industry is competitively advantageous when compared to the rest of the world because it is a vital trading partner that has opposite seasons when compared to Europe, a range of “biodiversity,” an array of fish and aquatic creatures (Manufacturing, n.d.). For these reasons, along with the relatively economical input costs allow for the country to become a “major player on the world’s markets” (Manufacturing, n.d.). As for the automotive, chemical, electronic, and metal industries in the country of South Africa, there are already global companies who have seen the value of this market. Those companies include BMW, Toyota, Sasol, Dow Sentrachem, Siemens, Vodaphone, and Cisco all have established factories in this country in order to take advantage of the different attributes that lend the market to global companies (Manufacturing, n.d.). On the other hand, the textiles, clothing, and footwear industries have taken on a vision that is vastly different from the before mentioned industries. This vision, while different, is just as valuable. They “aim to use all the natural, human and technological resources at its disposal to make South Africa the preferred domestic and international supplier of South African manufactured textiles and clothing” (Manufacturing, n.d.). To make this vision a reality, $900 million U.S. dollars have been invested since 1994 in order to make it “efficient, internationally competitive, and ready to become a major force in the world market” (Manufacturing, n.d.). The factors that benefit the country of South Africa include the presence of major international and global companies, low interest rates, and a continuing diversification of the companies that are represented in the country (Manufacturing, n.d.). This allows for companies who are looking at new global markets (that are in the same industry) to be able to compare how the companies that are already established are doing. Furthermore, the country of South Africa has a large tourist draw to the country especially after recently hosting the World Cup of FIFA soccer (R450, n.d.). This large competition, and the increase in business, proved to the world that the country of South Africa is ready to take a larger step into the world markets (R450, n.d.). For the tourists who are not only interested in soccer, there are plenty of chances to explore the history of the country including areas that were vital to the life of Nelson Mandela before his death at the age of 82 (Nelson, n.d.). Because of the history of this country, the demographics, the industries which are being developed (and have been developed), and the factors that help to benefit the country, it is easy to see how South Africa is a market that is primed to enter the global market.
Culture of South Africa Culture has influenced every generation of a society. This is true in South Africa just as it is in any other society. The values taught by history, languages spoken by the people, and religions in practice are all valued parts of the culture of South Africa. In every country, values “affect our response to people and situations” (Locker, 2010). In South Africa, the key values are family, time, and communication styles (Gorrill, 2009). For the people of South Africa, family is an integral part of the daily life. Much like in our culture, the family is “paramount to an individual’s existence in shaping their behavior” (Gorrill, 2009). The family unit helps the individual by forming a foundation for the individual that supports them through both monetary means and emotional means (Gorrill, 2009). It must be stated that because of the different communities in the country of South Africa a family can be considered to be different between the “English-speaking white community” and the “black and more traditional Afrikaans culture” (Gorrill, 2009). The white community has a deeper tendency to think of family as only being the people who are in the immediate family (Gorrill, 2009). The black community and the traditional Afrikaans community are as likely to consider the tribe as important as the nuclear family (Gorrill, 2009). Time is another value that is seen differently when looking at the different cultures in the country of South Africa. White citizens of South Africa will view time “in a more formal manner” (Gorrill, 2009). Conversely, the black citizens will lean towards a slower pace (Gorrill, 2009). Furthermore, communication is a portion of the values that are vital to the culture. When communicating with diverse groups of South African citizens, it is vital to understand that there are appropriate ways of using both verbal and non-verbal communication (Gorrill, 2009). It is considered polite in South African culture to “place your right hand over your mouth when yawning is considered polite” (Finney, n.d.). It is important for the employees of our company not to do the following three actions since they are considered to be impolite: pointing a finger at someone, standing close to someone while speaking with them, and speaking to someone while the employee’s hands are in their pockets (Finney, n.d.). If the employee needs to stop into a South African person’s house, they should attempt to “avoid dropping by during mealtime” (Finney, n.d.). If the employee does have a need to drop by unannounced to a person’s house, the best times to do so are either in the later portion of the morning or in the early evening (Finney, n.d.). Religion is a part of the culture that has been influenced from the history of the country. Just as in any other country in the world, a wide variety of religions are practiced in South Africa. According to the 2001 census of South Africa, 36.6% of the people of South Africa are Protestant, 7.1% of the country practices the religion of Catholic, 1.5% are practicing Muslims, 36% practice other forms of Christianity, 2.3% practice religions not previously mentioned, 1.4% practice a religion not specified, and 15.1% do not practice any form of religion (Central, 2013). Language is just as diverse in South Africa as religion is in the country. According to Kwintessential, there are 11 official languages in South Africa. English is spoken throughout the country and is considered to be the “language of administration” (South, n.d.). This makes it easier to communicate throughout the country as a representative of the company travels there to investigate a potential new market to enter. The combination of religion, values, and language has all helped to develop the culture that makes South Africa the country that it is today.
Politics of South Africa South Africa is a country of turmoil that can be seen in both the stability of the government and in the legal issues of concern to foreign companies. South Africa is a relatively young country in terms of years that it has had a constitution. Since 1996, the country has seen many political parties come into existence. These parties include: the African Christian Democratic Party, African National Congress, Congress of the People, Democratic Alliance, Freedom Front Plus, Inkatha Freedom Party, Pan-Africanist Congress, United Christian Democratic Party, and the United Democratic Movement (Central, 2013). All of these groups are represented in the National Assembly of Parliament (South Africa’s Political, 2013). Of the major groups, the African National Congress controls the majority of the seats [264 seats of 400 seats] (South Africa’s Political, 2013). These seats represent eight of the nine provinces that are in the country as well as 83% of the “metropolitan municipalities” (South Africa’s Political, 2013). This party has presided over the country for a significant portion of time since President Mandela signed the constitution in 1996 (Central, 2013). This party believes in a “the creation of a united, non-racial, non-sexist and democratic society” (South Africa’s Political, 2013). This message seems to resound well with the people of South Africa since a member of the African National Congress has been elected president of the country every election since 1999 (South Africa’s Political, 2103). The primary part that is recognized as opposition to the African National Congress is the Democratic Alliance. This party began to gain popularity in the 1980s as was shown through the increasing of Parliamentary seats (South Africa’s Political, 2013). The Democratic Alliance has “ increased its share of the vote from 1.7% in 1994 to about 10% in 1999 (as the former Democratic Party), 12.4 % in 2004 and 16.6% in 2009” (South Africa’s Political, 2013). According to the website www.southafrica.info, the DA looks for situations in which to encourage a flourishing, society that has opportunities for all that allows for each South African to be indistinguishable as peers before the law. The Democratic Alliance also seeks to create a an environment in which the varied groups of people in South Africa understand that the groups are surrounded by the feeling of esteem, sweeping acceptance, and cooperation. The DA provides the encouragement necessary for an economy that is free from coercion, an economy that provides rewards for the work and chances that each person of South Africa takes in his or her life. Finally, the DA strives to provide loyalty to the order that was expressed in the constitution of the country with an opposition that is both vital and persuasive while doing everything in its power to be encouraging the country as a whole (South Africa’s Political, 2013). Considering the differences in these two groups, it would seem that the government of South Africa would be headed for a period of political turmoil. However, because of the democratically held elections, the population of South Africa, who is over the age of 18 and who have registered to vote, are able to elect into office the political party that they support (South Africa’s Political, 2013). This allows for a means by which to keep the government stable in between elections. As important as the stability of the government is to a foreign business, the legalities involved in starting a company in South Africa is just as important. The country of South Africa has five legal procedures which must be completed in order to legally start a new business. The first of the five procedures is to “lodge legal formation documentation with the Companies and Intellectual Property Commission” (Starting, 2013). This requires between 5 – 7 days of time and allows the company to be registered, and a name given to the company (Starting, 2013). The second procedure is to open a bank account. This requires documentation of the directors of the company as well as the original company documents provided in procedure one. This will take anywhere between 1 to 2 days (Starting, 2013). The third procedure allows the company to obtain the documentation for income tax and employee withholding tax. This process can take up to 12 days in order to complete (Starting, 2013). Procedures four and five are done simultaneously. Procedure four allows for registration with the correct department for unemployment insurance, and procedure five allows the company to register with the correct state department for the “Compensation of Occupational Injuries and Diseases Act” (Starting, 2013). Procedure four can take up to four days; while, procedure five can take up to 10 days to complete (Starting, 2013).

Economy of South Africa
South Africa has an economy that has faced economic disasters and continues to rebound from the disasters that have affected the majority of the major economies in the world. No matter what year of the economy is evaluated, it is easy to see that the economy of South Africa would be classified as a middle-income economy that is continuing to emerge (Central, 2013). This emergence is brought about through “an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors and a stock exchange that is the 15th largest in the world” (Central, 2013). The factors which have lead to the emergence of the economy of South Africa also allows for the country to have a economy that has remained stable through the majority of the history of the country while also allowing the country to continue to experience growth that continues today. The country’s unparalleled potential for growth is exemplified through the gross domestic product (GDP) figures of the country. In the years between 1993 and 2007, there were 62 quarters of continued growth in which the GDP was increased by 5.1% (Economy, 2013). This increase in growth for an extended period led to South Africa being included into the BRIC group of countries in 2011 (Economy, 2013). The BRIC group of economy is composed of the countries of Brazil, Russia, India, and China (Economy, 2013). The economic experts believe that the economy of South Africa will continue to grow in 2013 as the country continues to rebound from the slight loss of GDP in 2009 that was caused by the global economic downfall (Bank, 2013). The estimated growth potential for South Africa in 2013 is 4.1% (Bank, 2013). While it is easy to see that the country has a high potential for growth, the World Economic Forum took this growth potential one step further. The World Economic Forum “ranked South Africa second in the world for the accountability of its private institutions, and third for its financial market development, ‘indicating high confidence in South Africa’s financial markets at a time when trust is returning only slowly in many other parts of the world’” (Economy, 2013). In other words, when many of the economical markets of the world are struggling to return to the former trust that had been instilled in them or are attempting to reassert the “accountability” of the private institutions, South Africa has already gained that trust and has proven that by the country is both accountable through its private institutions and the financial market is at such a stable place that even when there are spots of difficulty in the local economy and the world economy, South Africa will be able to stay stable. This trust allows for a continued growth in the economy.

Many of the experts who are evaluating the economic growth potential of many of the major countries in the world believe that the economy of South Africa will continue to grow based on the dependency of the country since many of the major trading partners and export destinations for the country of South Africa are paying the trading bills or export bills with the euro (Bank, 2013). The trading power of the euro has somewhat been tampered by the recent “slowdown in economic growth” (Bank, 2013). This slowdown does have an impact on the South African economy; however, the impact is not so great that the economy of South Africa will not continue to grow. Due to the struggles that have been see in the global economic markets, it could be surmised that South Africa would also have economic resistance to growth. This is not true since the population of South Africa is continuing to actively consume and purchase within the country (Bank, 2013). This continued purchasing of services, industry, and agriculture has helped to elevate the GDP of South Africa year after year. For instance, in 2012, agriculture composed 2.4% of the GDP, industry composed 32.1% of the GDP, and services composed 64.9% of the GDP (Central, 2013). These numbers show the trust that the people of South Africa have in the economy of the South Africa as well as the attempts of the government to “strengthen the efficiency of public spending and to root out corruption” (Economy, 2013). These attempts further buoy the trust of both the people of South Africa as well as the different countries around the world. South Africa has shown to have a stable economy with a potential for growth in the future. Conclusion All things considered, South Africa is a country that would be a good market in which to invest internationally. Given the successes of international companies in the country, there is still a multitude of opportunities in which can be invested by international firms. The culture, economy, and political situation of South Africa are primed to excel in various areas of business whether the businesses originate in South Africa or in another country. Summary Considering how recently the country became a republic, the country seems to be doing remarkably well. The economy has proved to be stable and able to bounce back from the majority of economic trouble such as the world recession that occurred in 2009. The political parties of South Africa, while varied and numerous, tend to work together to accomplish political actions which improve the country as a whole. The culture of South Africa encourages hard work, family bonds, and respect for time. The author of this paper has learned that there are many reasons that South Africa is the strong country that it shows to the international market and that the international firms would do well to look to South Africa as a location in which to expand.

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