Transcript Investing in South Africa

INVESTING IN SOUTH
AFRICA
Ryan Robinson
McKenna Forrest
Lauren Schreiber
Where in the World is South Africa?
Topography
Major Minerals & Resources
• 90% of Earth’s platinum
metals
• 80% of manganese
• 73% of chrome
• 45% of vanadium
• 41% of gold
• Leading producer of
precious metals
• 4th largest producer of
diamonds
Size/Population
• 25 largest country in the world
• Population: 49.3 million
o
o
o
o
Africans (blacks)
Whites
Coloured
Asians
A Rainbow Nation
• Colonization and
immigration has
formed a diverse
country
• Population of racially
diverse origins,
cultures, languages,
and beliefs
• Makes it difficult to
generalize business
and social culture
Communication
• 11 Official languages:
o Zulu 23.8%, Xhosa 17.6%, Afrikaans 13.3%, Sepedi 9.4%,
English 8.2%, Setswana 8.2%, Sesotho 7.9%, Xitsonga
4.4%, other 7.2%
• Literacy Rate: 86.4%
• Must be able to understand and identify individual’s cultural
ancestry
o English-speakers: avoid conflict, more reserved
o Afrikaaner: more direct, forthright and honest
Labor Force
• Unemployment Rate (2010): 25.2%
o ranked
in the top 10 countries in the world for
income inequality
• Literacy Rate (2010): 86.4%
• Strong network of universities host international
academics and researchers, with the majority of
research and development in South Africa
• Government has introduced wide-ranging
legislation to promote training and skills
development
Unions & Strikes
• Union membership rate: 3.1m members
o 25% of the formal work force
• # of labor days lost to strikes: 497,436 (2008)
• Drawn out strikes and corruption are major
concerns
o Could be remedied by government spending, but
that runs the risk of higher inflation and higher
deficits.
BEE – Black Economic
Empowerment
• Created by SA government to redress the
inequalities of Apartheid
• Aimed to be a “growth strategy”
• Companies graded by a scorecard on:
Direct empowerment through ownership/control of
enterprises
o Management at senior level
o Employment equity
o Indirect empowerment
o
Imports/Exports
Imports:
- machinery and
equipment
- chemicals
- petroleum products
- scientific instruments
Major Trading partners:
China, Germany, US
Exports:
- gold
- diamonds
- machinery and
equipment
Government Structure
• Parliamentary Democracy
• Federal system of government
comprised of national, provincial,
and local levels
• Power is shared between
President & Parliament
• 5 Year term for President elect
Government & Society
• President: Jacob Zuma
• President acts of Head of
State, Commander in Chief of
Military
• Currently 16 Political Parties
represented in Parliament
• African National
Congress, dominant
political party since 1994
• Capitalist society
• 3 capital cities:
o
Cape Town (legislative)
o
Pretoria (administrative)
o
Bloemfontein (judicial)
Government Debt
• South African debt predominantly based on
• paying for the funding of the apartheid regime’s - military
operations in Namibia and Angola
• National government debt decreased from 50.4%
of GDP (1995) to 23.8% (2008) resulting in a
reduction in government's liability over the years.
• Estimated to increase to 44% of GDP in the next 5
years before gradually declining
• According to the IMF SA ranks 17th for lowest level
of debt in relation to size of the economy
Government Involvement
• Recent government policies have
been focused on fiscal and
monetary discipline, which is seen
in:
 lower inflation
 low budget deficit
 stable and strong currency.
• The Industrial Policy Action Plan has
also provided incentives to
industries.
Currency
• Rand (R) divided into 100 cents (c)
• ISO code: ZAR
• Current currency exchange rate
o
7.13 R / $
• Rand survived 3 crises & currently improving
o
Currency risk has declined
o
Appreciated
Rand Fluctuations
ZAR to USD
Currency & Translation Risk
Currency Risk:
o
Rand is currently overvalued
 Finance Minister plans on building larger reserves to take
more money off of the market.
 Due to the large influx of foreign direct investment over recent
years, the Rand has been appreciating at a rapid rate
 The government is trying to stem the amount of foreign direct
investment flowing into SA to slow down currency
appreciation.
Translation Risk:
o
Due to the currency appreciation, it’s also become more risky in
terms of converting currencies.
o
Ideal conditions for investment would be a relatively constant
exchange rate; the SA Rand has been rapidly appreciating which
means currency exchanges are volatile.
Economic History
• 1652: Dutch Settlers arrive followed by French and German
• 18th Century: British take control of colony and establish the Boer
Republics
• 1948: National Party gains control, instills Apartheid Policy
• 1980's: Stringent sanctions placed on SA due to racial prejudiced
policies
• 1994: ANC (African National Congress) Party & Nelson Mandela
wins first multi-racial elections and dismantles Apartheid
Economic Environment
• GDP PPP (2009): $505.3 billion
o GDP grew by 5.2 % in 2007
o Country comparison to the world: 26
• GDP nominal: $287.2 billion
• GDP per capita: $5,787
• Inflation Rate (2009): 7.1%
• World Economic Forum's Global Competitiveness
Report 2008 ranked South Africa 45th out of 134
global nations for ease of doing business
Macro Economic Stability
• Government has implemented macro-economic
policies directed at promoting domestic
competitiveness, growth and employment.
• Economy is growing substantially and additional jobs
have been created
• Economic expansion strengthened by investment
and domestic expenditure.
• GEAR strategy: growth, employment and
redistribution
Trade
• Trade Balance: deficit
of $3.8 billion
• Trade Balance with
US: deficit $US 1.6
billion
• Favors free trade
• Member of the WTO,
G-20, and SACU
Financial Markets
• The SA Banking system is comprised of;
o a central bank,
o several large banking and investing institutions
o small local banks
• SA has a Reserve Bank and Financial Services Board
• SA Exchange Market: The JSE Limited (Johannesburg
Stock Exchange)
o SA's only Securities Exchange is the world's
o 18th largest exchange market with over 400 companies
listed and a market capitalization of R3.3 Trillion
Portfolio Investment
• World Economic Forum's Global Competitiveness Report
2010-11 ranks South Africa high for its regulation of
securities exchanges
• JSE emphasizes the importance of a well-regulated
securities exchange for international investors post the
global financial crisis
o during the crisis, unlike many exchanges, the JSE did not
introduce circuit breakers or ban short selling
Foreign Direct Investment (FDI)
• South Africans prefer doing business with locals: FDI is a
great opportunity because foreign investors can utilize
existing SA companies to engage in Joint Ventures with and
do business locally
• Real Estate development is a booming business in South
Africa; there is a high demand for affordable housing and
there is currently a lot of Foreign Direct Investment from
North America going into development into new homes and
apartments
• Attractive investment opportunity due to:
o low costs
o great climate
o huge pool of creative people
o skillfully managed economy
Recommendations
• PROS:
o rich in natural resources
o skilled labor
o need for housing and advancement in infrastructure postapartheid
o emerging market and economy
• CONS:
o corruption and bribery
o fluctuating currency
o still developing in international markets
• Advice:
o invest in FDI
o hesitant but optimistic about Portfolio
The End
With its advantageous location and a
government receptive to foreign direct
investment, South Africa certainly looks as
though it is becoming an international force to
be reckoned with!