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Successfully investing in South Africa

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last updated on 19 May 2021 | reading time approx. 2 minutes

 

 

 

How do you assess the current economic situation in South Africa?

South Africa's eco­nomy is still heav­ily af­fected by Cov­id-19. While the gross do­mest­ic product (GDP) was still 351 bil­lion US-Dol­lar in 2019, it fell to around 283 bil­lion US-Dol­lar in the fol­low­ing year 2020 (neg­at­ive real eco­nom­ic growth).

Neg­at­ive im­pacts have been seen in many sec­tors of the eco­nomy, par­tic­u­larly in the travel and tour­ism in­dustry. Nev­er­the­less, des­pite these im­pacts, the World Bank ex­pects the coun­try's eco­nomy to re­cov­er more quickly in 2021 than ori­gin­ally an­ti­cip­ated, with GDP rising mod­er­ately to 318 bil­lion US-Dol­lar.

As the of­fi­cial Corona new in­fec­tion fig­ures have been de­clin­ing again since mid-Janu­ary 2021, the low­est lock-down level 1 was ordered on 1 March 2021. With this meas­ure, it is ex­pec­ted that con­sumer spend­ing will in­crease again and the eco­nomy will be able to grow again. At the same time, it can be ob­served that the vac­cin­a­tion pro­cess with­in the coun­try is pro­gress­ing very slowly. From today's per­spect­ive, it can be as­sumed that it will take some time be­fore the ne­ces­sary num­ber of people are vac­cin­ated in this coun­try to achieve herd im­munity. Fi­nally, for the next months, it is to be hoped that the vac­cin­a­tion pro­cess will pro­gress more rap­idly than it has so far.

 

How would you describe the investment climate in South Africa? Which sectors offer the largest potential?

For Ger­man com­pan­ies wish­ing to in­vest in the sub-Saha­ran re­gion, South Africa re­mains an at­tract­ive busi­ness loc­a­tion with its highly de­veloped fin­an­cial and leg­al sec­tor and mod­ern in­fra­struc­ture. In the fu­ture, this could also in­clude oth­er coun­tries in the Pan-Afric­an Free Trade Area, which came in­to force on 1 Janu­ary 2021.

The tra­di­tion­ally im­port­ant min­ing sec­tor of­fers very good pro­spects for for­eign in­vestors. Above all, the raw ma­ter­i­al prices, which have been rising again since Oc­to­ber 2020, partly due to the strong de­mand from the People's Re­pub­lic of China, and the in­creas­ing de­mand in the pre­cious met­al plat­in­um, which is an im­port­ant com­pon­ent for hy­dro­gen-based propul­sion tech­no­logy, pre­dict good eco­nom­ic pro­spects for the min­ing sec­tor. Oth­er ma­jor po­ten­tials for Ger­man com­pan­ies are shown above all by the re­new­able en­ergy sec­tors, es­pe­cially in wind and sol­ar en­ergy as a solu­tion to the grow­ing de­mand for en­ergy (Ger­man tech­no­logy), as well as the man­u­fac­tur­ing in­dustry sec­tors (in­clud­ing food pro­cessing and pack­aging, bever­age in­dustry, fer­til­izer pro­duc­tion), auto­mot­ive man­u­fac­tur­ing, pet­ro­chem­ic­als, med­ic­al tech­no­logy and tele­com­mu­nic­a­tions.

Pos­it­ive pro­spects cur­rently in­clude strong growth in the ag­ri­cul­tur­al sec­tor (good har­vests) thanks to the heavy rains since the last few months. In con­trast, in­fra­struc­ture projects from for­eign in­vest­ment to South Africa are cur­rently de­vel­op­ing quite slowly, hav­ing de­clined in 2020 due to Corona.

 

What challenges do German companies face during their business ventures into South Africa?

The chal­lenges for Ger­man com­pan­ies in South Africa con­tin­ue to be the per­man­ent changes and the tight­en­ing of the cri­ter­ia for “Broad-Based Black Eco­nom­ic Em­power­ment” (BEE). This in­cludes, for ex­ample, the re­quire­ments for own­er­ship par­ti­cip­a­tion of colored pop­u­la­tion groups, which can be an obstacle for for­eign com­pan­ies. For this reas­on it is in­dis­pens­able for the Ger­man in­vestor to deal with the leg­al frame­work or the BEE laws. In this case, it would be in­dis­pens­able to op­er­ate with a South Afric­an part­ner that meets the rel­ev­ant BEE cri­ter­ia. The ex­tent to which BEE is seen as an obstacle to en­tre­pren­eur­i­al busi­ness activ­ity will be­come ap­par­ent in each in­di­vidu­al case.

The leg­al situ­ation in the area of im­mig­ra­tion law also re­mains un­cer­tain, and second­ments of em­ploy­ees from Ger­many must be well planned and or­gan­ised over the long term.

Oth­er chal­lenges in­clude the coun­try's volat­ile cur­rency and the in­crease in elec­tri­city prices. The min­ing sec­tor and en­ergy-in­tens­ive in­dus­tries are par­tic­u­larly af­fected by con­trolled power cuts (load shed­ding). However, an im­prove­ment in the power sup­ply should be ex­pec­ted soon.

One chal­lenge for the auto­mot­ive in­dustry is to ad­apt to mar­ket de­vel­op­ments and sales mar­kets and in­vest more in elec­tro­mobil­ity.

For­eign in­vestors may shy away from cer­tain risks due to the Corona pan­dem­ic. Pos­sible cap­it­al out­flows would then res­ult in a de­valu­ation of the South Afric­an rand (cur­rency loss). At the same time, it can­not be as­sumed that for­eign com­pan­ies, which have proven to be re­li­able part­ners even in dif­fi­cult times, will with­draw from South Africa be­cause they are already “storm-tested” and pre­pared for crises due to their risk plan­ning. From the cur­rent point of view, it is con­ceiv­able that these en­tre­pren­eurs will not be de­terred by this Corona crisis and will there­fore con­tin­ue to do busi­ness in the coun­try. Africa is a con­tin­ent of op­por­tun­ity. This is also in line with the res­ults of a sur­vey con­duc­ted by AHK South­ern Africa in Au­gust 2020. 




The South Afric­an gov­ern­ment's goal is to im­ple­ment far-reach­ing re­forms, some of which are already in the im­ple­ment­a­tion pro­cess. The key ob­ject­ives in­clude the coun­try's en­ergy se­cur­ity, the fight against crime, the re­duc­tion of bur­eau­cracy, the ne­ces­sary re­or­gan­isa­tion/privat­isa­tion of state-owned en­ter­prises, the cre­ation of jobs and ul­ti­mately also the cre­ation of in­vest­ment in­cent­ives for for­eign in­vest­ment.

 

How does the market for Renewable Energies (RE) develop in South Africa?

The mar­ket for RE in South Africa is de­vel­op­ing pos­it­ively, but very slowly. With a three-year delay, the pub­lic tender pro­gramme for re­new­able en­ergy projects (“Re­new­able En­ergy In­de­pend­ent Power Pro­duc­tion Pro­cure­ment Pro­gram”, short: REIPPP) will enter its fifth round in April 2021. Fur­ther­more, the leg­al frame­work for self-gen­er­a­tion and PPAs is con­tinu­ously im­prov­ing. The de­mand for RE self-gen­er­a­tion is in­creas­ing, es­pe­cially due to the con­tinu­ously rising elec­tri­city prices and un­cer­tain power sup­ply by the state-owned power util­ity Eskom.
 

In your opinion, how will South Africa develop?

It can be as­sumed that the pan­dem­ic situ­ation will gradu­ally sta­bil­ise again as the num­ber of in­fec­tions con­tin­ues to fall in the wake of suc­cess­ful vac­cin­a­tion. Un­der this as­sump­tion, South Africa's eco­nom­ic growth can be ex­pec­ted to slowly pick up again. If the elec­tri­city mar­ket con­tin­ues to de­vel­op pos­it­ively (high private in­vest­ment in re­new­able en­er­gies is ex­pec­ted), this will cer­tainly help to boost eco­nom­ic growth.

Fi­nally, the fur­ther de­vel­op­ment of the eco­nomy in South Africa will cer­tainly also de­pend to a large ex­tent on the fur­ther course of the Corona pan­dem­ic. The pan-Afric­an free trade zone also means op­por­tun­it­ies for the Afric­an and European coun­tries and thus also for South Africa as a hub for Ger­man in­vestors.

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