posted 13 Nov 2007 in Volume 10 Issue 6

The gateway to Africa - open for business

by Gary McLean, partner, and Bridget Tracey, associate, Allen & Overy

IN A speech delivered during an International Marketing Council of South Africa event in June 2005, Yvonne Johnston said “Africa is the last great economic frontier and South Africa is its gateway”. It is true that the developing nations are looking to the emerging economies of Africa for investment opportunities, and that South Africa, which borders Namibia, Botswana, Zimbabwe, Mozambique, Swaziland and Lesotho, provides a well-developed infrastructure for ground transportation deep into Africa. However, given the threat that issues such as unemployment, the HIV/Aids pandemic and the high crime rate pose to future stability, is South Africa’s brand as the gateway to Africa no more than marketing hyperbole?
The theme of South African finance minister, Trevor Manuel’s, 2007 Budget Speech being ‘Human life has worth’ would seem to indicate that the government is not taking a ‘head in the sand’ approach to these issues. Notwithstanding the recognition by the government that these issues need to be addressed, Mr Manuel clearly remains optimistic that South Africa can continue to inspire business confidence and encourage investment. His optimism is strongly backed up by an economy that expanded by 4.9 per cent in 2006; generating new jobs (employment in non-agricultural parts of the economy rose by over three per cent) and providing motivation for investment (investment increased by 11.7 per cent in the first nine months of 2006).
As a gateway to Africa, South Africa has much to offer investors. In the World Bank and International Finance Corporation’s Doing Business 2008 report, South Africa is ranked 35th out of 178 countries, with a ninth-place ranking for its protection of investors.
It has an outstanding, well-regulated financial-services industry, including a banking sector that compares favourably with those of developed countries. An essential contributor to the healthy functioning of South Africa’s economy is its stock exchange. The JSE operates world-class systems that provide a sophisticated and efficient market for dealing in securities. The JSE is one of the 20 largest exchanges in the world by market capitalisation and, according to the World Federation of Exchanges, it operates the world’s largest single stock futures market in the world in terms of volume of contracts traded.
The South African IT sector is regarded as being one of the best in the world. Its technologies, equipment and skills are well placed to take advantage of the expansion of telecoms and IT across the African continent. The government recently announced its intention to establish a council to oversee the development of e-skills in the country, and a number of leading IT companies, including Hewlett Packard and Microsoft, are to set up new training centres in South Africa.
South Africa has a world-class transport infrastructure and serves as a vital trans-shipment point. Its seven commercial ports act as conduits for trade between South Africa and the members of the Southern African Development Community (SADC), as well as providing a nucleus for traffic travelling to and from Europe, Asia, the Americas and the east and west coasts of Africa.
South Africa remains one of the least expensive countries to do business in. Even though its currency has strengthened in recent years, the Rand exchange rate still makes the country a cost-effective choice. In addition South Africa’s energy costs are among the lowest in the world, and it has comparatively favourable petroleum prices. The cost of labour is substantially lower than those of most key emerging markets, and its comprehensive labour legislation has contributed to a decline in industrial action in the past decade.
While South Africa still needs to address issues such as poverty, unemployment, HIV/AIDS and crime, it is clearly ‘open for business’.

References
1. www.southafrica.info
2. 2007 Budget Speech.