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Doing Business in South Africa

Judging by the fossils found there, South Africa was home to some of the earliest of modern humans, many years ago. Dutch traders established the coastal city of Cape Town as a stopping point for the spice trade on South Africa’s southern tip. Then, European immigrants swarmed to South Africa after the discovery of diamonds in 1867 and gold in 1886.

South Africa, officially the Republic of South Africa, includes the Prince Edward Islands and is the 26th largest country in the world, with a landmass of 1,214, 470 sq. km. That makes it slightly less than twice the size of the US state of Texas.

Manufacturing in South Africa
South Africa is the world’s largest producer of platinum, gold and chromium, making mining a key industrial sector. In addition, automobile assembly, metalworking, machinery, textiles, iron and steel mills, chemicals, fertilizer and food are important manufacturing sectors for the country. Commercial ship repair is also significant. Industrial production is growing at about 1.2% per year. Industry currently equals about 29.7% of South Africa’s GDP.

Other Important Industries
Finance and banking services, insurance, agriculture, dairy products, cotton and tourism are all important industries for South Africa. Service industries make up about 67.5% of the GDP, while agriculture is about 2.8%.

Agricultural products include corn, wheat, sugarcane, fruits, vegetables, beef, poultry, mutton, wool and dairy products.

Supply Chain Infrastructure for Manufacturing in South Africa
South Africa has a relatively modern infrastructure that supports the distribution of goods to most urban centers in the country, but of its 750,000 km of roadways, only 158,000 km are paved, so moving goods outside of the main urban centers can be challenging.

South Africa has the most modern communications systems in Africa. The country is in the middle of 5G trials and 94% of cellular accounts have access to 4G/LTE services. While it does have a history of sporadic electrical system outages, being primarily powered by thermal sources, the country is on a path to growth and sustainability in the power sector. South Africa also exports electricity to other southern African countries.

South Africa has 407 airports, 130 of which have paved runways. Registered airlines moved 885,277,991 mt-km of freight in 2015.

South Africa’s merchant marine includes over 100 vessels, including two bulk carriers, and six oil tankers. Major ports include Cape Town, Durban, Port Elizabeth, Richards Bay and Saldanha Bay. Durban is a container port and Mossel Bay is a liquefied natural gas (LNG) port.

The country’s railway system is robust, with nearly 21,000 km of track. Access to and from South Africa is easy, and so is importing and exporting goods and raw materials.

South Africa’s workforce is 22.19 million strong, even though economic growth has decelerated in recent years. Unemployment is high at 27%, and even higher for certain segments of the population.

The country’s workforce lacks some important skills that have contributed to its declining global competitiveness. The workforce also engages in frequent work stoppages and strikes that can make manufacturing on time a challenge.

About 4.6% of the workforce is in agriculture, 71.9 % in service industries and 23.5% in industrial occupations. About 87% of the population can read and write, and most citizens complete 13 to 14 years of schooling.

The government has also taken steps to foster education and skills development through its Sector Education and Training Authorities (SETA) program. Businesses can partner with SETA to develop employee skills development, education and training.

South Africa has an abundance of natural resources and a well-developed financial infrastructure. And although the Rand has been a volatile currency in the world market, there are signs of improvement. The government has been attempting to control inflation while expanding the economic base, but the shortage of skilled workers and slow job growth inhibit the program’s success.

Despite its infrastructure and workforce issues, South Africa’s GDP is the 30th largest in the world at $767.2 Billion. However, most international credit rating agencies have downgraded South African debt.

In 2017, South Africa exported $94.93 billion worth of goods to China, the US, Germany, Japan, India, Botswana and Namibia. Primary exports included gold, diamonds, platinum, other metals and minerals, machinery and equipment.

Imports for 2017 were $89.36 billion and included machinery and equipment, chemicals, petroleum, scientific instruments and food. Primary import partners included China, Germany, the US, Saudi Arabia and India.

Political Landscape
South Africa is a parliamentary republic. The capital city is Pretoria, and the country consists of nine provinces. Formed from four British colonies, it achieved independence on May 31, 1920, but it wasn’t until 1994 that the government became a republic with majority rule.

Tax Rules
Taxes equal 26.6% of the GDP, putting South Africa at 107th in the world. Companies pay 29.2% of profit and make seven different tax payments per year, and it can consume more than 200 hours to calculate and file. Company owners must complete several forms in person at South African Revenue Service offices at startup.

Getting Down to Business
Doing business in South Africa has its challenges, but the country is working hard to resolve them, and things have been looking up in recent years. ATF Consult International Ltd. can flex with the manufacturer’s needs as a company in South Africa grows and evolves, while ATF Consult International Ltd. enables companies to identify and overcome the challenges associated with taxes, regulations and globalization. Furthermore, QAD is able to adapt to any style of manufacturing and to the needs of all geographic locations.

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