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Going Global: Expand Your Business to South Africa
September 19, 2018
By Kent O’Neil
There are currently 195 countries in the world in which companies may choose to do business. Successful companies looking to “go global” proactively seek out the most attractive opportunities. In making the decision of where to expand internationally, companies must consider business objectives as well as the business and legal environment of potential locations.
Follow Newland Chase’s continuing Going Global series where we take a look at a different country each month – ranking countries in tiers from 1 to 5 (with 1 being most attractive for international expansion) based on its current business climate and corporate immigration system. In this edition, we take a look at the country of South Africa.
South Africa is the business hub of sub-Saharan Africa, the continent’s second largest economy, and by far the most industrialized and technology-enhanced country in Africa. In a region of the world known for difficult business climates in which to operate, it represents the most welcoming environment for most international businesses looking for a presence in the African market. However, that is not to say that doing business in South Africa is easy when compared to standards in many other destinations in the Americas, Europe, and the Far East.
South Africa’s economy is classified by the World Bank as upper-middle-income; but it remains a country with one of the highest “income inequality” measures in the world. While the difficult post-Apartheid reforms have made the inequality less defined by racial lines, the inequality gap between the rich and poor has actually increase over the past two and a half decades. Disparities in employment opportunities, health care, and education persist and significantly impede greater economic growth. Government social benefits recipients reportedly outnumber taxpayers by three times, significantly hampering efforts to invest in needed infrastructure, health care, and education.
South Africa’s economy is reasonably mixed in terms of agriculture, raw materials, manufacturing, and service sectors. South Africa was historically defined by its mining industry, with reportedly 89 percent of the world’s platinum group minerals reserves; however, in recent years, mining makes up just under 10 percent of national GDP. The business climate is now perhaps more defined by its sophisticated finance and business service sectors, which now make up the largest sector at over 20 percent of GDP, closely followed by manufacturing at around 15 percent. Manufactured machinery and automobiles now account for almost a third of the country’s exports. Like most African nations, but to a somewhat lesser extent, South Africa has a huge “informal economy”, which according to the International Monetary Fund accounts for more than 40 percent of the national economy.
Looking at a quick “snapshot” of economic indices, GDP growth over the last two and a half decades has fluctuated between two and five percent; however, the last four years have cooled and struggle to obtain two percent, with growth in the first two quarters of 2018 in the negative. Despite the tripling of the economy over the last 25 years, unemployment remains a huge problem at now 25 percent, with figures of over 50 percent among the youngest demographics. The corporate tax rate in South Africa was lowered to 28 percent in 2012.
The World Economic Forum’s (WEF) 2018 Global Competiveness Report ranks South Africa 61st of 137 nations (a slide of 14 places from last year) measured and ranked for attractiveness to business. The WEF report demonstrates a significant dichotomy of factors that go into their ranking. On one hand, South Africa received high marks for its market size, financial market development, business sophistication, innovation, and technological readiness. But on the other hand, South Africa scores among the lowest in the world in various measures of government corruption and inefficiency, crime, bureaucracy in starting businesses, and labour market efficiency. The report paints a picture of a business environment of great opportunity and potential, but one with significant challenges for business entry and operation. CEOs in South Africa name the five most problematic factors for doing business in the country – corruption, crime, government instability, taxes, and bureaucracy, in that order.
In some ways, it is remarkable that the South African people and businesses have achieved the level of success they have given the obvious lags government has placed on the economy, both under the oppressive Apartheid regime and the post-Apartheid instability and corruption. While it cannot be denied that the government has operated under difficult circumstances and had some early success post-Apartheid, it also cannot be denied that it has failed for the most part in addressing some fundamental needs to advance the country. The previous Jacob Zuma administration ended in February of this year under a massive corruption scandal, and the new administration of President Cyril Ramaphosa has seemingly attempted to address reform, but thus far with little success.
The South African corporate immigration system is relatively well-developed and straight-forward, with work and residence authorization routes broken down into (1) a General Work Visa, (2) an Intra-Company Transfer (ICT) Work Visa, (3) a Critical Skills Visa, and (4) a Visitors Visa applicable for business, but that also allows for some short-term work (up to 90 days). The General Work Visa requires a South African employment contract with a labour market test and approval of the Department of Labour. ICT Work Visas allow for foreign nationals employed by foreign companies abroad to work at affiliated companies in South Africa for up to four years. South Africa maintains a visa-on-arrival scheme for visitors from many nations applicable for tourism and business purposes, for stays of up to 90 days for most nationals.
One of the distinct advantages of the South African system is that their work visas include residence rights and forgo the need to go through an independent residence authorisation process in-country after arrival, as is the case in most other countries. Processing times for the various work visas are also reasonable at between 60 and 90 days. The required supporting documentation is the commonly requested sort, with police clearances being often the most time-consuming to obtain depending on the applicant’s country or countries of residence. South Africa is a signatory to The Hague Apostille Convention, making the legalisation process easier.
The corporate immigration system has remained relatively unchanged since 2002, with only minor procedural refinements over the past several years. Newland Chase has observed some variation over the last year in requirements imposed by the South African overseas posts and a significant uptick in in-country enforcement of immigration regulations, including more frequent workplace inspections.
A white paper was released by the Department of Home Affairs in July 2017 calling for a comprehensive overhaul of the immigration system. The proposals represent a fundamental shift to a more integrated and intelligence-based approach to immigration as a tool of economic growth. Proposals in the white paper have the clear intention of addressing the ongoing “skills drain” that has plagued the country in the last decade as highly-skilled citizens have sought better economic opportunity elsewhere in the world by encouraging critical skills-based immigration from abroad. Included in the paper is a call for a points-based system with a critical skills list component. However – with the controversies in the previous Presidential administration, a change in Home Affairs Ministers, divisions within Parliament, and a new Presidential administration this year – little concrete action has been taken on the proposals. Newland Chase continues to monitor developments within South Africa and will report on changes as available.
Also in the way of coming developments, the Department of Home Affairs will be piloting an e-visa system in the late Spring of 2019. The new system, if implemented, should streamline visa application processing. However, the planned pilot appears to be limited to select overseas missions prior to a more system-wide roll-out.
One additional development for which Newland Chase is continuing to watch is the internal process by which the overseas consular posts process visa applications. In the last month, rumours began circulating that the Department of Home Affairs is considering centralising all application processing in-country in Pretoria. This would mean that overseas missions would no longer process visa applications locally. While this would remedy some of the inconsistent rule interpretation we’ve experienced in the overseas missions, the result would be a significantly increased processing time for all applications. To date, there has been no official communication of such a change; however, Newland Chase is continuing to monitor this new potential development.
Summary and “Going Global” Tier Ranking
Newland Chase places South Africa in Tier 2 on our Going Global Ranking. While it remains the best choice of international business location for most companies looking for a presence in Africa, the ongoing problems in the government introduce a significant degree of challenge for international companies operating in South Africa and prevent us from placing it in Tier 1. However, the sheer size of the market and the established sophistication of the business environment when compared to alternative locations in Africa will continue to make South Africa a preferred destination in the region.
For more information on corporate immigration in South Africa, and Newland Chase’s capabilities to support your business plans, readers are encouraged to email email@example.com.
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