Posted: July 7th, 2015

Business Project in South Africa

Business Project in South Africa

Overview of Country Analysis

Globalization becomes a reality and affects business operations both directly and indirectly. Globalization has both positive and negative effects on the performance of companies. The only way companies can benefit from globalization is through taking advantage of opportunities that are presented by globalization. However, this is a tasking activity that needs a complete understanding of how the global world works. The global economic environment is structured in a way that the barriers to doing cross border business are eliminated. Free movement of companies into new markets is a common practice in the current global economy. Free movement of people and other factors of production have also been encouraged by globalization. It appears that all countries and business firms seek opportunities of expanding their operations into new markets where they get new customers. This enhances the competitiveness of firms. However, many firms have suffered in the course of trying to expand into new markets (Goyal & Goyal, 2009). The reason behind the failure of these firms is that they have failed to capture all aspects of new environments that they entered.

The issue of planning for business enhancement in the global environment is expanded in this argument. It is critical for companies to plan well before choosing to enter into new markets. In this case, business is affected by factors of adaptability in new environments. Analyses of foreign environments are crucial in opening up a company to opportunities and challenges that are likely to be faced while entering and sustaining business and investment in new markets. One of such assessments is country assessment which captures all aspects that are vital to the sustainability of business of a foreign company (Goyal & Goyal, 2009). A complete and comprehensive analysis or assessment of a foreign business location has to look into political, demographic, social, economic, environmental, and even physical factors of a country. All these factors have a direct and indirect effect on trade and foreign investment.

Picturing the Macroeconomic Environment of South Africa – Economy and Economic Indicators in Recent Years.

According to the U.S. Department of Commerce (2011), South Africa ranks as the most developed country in Africa. It is termed as the economic hub of Africa. This means that the country presents many economic opportunities to African countries. The state of economic development that has been attained by South Africa is likened to its lateness in attaining independence. The country was subjected to colonialism for a longer period resulting in the exploitation of economic opportunities and the building of the economy by the whites. The rate of development of South Africa is quite appealing and encourages investment since many hindrances to economic investment have been removed by this development. South Africa is ranked among the largest 20 economies in the world. However, the contribution of the country to the global GDP is minimal: less than 1 per cent. This signifies the presence of many economic development disparities in the country (Kumbirai & Webb, 2010).

For the past five years, the South African economy has shown considerable strengths and signs of further growth (U.S. Department of Commerce, 2011). The mining and agriculture industries, which are the main industries in the country, have recorded significant growth irrespective of the impacts of the global financial crisis. There has been continuing investment and outcome from these two vital industries that produce main exports in the country. Economic surveys show that there are many pointers to significant input in the pillar industries of the country through the provision of investment incentives by the government. These industries are expected to swell due to the continued commitment to maximizing investment in these industries. The country has kept pace with changes in the international market due to the expanding of trade relations with other countries across the globe. The country participates in regional trade as well as international or global trade. The major imports of the country are foodstuffs, machinery, chemicals, equipment, scientific products, and petroleum products (U.S. Department of Commerce, 2011). The imports are mainly drawn from world economic powerhouses like the People’s Republic of China, the United States, the European Union, Saudi Arabia, and Japan. Most of the exports are also taken to these main trading partners (organization de cooperation et de developpement Economiques, 2006).

Agriculture and Industry in South Africa.

According to Vink & Van Rooyen (2009), South Africa has an open agriculture industry. The industry employs about ten per cent of the employed population of the country. Compared to other countries that are located in the developing world, South Africa is less dependent on the agriculture industry. The agriculture industry has a small contribution to the gross economic product of the country. It only contributes a percentage of 2.6 to the GDP of the country. Most of the land in South Africa is dry and unsuitable for agriculture. In spite of the poor conditions of land in South Africa, the country is ranked among the leading countries in the world in terms of the production and export of a number of agricultural products. These include grapes, green maize, castor oil seeds, sisal, and cereals among other crops. The level of utilization of technology in the agricultural industry has been growing with time. Technology and innovation have been behind the increased production in the agricultural sector.

Agriculture is practiced in two fold. This includes subsistence agriculture which is practiced by individual households and commercial agriculture that is practiced on a large-scale. The agriculture sector of South Africa has already attested to the forces of global trade. With fewer subsidies from the government, farmers in South Africa are exposed to competition that comes from the cross border trade of agricultural products. Subsistence agriculture has been on the increase in order to sustain the population which has been on the growth trend. Agriculture is highly liberalized in the country. South Africa has kept working on modalities aimed at improving productivity in the country and making the land productive through the use of agricultural technology. Agriculture in the country is also diversified. Apart from crops, livestock production is also given much attention because most of the land in the country is unsuitable for agriculture. The field of agriculture in the country is quite large and open to foreign investors (Vink & Van Rooyen, 2009).

Other Key Industries.

Apart from agriculture, South Africa has focused on the mining industry. The country has heavily invested in the mining industry. It has a large mining industry. The presence of a variety and vast deposits of mineral ores have continued to attract investment in the mining industry. Mining is the main pillar of economy in South Africa. It forms about 10 per cent of the total GDP of the country. The country leads the world in the production of a number of minerals including chrome, platinum, manganese, and Vanadium. The country is the third largest producer of gold in the world and has significant amounts of coals mined and used in producing power for active plants in the country (Shabangu, 2011).

The government of South Africa has been working on mechanisms which will ensure the realization of the full potential of the mining industry. This is due to the realization that the industry has more economic potential which remains untapped. In addition, the industry has been critical in backing other industries. For instance, coal mining backs about 90 per cent of electricity production in South Africa. Policies are developed to help to improve the economic value and the production potential of the mining industry. One of the policy goals that are pursued is the liberalization of the industry, which encourages both local and international investors in the industry. It is argued by experts that the country could be harboring other minerals which have not been discovered yet. Nowadays, there are many international or foreign firms that are operating in the mining industry in South Africa. More investors from foreign countries have shown interest of investing in the industry and are thus expected to pursue their interests (Shabangu, 2011).

The country has a large services industry that backs the active industry. The banking and financial sector of South Africa is wide. The growth of this industry resonates from the presence of an industry that is active. With the presence of enhanced financial institutions, the access to support has been eased. There is a heavy presence of micro-financial institutions in the country, which supplement the activities of the large financial institutions. Nonetheless, the rate of the growth of the economy seems to surpass the capacity of the present financial industry. A survey on the capacity of the financial institutions to provide support in the economy has revealed that the industry often suffers from the credit crunch. This jeopardizes its capacity to provide services in the economy. This should be factored by foreign investors who plan to invest in the country. With increased effects of global trade, foreign financial multinationals have showed interest of investing in the financial sector of the country. This could serve to raise the capacity of the financial industry in discharging its activities hence promoting trade and investment in the country (Kumbirai & Webb, 2010).

Communication Systems

The communication sector of South Africa has undergone tremendous expansion since the country attained independence in 1994. Many mobile operators have accessed the market helping to speed up the pace, quality, and efficiency in communication. More than 80 per cent of South Africans have access to effective communication tools and can use them in communication effectively. The majority of the population has access to the Internet services provided by different operators. Sound policies have been pursued in the communication sector leading to policies that facilitate the growth and expansion of telecommunications in the country. Many communication operators have entered the sector due to the privatization policy. The Electronics and Communication Act, which was passed in 2005, has been critical in supporting investments in the communication sectors (Esselaar, Gillwald, Moyo & Naidoo, 2010). With the entry of many players in the sector, the country has witnessed the advancement in information and communication technology.

However, the industry has faced challenges in recent times. These challenges revolve around the legislation on liberalizing the industry. A positive resolution is expected to give the player a level playing field and encourage competition that will enhance the quality of services and the platform on which they are provided by the companies. The contribution of the communication sector to industry in South Africa remains significant, with communication operators working on improving the quality of communication services across the country. The level of the Internet use in the country has also grown rapidly. A number of legislations are expected to be affected by the industry so that it can continue being proactive in enhancing development in the country (Esselaar, Gillwald, Moyo & Naidoo, 2010).

Transport Infrustructure

South Africa has a a well developed internal transport infrastructure. The country has class roads which are favorable for transportation of goods from one detination to another. The government Ha emphasized on the developmet of modern transport infrusturcuse which is key in facilitating trade and other investements. The country has a good rail network which is interconnected across the entire country including all the eight major ports of the country. The country has largest and most developed air transport facilities. The country expanded its airports as part of the preparation for hosting the world cup. The country has numerosus airsport with a large capacity of offering transport services (Organisation for Economic Co-operation and Development, 2012).

Trade Relations

As mentioned earlier, South Africa is the leading economy in Africa and has one of the largest economies among the developing nations of the world. South Africa is not only an active member of regional trading blocks like the Southern Africa Development Community but it is also a key player in multilateral trade negotiations. The country trades with most countries in Africa and outside Africa (Alden & Soko, 2005). In the multilateral trade negotiations, which are facilitated by the World Trade Organization, South Africa represents countries that undergo economic transition and are on track to become industrialized nations. The country exhibits strong relations with all its trade partners and has been an advocate of free trade in the world. The active participation of the country in trade relations at different levels has a profound, positive effect on business investment in the country. The country borrows from trade policies that are pursued by its leading trade partners in safeguarding and enhancing its economic climate. South Africa has trading partners from all the trading regions in the world including Africa, America, Asia, and Europe. Thus investors in the country can be drawn from any of these major regions. The trade partners that are drawn from these regions also represent potential markets for companies that find it economically viable to produce from South Africa (Qualmann, 2008).

Geography

South Africa is located in the southern part of Africa. It is located in the extreme south of the African continent. The country has an unusually long coastline which stretches to meet the Indian Ocean. The country borders on the Atlantic Ocean; thus it is open to foreign trade due to the ease of shipping goods to and from the country. The country is medium in size and has a land area of approximately 1.2 million square kilometers. The country has an average radius of 1600 kilometers. The country has three major cities where population is dense. The cities are Pretoria, Cape Town, and Bloemfontein. The country borders on Mozambique, Namibia, Botswana, Zimbabwe, and Lesotho and can be accessed by road air or via the sea. The country is commonly classified as a semi-arid region. However, there is a range of climatic conditions in the country with different regions experiencing diverse climatic conditions (Fox & Rowntree, 1999).

Natural Resources and their Value to the Economy

The country is endowed with natural resources. The minerals are mined in different locations of the country. The country has major minerals that are demanded globally. These include gold, which is the most precious mineral in the world. The minerals are the major economic resource for the economy of South Africa. The other natural resource of the country is the elongated coastline (U.S. Department of Commerce, 2011). The country has one of the largest coastlines in Africa. The coastline presents many business opportunities in South Africa. The country has already invested in mining and exploiting the minerals. The minerals have been of great help in increasing the investment base of the country by aiding the growth of other sectors in the economy. Most of the minerals that are mined in the country are exported to fetch foreign exchange for the country. Minerals have encouraged the participation and significance of South Africa in international trade. Coal has aided in stabilizing the supply of electricity, which is the main source of power that is used for driving both heavy and light industries in the country. The coastline presents a strategic position and chances of cross border trading between South Africa and the rest of the world (Shabangu, 2011).

Government

South Africa is one of the countries that have suffered from the long history of colonialism. The country had a long history of apartheid and racial segregation which has been fading since the country gained independence in 1994. The country has had good governance starting from its first president Nelson Mandela to the current president Jacob Zuma. The transition of leadership has been taking place smoothly denoting the highest level of democratic maturity of the country (U.S. Department of Commerce, 2011). The leaders have embraced good governance with adherence to the democratic principles of administration. The adoption of good administrative practices has helped in the elimination of political and economic vices hence placing the country on the global economic map. The government has managed to maintain internal and external peace and relations with other countries. The country is politically stable, with stable and sustainable relations with all countries in Africa and even overseas. The country is subdivided into nine provinces that ease administration. The national government oversees the function of the regional and local governments. Both trade and other policies are made at each of these levels of governance since they build up to form the general government. Each province has a government that conducts administrative practices in the province. The provincial governments are answerable to the national government.

Culture and Language

British English is the major language that is spoken by people across all the provinces. English is the national language. Almost all official transactions are made using the English language. There are many other local languages which are spoken by the population. The most common ethnic language that is used in the country is Zulu. The population of the country has grown to approximately 50 million people. South Africa has the largest population of whites in the entire African continent. The largest population of whites in the country is a unifying factor and an indicator of the preparedness of the country for globalization. The white population coexists with the general black population, which forms about 80 per cent of the total population. The rate of population growth is low due to the incentives of controlling the population by the government. The majority of the population is literate and by all standards employable. Cases of racism are often reported in the country. Though these cases are on a lower scale, they usually have far reaching effects on internal relations of the population. They affect the relations between different racial groups in the country and injure the investment climate. Foreign multinationals in the country are often alerted of risks that can be caused by racial frictions, especially in the labor industry. However, the country has remained calm for the past five years with no major cases of racial conflicts being reported. With the presence of foreign population working and running businesses in South Africa, there is a good platform for foreign investors to venture into this market. The large population in the country signifies the presence of an immediate market for companies that produce from the country (Zuberi, Sibanda & Udjo, 2005).

Education Level

According to South Africa Department of Education (2009), the country has an open education system which is subsidized allowing most of the population to access primary, secondary, and tertiary education. The educated population offers labor for the industry in the country. This is a good sign for foreign investors who wish to invest in the country. The country has heavily invested in education systems that provide graduates who are potential laborers in the economy. There are many tertiary academic institutions in the country that offer a wide range of training and academic programs covering both the technical and nontechnical fields of learning. Approximately 5 percent of the total GDP in the country is spent on education. (Coetzee, 2007).

The Labor Industry

South Africa enjoys a high percentage of employment rates for its population. All sectors of the economy contribute to increasing the employment levels in the country by providing employment opportunities. The country has a highly skilled workforce drawn from the internal and foreign population. In recent years, the country has been in the limelight for encouraging brain drain from other African countries. This has helped to maintain professionalism and competence of different sectors of the economy. The technical competence of the workforce of South Africa comes from the fact that the country has the economic ability to attract competent skills from other developing countries in the region. Therefore, the total number of employed population is comprised of a number of people from foreign countries. Most of the sectors recorded increments in employment in 2011. The country has a volatile labor industry which is characterized by industrial action of employees. This is common in cases when employees feel that their grievances are not addressed by their employers (Swanepoel, Erasmus & Schenk, 2008).

Companies seeking to enter into the South African market should be prepared to set better working conditions for employees, failure of which means that they will be subjected to industrial action by employees. Most of the foreign mining firms in the country have been victimized by industrial action from their employees because of working conditions. The minimal labor standards are set by the government. However, individual firms are left with the options of bettering on the standards depending on their operations. The population of South Africa is hard-working, especially in scenarios where they are provided with work benefits and incentives. The government has made efforts to ensure that young people are absorbed in the labor industry. The majority of the laborers in the economy is composed of young men and women. The working population is drawn from both the formal and informal sectors. The majority of the working population in rural areas is employed in the non formal sector while most of the working population in the cities is employed in the formal sector (Swanepoel, Erasmus & Schenk, 2008).

It is important to note that South Africa is one of the countries that have attained high levels of economic development. Though faced with numerous setbacks, the country presents an open investment climate that is presented in its political, economic, social, and cultural landscape. Many foreign companies take advantage of the available economic opportunities in the country.

References

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Coetzee, M. (2007). Practicing education, training and development in South African organizations. Cape Town: Juta.

Esselaar, S., Gillwald, A., Moyo, M., & Naidoo, K. (2010). South African ICT: Sector Performance Review 2009/2010. Towards Evidence-based ICT Policy and Regulation, Volume Two, Policy Paper 6, 2010.

Fox, R., & Rowntree, K. (1999). The geography of South Africa in a changing world. Goodwood, South Africa: Oxford University Press.

Goyal, A., & Goyal, M. (2009). Business Environment. Delhi. Rahul Jain.

Kumbirai, M., & Webb, R. (2010). “A financial Ratio Analysis of Commercial Bank Performance in South Africa”. African Review of Economics and Finance, 2 (1), pp. 30-53.

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Swanepoel, B., Erasmus, B., & Schenk, H. (2008). South African human resource management: Theory and practice. Lansdowne: Juta & Co.

34197. S Department of Commerce. (2011). Doing Business in South Africa – 2011 Country Commercial Guide for U.S. Companies. Retrieved on 16 October 2012 from http://export.gov/build/groups/public/@bg_za/documents/webcontent/bg_za_034197.pdf

Vink, N. & Van Rooyen, J. (2009). The economic performance of agriculture in South Africa since 1994: Implications for food security. Development Planning Division Working Paper Series No.17, DBSA: Midrand. Retrieved on 10 October 2012 from http://www.dbsa.org/Research/DPD%20Working%20papers%20documents/DPD%20No17.pdf.

Zuberi, T., Sibanda, A., & Udjo, E. (2005). The demography of South Africa. Armonk, N.Y: M.E. Sharpe.