South Africa
Sub-Saharan Africa's Engine of
Growth
by Finn Holm-Olsen
Office of Africa, Market
Access and Compliance
As appearing in
ExportAmerica, October 2003
It has been nearly a decade
since the end of apartheid in
South Africa—10 years since
Nelson Mandela was elected
president on that historic day
in 1994, when millions of
South Africans went to the
polls in the country's first
multiracial, multiparty
election. In the critical
years following his long
imprisonment, President
Mandela led South Africa
through a remarkable, peaceful
transition and, perhaps most
importantly, left a legacy of
tolerance and political
reconciliation.
Thabo Mbeki, who succeeded
Nelson Mandela and began his
current five-year term after
national elections in 1999, is
likely to be elected to a
second (and final) term as
president in 2004. With a
strong foundation of democracy
in place, President Mbeki has
turned his attention to
economic transformation. The
single greatest challenge
facing South Africa today is
to maintain and accelerate
economic growth, which will
enable the entire population
to share in the nation's
wealth. The path has not been
easy and the results have been
mixed. While great strides
have been made in the
provision of basic services,
most notably the construction
of low-cost houses (more than
a million have been built
since 1994) and access to
electricity and clean water,
it is estimated that 60
percent of black South
Africans—who make up 85
percent of the population of
43 million—still live in
poverty. Massive unemployment
(officially estimated at 30
percent), high levels of
crime, acute poverty, skewed
income distribution, and a
crippling HIV/AIDS epidemic
have all taken their toll on
this newly democratic nation.
Yet South Africa remains
sub-Saharan Africa's greatest
hope for lasting growth and
prosperity. Indeed, the
country's sheer economic
size—South Africa alone
comprises 40 percent of
sub-Saharan Africa's
GDP—makes it the United
States' largest and most
important trading partner on
the continent.
THE NEW SOUTH AFRICA
With GDP of $104 billion and
per capita GDP of $2,800,
South Africa is an upper
middle-income developing
country. It is in effect,
though, a dual economy that is
both developed and
underdeveloped. South Africa's
economy is reasonably
diversified, with
manufacturing and services
contributing a sizeable share
of GDP. South Africa is a
country that was built on
mining, and that sector
remains the country's economic
backbone. South Africa has
some of the largest mineral
reserves in the world and is a
leading mineral producer and
exporter. In 2001, South
Africa produced 50 percent of
the world's supply of platinum
metals. It is also the world's
second-largest coal exporting
country, and the sixth-largest
coal producer.
Mining was the first sector to
be affected by the South
African government's Black
Economic Empowerment (BEE)
initiative. The initiative is
a strategy of economic
transformation that aims to
bring about "significant
increases in the numbers of
black people who manage, own,
and control the country's
economy, as well as
significant decreases in
income inequalities."
Overall legislation is
pending, but agovernment
strategy paper released in
early 2003 outlines its key
principles. The government
will use a "balanced
scorecard" to measure
enterprises' progress in
achieving BEE objectives. The
scorecard will measure three
core elements: direct
empowerment through ownership
(equity) and control of
enterprises and assets; human
resource development and
employment equity; and
indirect empowerment through
preferential procurement and
enterprise development. Each
of these three elements will
count for up to 30 percent,
with 10 percent attributable
to "social upliftment."
Where sector-specific charters
are developed (as in mining,
whose charter is now law, or
in oil and banking, which are
next), the terms set out in
those charters will apply.
While fully committed to BEE
objectives, companies on the
ground and potential investors
worry about the initiative's
lack of clarity and have
expressed concerns over policy
implementation. What is clear
is that the broad parameters
of black economic empowerment
are here to stay and very much
a part of the new South
Africa. For more information
on BEE, consult www.thedti.gov.za.
INVESTMENT
There are about 900 U.S. firms
in South Africa, up from about
250 in the mid-1990s. New
investment in South Africa has
been slow in recent years.
However, the United States is
still the largest new investor
in South Africa, as it has
been since 1994. Despite a
troubled neighbor to the north
in Zimbabwe, and the
inevitable (if unwarranted)
spillover of negative
perceptions that that
country's political situation
has created, one fact
resonates loudly: South Africa
is a stable, world-class
destination. Its stock
exchange ranks among the top
15 in the world in terms of
market capitalization. At the
end of 2001, the U.S. direct
investment position (a measure
of stock of foreign direct
investment as opposed to
flows) in South Africa was $3
billion. U.S. investment is
largely in the manufacturing
sector.
U.S.-SOUTH AFRICAN TRADE
While sub-Saharan Africa's
share of total U.S.
merchandise exports is
negligible (less than 1
percent), South Africa's share
of the regional pie is
significant, accounting for 42
percent of U.S. exports to the
region. U.S. exports to South
Africa last year were higher
in value than our exports to
Russia, whose population is
more than three and a half
times as large as South
Africa. South Africa was the
United States' 35th-largest
export market worldwide in
2002, importing more than $2.5
billion of American goods.
Leading exports to South
Africa were fuel elements for
nuclear reactors, boilers, and
machinery; aircraft and parts;
vehicles and parts; audio and
TV equipment; and optical,
medical, and surgical
instruments. In the first half
of 2003, U.S. exports to South
Africa are up (8 percent) over
the same time period last
year, as are imports (12
percent).
South Africa is the largest
supplier in sub-Saharan Africa
to the United States after
Nigeria, with more than $4
billion in exports in 2002.
Platinum, diamonds, and motor
vehicles are the top U.S.
imports from South Africa. The
latter is perhaps surprising,
and can be traced in large
part to German automaker BMW's
decision in the mid-1990s to
make its South African plant
an export hub for its 3-Series
line of sedans, which are
manufactured locally and then
exported to the United States,
Japan, and Australia. BMW,
like many companies, was
attracted to the low costs of
land, water, and electricity
(South Africa has among the
lowest electricity rates in
the world) as well as skilled
labor. Further, the higher
shipping costs are offset by
export incentives offered by
the South African
government—since 1995 via
the Motor Industry Development
Program—as well as the
import duty exemptions of the
African Growth and Opportunity
Act.
AGOA
The African Growth and
Opportunity Act, or AGOA, was
signed into law on May 18,
2000, as a part of the Trade
and Development Act of 2000.
AGOA offers eligible African
countries the most liberal
access to the U.S. market
available to any countries
other than those with which
the United States has free
trade agreements. It expands
and liberalizes the U.S.
Generalized System of
Preferences program, allowing
for duty-free importation of
more than 6,400 items from
eligible African countries.
AGOA authorizes continuation
of GSP for AGOA countries
without interruption until
September 30, 2008. It also
permits duty-free and
quota-free importation of
apparel items manufactured in
AGOA countries under certain
conditions.
South Africa is AGOA eligible
(including the apparel
provision) and has in fact
been a major beneficiary of
the act. Interestingly, AGOA
has indirectly encouraged U.S.
exports to South Africa.
Between 2000 and 2002, U.S.
motor vehicle and parts
exports to South Africa
increased more than 88
percent, to $160 million, due
in large part to efforts by
automakers to base more
production for the U.S. market
in South Africa. A study by a
South African economic
research firm concluded that
AGOA supported more than
65,000 jobs in South Africa
alone in 2001 and caused a
1-percent increase in GDP.
Indeed, South Africa's success
with AGOA was a motivating
factor in its decision to
enter into free-trade
agreement negotiations with
the United States. Both
countries realize the benefits
that can accrue when the
bilateral commercial
relationship graduates to full
partnership, when guaranteed
preferential access to each
other's market is the rule.
U.S.-South Africa Business
Council
This is an association that
represents the majority of
U.S. investors across all
industry sectors. It also
chairs the U.S.-SACU FTA
Coalition, a private sector
group that advises the U.S.
government on those FTA
negotiations.
Contact:
J. Daniel O'Flaherty
Tel: (202) 887-0278
E-mail: ussabc@nftc.org
Web site: www.nftc.org
South Africa International
Business Linkages
The South Africa International
Business Linkages (SAIBL)
program, a cooperative
agreement between the U.S.
Agency for International
Development and the Corporate
Council on Africa, builds the
capacity and international
competitiveness of
historically disadvantaged,
small and medium-sized South
African businesses through
trade and investment
partnerships with U.S.
companies. At no charge, SAIBL
can help your company identify
qualified South African
partners for procurement
contracts, equity investments,
joint ventures, licensing,
franchising, distributorships,
and trade/marketing
arrangements.
Contact:
Nischal Patel
Tel: (202) 835-1115
E-mail: npatel@africancncl.org
Web site: www.africacncl.org/linkages/saibl.asp
U.S. Trade and Development
Agency
The U.S. Trade and Development
Agency (USTDA) opened the U.S.
government's first trade
finance office on the African
continent when it began
operations in July 2002 in
Johannesburg, South Africa.
The USTDA portfolio for Africa
continues to expand, as
sub-Saharan Africa continues
to attract U.S. commercial
interest, particularly in
large infrastructure projects.
Covering the region from
Johannesburg, USTDA is eager
to hear from U.S. firms
pursuing large (greater than
$5 million) sales
opportunities involving
transportation, power, the
environment, communications,
natural resources, and other
sectors.
Contact:
Lance Ludman
E-mail: lludman@tda.gov
Web site: www.tda.gov
FREE TRADE AGREEMENT
Southern Africa has moved to
the forefront of the Bush
administration's effort to
enhance global trade
liberalization and to
integrate developing countries
into the global economy. The
launch of negotiations on a
free trade agreement (FTA)
between the United States and
the Southern African Customs
Union (SACU)—Botswana,
Lesotho, Namibia, South
Africa, and Swaziland—in
June 2003 signaled a new era
of economic partnership
between Africa the United
States, and a significant
opportunity for U.S.
exporters.
Established in 1910, SACU is
the world's oldest customs
union and is the largest U.S.
export market in sub-Saharan
Africa, accounting for roughly
$3 billion in exports in 2002.
U.S. exports to SACU countries
are concentrated in civil
aircraft, chemicals,
automobiles and auto parts,
information technology, paper
products, textiles, mineral
fuels, industrial equipment,
and scientific instruments.
Under the proposed
comprehensive FTA between the
United States and SACU, due to
be completed before 2005, U.S.
companies will benefit from
further liberalization in
services, investment,
intellectual property rights,
and government procurement.
The agreement will also help
to level the playing field in
areas where U.S. exporters are
disadvantaged by the European
Union's free trade agreement
with South Africa.
The SACU countries are leading
AGOA beneficiaries, accounting
for more than 70 percent of
U.S. non-fuel imports under
this program in the past year.
South Africa is the largest
AGOA supplier of non-fuel
goods to the United States,
Lesotho is the largest AGOA
apparel exporter, and
Botswana, Namibia, and
Swaziland have seen their
total exports to the United
States increase by 40 to 75
percent in the last year.
Through AGOA, the SACU members
have seen the positive role
trade can play in fostering
economic development. By
moving from bilateral trade
arrangements to a
comprehensive free trade
agreement, the United States
will expand its access to SACU
markets, further link trade
with regional economic
development strategies, and
promote regional economic
integration and growth.
Trade capacity building is a
vital part of the SACU FTA,
and an opportunity to pair
innovative solutions with
regional economic and trade
development challenges. The
United States and the Southern
African Customs Union have
established a special
cooperative group on trade
capacity building, with $2
million in initial funding
from the U.S. Agency for
International Development.
This cooperative group meets
during every round of FTA
negotiations to identify
capacity building requirements
to assist SACU countries in
preparing for and
participating in negotiations,
implementing agreed
commitments, and receiving the
benefits of more open trade.
REGIONAL HUB
The vast majority of U.S.-SACU
trade is with the country of
South Africa. Eighty-six
percent of U.S. exports to the
SACU region are to South
Africa, and 94 percent of
imports from this region come
from South Africa. South
Africa is also a member of the
Southern African Development
Community (SADC), whic h also
includes Angola, Botswana, the
Democratic Republic of the
Congo, Lesotho, Malawi,
Mauritius, Mozambique,
Namibia, Swaziland,
Seychelles, Tanzania, Zambia,
and Zimbabwe. The SADC Free
Trade Protocol (FTP), launched
in September 2000, is an
effort to phase out tariffs
among SADC countries to
eventually lead to a free
trade area. The FTP will
remove tariffs on 85 percent
of intra-SADC trade by 2008,
and on all but certain
sensitive goods by 2012. Most
of the SADC countries have
ratified the FTP. Only
Mauritius and South Africa,
however, have actually begun
to implement the protocol,
mainly due to their extensive
bilateral trade in textile and
apparel products. As within
SACU, South Africa is by far
the largest SADC economy.
 |
HIV/AIDS
South Africa has the
largest HIV-infected
population in the
world. According to
reliable estimates,
one in eight South
Africans is HIV
positive. Already the
leading cause of death
in the country, the
economic impact of
AIDS is equally
sobering. Some studies
suggest that GDP
growth could drop by 1
to 2 percent annually
in the worst affected
African countries for
the next decade. Yet
the South African
government—President
Mbeki in particular—
has been widely
criticized for failure
to recognize
appropriately, and
develop an effective
response to, the
pandemic. The private
sector has done much
to fill the void,
sponsoring
wide-ranging health
and educational
programs for its
employees. There are
signs, too, that the
government is starting
to come around. In
August 2003, the South
African government and
the Global Fund to
Fight AIDS,
Tuberculosis and
Malaria signed an
agreement committing
$41 million over two
years for both
treatment and
prevention of HIV/AIDS
and TB. The grants
will, among other
things, widen access
of people living with
HIV to lifesaving
treatment with
antiretroviral
medicines. |
With these regional
structures in place, South
Africa is a gateway to the
southern part of Africa and
beyond. South Africa is
already a natural regional hub
given the size and importance
of Durban, the largest and
busiest port in the Southern
Hemisphere.
DOING BUSINESS IN SOUTH
AFRICA
South Africa has, in
accordance with WTO
commitments, reformed and
simplified its tariff
structure. Tariff rates now
generally fall within eight
levels up to 30 percent, with
some goods, specifically
textiles and apparel,
attracting higher rates. South
Africa has reduced its tariff
rates across the board since
1994, from an average of more
than 20 percent to 7 percent.
Of course, the applicable
bilateral rates will be
affected once the FTA comes
into force.
The most obvious constraint to
doing business in South Africa
is the cost of shipping. For
many firms, South Africa is
still a "foreign"
place. The distance between
the United States and South
Africa and general lack of
market knowledge on the part
of U.S. companies make solid
local representation a
necessity. South Africa has a
sophisticated business
environment, and finding a
good partner is usually the
most important first step to
being successful in this
market. The U.S. Commercial
Service offices in South
Africa (Johannesburg, Cape
Town, and Durban) can be of
tremendous assistance in
identifying and assessing
potential agents or
distributors, and the process
can be initiated via the U.S.
Export Assistance Center
network.
The service sector, which
accounts for 65 percent of
South Africa's GDP, is
critical to future economic
growth. South Africa is the
fastest-growing tourist
destination in the world,
having attracted more than 6.5
million foreign travelers in
2002, an 11 percent increase
over 2001. This growth has
contributed significantly to
economic development and
undoubtedly generated new
jobs. But the psychological
effect for South Africa may be
equally as beneficial. The
increase in tourism since the
end of apartheid has been far
less than the government and
industry had hoped for, crime
and safety being chief among
the concerns of visitors.
Vacationers and businesspeople
alike are increasingly
discovering the country's
natural beauty, its
sophisticated infrastructure,
and commercial opportunities.
Strong potential exists in
telecommunications but is
dependent on liberalization of
the sector. Although the
monopoly service provider
Telkom's exclusivity period
ended in May 2002, the
licensing of a second network
operator to compete with
Telkom is still pending. A
2001 act that reinforced
Telkom's control over the
provision of bandwidth by
outlawing resale until 2005
has also effectively
restricted access to the
infrastructure on which
e-commerce—another potential
growth sector—depends.
Wireless Internet
technologies, particularly
satellite broadband, hold
potential but are likewise
constrained by the
aforementioned act, which
requires Internet service
providers to lease facilities
from Telkom, effectively
restricting them from
providing services from their
own wireless equipment. On the
mobile side, cellular phone
ownership has shown strong
growth, increasing from 2
percent of the population (in
1995) to 20 percent (in 2001).
Franchising also holds
promise, and the government
has recognized the potential
for economic empowerment and
the transfer of skills.
While privatization has been
slow in South Africa, large
parts of the private sector
are still dominated by a
handful of conglomerates and
holding companies. Progress in
creating a more competitive
business environment is
integral to the government's
strategy of economic
transformation. Coupled with
the development of a vibrant
black middle class, it will
also likely determine South
Africa's fate as it enters its
second decade removed from the
shackles of apartheid. South
Africa's ability to navigate
this path in the years ahead
will also be key to expanded
commercial opportunities for
U.S. companies seeking to do
business there.
For more information on doing
business in South Africa,
visit the U.S. Commercial
Service site at www.buyusa.gov/southafrica/en,
or contact the Trade
Information Center at (800)
USA-TRADE (872-8723) or www.export.gov/tic.
Main sources: World Bank:
World Development Indicators
database; Investment Climate
Statement for South Africa
(U.S. Embassy, Pretoria,
2003); and G. Feldman,
U.S.-African Trade Profile
(U.S. Department of Commerce,
March 2003).
Breathing Clearly
Air Monitoring Firm Wins South
African Contracts
Thermo Environmental
Instruments searches the world
for opportunities to supply
air-monitoring control
equipment; but this time, the
U.S. Commercial Service went
shopping for specific
equipment and discovered the
firm. As a result of the U.S.
Commercial Service's product
search, Thermo recently signed
a sales agreement with the
municipality of Durban, South
Africa, to supply $200,000
worth of equipment for South
Africa's national pilot
project to monitor air
quality.
The Commercial Service's
Durban office discovered
Thermo at the Air and Waste
Management Association's
conference in Orlando, Fla.,
in 2000. Laurie Kohrs, of the
Commercial Service in Durban,
departed for Orlando with a
mission: to identify U.S.
suppliers of air-monitoring
control equipment for the
related project in Durban,
which in turn would serve as a
pilot project for future
tenders in the country.
Over the next two years, the
U.S. Commerce Department
team—including the
Commercial Service in Durban
and Jane Siegel, international
trade analyst for
environmental
technologies—worked closely
with Thermo in an effort to
devise an optimal business
plan. The successful bidders
were finally announced two
years later, and all three
were American, including
Thermo. The company is
supplying Durban with
sequential dust analyzers.
Thermo is pursuing two other
tenders in South Africa. The
company has announced its
success in supplying four new
monitoring stations for the
Johannesburg project, valued
at nearly $500,000.
Ero Electronic Pty. Ltd., the
South African distributor for
Thermo, states that winning
the Johannesburg tender is
"directly related to
Commercial Service Durban's
long-standing assistance with
Thermo and the Durban project.
Winning Durban gave Thermo
more credibility in the eyes
of the Johannesburg
municipality—all thanks to
the U.S. Commercial Service's
help from the beginning."
The deal is a prime example of
Commerce Department colleagues
and an innovative U.S. company
working together cohesively.
Says Kohrs, "An export
success for an American
company that incorporates so
many U.S. Department of
Commerce divisions around the
world is like completing a
puzzle—a great sense of
satisfaction when that last
piece just perfectly
fits."
For Further Information
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Please see South
Africa WebGuide compiled
by the Ypsilanti US Export
Assistance Center for
additional information about
South Africa.
If you're looking for
information about South
Africa's Information and
Communications Technology
Markets, please visit:
http://www.emich.edu/ict_usa/SOUTH_AFRICA.htm.
Date Updated: March 27, 2007
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