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SOUTH AFRICA’S INVESTMENT ENVIRONMENT SOUTH AFRICA’S INVESTMENT ENVIRONMENT TRADE AND INVESTMENT TRADE AND INVESTMENT SOUTH AFRICA SOUTH AFRICA A division of the Department of Trade and Industry August 2007 A division of the Department of Trade and Industry November 2005 South Africa at a glance •Area 1,219, 090 km2 •Population 44,8m •Currency R1 = 100 cents •Time GMT + 2 hrs •Head of the State: President Thabo M Mbeki •11 Official languages with English the business language •Total GDP: 2006 R1 726 bn (US$ 255 bn) •GDP 2006 per capita: R35 994 (US$ 5 324) •Real GDP Growth: 5,0 (2006) •Inflation (CPIX): 4.6% (annual 2006 average) •Exports: Tourism, minerals, diamonds, metals and metal products, food products & automotive components. •Main trading partners: Germany, USA, China, Japan & the UK. SADC and South Africa ANGOLA Macro-Economic Policy Macroeconomic interventions to accelerate growth and ensure social inclusion Higher public sector investment Reduce the cost of doing business Expand public works & micro-credit programmes Improve state capacity to provide economic services Strengthen social cohesion Growth in 2005 was 4,9% Broad framework of further steps needed to raise the range of growth to higher levels Proceeds from premise that positive factors in the economy afford society the possibility to pursue for better economic performance. Achieving sustained and balanced growth A tested and Abundant mineral Established Economic industrial & reliable legal & natural advantages system resources financial which infrastructure create a positive Cheap A relatively large electricity labour force environment Further, ‘[c]onsistently prudent macroeconomic policies have succeeded in reducing the fiscal deficit, stabilising debt levels, and lowering inflation and interest rates’; and the country ‘stands out among its peers due to its democratic and transparent institutions and entrenched political stability…’ Standard and Poor’s, August 2005 Macro-Economic Stability Fiscal Policy 450000 400000 350000 300000 250000 Gov. Revenue 200000 Gov. Expenditure 150000 100000 50000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1990 1991 1992 Source: SARB South African Economy 1994 2004 2006 GDP (billions) R 482 R 1 374 R 1 726 US$ 213 US$ 255 GDP per capita R 12 507 R 29 422 R 35 994 US$ 4 561 US$ 5 324 Merchandise exports R 69, 8 R 281,8 R 398,5 (billions) US$ 43,6 US$ 58,9 Total Foreign Debt / GDP 21,8% 20,2% 22,4% GDP Growth 3,2% 3,7% 5,0% Unemployment 20% 26,5% 25,5% Inflation (CPIX) 9% (CPI) 4,3% 4,6% Prime Rate 15,75% 12% 12,5% Source: SARB SA’s Export Performance by Country - 2006 Rb US$b 1. Japan 41.3 6.1 2. United States 41.2 6.1 3. United Kingdom 31.7 4.7 4. Germany 26.8 3.0 5. Netherlands 18.0 2.6 6. China 14.0 2.0 9. Switzerland 11.6 1.7 7. Belgium 10.2 1.5 8. Spain 10.0 1.5 10. Italy 9.3 1.4 Source: SARS Business Environment Infrastructure Source: ABSA SA’s Export Performance by Country Country 2005 (Rm) 2005 (US$m) Country 2006 (Rm) 2006 (US$m) Japan 32,935.5 5,146.2 Japan 40,833.0 6,380.2 United Kingdom 32,039.3 5,006.1 United States 40,205.7 6,282.1 United States 30,385.9 4,747.8 United Kingdom 31,291.6 4,889.3 Germany 20,701.0 3,234.5 Germany 26,354.1 4,117.8 Netherlands 14,187.5 2,216.8 Netherlands 17,261.5 2,697.1 Australia 9,663.4 1,509.9 China Ranked 6 13,584.6 2,122.6 Belgium 8,713.9 1,361.5 Switzerland 10,214.5 1,596.0 Spain 8,704.5 1,360.1 Spain 9,975.5 1,558.7 China Ranked 9 8,387.0 1,310.5 Belgium 9,721.8 1,519.0 Total exports to all Total exports to all countries 320,004.0 50,000.6 countries 380,884.3 59,513.2 SA-CHINA Bilateral Trade 60,000.0 40,000.0 20,000.0 Rm 0.0 -20,000.0 2002 2003 2004 2005 2006 -40,000.0 Total Exports Total Imports Balance SA-CHINA Bilateral Trade Imports from China to SA 2006 Exports from SA to China 2006 Top 10 Products Rm US$m Top 10 Products Rm US$m H84: Boilers, machinery, etc 9,872.8 1,542.6 H26: Ores, slag and ash 5,416.1 846.3 H85: Electrical, electronic H72: Iron and steel 2,312.3 361.3 equipment 8,643.8 1,350.6 H27: Mineral fuels, oils, H62: Articles of apparel, distillation product 1,958.1 306.0 accessories, 3,127.0 488.6 H76: Aluminium and articles H64: Footwear, gaiters and the like, thereof 665.8 104.0 parts 2,846.9 444.8 H61: Articles of apparel, H74: Copper and articles thereof 453.2 70.8 accessories, knit or 2,288.6 357.6 H75: Nickel and articles thereof 422.1 65.9 H90: Optical, photo, technical, medical, etc 1,591.9 248.7 H29: Organic chemicals 323.9 50.6 H94: Furniture, lighting, signs, H84: Nuclear reactors, boilers, prefab 1,529.3 239.0 machinery 316.6 49.5 H95: Toys, games, sports requisites 1,394.3 217.9 H51: Wool, animal hair, horsehair yarn and 309.4 48.3 H73: Articles of iron or steel 1,173.0 183.3 H71: Pearls, precious stones, H87: Vehicles other than railway, metals, coins 191.6 29.9 tramway 1,162.3 181.6 Top 10 Products 12,369.0 1,932.7 Top 10 Products 33,629.9 5,254.7 Total Exports 13,584.6 2,122.6 Total Imports 46,693.2 7,295.8 Business Environment Legal and Financial Markets • World Class Legal Framework – Substantive legal framework particularly in commercial, labour and maritime law regimes – Advanced legislation relating to competition policy, copyrights, patents, trademarks, and disputes – Independence of judiciary is guaranteed by the Constitution • Financial System / Markets – Financial system is robust and well regulated – Four of South Africa’s banks are in the world top 500 – The Johannesburg Securities Exchange (JSE) is the 17th largest in the world – South African commercial banks have wide presentation in Africa Infrastructure Development Overall government plans for infrastructure spending totals some R416 bn/ $ 59,4bn over the next 3 years Further allocations are envisaged going forward Such investment levels have not been seen before since 1994 50% To be spent by the three spheres of govt 5% To be spent through Public Private Partnerships 3% To be spent by development finance institutions 40% To be spent by State Owned Enterprises. Infrastructure Development Core national programmes of SOEs R 150 bn/ $ 21,4bn in the next 5 years for infrastructure investments and refurbishments, raised from cash flow and off its balance sheet: 70% - generation capacity 30% - transmission and distribution: 6 metro Regional Electricity Distributors to be set up within next six months Rehabilitation of three power stations; plus the construction of two peaking plants (R15 bn/ $ 2,4bn) R40bn/ $ 6,3bn for a range of core projects – railways, ports, infrastructure & operations and petroleum pipeline A further R8,5bn/ $ 1,3bn to be invested in SAA and other non-core projects Spoornet will spend some R8bn/ $1,3 bn on locomotives, wagons and equipment Funding options: divesting from non-core businesses, PPPs, own revenue, concessioning, borrowing and strategic equity arrangements Infrastructure Development Core national programmes of SOEs Water Infrastructure Some R19,7bn/ $ 3,1bn of water resource projects planned R3bn/ $ 0,5bn to be funded from the fiscus Rest to be funded from cost recovery and financial markets ACSA plans to spend R 19,3 bn/ $ 2,75bn by Air Transport 2010 in improving existing facilities particularly infrastructure in Johannesburg and Cape Town In addition, the Dube Trade Port initiative includes a new airport in Durban. INDUSTRIAL DEVELOPMENT ZONES IDZ’s are considered part of the Customs Territory of South Africa. SARS Customs will perform specific controls within the CCA to provide for Expedited JIA Services Customs Territory of RCB South Africa Customs Customs Coega Services ELN Controlled Secured Enterprises An IDZ is located adjacent to a Area Area port allowing importation of raw IDZ materials, plant machinery & Industry & One equipment; and the export of Service Area Stop Center finished products; East London IDZ Multi-Level Car Terminal Containerisation Dry Dock & Ship Repair Grain Elevator Johannesburg International Airport IDZ RICHARDS BAY IDZ NEW DEEPWATER PORT OF NGQURA • 80,000 DWT Bulk Carriers • 9 000 TEU Cellular Containership • Inner Basin 16.5 m below CD • Entrance Channel 18m • 175,000 DWT Bulk Carriers STRATEGIC GEOGRAPHIC POSITION TO GLOBAL SHIPPING ROUTES Freight growth future requirements Includes Gauteng-Polokwane & Gauteng-Beitbridge Walvis Bay Projected Growth 2003 Beitbridge to 2020 40% 17 (12) Road Rail Projected Growth 2003 Lobatse 90% 10% to 2020 38% Dominant Commodities •Processed foods Road Rail •Chemicals & Fertilizer Maputo minerals 77% 23% Gauteng •Gold & Uranium Dominant Commodities Projected Growth 2003 •Maize 53 to 2020 40% •Fuel & petroleum products (57) Road Rail 3 73% 27% (6) Durban Dominant Commodities 19 •Maize 5 •Processed foods (15) (9) •Coal Projected Growth 2003 to 2020: 40% East London 2003 corridor stats: Road Rail Projected Growth 2003 Cape Town Port Elizabeth Projected Growth 2003 to 2020: 38% 85% 15% Projected Growth 2003 to 2020: 31% 2003 corridor stats: Domestic Export/Import to 2020 : 39% 2003 corridor stats: Road Rail 90% 10% 2003 corridor stats: Road Rail Dominant Commodities Road Rail 82% 18% 91% 9% 92% 8% Domestic Export/Import Domestic Export/Import Excluding primary export haulage •Processed foods Domestic Export/Import 84% 16% •Coal 90% 10% 90% 10% •Chemicals Dominant Commodities Dominant Commodities Dominant Commodities •Beverages •Stone Quarrying •Fruit produce •Processed Food •Maize •Processed foods •Limestone •Chemicals •Maize •Processed foods •Iron Steel and ferro-alloys •Chemicals •Fuel & Petroleum products Million tons 2003 •Railway equipment •Wood and wood products (Million tons 2020 MSA forecast) •Motor Vehicles Source: CSIR and DOT 2003 Gauteng Volume Value Mega (mt) (Rbn) Domestic Rail and port volumes and investment Zone Road 334 19.5 Beit Rail 17.8 0.6 Sishen-Saldanha Gauteng-Beit Bridge Bridge Gauteng-Maputo Volume (mt) Value (Rbn) Volume (mt) Value (Rbn) Gauteng Volume (mt) Value (Rbn) Road Road 29,5 8,5 Mega Road 23,1 4,6 Rail 27,0 0,8 Rail 3,2 0,6 Industrial Rail 4 0,4 Total 27,0 0,8 Total 32,7 9,1 Total Zone 27.1 5,0 Investment (Rbn) Maputo Investment (Rbn) NPA 0.35 Spoornet - Other Spoornet 0.27 SAPO 0.38 Petronet 0.92 Investment (Rbn) Spoornet 1.10 Total 1.19 Branchlines 0.18 Total 1.83 Other 16.80 Gauteng-Richardsbay Total 16.98 Volume (mt) Value (Rbn) Sishen-PE Sishen Richards Road Volume (mt) Value (Rbn) Rail 74,0 3,8 Road Bay Total 74,0 3,8 Rail 2,4 0,3 Total Investment (Rbn) Saldanha Durban NPA 0.92 Investment (Rbn) SAPO 1.17 NPA 0.25 East London Total 0.25 Spoornet 2.70 Total 4.79 Port Gauteng-Cape Town Gauteng-PE/East London Gauteng-Durban Elizabeth Volume (mt) Value (Rbn) Cape Town Volume (mt) Value (Rbn) Volume (mt) Value (Rbn) Road 16,6 13,3 Road 9,1 5,2 Road 44,7 16,1 Coega Rail 9,7 1,9 Rail 2,7 0,7 Rail 0,7 0,3 Total 19,3 14,0 Investment (Rbn) Total 53,4 18,0 Total 9,8 5,5 NPA 2.17 Investment (Rbn) Investment (Rbn) Spoornet 1.02 Investment (Rbn) NPA 6.20 NPA 1.26 Total 3.20 NPA 2.76 SAPO 1.90 SAPO 0.79 SAPO 0.20 Spoornet 0.40 Spoornet 0.10 Spoornet 1.02 Petronet 2.51 Total 2.14 Total 3.98 Total 11.01 Leveraging SOE capex WHAT IS B-BBEE? • BBBEE is an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the numbers of black people who manage, own and control the country’s economy, as well as significant decreases in income inequalities • BBBEE includes elements of human resource development, enterprise development, preferential procurement, as well as investment, ownership and control of enterprises and economic assets. *Black people include all African, Indian and Coloured South African Citizens (Source: Broad-based Black Economic Empowerment Strategy Department of Trade and Industry, March 2003) Broad-Based Beneficiary Base Equitable Economic Opportunities Emerging Ownership black middle And Management class & The Opportunity Barrier investors Preferential Enterprise Procurement Development Black entrepreneurs The Business Barrier Skills Development Black workers, professionals, The Skills Barrier graduates, school-leavers Employment Corporate Equity/Job creation Social Investment Black unemployed & The Poverty Barrier rural poor • Broad-based BEE must be inclusive • Result in economic growth Accounted for with substance over form Economic Implications of Broad-Based BEE • Increase level of participation by black people in mainstream economy • Increase real market size in SA economy Mainstream economy • Increase income through resulting economic growth BEE Upliftment More economic participants Second economy Increased economic growth Promulgation of BEE Framework 2001 BEE Commissions Report 2003 Publication of the BB-BEE Strategy 2004 Promulgation of BB-BEE Act 2005 Release of the Codes of Good Practice SACOB Business Confidence Index Release of the draf t Codes of Good Practice 130 Promulgation of Broad- 125 based BEE 120 Business Confidence Publication of Broad-based 115 BEE Strategy Publication of BEE 110 Commissions Report 105 100 95 Provision of clearly defined BEE 90 framework coincides with increase in 85 Business Confidence 80 1998 1999 2000 2001 2002 2003 2004 2005 Elements of Broad-Based BEE Direct participation in Transforming Ownership Economic the Activities First Economy (Shareholders and Management Management Team) Employment Addressing challenges Equity Development of of the First and Human Capital Second Economy Skills (Current and Development prospective employees) Preferential Development and Investment in Addressing challenges Procurement Affirmable of Enterprises Second Economy Enterprise (Suppliers and Development communities) Identified and approved ASGISA provincial projects Province Project Eastern Cape Mzimvubu Catchments & Biofuels Northern Cape Diamond and gem stone jewellery, National Livestock, biofuels, Free State Biofuels KZN Biofuels, Makhathini casava and sugar Western Cape Cape Flats Infrastructure Mpumalanga Moloto Corridor (rail) Limpopo Dilokong Platinum Gauteng OTT Logistics hub and IDZ North West National Livestock Lead sectors for fast-tracking Capital/Transport equipment and Metals • Major opportunity to stimulate manufacturing through reducing import leakage of the public Capex programme and capitalising on the current mining and mineral-processing boom • Platform to position these sectors as major future exporters onto the rest of the continent and beyond Automotives and Components • SA’s leading manufacturing sector, generating strong backward linkages from other sectors, particularly metals, leather, textiles and plastics • Major opportunity to double current vehicle production to 1.2 million units by 2020 with a corresponding deepening of local content Chemicals, Plastic fabrication and Pharmaceuticals • Major opportunity to increase local beneficiation of polymers, particularly for automotive and packaging applications and leverage state procurement for local production of pharmaceuticals Forestry, Pulp and paper, and Furniture • The sector has the potential to bring jobs and income to poor rural communities • Increased plantations in EC and KZN in the next 10 years will contribute to the provinces’ growth and employment and stimulate processing activities, such as sawmilling and furniture Investment Opportunities Sector Sub-sector Agro-processing Fisheries and Aquaculture, Floriculture, Fruit and Vegetable Processing Plants, Juices, Meat Processing, Wine Production, Confectionery, Indigenous teas and Natural Fibres. Automotives Interiors, Engine Parts/Components, Electronic, Drive Train Components, Body Parts, Aluminum Components and Diesel particulate filters. Chemicals and •Titanium Beneficiation Initiative,Fluorochemicals Expansion Initiative,Polypropylene Allied Industries Conversion. •Restructuring of State Owned Chemical Enterprises. Business Process Call Centres, Back Office Processing and Shared Corporate Services. Outsourcing & IT Enterprise solutions viz. fleet management, knowledge management, asset Enabled Services management solutions. Electro Technical Manufacturing of: automotive electronics, microchips and telecommunication equipment. Tourism Hotels and self-catering holiday resorts, Adventure-, Eco-, Sport- Conference- and cultural tourism, gaming, infrastructure development, leisure complexes and world class golf courses, harbour & waterfront developments,transfrontier conservation areas, cruise liners & transportation. Source: DTI/TISA Investment Opportunities Sector Sub-sector Clothing, Textiles, Leather •Manufacturing of Industrial Textiles using Polyester and Footwear •Production of other natural fibre textiles such as flax •Wool and mohair production – downstream opportunities for yarns, knitwear and fabric. •Footwear – manufacturing of leather uppers. Mining and metal based Aluminum smelter capacity, Capital equipment: machine tool manufacturing industries and petrochemical equipment, downstream processing and value-adding of iron, carbon steel, aluminum, platinum group metals and gold, ferro-alloys, gold and stainless steel. Aerospace, Rail and Marine Aerospace: Rotor and fixed wing aviation equipment and services, Helicopters and aircraft components, Aviation training services for African airlines, IDZ at Johannesburg International Airport, warehousing for aircraft parts. Rail: Rolling stock and services for the domestic market, estimated R7 billion Gautrain which includes infrastructure development and rolling stock, Rail infrastructure of the African continent through NEPAD and Rehabilitation of low density rail line. Marine: Development of boat yards and wet docks/floating docks, Joint ventures with local shipyards, manufacture of boats, yachts, catamarans and fleet racing boats, custom-made vessels (tugs) and training schools. Investment Opportunities Sector Sub-sector Capital Equipment Re-capitalisation of: •Forgings & Castings •Boilers •Tool dies & moulds Expansion & export development •Pumps, valves, material handling & straddle crane carriers •Mechanised mining New investments in: •Turbine assembly •Production of turbine components •Machine tool manufacturing Film •Film studios and post production facilities. •Co-production ventures. •Distribution infrastructure Source: DTI/TISA Incentives Incentive Benefit Main Conditions Small and Medium Cash grant of up to 10% of Investments of less than R100m; Enterprise qualifying assets benefit decreases with size of Development investment Programme (Temporary suspended) Support Programme 50% of the direct cost incurred in Development must be a significant for Industrial development technological advance and have Innovation commercial advantage over existing product Industrial Exemption from VAT when Prospective IDZ operator Development Zone sourcing goods and services companies must apply for permits to from South African customs develop and operate an IDZ territory and duty-free imports of raw materials and inputs for export Incentives Incentive Benefit Main Conditions Foreign Investment Foreign entities may qualify up to Only new machinery, equipment Grant (Temporary a maximum of R3m acquired from abroad and required Suspended) to establish a manufacturing project in SA will be considered Critical Infrastructure projects intended The minimum qualifying Infrastructure Fund to service IDZ, shall qualify for a infrastructure development cost is grant of 30% of the qualifying R15m infrastructure development cost the dti’s Investment Services • Sector Information • Finance to Explore Investment Opportunities in SA • Facilitating Direct Government Support in the form of • Information on Investing in SA and Business Environment • Detailed Investment Incentives • Investment Facilitation • After care – ongoing contact the dti’s Contact Details • the dti Call Centre: 0861 843 384 • the dti Switchboard: +27 12 394 0000 • Investment Promotion: +27 12 394 1333/1339 • Website: www.thedti.gov.za • E-mail: email@example.com • Postal Address: Private Bag X 84 Pretoria 0001 South Africa Thank You
"South Africa Investment Environment"