Relocating to South Africa

Safari tours, and tourism generally, are huge

Though still emerging from the shadows of the apartheid era, which ended in 1994, South Africa has rich resources, numerous investment opportunities and a government dedicated to economic and social reform.

The UK is one of South Africa’s top trade and investment partners, with 7.9% of South African exports going to the UK, a percentage surpassed only by Japan and the US. Many products already enjoy duty-free status, and existing tariffs are being gradually phased out over a 12-year period as part of the EU/SA Cooperation Agreement, which became effective in 2000.
 
Most South Africans were disadvantaged by apartheid and need to become active participants in the domestic economy for it to flourish. With unemployment high and skilled workers at a premium, the Black Economic Empowerment scheme remains a central plank of government policy.

Wary investors

Empowerment policies give the previously disadvantaged preferential access to job opportunities, learning programmes and procurement activities. Progress has been hampered by tokenism, where white business people, eager to win state bids, offer black business people generous contracts to pose as empowerment partners, but buy them out as soon as the bids are won.

Despite this, corruption in South Africa is nowhere near as endemic or as crippling as in other African nations.

Yet while President Thabo Mbeki has taken steps to redefine South Africa’s image, more must be done to expand the middle class — and so include more black people — to bridge the gap between rich and poor and create a world-class economy and business environment. Until the government can ensure this succeeds by introducing stricter guidelines for empowerment and revamping the education system, foreign investors will continue to be wary of South Africa.

Fundamental change
 
For the brave, though, a modern infrastructure and sophisticated financial markets present many investment opportunities, and Barclays’ return to South Africa in 2005 suggests that ‘the brave’ are becoming more numerous.

A gateway to a southern African market of 185 million people, South Africa manufactures and transports the majority of goods heading to that region. It also acts as a trans-shipment point between the emerging markets of Central and South America and the newly industrialised nations of south Asia and the Far East.

South Africa’s trade and industrial policy is in the process of fundamental change, moving away from a highly protected, inward-looking economy towards an internationally competitive one. Positive developments include a significant reduction in tariff barriers; a consistently competitive exchange rate; removal of restrictions on the investments available to foreigners and requirements for government approval; increased labour market flexibility; introduction of investment incentives; and an increase in technology transfer.

Incentive schemes include the Strategic Investment Plan, which offers the investor an allowance that may be used to offset taxable income; the Small and Medium Enterprise Development Programme, which gives a cash grant to entrepreneurs setting up new ventures; the Foreign Investment Grant, a cash grant to assist investors from abroad with the cost of relocating new machinery and equipment to South Africa; and the Skills Support Programme, a cash grant to support businesses engaging in skills development programmes.

In addition, the UK and South Africa share an Investment Promotion and Protection Agreement, a government-to-government treaty designed to encourage investor confidence and investment flows by setting high standards of investor protection applicable in international law. It includes provisions for non-discriminatory treatment by the host state, compensation for expropriation, unrestricted remittance for profits and international arbitration in the event of an investor-host state dispute.

Cheaper than UK

Prime investment opportunities in South Africa include the privatisation and restructuring of ports, airports, railways and rail operators; the automotive industry; telecoms; IT; electronics; water; healthcare; education and training; tourism; creative industries; sports and leisure; and agriculture.

Setting up in South Africa, investors pay considerably lower legal, accounting, management consultancy and advertising fees than in most developed economies.

Perhaps the most attractive South African investment is property, which is considerably cheaper than in the UK. For a modest amount you can buy a house in an affluent area with easy access to primary, secondary and tertiary education of a decent standard, as well as sports and recreation facilities. The general cost of living is low.

Despite the ongoing political and economic improvements, South Africa is still a country afflicted by high crime rates, with violent crime a particular problem.

But this hasn’t put the tourists off. Indeed, the country’s tourism industry is outperforming all other sectors of the economy, meaning related service industries can be lucrative for the foreign investor.

South Africa notched up a record 8.4 million foreign tourist arrivals in 2006, an impressive increase of 13.6% on the previous year.
 
With more visitors coming from North and South America, Asia and the Middle East, South Africa is looking to expand its brand beyond a five-star tourist image centred around the expensive Cape Peninsula and safaris in private game reserves. Tourist packages are being diversified to include lower cost itineraries and three- and four-star accommodation.

A unique opportunity to demonstrate these advances — not to mention gain access to funds to accelerate and expand on them — arose in 2004, when South Africa was chosen by FIFA to host the 2010 Word Cup. This has already sparked a race to build facilities across the country, undoubtedly a boon for the construction industry.

However, dark clouds are gathering on the horizon, with investors concerned about the stuttering economy and the election of Jacob Zuma, the left-leaning populist set to take over from President Mbeki in 2009. Nevertheless, the woes of Africa's largest economy must be placed in the context of a global downturn, while Zuma has pledged to continue with Mbeki's pro-business policies.

Whether he will keep his promises remains to be seen, although if he is convicted of corruption charges relating to a 1999 arms deal, he might not even get the presidency.