Doing Business in South Africa

HOW TO DO BUSINESS IN SOUTH AFRICA

The following websites contain comprehensive details on how to do business in South Africa.  They include general information on South Africa, economic overview, government policies and regulations, rankings, methodology, legal issues, foreign investments, residence and work permits and a wealth of additional very crucial information.

http://www.mazars.com/Home/News/Our-publications/Doing-business-in/Doing-business-in-Africa

http://www.doingbusiness.org/data/exploreeconomies/south-africa

http://www.southafrica.doingbusinessguide.co.uk/

According to the Organisation for Economic Co-operation and Development (OECD) Restrictiveness Index, South Africa ranks among the most open jurisdictions for Foreign Direct Investment (FDI) in the world. Openness is reflected in the overall trend of growing FDI into South Africa over the last 22 years post-1994. South Africa’s stock of FDI now accounts for around 42% of GDP. Over the last five years, South Africa accounted for the bulk of new investment projects in Africa with investment arriving from the USA, some Member States of the EU and increasingly from China, India and other Asian countries.

The country attracted around 24% of all the FDI projects in Africa between 2007 and 2013. In this light, and notwithstanding the challenging global economic conditions, in August 2013, the Global Financial Times Magazine of United Kingdom (UK) voted South Africa overall winner for best investment destination in Africa for 2013 and 2014.

FACTS TO REMEMBER:

Dealing with construction permits

Getting electricity

Registering property
Getting credit

Protecting minority investors

Paying taxes

Trading across borders

Enforcing contracts

Resolving insolvency issues

 

  • Register at the Companies and Intellectual Property Commission
  • Open a bank account
  • Register for income tax, VAT and employee withholding tax (PAYE and SITE) at the SA Revenue Services (SARS)
  • Register for unemployment insurance at the Department of Labour
  • Register with the Commissioner in deference to the Compensation for Occupational Injuries and Diseases Act

BUSINESS OPPORTUNITIES IN SOUTH AFRICA

Investors find South Africa a positive business investment opportunity:

  • The US is one of South Africa’s key trading partners for both South African export promotion and inward investment mobilisation. Several trade agreements make business opportunities in South Africa very attractive for US companies. The American Chamber of Commerce in South Africa (AmCham) has signalled its support for the future development of Africa by signing the New Partnership for Africa’s Development (Nepad) business group’s four business covenants on best practices and governance.
  • 95% of German businesses operating locally consider South Africa’s economic climate to be positive. While German companies regard the productivity of the local workforce highly, other positive factors include return on investment and free competition.

EASE OF DOING BUSINESS IN SOUTH AFRICA

For investing, South Africa offers ease of doing business. Industries are served by an established infrastructure and economic base with great potential for further growth and development through investing. South Africa has the most sophisticated free-market economy on the African continent, with the following advantages:

  • Modern Banking

Banking is highly developed and is closely regulated to protect the interests of those investing. South Africa has a modern financial and banking system. Foreign banks are well represented. Key areas of business of foreign banks include trade finance, letters of credit, foreign exchange activities and services to offshore investors.

  • Legal Protection

Investors taking advantage of business opportunities in South Africa are well protected by the country’s legal system. South African Constitution protects property, intellectual and other rights.

  • Trade Incentives

The Department of Trade and Industry has developed a package of over 90 incentives, loans and rebates to enhance South African investment opportunities. For example, the Foreign Investment Grant is a cash incentive scheme for foreign investors who invest in new manufacturing businesses in South Africa. It covers up to 15% of the costs of moving new machinery and equipment (excluding vehicles) and to a maximum amount of US$428 600 per entity.

  • High Speed Internet

South Africa’s high-tech communications infrastructure includes a high-speed ICT backbone at Coega, with fibre optics linking all sites, creating internet business opportunities in South Africa.

BUSINESS CULTURE IN SOUTH AFRICA

Tip 1

South Africa presents the visitor with a world of contradictory impressions and emotions. It is both industrialised and agrarian; affluent and impoverished – all within a few miles of each other.

Tip 2

South Africa is by far the wealthiest country in Africa.  It is rich by African terms but poor when compared with regional superpowers on other continents.

Tip 3

Trying to describe South Africa is a daunting task as it has many varying constituent parts, all of which are undergoing periods of rapid change and development. What is true today will probably not be true tomorrow.

Tip 4

The country’s current relatively peaceful internal political situation is viewed by many observers as, at best, fragile. The transition from an apartheid system to a more representative democracy is a slow transformation. Do not arrive in South Africa expecting that this process is complete and well established.

Tip 5

There are many cultures within South Africa with ethnic tensions existing both within the black community and the white community. Exactly who are you dealing with? Do extensive homework before embarking on any project.

Tip 6

The corporate structure, management style, levels of sophistication etc. found within a contact organisation will vary enormously depending upon the type of company you are dealing with. Is your contact company a well- established organisation or a more recently established outfit?

Tip 7

If you are dealing with a recently privatised company expect high levels of bureaucracy and a slow rate of progress.

Tip 8

Management power has traditionally been held in the hands of a few (usually white) senior managers. Decisions tend to be made at the top.

Tip 9

Although a great deal of pressure is being put on managers to be more consultative and delegate authority, it has been noted that a great deal of resistance to such change has been felt in many organisations.

Tip 10

The best advice for any manager is to strive to be authoritative but not overly authoritarian. Know the facts and speak with conviction.

Tip 11

South Africans expect you to have a good knowledge of the situation on the ground in the country at the time you arrive. They are not there to give you a history lesson or explain the intricacies of the system. If you want to do business in the country, the onus is on you to do the research.

Tip 12

‘Affirmative action’ policies which promote the development of black talent are in force throughout South African industry. You need to be knowledgeable about this issue and have policies in place to deal with the issue.

Tip 13

One commonality amongst the myriad sections of the South African business community is that they all prize the importance of good, long term relationships. Stress your commitment to a long-term involvement in the country. Do not risk being seen as ‘fair weather’ friends.

Tip 14

Teams can be difficult to build across ethnic divides. This is not only an issue between black and white co-workers but also between, for example, Zulu and Xhosa.

Tip 15

Although a host of different languages and dialects are spoken in South Africa, the common business language is English which is generally spoken to a high standard.

Tip 16

Humour is used by most elements of society as a tension release mechanism and can be used in the most serious of situations to diffuse anxiety.

Tip 17

Punctuality varies across the cultures but can be very elastic.

Tip 18

Women have tended to play a minimal role in business life and although there are signs that progress is being made in this area, it is still unusual to find women in senior management positions.

Tip 19

Dress code still tends towards the formal and it is best to wear conservative, business-formal attire – this applies to both men and women.

Tip 20

Most business entertaining will be done at local restaurants. It is unusual to be invited to the home of a business colleague for a meal.

 

SOUTH AFRICA IN FIGURES
Land Area 1, 225,815 sq km
Population: 50.1 m
Population density: 41 sq km
Life expectancy: Men 52 years
Women 54 years
Adult literacy: 88%
Average per household 3.7
Divorces per1,000 : 1
THE ECONOMY
Currency: Rand
GDP: US$ 285 bn
GDP per heads: US$ 5,790
Employment (% of total): Agriculture 9%
Industry 26%
Services 66%
Unemployed 24%
Main Exports: Type Platinum
Gold
Coal
Ferro-alloys
Car and other components
Destinations: (% total) Japan 9%
USA 8%
Germany 7%
UK 6%
Main Imports: Type: Petrochemicals
Motor vehicle components
Petroleum
Cars
Telecomms components
Main countries of origin: China 20%
Germany 13%
USA 8%
Saudi Arabia 5%

 

SOUTH AFRICAN BUSINESS STRUCTURES

  1. Until very recently 70% of the market capitalization of the Johannesburg Stock Market was in the hands of just four huge corporations and over 50% of the country’s fixed assets were in government hands. This centralisation of power led to the creation of large, hierarchical and bureaucratic organisations where power was vested at the top.

 

  1. The post-apartheid governments of have sought to both reduce the influence of state holdings and to encourage the large, native South African conglomerates to sell off some of their business to local black consortiums. When these changes are coupled with the fact that a great many international operations (who avoided SA during the apartheid years) are now actively trading in the country, a much more diverse business landscape is developing.

 

  1. These changes make it difficult to predict with any great certainty what type of structure your South African counterparts may have embraced. Research is necessary — but if in doubt it is probably still best to assume that hierarchy and bureaucracy will be evident.

 

  1. One other issue worth mentioning at this point is the power and influence wielded by the Trade Union movement in South Africa. This power is a residual effect of the important role played by the Unions during the years of struggle against apartheid. It is hoped that, as the country develops, union militancy will decrease as the level of labour unrest is often quoted as a break to inward investment.

 

SOUTH AFRICAN BUSINESS ETIQUETTE AND PROTOCOL

Relationships & Communication

  • South Africans are transactional and do not need to establish long-standing personal relationships before conducting business; but there must be mutual trust.
  • If your company is not known in South Africa, a more formal introduction may help you gain access to decision-makers and not be shunted off to gatekeepers.
  • Networking and relationship building are crucial for long-term business success.
  • Relationships are built in the office.
  • Most businessmen are looking for long-term business relationships.
  • Although the country leans towards egalitarianism, businesspeople respect senior executives and those who have attained their position through hard work and perseverance.
  • There are major differences in communication styles depending upon the individual’s cultural heritage.
  • For the most part, South Africans want to maintain harmonious working relationships, so they avoid confrontations and strive for consensus.
  • They often use metaphors and sports analogies to demonstrate a point.
  • Most South Africans, regardless of ethnicity, prefer face-to-face meetings o more impersonal communication mediums such as email, letter, or telephone.

Business Meeting Etiquette

  • Appointments are necessary and should be made as far in advance as possible.
  • It may be difficult to arrange meetings with senior level managers on short notice, although you may be able to do so with lower-level managers.
  • It is often difficult to schedule meetings from mid-December to mid-January or the two weeks surrounding Easter, as these are prime vacation times.
  • Personal relationships are important. The initial meeting is often used to establish a personal rapport and to determine if you are trustworthy.
  • After a meeting, send a letter summarizing what was decided and the next steps.

Business Negotiations

  • Women have yet to attain senior level positions. If you send a woman, she must expect to encounter some condescending behaviour and to be tested in ways that a male colleague would not.
  • Do not interrupt a South African while he/she is speaking.
  • Include delivery dates in contracts. Deadlines are often viewed as fluid rather than firm commitments.
  • Start negotiating with a realistic figure. South Africans do not like haggling over price.
  • Decision-making may be concentrated at the top of the company and decisions are often made after consultation with subordinates, so the process can be slow and protracted.

Dress Etiquette

  • Business attire is becoming more informal in many companies. However, for the first meeting, it is best to dress more conservatively.
  • Men should wear dark coloured conservative business suits.
  • Women should wear elegant business suits or dresses.

Formal greetings and communication

  • Using humour is accepted when doing business in South Africa. It is mostly used as an ice breaker. You should be careful with the extent and frequency you use humour to avoid coming off as unprofessional.
  • The accepted greeting is a firm handshake. You should keep eye contact when shaking a person’s hand and when he/she is speaking to you. Sometimes, women just nod their heads as a greeting, so it is best to wait for the woman to extend her hand before you proceed to a handshake. If a man knows the woman he is greeting well, he may kiss her on the cheek.
  • Business meetings in South Africa tend to be quite informal. South Africans are generally straightforward.
  • Exchange of business cards is not a very common practice. If you want to give your business card to your partners it is best to wait until the end of the meeting. If you are offered a business card, it can mean that the other party is encouraging further communication. In any case, you should show appreciation when you are offered a business card and treat it with care.

Meetings and meals

  • Scheduling a meeting in South Africa may take some time, especially if you are arranging it by phone or via email. It is best if you send a fax message, for example, which briefly states the context of the meeting before calling to appoint a date and time for it.
  • Punctuality is appreciated by English-speaking South African business representatives, while black cultures tend to be a bit more time-flexible. In many companies and all government buildings visitors are required to sign in and out and also pass through a metal detector. When going to a meeting, keep that in mind so that you can meet the other party on time. Also, organize transportation in advance to avoid being late.
  • When asked when something is supposed to be done, South Africans may say “just now”, but it doesn’t necessarily mean “this instant”. You should find a way to ask for a more specific deadline.
  • In general, when addressing their associate, South Africans don’t use titles. Still, some honorary doctorates may prefer to be addressed by their title. When addressing a woman whose marital status is unknown, it is best if you simply call her by her name to avoid misunderstandings. You can start calling someone by their first name only after you are invited to do so, otherwise you risk leaving a bad impression.
  • Even though gift exchange during business meetings is not a typical habit, it is not unheard of. These gifts are not considered bribing and should be accepted, otherwise the giver may be offended.
  • If you are invited to dinner at the house of a business partner, an appropriate gift is a bottle of good local wine, chocolates, or flowers for the hostess.

It is not by chance that South Africa is referred to as the Rainbow Nation. The country is home to a diverse group of people with different cultural, linguistic and religious backgrounds – it is not one ethnic society. The national identity is therefore complex and difficult to generalize. The population consists of four main ethnic groups: Black African (79%), Coloured (9%), White (9%) and Asian (3%). The black African population consists of a number of different ethnic cultures as well. Each group exhibits differing religious, cultural and linguistic traits. South Africa has a total of 9 official languages, including English, Afrikaans, Zulu, Xhosa and other African languages.

Identity is firmly rooted in ethnicity, and while historic rivalries between groups do exist, great maturity has been demonstrated since the move to majority rule in 1994. The traditional African concept of ‘Ubuntu’ is widely respected amongst South African people, particularly the black population. Ubuntu is an ethnic or humanist philosophy that emphasises people’s allegiances and relations with each other; “I am because you are, you are because we are”. Qualities associated with Ubuntu are mutual respect and support, interdependence, unity, collective work and responsibility.

BUSINESS ORGANISATIONS

South Africa’s private sector is represented by a number of different business organisations. Despite efforts to create a united business representation, the private sector is still split along racial lines, which in practice is more a matter of a difference of views between ‘established’ or ‘emerging’ businesses. Most of these organisations aim to be a voice for business towards government as well as a support platform for their members. For foreign companies which are active in South Africa, these organisations can offer good networking opportunities, extensive information and once established in South Africa a forum for raising issues with government
The most established of these business organisations are:

—————————————————————–