Introduction

Twelve years after the historic first general elections that resulted in democracy, South Africa has been a political and economic success story. With a stable political system, robust civil institutions, a consistent growth rate and very respectable investment ratings, South Africa has enjoyed due attention by US businesses. It deserves more. South Africa is unlike the rest of Africa. With first world infrastructure, communications and tertiary industries, South Africa is eminently placed to lead the whole southern African region to the next level in international trade and commercial opportunities.

There are already over 600 US companies represented in South Africa. Established and new U.S. entrants need to carefully explore and develop the local market for outright sales, joint venture and licensing opportunities. At the same time, the country is a logical site for global corporate positioning on the final commercial frontier, the African continent.

Now is the time for US companies to prepare their business development plans in southern Africa, before the US - SACU Free Trade Agreement (FTA) due to be signed in 2005, opens up the market for even more US exports.

A Stepping Stone Into Sub-Saharan Africa
Accessing the South African market is also a cost-effective means of gaining entry to the SACU (Southern African Customs Union: South Africa, Namibia, Botswana, Lesotho and Swaziland) as well as SADC (Southern African Development Community: Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe) markets. With its financial, management and transportation infrastructure, South Africa is the logical conduit for most commercial activities in the region. Retailing, channels of distribution, after sales service, as well as continent-wide strategic planning and project management are logically maintained from South Africa. Increasingly, foreign companies are moving their African head offices from London or Paris to Johannesburg, both for financial and practical reasons. Now is the time to consider doing business in South Africa.

South Africa at a Glance:

Population: 45 Million
Form of Statehood: Republic, since 1961
Government: Democracy, since 1994
Literacy: 86%
Total Area: 1.22 million km sq. (slightly less than twice the size of Texas)
Nominal GDP: US$ 135 billion (approx same as S. Carolina)
Natural Resources:
Platinum Group Metals (PGMs)
Gold
Base metals
Chromium
Manganese
Titanium
Uranium
Diamons
Coal
Primary Industries:
Ore and mineral extraction
Agricultural produce, including fishing
Secondary Industries:
Food and beverages
Ore and mineral benefication
Hydro-carbon into petroleum and plastics conversion
Iron and steel
Machinery
Automotive
Main Export Partners:
US 27%
UK 12%
Germany 10%
Japan 10%
Italy 6%
Other 25%
Source: US DOC (World Trade Atlas) 2004

Main Import Partners:

Germany 14%
US 9.7%
UK 7%
Japan 5%
Saudi Arabia 4%
Other 5%
Source: CIA World Factbook, 2004

U.S. Exports to South Africa:

2001:2.9 billion
2002: 2.5 billion
2003: 2.8 billion

Market Intelligence

U.S. TRADE WITH SOUTH AFRICA

US exports to South Africa constitute 9.4% of South Africa's total imports. Germany is South Africa's largest source of imports with 15.4% of South Africa's total imports. Most of South Africa's top trading partners faced downturns in exports to South Africa in 2002, due to the persistent weakening of the Rand (the South African unit of currency).

US exports to South Africa are composed of high value-added items and commodities. In past years, US exports were significantly higher than during the last three years due to the sale of commercial aircraft. Main exports to South Africa included industrial machinery and parts; motor vehicles; aircraft and parts; and electric machinery, including telecommunications equipment.

According to US Department of Commerce, the U.S. exported $2.8 billion to South Africa in 2003, a 12% increase since the previous year. Main exports to South Africa included industrial machinery and parts; motor vehicles; aircraft and parts; and electric machinery, including telecommunications equipment.

SOUTH AFRICA'S REGIONAL IMPORTANCE

South Africa is the economic, financial and technology hub in southern Africa. South Africa's economic position is reflected in its role in Africa. In relation to Africa, it accounts for:

6% of the population
50% of purchasing power
18% of continent-wide GDP
50+% of electricity generated
45% of mineral production
South Africa has the largest and most diversified economy in the region and on the African continent. South Africa's geographic position offers access to markets, not only in Africa, but also throughout the Southern Hemisphere. Strong linkages between the domestic and regional economy determine South Africa's commercial interests and organizational objectives in the Southern African region.

As a member state of the Southern African Development Community (SADC), South Africa plays an important role in developing regional trade and cooperation. It also benefits from the SADC Free Trade Agreement that came into operation in September 2000. SADC consists of 14 countries with a total population of approximately 180 million.

South Africa is also playing a leading role in the Southern African Customs Union (SACU) negotiations on a Free Trade Agreement (FTA) with the United States. South Africa and its SACU partners (Botswana, Swaziland, Lesotho and Namibia) regard the proposed agreement as a significant step towards integrating SACU economies into the global economic system and promoting development in the region.

MARKETING STRATEGIES TO GAIN ACCESS TO SOUTH AFRICA

Even though the US lost market share in certain sectors during the sanctions years, the stronger Rand does make certain imports from the US again more lucrative. Furthermore, there are opportunities for creative export marketing strategies, such as:

Piggy-back exporting, where a new market entrant makes use of an existing market player with cross-cutting service and product delivery. Piggy-back exporting into South Africa also ensures that the often mandatory regulatory requirements of Black Economic Empowerment (BEE) are met; a minimum requirement to access large contracts and SA Government tenders.
Certain industrial participation off-set requirements in large SA Government contracts may present opportunities to increase US export advantages in other sectors.

TODAY'S CHALLENGES / OPPORTUNITIES

Foreign businesspeople are often surprised by the already tight South African market conditions, and the level of sophistication and commitment required to enter the market. For practically all market segments in SA, access is almost as difficult as in most mature foreign markets.
South African society reflects a very skewed income distribution, where 50% of the population earn only 11% of total domestic income. Therefore South Africa has a dualist economy with high consumption patterns, OECD-quality financial institutions and communications but also a large and unskilled labor pool.
Many US exporters and investors require a return on investment in the short term that conflicts with the imperative but costly market development phase (marketing, distribution, goodwill, etc.).
Not only are more and more new suppliers coming to this market, but those already on the market (especially the Europeans and Japanese) are being forced to reduce their margins to fend off new competition. This is leading to radical corporate re-engineering across South African industries. New entrants sometimes resort to introducing loss leaders to the market in order to ensure critical mass within a short period.
Those with established production facilities in SA are making use of the South African Government's (SAG) industry incentives to off-set import duties against export earnings. This is making access to the market for new entrants without joint-venturing, etc. more difficult.

Best Prospects for U.S. Companies:

The traditional main U.S. export commodities are petroleum, aircraft, ICT, transportation, power generation and transmission equipment, machinery, organic chemicals and pharmaceutical products. U.S. companies are making inroads in environmental technologies, safety and security and motor vehicles. U.S. brands are increasingly enjoying broad consumer awareness and acceptance.

U.S. exports in the following best prospect sectors have immediate possibility of success in South Africa:

Airport and Ground Support Equipment
Telecommunication Equipment
Telecommunication Services
Mining Equipment
Safety and Security
Electrical Power Systems
Health Care Equipment and Technology
Pollution Control Equipment
Automotive Parts and Service

Growth sectors with good prospects for the future include:

Tourism Infrastructure Development
Energy
Textiles
Franchising

For more information on the South African best prospects, please contact Senior Commercial Officer Criag Allen at Craig.Allen@N0SPAM.mail.doc.gov .

News Feature

South Africa: Sub-Saharan Africa's Engine of Growth
by Finn Holm-Olsen

It has been 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...

Major Projects in South Africa

There are few massive construction projects in South Africa. The SA Government is wary of subsidizing low employment, capital-intensive projects that do not benefit the local economy or add to the over-centralization of the primate economy of Gauteng province (which includes the cities of Pretoria, Johannesburg and Vereeniging) that accounts for approximately 65% of all economic activity. The U.S. Government has been instrumental in providing the initial support for many other projects in the country with the facilities of US Trade and Development Agency (US TDA).

The following are some large development projects under way or close to completion:

SASOL Refineries Turbo upgrade
Coega deep-sea port and aluminum smelter
Maputo Corridor (rail and road upgrade to Mozambique)
Off-shore oil and gas exploration
Taxi vehicle recapitalization project
Gautrain high-speed commuter rail network
Motor Industry Development Plan (MIDP)
Dube / La Mercy International Airport in Durban, a greenfields multi-modal transportation hub development.
For additional information on these and other projects please contact, Email: ustda@N0SPAM.work.co.za

Contact us:

Senior Commercial Officer: Craig Allen
Johannesburg
The Ronald H Brown Commercial Center
15 Chaplin Road
Illovo 2196
Johannesburg
Tel: (27)(11) 778-4800
Fax: (27)(11) 268-6101
Email: johannesburg.office.box@mail.doc.gov

Principle Commercial Officer: Tyrena Holley

Cape Town
Montecarlo Building, 4th Floor
Heerengracht St., Foreshore
Cape Town, South Africa 8001
Tel: (27)(21) 421-4280
Fax: (27)(21) 425-4151
Email:cape.town.office.box@mail.doc.gov