South Africa - International Franchise Association

South Africa is well integrated into the regional economic infrastructure as formalized by
membership in the Southern African Development Community (SADC). In addition, the
Southern African Customs Union (SACU) agreement with Botswana, Namibia, Lesotho, and
Swaziland facilitates commercial exchanges.
In 2011, South Africa saw a downturn in inbound Foreign Direct Investment (FDI) following
the modest 2010 FDI figure of $4 billion, with most inflows taking the form of Mergers and
Acquisitions (M&A). The United States is the largest portfolio investor in South Africa and the
second largest source of FDI in South Africa, after the U.K.
The United States plays a prominent role in the South African economy as the largest import
partner after China and Germany, accounting for seven percent of all imports.
In 2011, bilateral trade returned to pre-2008 levels with U.S. exports to South Africa
amounting to $7.3 billion. South African shipments to the U.S. amounted to $9.5 billion; the
long term trade deficit with South Africa declined modestly in 2011, to $2.2 billion.
The passage of the African Growth and Opportunity Act (AGOA) in 2000 has provided dutyfree
access to the U.S. market for most sub-Saharan African countries, including South
Africa. The U.S. and SACU concluded a Trade, Investment and Development Cooperation
Agreement (TIDCA) in July 2008. The U.S. and SACU will use TIDCA as a forum to
conclude a range of agreements on various trade facilitation issues and other areas of
cooperation.
Market Challenges Return to top
U.S. firms entering this market must contend with a typically mature and competitive market
with well-established European and Asian competition. A trade agreement with the
European Union enables many European products to enter South Africa duty-free or at lower
rates than U.S. products.
Broad-Based Black Economic Empowerment (B-BBEE) policies aimed at redressing
economic imbalances among historically disadvantaged communities require consideration
by all firms planning to do business with the South African government and within the
general business community as well. A few companies have managed to address the
ownership element of B-BBEE by implementing “equity equivalent” programs that emphasize
training and development of local companies.
The South African Government has initiated ambitious 10-year plus capital expenditure
projects that aim to redress infrastructure deficits in especially the power and logistics
sectors. While the need for capacity upgrades is demanded by industry at large and
financing seems secure, observers have voiced concern that implementation will be lacking
due to regulatory and organizational shortcomings.
The South African Government has been unable to effectively address long term structural
unemployment and this has been exacerbated since 2010 by a cyclical downturn. As a result
the pressure by organized labor to change economic policy direction has become more vocal
and has seen the authorities vacillate in approving and then reconsidering the take-over by
Walmart of South African retailer Massmart. Other signs of a change in the business friendly
environment have been the populist debate around mining nationalization, above-inflation
wage deal settlements by major employers such as government, mining and services and
keen oversight on price competition. South Africa has failed to attract relatively significant
FDI comparable to other emerging African economies.