Country Profile:
South Africa
South Africa
Known as "The Rainbow Nation", South Africa is a melting pot of ethnicities, cultures and languages. It has a total landmass of 1.2m sq km and 47.4m inhabitants, with black Africans comprising 79.5% of the population, whites 9.2%, coloureds 8.9% and Indians/Asians 2%. Around two thirds of the population are Christian. The country has a negative growth rate of -0.4% with life expectancy estimated at 42.7 years, due in large part to HIV/AIDS, which affects between 11% and 20.5% of people over age two. A large portion of the population lives under developing world standards in informal settlements known as townships. However the government is working hard to change this and improve the standard of living. The country boasts vast mineral and natural resources, while wine is also an important export. The 2010 soccer World Cup is widely regarded as the perfect opportunity for South Africa to showcase its strengths.
ISBN: 1-90202339-79-7
ISSN (Online): 1755-2826
ISSN (Print): 1755-2818
TABLE OF CONTENTS
COUNTRY PROFILE
This section provides a quick overview of some facts about the country, its population, natural resources, geography, climate, languages, religion, culture and education system.
POLITICS
South Africa's transformation from the era of white rule is still, to a large degree, a work in progress. Some major successes have taken place however. One of the key issues the government is addressing is that of levelling the unbalanced labour market. Unemployment is a problem – official statistics place the unemployment rate at 26.7% though some outside estimates put it as a high as 40%. However, the number of citizens in work has risen by 500,000 a year during the past three years. The government is also focusing on education, aiming to train 50,000 artisans by 2010 and double the number of students in higher education. Meanwhile the government's long awaited update of its strategy on HIV/AIDS, which aims to cut the rate of new infections by 50%, has been roundly praised. Another hot topic is that of who will succeed the president, Thabo Mbeki, in 2009, with the election of Jacob Zuma in December as the chairman of the ruling African National Congress (ANC) making him the frontrunner to be head of state. The main opposition party is the Democratic Alliance (DA), though the ANC’s hold on power looks nearly unassailable, dominating the political playing field. Criticism is deflected by those inside the ANC with the contention that by the very nature of its composition the ANC is a coalition and thus possessed of a wide variety of perspectives. Pretoria operates what many describe as an ‘ethical foreign policy', which focuses on the need for Africa, and the developing world in general, to improve governance as a means of reducing disease, illiteracy and poverty in the continent. The crisis in Zimbabwe has occupied South Africa on the foreign policy front, while China is proving a diplomatic and economic ally. To the future, the 2010 football World Cup is exciting talk, with some questioning the country's ability to host such a large-scale event, citing the need for extensive infrastructure work and an expansion in the transport network, more hotel rooms for football fans and an improvement in security.
The chapter includes viewpoints from President Thabo Mbeki, Archbishop Desmond Tutu and Greg Mills, Executive Director, Brenthurst Foundation; as well as interviews with Baleka Mbete, Speaker, National Assembly, and Helen Zille, Leader of the Democratic Alliance and Mayor of Cape Town.
THE ECONOMY
South Africa's economy grew by 4.9% between 2006 and 2007, with real GDP having increased for 33 consecutive quarters. The natural resources sector functions as the main driver of the domestic economy and exports, due to the bullish commodities market, while the motor and tourism industries provide further success stories. Other sectors are struggling however; including textiles, despite an agreement with China to limit exports to South Africa. One major concern for the future is the serious imbalance in the economy, resulting from the huge gap between rich and poor, often referred to as the first and second economies. The IMF has identified the AIDS pandemic as a further challenge to future economic prosperity in the country. The widening current account deficit, which now stands at $12.6bn, close to 6% of GDP, is another cause for worry. For the time being, the deficit is being financed by record levels of inward-flowing capital. To the future, trade links between China and South Africa look set to become increasingly important, as the Asian country shows a strong demand for natural resources which could come from Africa. Land reform will also affect the country's economic future, as the government aims to transfer 30% of all agricultural land back to black ownership by 2014. Meanwhile all eyes are on the massive infrastructure improvements that are underway in preparation for the 2010 World Cup, with railway tracks being laid, airports expanded and cranes erected to build new stadiums. The government hopes the event will push economic growth past the 8% mark.
The chapter includes interviews with John Page, Chief Economist for Africa, World Bank; Geoffrey Qhena, CEO, Industrial Development Corporation; Paul Baloyi, CEO, Development Bank of Southern Africa; and Bonang F Mohale, CEO, Drake and Skull.
BANKING
In 2006 banking assets in South Africa increased by 24% and deposits by 25%, on the back of an economy which grew by more than 5%, its strongest rise in decades. Low interest rates encouraged spending and credit demand blossomed in line with increased desire for automobile leases and mortgages. However the South African Reserve Bank (SARB)'s interest rate hikes, a total of 250 basis points since mid-2006, have begun to have an effect, and the Competition Commission of South Africa excited both bankers and consumers when it began conducting an investigation into the banks' pricing methods and access to the national payment system. On top of this, regulators at SARB are ensuring that financial institutions comply with the Basel II capital adequacy and risk requirements by early 2008, along with the more stringent lending criteria set out under the new National Credit Act (NCA). The future of the South African banking sector looks positive, with the greatest challenge set to come for its 36 players in finding innovative ways of extending services to South Africa's millions of underbanked while coming in line with the new regulatory and monetary regimes.
The chapter includes interviews with Tito Mboweni, Governor, South African Reserve Bank, and Michael Jordaan, CEO, First National Bank. Cas Coovadia, Executive Director, Banking Association of South Africa, provides a viewpoint.
CAPITAL MARKETS
The Johannesburg Securities Exchange (JSE), the country's only equities exchange, celebrated its 120 th birthday in 2006 and was demutualised and listed in the same year. The JSE is currently on a breakneck speed bull run, with market capitalisation of 290% of GDP, up from 154% in 2004. It is currently the 17 th -largest exchange in the world and the fourth-largest emerging market destination for investments, collecting $9.4bn in 2005, up from $1.5bn a decade before. The JSE is now entering a period of uncertainty though, falling back almost 4% in late February 2007 after the correction in the Chinese markets, followed, in July 2007, by a dip of 7%. Some analysts believe, however, that these events are simply necessary evils for a market on its way to maturity. Junior mining companies and construction firms led the way in terms of initial public offerings (IPOs) in 2006, with mining dominating the exchange as a whole, accounting for more than a third of its market capitalisation. The three biggest mining companies, taken together, made up 20% of the market's value. Gold remains a good bet, with bullion prices hitting a 28-year high at $850 an ounce in early November 2007. In terms of the bond market, the Bond Exchange of South Africa (BESA) celebrated its 10 th anniversary in 2006 and is worth about $102.9bn, with government bonds dominating both issuance and secondary trading.
This chapter includes interviews with Stephen Koseff, CEO, Investec, and Zdenek Turek, CEO, Citigroup Africa. Garth Greubel, CEO, Bond Exchange of South Africa, provides a viewpoint.
INSURANCE
In 2006 South Africa possessed the highest insurance penetration rates in the world, according to a 2007 report on the global insurance industry by Swiss Reassurance, with premiums accounting for 16% of GDP as compared to about 8% of GDP in the US. The South African insurance sector is comprised of several large domestic players, including Sanlam and Old Mutual, as well as a number of smaller peripheral, niche players in both the short- and long-term markets. Despite the high penetration rate and density, the majority of South Africans are currently without any insurance cover whatsoever, with education and marketing viewed as the tools to overcome this. Indeed, it is the short-term sector, in particular motor insurance, that is currently riding high, and life offices must work to build consumer confidence through initiatives such as removing HIV exclusions for life and disability policies. Another challenge for the long-term sector is providing insurance to underserved, low-income communities. The introduction of the financial sector charter (FSC) shows a willingness on the part of the industry to address issues of access and affordability.
This chapter includes an interview with Barry Scott, CEO, South African Insurance Association.
TRANSPORT
The South African Department of Transport is under pressure to upgrade infrastructure, with the government's Accelerated and Shared Growth Initiative for South Africa (ASGISA) requiring that economic growth reach 6% by 2010. The development of transportation infrastructure will be crucial in achieving this goal. Meanwhile pressure is arriving in the form of the looming 2010 football World Cup, which an estimated 3m fans are expected to attend. The country's ports are currently operating at full capacity, often resulting in delays; to counter this some $3.47bn has been scheduled for investment in infrastructure and handling equipment. The railways will be kept on track with around $4.72bn of investment over the next five years, with $1.39bn slated to provide 354 new trains and trucks for coal, iron ore and general freight. The South African National Roads Agency Limited (SANRAL) has been gifted an investment programme intended to upgrade or build 5000 km of new road over the next five years. Taking to the skies, capacity at South Africa's three international airports must be increased to cope with the arrival of football fans for the World Cup, while the government has had to come to the aid of South African Airlines, which, it is hoped, with adequate restructuring, can return to a profitable basis in 18 months time.
This chapter includes an interview with Jeff Radebe, Minister of Transport.
TOURISM
South Africa's tourism industry is in the process of blossoming from a state of near-invisibility in 1992 to employing 9% of the country's workforce, accounting for $9.2bn in revenues and contributing 8.2% of GDP in 2006, with visitor numbers swelling from roughly 1m in 1992 to 8.4m in 2006. Figures for 2006 were down from the previous year by $2.1bn, which observers attributed to a drop in shopping-oriented land arrivals, the continued strengthening of the rand and the decline in days spent per tourist. More than half of all visitors to South Africa hail from just five countries: the US, Japan, Germany, France and the UK. The domestic market is also important, with 75% of all tourists originating from within the country. Niche market activities such as cultural, adventure and eco-tourism are being promoted, particularly in provinces outside the more frequented Gauteng and Western Cape. Nevertheless the perception of high crime rates in South Africa may be a strong deterrent to many would-be visitors. To the future, however, the outlook for the industry looks bright, with the 2010 World Cup holding the promise of placing South Africa firmly on the tourism map and tourism and transport infrastructure being improved in time for kick-off.
The chapter includes an interview with Moeketsi Mosola, CEO, South African Tourism (SAT).
ENERGY
The South African government has work to do in order to keep the lights switched on in the country: according to the National Energy Regulator of South Africa (NERSA), the network currently needs $139bn a year in investment to keep it running. Power utility Eskom, supplier of 95% of the country's energy, has initiated an investment strategy to increase capacity through the construction of a number of coal-fired power stations –
South Africa has the second-largest coal reserves in the world – and an expansion of the nuclear industry. The government is also investigating renewable energy sources, such as wind, solar and hydroelectric power, with analysts predicting that renewable energy could represent 15% of South Africa's consumption within a decade. South Africa does possess a limited number of exploitable offshore oil and gas reserves but production from these fields has never been great and the country relies instead on imported crude, mainly from Saudi Arabia and Iran.
Buyelwa Sonjica, Minister of Minerals and Energy, provides an interview.
CONSTRUCTION AND REAL ESTATE
South Africa's construction industry is working overtime, with money pouring in for everything from luxury hotels to infrastructure. The sector's contribution to GDP is predicted to grow to around 10% by 2014. The 2010 World Cup is a catalyst for some of this activity, with five new stadiums being constructed, while the host city of Bloemfontein requires an extra 14,000 beds to cope with the influx of visitors. In terms of infrastructure, for the World Cup and beyond, the construction industry has been earmarked for projects worth $55.6bn, under the expanded public works programme (EPWP) and the Accelerated and Shared Growth Initiative (AsgiSA). In the residential real estate sector, the market has cooled in recent years; however, it still accounts for the lion's share of investment in the industry in terms of value and number of new building plans, with demand outstripping supply. Regulations governing the real estate industry have been tightened over recent years, in particular regarding the regulation of estate agents, with new guidelines being set out for the profession. In the commercial property sector, meanwhile, 2006 total return was an impressive 26.7%, while industrial property boasted a robust 31.1% return. On top of all this activity, cement producers are enjoying big gains and the big players are increasing production to in order to keep up.
James Wilson, CEO, Istithmar, provides an interview.
TELECOMS & IT
The South African telecoms sector is in good health, outpacing the overall economy in recent years. Fixed-line telephones reach around 11% of South African households, the highest penetration rate in the region. In 2006 newcomer Neotel joined the now partially privatised Telkom on the scene, but the incumbent still dominates, with the new arrival dependent on its infrastructure in the short-term. There has been a drop of about 850,000 fixed-line users since 2000, thanks largely to an increase in mobile phone usage. South Africa possesses a mobile penetration rate of around 90%, according to industry figures. There are three players in the mobile market: Vodacom with 58%; MTN with 32% and Cell C with 10%. In 2006, the new Electronic Communications Act was introduced, setting out a revamping of the licensing framework with an estimated 200 new regulations, as well as opening up the playing field for new entrants and thereby lowering costs.
In the World Economic Forum's 2006 ‘network readiness' index, South Africa fell from 34 th in the world in 2004 to 47 th in 2006. Industry experts believe this poor showing could be about to change, with the rollout of new broadband networks and the opening up of competition in the telecoms sector. Currently connectivity remains low, with just over 8% of the population enjoying internet access. To remedy this situation, the government is looking at plans to lay two undersea cables to increase capacity for international broadband. South Africa aims for every student in the country to be computer literate by 2013, a bold task considering that only 57% of schools are currently in possession of a computer.
Dr Tracey Cohen, Councillor, Independent Communication Authority of South Africa, provides a viewpoint.
INDUSTRY & RETAIL
South Africa's industrial sector accounts for 30.3% of GDP, with nine out of ten industrial divisions reporting growth in output in the first quarter of 2007. The largest industrial sector, after the mining industry, is car manufacturing, which accounts for 7.2% of GDP, with DaimlerChrysler, Fiat, Ford, Nissan, GM, VW, Toyota and BMW all possessing substantial operations in the country. Chemicals manufacturing is the second largest segment and has attracted many foreign investors. The metals processing industry is thriving, while the pharmaceuticals industry is also a prime candidate for overseas investors, thanks to South Africa's high-quality hospitals, well-trained medical staff and the fact that English is widely spoken. Commercial ship repair is also important, with Cape Town possessing one of the largest dry docks in the southern hemisphere and a new ship repair facility at the port of Saldanha Bay set to serve the West African oil and gas industry. The e-chemicals sector is also thriving with industry insiders predicting that fertiliser production could grow by as much as 3m tones over the next ten years thanks to agricultural diversification. It is not all good news, however: the textiles and clothing industry has suffered recently at the hands of stiff competition from low-cost production in countries such as China. To the future, government policy is focused on improving infrastructure through projects such as the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) and support to certain sectors of the economy, such as car manufacturing, textiles, clothing and the defence industry. Retail is also predicted to grow off the back of increasing levels of disposable income while good price-to-earnings ratios could result in a rising number of foreign takeovers in the future.
This chapter features interviews from Mandisi Mpahlwa, Minister, Department of Trade and Industry, and Anne Cointreau-Huchon, CEO, Morgenhof Estate.
MEDIA & ADVERTISING
The South African media landscape is changing fast, with the liberalisation of Pay TV set to shake up the broadcasting environment over the next few years as Multichoice loses its near monopoly. As a result of opening up of the market television will likely become the main advertising medium in South Africa and the competition among rival networks should grow fierce. Currently radio, which was deregulated in 1996, is South Africa's most varied broadcast medium, with listeners in Johannesburg having a choice of around 40 stations. The newspaper and print market is starting to mature, with tabloid publications proving popular among readers and Afrikaans-language newspapers and magazines starting up. As the market becomes crowded, only the fittest will survive, meaning that weaker publications are likely to be pushed from the shelves. Meanwhile online and other new media are starting to make their mark, with many existing publications opening up online platforms and advertisers wising up to the medium's potential. South Africa's media and advertising market is sophisticated and mature, with creativity and innovation appreciated and desired by increasingly picky clients. To pave the way for long-term success, new advertising talent will have to be fostered and nurtured. Ad spending grew by 17% in 2006, reaching a record $2.79bn. Currently, the market remains dominated by large international firms, such as Ogilvy and Saatchi and Saatchi. However the government is spearheading a drive to encourage entrepreneurs and small and medium-sized enterprises, which should keep the less high-profile agencies on their toes.
In this chapter OBG interviews Peter Bruce, Editor-in-Chief, Business Day newspaper.
MINING
South Africa was built on mining and it remains the global centre for the industry, containing the world's largest gold and platinum group (PGM) reserves, as well as an abundance of coal, diamonds and iron ore. The mining industry as a whole employs some half a million people and indirectly employs 200,000 more, while the rand's value is dominated by the value of gold and the wider resource sector as a whole. If gold goes up, the rand follows, regardless of how the balance of trade looks. While the Department of Minerals and Energy (DME) has come under criticism for converting old order mineral rights into new mining licenses, it has also introduced flow-through shares and bureaucratic streamlining which, analysts believe, should lead to a rise in investment levels. The government has also set up a state-owned diamond trading company (SDT) and introduced a levy on uncut diamond exports, which, it is hoped, should bring more value added to South Africa. This positive outlook for the South African mining industry looks unlikely to change any time soon, with huge reserves of coal, platinum and iron ore in addition to gold and uranium. Spurring this sunny outlook on is the increased standard of living of over 2bn people in China. A large number of these will desire luxury goods, including cars and computers, much of the material for which hails from South Africa.
This chapters includes interviews with Nicky Oppenheimer, Chairman, DeBeers, and Cynthia Carroll, CEO, Anglo American.
PROVINCES
The Republic of South Africa is divided into nine provinces, each possessing its own democratically elected state legislature, premier and executive council. Some powers have been devolved to provincial authorities to encourage competition; however provincial law is subject to national law and, in cases where the two conflict, precedence is given to national law. Although there are disparities between the provinces in terms of their economies, with some depending largely on agriculture for survival while others push ahead with ambitious industrialisation programmes, growth has been recorded in every region over the past decade. Gauteng, although the smallest in terms of geographical area, is the richest and most populous. KwaZulu-Natal is home to two important ports, Durban and Richards Bay. Western Cape has the highest education levels in South Africa and is best known for its principal city, Cape Town. Eastern Cape has been pinpointed as a key area for economic development with good port, rail, road and airport infrastructure. Mpumalanga is the centre of South Africa's coal mining sector and boasts incredible natural beauty, while Limpopo is largely associated with agriculture, producing a large percentage of the nation's fruit, including mangoes, papaya and avocados. North West province is home to South Africa's platinum belt, while Free State is home to the gold mining sector and Bloemfontein which houses the Supreme Court of Appeal. Northern Cape, much of which is semi-desert, covers 30% of the land area of South Africa and is inhabited by the last remaining bushmen of the Kalahari.
This section includes an interview with Sydney Mufamadi, Minister of Provincial and Local Governments, and features a viewpoint from Tshediso Matona, Director-General, Department of Trade and Industry.
HEALTH AND EDUCATION
The South African government is currently in the midst of a massive transformation of the public health system. Around 11% of GDP was spent on health in 2006, an increase on the 8.1% that was spent in 2005, with public sector funding accounting for 3.4% of GDP. These figures are still falling short, however, of what the overburdened public health system needs. Put simply, there are far too many patients for it to accommodate. Life expectancy in South Africa is low, largely due to the high prevalence of HIV/AIDS, which affects an estimated 12% of the population. In an effort to remedy the situation, the government has created a low-income medical scheme (LIMS) for employees who could not previously afford health coverage, placing primary health clinics under the control of local health districts with the aim of standardising basic health services and granting affordable care for all. The private health care sector is also playing a greater role, with the government adopting policy shifts towards supporting private health and public-private partnerships. Over 200 private hospitals are now operating in South Africa. In the field of education the number of private institutions is on the increase, with 108 private higher education providers currently operating as opposed to just 21 public ones. Across the board, matriculation rates are improving, reaching a high of 68.3% in 2005, as opposed to rates that only a decade before were in the 40th percentile. However, inequalities as a result of the previous administration remain, with only 14% of blacks and 17% of the coloured population possessing high school diplomas or higher certificates, compared to 65% of whites. At the same time, South Africa's appeal to students from neighbouring African nations is growing, with a number of educational cooperation agreements being signed with countries such as Mozambique, Algeria, Gabon and Zimbabwe.
This chapter features an interview with Naledi Pandor, Minister of Education.
THE BUSINESS GUIDE
In this section the country's taxation laws come under the microscope with the assistance of OBG's partners, SizeweNtsaluba VSP, while the effects of black economic empowerment on accountancy are also examined. Brink Cohen Le Roux presents an overview of South Africa's legislative structure.
In this section Victor Sekese, CEO, SizweNtsaluba VSP, and Johan Brink, Brink Cohen Le Roux Attorneys, offer viewpoints.
THE GUIDE
OBG takes the reader on one of the world's great train journeys: South Africa's 1600-km, 27-hour Blue Train journey from Pretoria to Cape Town and also highlights the 640-km trip aboard the same train, known as the ‘five star hotel on wheels', to Durban. It also invites the visitor to explore Gauteng province, home to vibrant Johannesburg and the capital city, Pretoria. Mpumalanga province, meanwhile, is host to an array of natural wonders including the southern half of Kruger National Park. The section also includes a city-to-city guide to the country's best hotels, as well as useful government, health and emergency phone numbers. The indispensable Facts for Visitors section includes language, transport, visa, currency and telephone listings – everything the business or leisure visitor could require.
