Overseas Business Risk – South Africa

Information on key security and political risks which UK businesses may face when operating in South Africa.

Political and Economic

Political

South Africa is a young, relatively stable democracy, dominated by one political party. The African National Congress (ANC) has won all four national elections since the start of democracy in 1994. Jacob Zuma became president in May 2009 following the ANC’s victory at the polls securing 65.9% of the popular vote. He came to power with the support of the tripartite alliance consisting of the South African Communist Party (SACP), the Congress of South African Trade Unions (COSATU) and the ANC.

Although the ANC recently won 63% of the vote in the May 2011 Local Government Elections, the main opposition party, the Democratic Alliance, was deemed the biggest winner as it increased its support base from 14% in 2006 to 25%. This gives the opposition a solid platform to intensify their campaign and strengthen their bid for the 2014 national election.

Despite the ANC’s domination of South African politics, diverse interests within and between the tripartite alliance creates its own checks and balances. Calls from the left for a more radical approach to economic policy, including greater government intervention to create employment, competes with the views of economic moderates who emphasize the importance of prudent monetary and fiscal economic policy.

2012 is an important year in South African politics. All three members of the Tripartite Alliance will be holding internal election and policy conferences. The most important of these is the ANC elective conference which will be held in December, and will see the selection of the ANC president who will, effectively, lead the country after the 2014 national polls. Incumbent Jacob Zuma is expected to run for a second term.

Economic Situation

South Africa has recovered from its first recession in 17 years after it contracted by 1.7% in 2009 on the back of the collapse in global trade. Prudent macroeconomic policies and tight banking regulation limited the impact of the global downturn, and years of fiscal responsibility provided the space to respond effectively to the crisis. The National Treasury continues to implement a counter cyclical fiscal policy and forecasts a deficit of 4.8% of GDP for 2011/12 declining to 3% by 2014/15. But the National Treasury warned in February that the global outlook had once again deteriorated and that much of Europe, South Africa’s major trading partner, risked slipping into recession. This could harm domestic growth prospects. The National Treasury downgraded its growth forecast for 2012 from 3.4% to 2.7%. It is then expected to recover, reaching 4.2% by 2014.

The economy is diversified, with a strong services sector. Finance, real estate and business services is the largest industry contributing 21.2% to GDP, General Government Services 16.3% and Wholesale, retail and motor trade, catering and accommodation 14.5% and manufacturing 13.4%. Mining only contributes 5.5% to GDP, but it is important for employment and is a significant foreign exchange earner.

Unemployment remains an immense challenge with an official figure of 25.2% but the real figure is probably nearer 40%. Two thirds of all those unemployed are below the age of 35. The National Treasury’s forecasted growth rate falls short of the 6% rate analysts believe the country needs to tackle its stubbornly high unemployment levels. The South African Government has embarked on an ambitious multi-year capital expenditure programme worth approximately £70 billion, to tackle infrastructure bottlenecks in energy, transport and water. It is hoped that the infrastructure programme will create short term employment and also provide the infrastructure necessary for the economy to grow at a faster pace in the longer term.

Key challenges for the year ahead will come from chronic skills shortages, low productivity levels and infrastructure bottlenecks particularly in energy, transport and water which are a result from years of underinvestment.

South Africa has an inflation target band of 3-6%, but this framework is heavily criticized by the left. Inflation bottomed out at 3.2% in September 2010 and has been climbing slowly since (average 5% in 2011). External cost push factors of high fuel and food prices have taken the blame. Domestic factors of double digit increases in electricity and significantly above inflation wage increases are expected to add further pressure. The Reserve Bank has cut the repo rate by 6.5 ppt since December 2008 to 5.5% but could start tightening before the end of the year.

Check out the latest political and economic updates on South Africa

South Africa is now part of the BRICS grouping and China is South Africa’s largest trading partner, although the UK is in the top 5. UK exports in goods to South Africa in 2011 were worth £3.3 billion, while imports from South Africa totaled £2.2 billion. Some 600 South African companies are present in the UK (4 out of 5 South African businesses in Europe are based in the UK). Both countries are committed to the bilateral government agreement to double trade by 2015.

More information on political risk, including political demonstrations, is available in the FCO Travel Advice.

Human Rights

Human rights in South Africa are protected under its 1996 constitution, which has been hailed as one of the most progressive in the world as it also guarantees economic, social and cultural rights. The country has a strong commitment to human rights and has statutory oversight bodies such as the South African Human Rights Commission which protects the rights guaranteed under the Constitution.

South Africa is signatory to various international human rights instruments including the Universal Declaration of Human Rights; African Charter on Human and Peoples’ Rights; the International Covenant on Economic, Social and Cultural Rights; and the UN declaration on sexual orientation and gender identity.

However, concerns have been raised over poverty and access to healthcare; domestic violence and violence against women; discrimination on grounds of sexual orientation or gender presentation; high rates of violent crime against women and LGBTI individuals; and racism and xenophobia.

Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In 2011, South Africa was ranked 64th out of 182 countries in Transparency International’s corruption perception index (CPI).

South Africa is a signatory to the OECD Anti-Bribery Convention. The 2010 peer review by members of the Working Group on Bribery found that South Africa had a modern anti-bribery legislation, but more needed to be done on enforcement.

Bribery and corruption is not regarded as endemic in South Africa, but there have been reports and some high level convictions of corruption, in both private and public organisations in South Africa. Any approaches to experiences relating to bribery and corruption in business dealings should be reported to relevant authorities. It should be noted that UK bribery legislation also applies to UK registered companies and UK nationals committing acts of bribery wholly outside the UK.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in South Africa.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

There is an underlying threat from terrorism. Attacks, although unlikely, could be indiscriminate, including in places frequented by expatriates and foreign travelers.

Read the latest Travel Advice for South Africa from the Foreign & Commonwealth Office.

Read the information provided on our Terrorism threat page

Protective Security Advice

The Centre for the Protection of National Infrastructure also provides protective security advice to businesses

South Africa has a high level of crime and visitors should be vigilant about personal security and when driving around the country. Please consult FCO travel advice for up-to-date information about the situation.

Visitors to South Africa should be diligent about protecting digital data. Spyware, phishing and malicious software tools are common. One example of this is to send authentic-looking emails to potential victims. The emails appear to have been sent from a trusted institution such as a bank, requesting recipients to divulge personal information. Once criminals have these details they are able to steal money from the victims’ bank accounts. Diligence coupled with firewalls or spyware removal tools are recommended.

Read the information provided on our Protective security advice page

Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.

In 2008, South Africa enacted the IPR Intellectual Property Right for Publicly Financed Research and Development Act. The law clarifies obligations related to the ownership of intellectual property rights in the country and applies to aesthetic and functional designs, marks related to patentable inventions and copyright. Further information can be viewed at the South African Department of Trade & Industry’s website.

Read the information provided on our Intellectual Property page.

Organised Crime

Read the information provided on our Organised crime page.

More information is available on overseas business risk in a range of markets.

UK Trade & Investment Contact:

Caroline.McGill@fco.gov.uk

Countries: South Africa
Topics: Insurance & Risk
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