ENTERING THE SOUTH AFRICAN MARKET

Entering the South African market can offer your business various new opportunities. South Africa’s sophisticated and highly-developed economy attracts front-rank multinational corporations that identify it as a gateway to other African economies. Gross Domestic Product (GDP) was assessed at US$415.3 billion, 33rd in the world and second only to 31st-placed Nigeria in Africa. Effective logistics and infrastructure support a developing economy, according to the South African government’s Statistics Department., which saw an increase of 1.9% in the first quarter of 2022 to pre-pandemic levels. Growth was reflected in manufacturing, petroleum production, chemicals, food, metals and machinery. Consumer and household purchases increased, along with growth in the hospitality sector.

South Africa is an attractive target for foreign investment, with many incentives. Still, there are always considerations regarding compliance with relevant legislation, including the Labour Relations Act that lays down the obligations of employers and protects the rights of their employees. South Africa is the largest producer of gold, platinum and chromium globally and has significant coal deposits. Mining is at the core of South Africa’s economy through the country’s rich reserves of natural resources, most famously from the De Beers diamond mines. Additionally, there are large deposits of gold, iron ore, manganese, chromium, copper, uranium, silver and titanium.

Starting a business in South Africa

Entering the South African market can bring challenges. Moving staff across the world involves complications surrounding work visas. When employees are in place, who will handle payroll? How will your company deal with regulations on taxation, entitlements and benefits, termination and severance? Drawing up an expansion blueprint is not enough. Your business plan will have to deal with all these issues.

South Africa is an attractive target for foreign investment, with many incentives, but there are always considerations regarding compliance with relevant legislation, including the Labour Relations Act that lays down the obligations of employers and protects the rights of their employees. 

Foreign companies planning to build on this potential and enter the South African market can make their move by opening a subsidiary, which is essential for hiring staff in the country and running payroll. The most popular choice is a private company, with registration overseen by the Companies and Intellectual Property Commission (CIPC). The subsidiary operates under the Companies Act of 2008 and according to its own Memorandum of Incorporation. Registration procedures include:

  • Registering the unique company name with the CIPC, which in the case of a private company carries the suffix ‘Proprietary’ or ‘Pty’, along with the Memorandum of Incorporation and Articles of Association
  • Obtaining the company’s Registration Certificate (Cor14.3) from the CIPC
  • Registering with the South African Revenue Service (SARS) for paying all categories of taxes and remitting employees’ deductions from payroll
  • Companies and employees must register with the Unemployment Insurance Fund (UIF) and the Compensation for Occupational Injuries and Diseases Act (COIDA) fund.
  • Foreign shareholders must be registered with the CIPC as ‘non-resident’ to comply with exchange control regulations and register at least one shareholder and one director with the CIPC.
  • Open a corporate bank account. There is no minimum share capital requirement generally, although sectors such as insurance and banking impose minimum limits. Foreign investment must comply with exchange control requirements.

But there are other issues, too. Where will you find manufacturers, offices and distributors? By partnering with a Professional Employer Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs, you can plot a time-efficient and cost-effective route to locating and employing staff in South Africa.  

Expanding your business into South Africa

South Africa has a fully developed infrastructure and solid financial system, offering incentives to local and international companies. It is the second-largest economy in the continent. Although it is considered an ‘upper-middle income’ nation with a GDP of US$415.3 billion, its GDP per capita is only US$6,891, highlighting the existing inequalities. However, Africa is up-and-up with a vast consumer market and many business growth opportunities. Companies are eager to join this burgeoning market and take a foothold in South Africa.

The Companies Act of 2008 says that companies must maintain at least one office in South Africa, registered with the Companies and Intellectual Properties Commission (CIPC). This office is where legal issues are concluded and legal notices are served. So, where to establish your office in South Africa?

Gauteng: This may be the smallest province, but it has the most significant percentage of the country’s population, excelling in telecommunications, manufacturing (45% of South Africa’s capacity), commercial services, trade and logistics. Its primary industries include iron and steel, electrical supplies and machinery, food, and motor vehicle parts. Its growth area is within the Special Economic Zones (SEZ). 

Special Economic Zones (SEZ) in South Africa

  • To promote specific economic activity in designated areas with financial targets.
  • Provide a highly developed infrastructure and efficient utility services framework to enhance efficiency and development
  • Special rules and regulations to cut through bureaucracy and enhance trade
  • Create jobs and regional development

It allows the government to implement and monitor priority programs, providing financial benefits for new, expanding companies and Start-ups, such as:

  • Preferential rates for Corporate Tax
  • Allowances on premises
  • Tax relief
  • Employment incentives
  • Controlled Customs Areas

Industrial Development Zones (IDZ) in South Africa 

They are purpose-built industrial areas to promote national and foreign investment, value-added manufacturing, exports and services.

  • Atlantis SEZ in Cape Town – green tech manufacturing hub.
  • Nkomazi SEZ eastern Ehlanzeni, ideally located between Swaziland and Mozambique; it is an industrial cluster.
  • Coega IDZ services the east-west trade corridor in Eastern Cape Province, promoting manufacturing and exports with investment in agro-processing, energy, automotive industry and more.
  • Richards Bay IDZ on the North-East coast on the N2 business corridor linking the seaports of Durban and Richards Bay designed around manufacturing and mineral storage.
  • East London IDZ – an important Industrial Park in Buffalo City in the Eastern Cape Province, offering industries such as the automotive, aquaculture and agro-processing specialized solutions and manufacturing platforms

Some South African Facts

  • Capital – Pretoria (administrative), Cape Town (legislative), Bloemfontein (judicial)
  • Population – 60.6 million
  • Provinces – Eastern Cape, Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, Northern Cape, North West, Western Cape
  • Official language – English, Afrikaans, Xhosa, Zulu, Southern Sotho, Northern Sotho, Tswana, Tsonga, Venda, Swati, Ndebele
  • Economy – US$415.3 billion, 33rd in the world (2021)
  • Leading sectors by GDP
  • Services 64.57%, industry and manufacturing 23.42%, and agriculture 2.53% (2021)
  • Primary exports include – Precious and base metals, agricultural goods, military equipment, and coal.
  • Leading imports include – Chemicals and related products, motor vehicles and parts, crude and refined petroleum, and broadcasting equipment.
  • Main trading partners – China, the US, Germany, Japan,  India, the UK, and Saudi Arabia.
  • Government – Constitutional and parliamentary republic.
  • Currency – Rand (ZAR)

Advantages and Challenges when entering the South African Market

Some advantages of entering the South African market include the following:

  • Logistics: Well-established and modern infrastructure.
  • Business environment: Excellent financial, legal, banking and business services, widespread use of English and an established manufacturing base. The most significant number of multinationals on the African continent.
  • Natural resources: Huge reserves of precious and base metals, plus considerable supplies of coal and oil.
  • Regional economics: Successfully integrated into Africa’s economic infrastructure through the African Continental Free Trade Area. Other trade agreements include the European Union plus membership in the informal BRICS group (Brazil, Russia, India, China and South Africa). South Africa is a gateway to sub-Saharan economies.
  • Consumerism: A growing middle class of different ethnic groups.

Some challenges of entering the South African market include:

  • Security: South Africa has high crime levels outside tourist areas, including murder, car-jacking and robbery.
  • Tenders: Lack of transparency in awarding contracts.
  • Bureaucracy: Concerns over adverse regulatory and political factors; complex tax payment procedures.
  • Workforce: Skills shortages among technical and professional sectors despite high unemployment. Diverse cultures and ethnic groups complicate entering the market for foreign companies.

LOOKING TO EXPAND INTO SOUTH AFRICA?

For more information, download our free guide or get in touch with our consultants here