investing in south africa ryan robinson mckenna forrest lauren schreiber
TRANSCRIPT
INVESTING IN SOUTH AFRICA
Ryan RobinsonMcKenna ForrestLauren 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 Africans (blacks)o Whiteso Colouredo 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
ancestryo English-speakers: avoid conflict, more reservedo 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 memberso 25% of the formal work force
• # of labor days lost to strikes: 497,436 (2008)• Drawn out strikes and corruption are major
concernso 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:
o Direct empowerment through ownership/control of enterprises
o Management at senior levelo Employment equityo Indirect empowerment
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 rateo 7.13 R / $
• Rand survived 3 crises & currently improvingo Currency risk has declinedo 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 crisiso 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 costso great climateo huge pool of creative people o skillfully managed economy
Recommendations
• PROS: o rich in natural resourceso skilled laboro need for housing and advancement in infrastructure post-
apartheido emerging market and economy
• CONS: o corruption and briberyo fluctuating currencyo still developing in international markets
• Advice:o invest in FDIo 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!