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South Africa

MGT-352-002

By: James O’Sullivan, Brad Harvey, Caroline Massengill, John Hofland, Patricia Ripoll Martinez

11/30/16

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Table of Contents (2)

I. Executive Summary (3-4)

II. Geographic and Political Characteristics (4-10)

A. Geography (4-5)

B. Demographics (5)

C. Political Characteristics (5-6)

D. Costs of Doing Business (6-7)

E. Corruption (7-9)

F. Economic Freedom (9-10)

III. Economic Trends and Conditions (10-18)

A. South African Economy (10-13)

1. Agriculture’s Contribution to GDP (11)

2. Investment in Agriculture (12)

B. Benchmark Countries Economy (13-15)

C. South Africa’s Financial Risk (15-17)

1. GDP Annual Growth Rate (17)

D. Benchmark Countries Financial Risk (17-18)

IV. Cultural Characteristics and Aspects of Business Etiquette (19-21)

1. Hofstede’s Cultural Dimensions (19)

B. Making Conversation (20)

C. Meetings (20)

D. Presentations (20-21)

E. Entertainment (21)

F. Gift Giving (21)

V. Tractor Specific Market Demand and Sales Trends (21-23)

1. Tractor and Combine Harvester Sales (21)

2. Industry Expectations (22)

B. Long Term Sales Possibilities in the Surrounding Regions (23)

VI. Requisites and Barriers to Entry (23-26)

A. Other Potential Imports into South Africa (25)

B. Potential Exports (25)

VII. Recommendation (26)

VIII. Works Cited (27-29)

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Executive Summary

This report is aimed to determine whether there is potential to export tractors to South Africa.

Through an in-depth analysis of the geographic, political, economic and cultural aspects of this nation,

we have concluded that South Africa presents good characteristics for tractors to be exported

profitably. Through the analysis, we have compared South Africa with three benchmark countries;

Nigeria, Botswana and Brazil. We chose Nigeria for being the Africa’s largest economy, Botswana

since it is one of South Africa’s neighbors, and Brazil for being also a developing economy included

in BRICS.

South Africa demographics are mainly black Africans but many languages are spoken and

many different religions are worshiped. At the moment, the population is aging faster than children

are being born because of birth control methods and women added to the labor force. South Africa’s

government is parliamentary but has experienced many changes in their constitution and a lot of

political unrest between the different political parties. While some of the costs of doing business in

South Africa are high, like electric cost, the majority of costs for investors are low because the

government encourages trade and invest.

The South African economy is still recovering from the global financial crisis, but its

potential to grow and its standing within the BRICS group gives us a good perspective to export

trucks to this nation. Moreover, it possesses a modern infrastructure to facilitate imports and exports.

The competitiveness of this nation has been proved by many indexes and its ‘moderately free’

economy status is another reason to direct our products to South Africa. The government recognizes

that the agricultural sector plays an important role for the economy and that is why programs have

been put in place to encourage spending in inputs used in the agricultural sector so to increase output

and create jobs. Financially, South Africa is regulated by strong institutions that comply with

international standards. However, credit risk is to be considered when conducting business in South

Africa.

The cultural context of South Africa gives this nation a unique position in the Western market

compared to other BRICS countries. Hofstede dimensions similarity levels allows to easily align

South Africa with the rest of the western world. This means South Africa is an easier cultural entry

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point for US companies to enter if they are trying to penetrate the large African market. While recent

tractor exports and sales peaked in 2012, progressively dropping since, if long term trends are correct

it could mean a coming return to positive growth in sales for the tractor industry in South Africa over

the next 5 years. Preparing for market entry now could mean capturing that positive sales growth

when it returns.

South Africa has very complicated requisites for importing and extensive protective tariffs

that make it harder on firms to get their products to market. Port congestion, technical standards,

customs valuation above invoice prices, theft of goods, import permits, antidumping measures, IPR

crime, an inefficient bureaucracy, and excessive regulation are other barriers that often create

problems for foreign firms.Many companies overcome these barriers by using a sales agent who

connects them with customers and helps them with the legal barriers and getting through customs.

Green Building is a potentially promising import into South Africa either by means of

sending an experienced green builder into South Africa and securing contracts or simply by exporting

green equipment into the country. For example, this would consist of products such as solar water

heaters, permeable paving or water efficient technologies. The U.S. is way ahead of South Africa in

this technology and the demand is extremely high in South Africa.

Geographic and Political Characteristics

Geography:

South Africa is located on the southern tip of Africa. It has 9 provinces which are, Western

Cape, Eastern Cape, Northern Cape, Free State, North West, Gauteng, Limpopo, and Mpumalanga,

KwaZulu-Natal. The smallest province is Gauteng, which is a very urban region. While the largest is

Northern Cape. It has an arid climate and is very empty and it takes up almost one third of South

Africa’s land mass.

South Africa has a varied climate, but it is mainly considered semi-arid. For example, the Karoo

plateau, in the Kalahari Desert, is extremely hot in the summer and then very icy in the winter. While

the eastern coastline is lushes, it rains there a lot, and it is never cold enough to ice over.

Demographics:

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South Africa is a country of 54,300,704 people, with 80.2% being black African, 8.4% being

white, 8.8% being colored, and 2.5% being Indian/Asian.

There are many different languages that are spoken in South Africa, 11 of them being official. 22.7%

speak IsiZulu, 16% speak IsiXhosa, 13.5% speak Afrikaans, 9.6% speak English, and the list

continues.

In regards to religion, 36.6% are Protestants, 7.1% Catholic, 1.5% Muslim, and 36% are

“other Christians”, and the other 18.8% are either, other, unspecified, or none.

South Africa’s population is aging and the fertility rate has dropped dramatically. Women are now

having on average 2.2 children instead of an average of 6. They relate this to women increasing their

educational background, being more involved in the workforce, and the use of family planning

methods. Women are also getting married at an older age and opting to have smaller families.

The age structure in South Africa is as follows, 0-14 years: 28.34%, 15-24 years: 18.07%, 25-54

years: 41.44%, 55-64 years: 6.59%, and 65 and over is 5.57%. The AIDS epidemic in South Africa

has caused the life expectancy rate to be very low, which is why very few people live to be over 55.

Political Characteristics:

South Africa is a parliamentary republic, and they gained their independence on May 31st,

1910, and in May 1961, they declared the republic. The legal system is made up of Roman-Dutch

civil law, English common law, and customary law. The only way to be a citizen is by descendent

(one parent has to be a citizen of South Africa). You cannot gain citizenship by birth.

The republic is made up of an executive, legislative, and judicial branches. The chief of state

of the executive branch is President Jacob ZUMA. He is also the ‘head of government’. The Deputy

President is Matamela Cyril RAMAPHOSA. The president is indirectly elected by the National

Assembly for a 5 year term, and can be elected to a second term. The legislative branch is a

bicameral Parliament that is made up of the National Council of Provinces. This is made up of 90

seats which means 10 delegates are appointed from each provinces; there are 9. They serve 5 year

terms and they have the power to protect national interest. The National Assembly is the other part

of the Legislative branch. This consists of 400 seats, and the members are directly elected in multi-

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seat constituencies by proportional representation. They also hold 5 year terms. Then there is the

Judicial branch, which has a Supreme Court of Appeals, and a Constitutional court.

There are 14 political parties in South African government. There are 4 political pressure

groups and leaders. South Africa have written many constitutions, and more recently (2013-2016)

they have amended their constitution many times. There are 14 political parties in South African

government. There are 4 political pressure groups and leaders.

Cost of Doing Business:

South Africa has investor friendly policies that make foreign investment possible. South

Africa’s Johannesburg Stock Exchange (JSE) rates are among the top 20 exchanges in the world

market. South Africa has a free enterprise economy which is good for trade and industry. Foreigners

are allotted the same terms and conditions as citizens under the courts. Many business disputes are

resolved with arbitration or between the parties instead of through the courts.

South Africa’s infrastructure is world-class and the government has encouraged major

infrastructure projects to help boost the economic growth and create employment.

Because South Africa is at the tip of the continent it allows easy access to the rest of the

country and gives investors access to more citizens. This means there are more markets to access.

South Africa also has trading relationships with over 200 countries. In 2011, South Africa joined

BRICS. This allows South Africa to have access to the New Development Bank which will help

finance the growth of South Africa’s economy.

South Africa has one of the greatest exchange rates for foreigners, which allows them to love

and do business very inexpensively. South Africa has a first-world infrastructure and high living

standards which allows for a good value for their money.

CorruptionThe African region, as a whole, has for a long time had the notoriety of being a rather risky

and corrupt place to do business, but it has many regions that have been developing at a somewhat

steady pace for the past few decades. For South Africa, while there are many risks that are still posed

from the government, there are also many benefits that the country has to offer. The government of

South Africa is reliant on its agriculture segment for business, yet at the same time it has placed

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additional barriers that prohibit the importations of agricultural products. Still, the government has

instituted plans to help grow their agricultural business sector, such as the Micro Agricultural

Financial Institution of South Africa (MAFISA) which grants loans to small producers in the

agricultural, and a few other, sectors in the market for the purpose of production loans and the

facilitation of saving mobilization. It also acts as an intermediary for the producer to build the

capacity for member-owned financial institutions. There are also some independent organizations that

help the agriculture market to grow, such as the Land Bank which “has been the agricultural financier

in South Africa since its inception in 1912. (Land Bank website)” The organization is officially called

the Land and Agricultural Development Bank of South Africa, and its financial services are

specifically designed to assist farmers both who are starting a business or who begin to stand out in

the market.

The judiciary system is not at much risk of corruption in South Africa, but it is common that

at its lower levels it will is more corrupt than in the higher levels. It has been known in the past that

political relations helped influence and sometimes even hire some members of the judiciary system

hired, however there is still a strong confidence in the system. It is even widely considered a

somewhat efficient system in terms of settling disputes. The biggest problem with the legal system is

that it does not receive neither enough funding nor the staffing necessary.

The police, on the other hand, are largely considered unreliable in South Africa. Crime and

petty corruption when the police are involved are a significant risk to businesses. The police may ask

for bribes during certain instances, and the costs that can arise from these problems can grow to be

significant. In a country known for a rather high crime rate, most cases of violence that occur for

foreign business owners in South Africa are caused by xenophobic motives, and these are also the

cases that are the most likely for the police to ask for a bribe for their services.

Another source of corruption within South Africa is the general public services. The

governmental bureaucracy is both highly inefficient and corrupt. Bribes are a common exchange, and

most favors are paid to family and friends. Favouritism with government official is common in South

Africa which can pose a significant risk to businesses. Private use of public resources is a real

problem. Public funds are diverted often, and the most common way to gain favor in the government

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is through the form of pay-offs. Certain areas are at higher risk than others. The ratings start with

Johannesburg, Ekurhuleni, and Tshwane being the easiest cities to start a business, while

Johannesburg is also considered to be the easiest region in which to register property. The city of

Cape Town is a good place for a business to start with a greenfield investment as they are the easiest

to obtain construction permits with, and for electricity connection and contract enforcement the best

policies are within Mangaung.

Land administration is relatively not corrupt, but that is mostly because property rights are

explicitly guaranteed by the constitution and the practice is commonly respected. If a company is

managed or incorporated in the country then, for tax purposes, it is considered South African, yet it

still needs to deal with the possible problems involved with residency to avoid double taxation. South

Africa is considered less costly and faster than other regions of Africa, but has the drawback of

requiring more procedures. Also, in 2015 the president Zuma suggested that private land ownership

be limited and that foreigners should only be able to lease land, but no law has been put into effect

yet. Still that has already canceled some potential business deals for South Africa.

There are also low levels of corruption in the tax administration. “The South African

Revenue Service (SARS) operates a 24-hour Fraud and Anti-Corruption Hotline where companies can

report corruption related to the tax administration.” There are also less procedures and costs when

South Africa is compared to the regional average of Africa.

Corruption when importing and exporting in South Africa poses a risk to companies. Trading

across borders is not as bureaucratically cumbersome in South Africa than in other regional countries,

but incidences of irregular payments and bribes in relation to exports and imports at ports or borders

do occur. South Africa, overall, has a “well-developed legal framework for curbing corruption, but

the country’s lack of enforcement jeopardizes this effort.”

The South African Constitution, created in 1996, is observed as being one of the most

progressive in the entire world, protecting the rights of its people socially, economically, and

culturally. Human rights is a major focus of the government, and even has created additional

organizations to help further these efforts, such as the South African Human Rights Commission

(SAHRC). Freedom of expression is commonly practiced throughout South Africa and is well

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respected. The internet is also considered free, and so South Africa has become a rather active media

landscape. Although the government has been slowly encroaching more and more upon the rights of

the press, it is still considered free at the moment. When the government has tried to pass some rather

restrictive laws, the public fought back against them.

Economic FreedomThe Index of Economic Freedom ranks South Africa with an overall score of 61.9/100 with

the country also scoring 80 on the World Rank scale and a 7 in the African Region score. The lack of

transparency constraints regulatory efficiency. Policies to sustain dynamic investment are not firmly

institutionalized and occasionally are even derailed. Budget management needs to be more effective.

The judicial system’s susceptibility to corruption undermines the rule of law and prospects for stable

long-term development.

Establishing a business involves five procedures, and no minimum capital is required, but

obtaining necessary licenses still takes over two months. Labor regulations are not applied

effectively, and the labor market lacks flexibility. Although the government has eliminated most

price controls, it has implemented capital controls and housing subsidiaries in an attempt to gain more

control of the domestic economy.

South Africa’s average tariff rate is 4 percent. Imports of some agricultural products face

additional barriers. State-owned enterprises operate in several sectors of the economy. Non-

transparent laws continue to hinder private investment, and foreign investment faces additional

restrictions that impede efficiency. The financial system has gradually been evolving, and the

resilient banking sector remains relatively sound.

According to the Economic Freedom of the World: 2016 Annual Report by the Free Market

Foundation (FMF), “SA has slipped to position 105 out of 159 countries, down from 93 a year ago.”

A director of the FMF, Temba Nolutshungu, even stated, “It is tragic that a country ranked 42nd in the

world in 2000, just outside the top 25 percent of countries in the world, should have fallen 63 places

in the rankings in 15 years to a point where it now ranks in the bottom 35 percent.”

Economic Trends and Conditions

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South African EconomySouth Africa is classified as an upper middle income economy. According to the World Bank,

its GDP was 350.1 billion in 2014. With a population of 54 million, its GDP per capita is $6483

according to the World Economic Forum. South Africa is the second largest economy in Africa after

Nigeria. However, South Africa is the only African member of the G20.

In 2011, South Africa was admitted into BRICS. (Brazil, Russia, China and India).

Within Africa, South Africa is the leading emerging economy, possessing a modern infrastructure and

a well-equipped network of ports. Moreover, South African laws on competition policy, copyrights,

patents and trademarks conform to international standards.

South Africa is an active member of WTO and since 1994. South Africa is since then more

competitive, as tariffs have been reduced and non-tariff-barriers as well. The tariff issue is key for our

purpose and therefore will be discussed in detail later in our report.

In addition, for our purpose of exporting tractors to South Africa, this nation possesses

important driving forces for potential exports as its middle class is raising along with a growth of

communications technology, information and consumer spending.

Agriculture is one of the most employment-intensive sectors in the economy. Its actual weight

in the economy does not represent the empowerment and poverty relief that this sector has. The

primary agricultural sector represents about 3 % of GDP for the country, but if the entire value chain

of agriculture is taken into account, its contribution to GDP reaches about 12%. (Agriculture, South

African government).

Source: SouthAfrica.Info

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The government has recognized the importance of the agricultural sector to create jobs and

has include agriculture on the “New Growth Path” program. The aim is to create jobs by addressing

the high input costs. It is oriented to support small-scale farming. The government commits to

improve the working conditions of 660000 farm workers. (The New Growth Path). In the graph can

be observed the increment of investment in agriculture, especially in machinery, over time.

Source: Republic of South Africa, Department of Agriculture, Forestry and Fisheries.

This government program benefits our prospects to export tractors in South Africa. The

government will subsidize the cost of inputs for farmers and therefore this will encourage a higher

demand for our products. Moreover, the government’s Industrial Policy Action Plan, aims to exploit

South Africa’s competitive advantages. By doing so, the country will be placed among the top 10

export producers in high-value agricultural products. (SouthAfrica.info)

Again, such an investment by the government, will lead to an increase in the agricultural

sector, in which the use of high-tech tractors will be necessary to develop the sector at higher speed

rates.

In order to determine the viability of South Africa for exporting our products, we have taken a

look at important indexes that compare and rank South Africa in important economic dimensions.

According to the Doing Business report from the World Bank, South Africa ranks 74 out of a study

involving 185 economies around the world. South Africa performs well when it comes to getting

credit (62nd), protecting investors (22nd) and paying taxes (52nd). However, one of the worst ranked

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factors remain trading across borders (139th). ("Doing Business in South Africa - World Bank

Group.")

The Emerging Markets Opportunity Index has ranked South Africa as the leading emerging

economy in Africa. Moreover, it is the only country in the African continent that has been ranked on

the top 15 worldwide. (Dreyer, Edward. "Establishing a Presence in South Africa.")

The economy of South Africa is classified as “moderately free” within the Index of Economic

Freedom. This Index uses 10 dimensions to measure the economic freedom of 177 countries. South

Africa scores 61.9 for economic freedom, 80th in the global ranking. Among the major concerns we

encounter the Rule of Law, due to allegations of corruption and management of Public Finance.

Despite this, South Africa slightly scores higher than the world average (60.7) and the regional

average (55.5). (Heritage.org)

It is the 53rd most competitive country out of 148 countries in the Index. Within the BRICS

group, it is positioned second. China is the first of the group occupying the 29 th position.

(SouthAfrica.info)

Benchmark Countries Economy Nigeria

Nigeria is Africa’s largest economy with an estimated GDP of $1.1 trillion in 2015. Since

1970, oil has been the main source of income and government revenues. Economic growth in this

nation has been driven by agriculture, telecommunications and services in the last decade. It is

classified as a Lower middle income economy. (The World Factbook: NIGERIA)

Nigeria ranks 169th in the doing business report. It is ranked quite below compared with South

Africa or Botswana. Its best rank is obtained when it comes to getting credit (44 th). However, getting

electricity and trading across borders remain a big challenge.

(Doing Business in Nigeria - World Bank Group.)

Nigeria is classified as mostly unfree by the Index of Economic freedom, with an overall

score of 57.5. Big concerns for the country are the Rule of Law, its Open Markets policies and

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Regulatory Efficiency. One of its best scores is obtained when it comes to Management of Public

Finance due to an introduction of economic reforms. (Nigeria Economy)

Nigeria ranks 124th in Global Competitiveness Index. The main challenges facing the country

were higher education, infrastructure and health. It is worth noting that this country was ranked 94 th in

2005. (vanguardngrnews)

BotswanaAfter being one of the poorest economies in Africa, Botswana is now an upper-middle income

economy. Over the last 50 years, it has experienced robust economic growth due to political stability,

good resource management and the discovery of diamonds. (South Africa vs. Botswana)

Botswana ranks 71st in the doing business report of the World Bank, some positions above

South Africa. Botswana performs good when it comes to trading across borders (51) and dealing with

construction permits (50). However, when starting a business, it does rank almost at the end of the

rank. (Doing Business in Botswana - World Bank Group)

Botswana is classified as mostly free with an overall score of 71.1 and ranked 30 th in the

global rank within the Index of Economic Freedom. It possesses a lowest level of corruption than in

South Africa. It performs well when it comes to Fiscal Freedom and Open Markets. However, it

coincides with South Africa in having a bad management of Public Finance. Another concern for

Botswana is the Regulatory Efficiency. Open trade policies have helped to enhance the exports of

diamonds. The highest difference between South Africa and Botswana is shown in property rights,

Botswana ranking ahead. (Index of Economic Freedom)

Botswana ranks 71 out of 140 countries in the Global Competitiveness Index. It gets it best

score (9th) in the ranking, when it comes to the macroeconomic environment, considering government

budget, debt, savings and inflation. (Global Competitiveness Report)

BrazilBrazil is a developing economy that is expanding its presence globally. It possesses large

agricultural, manufacturing, mining and service sectors. The economy of Brazil balances the

economies of the rest of South American countries. (The World Factbook: BRAZIL)

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The World Bank Group classifies Brazil in the 123 rd position when it comes of the ease of

doing business abroad. It gets its best score when it comes to enforcing contracts (37 th) but it is worst

positioned when enforcing contracts or dealing with construction permits. (Doingbusiness.org)

Brazil is classified as mostly unfree, like Nigeria, by the Index of Economic Freedom, with an

overall score of 56.5. This low score is due to the influential presence of the government in sectors

such as energy, electricity or financial services. Economic progress is stagnant due to many decades

of central planning and weak rule of law. (Brazil Economy: Facts)

Brazil ranks 81st out of 138 countries in the Global Competitiveness Index. It has fallen six

position since the last report as corruption and tax rates continue to be a big challenge. However,

Brazil has improved in areas such as protection of property rights. (Country/Economy Profiles)

SOUTH AFRICA’S FINANCIAL RISK

According to the South African Reserve Bank, Financial stability refers to a financial system

that is resilient to systematic shocks, facilitates efficient financial transformation and mitigates the

macroeconomic cost of disruptions.

The Central Bank of South Africa is the South African Reserve Bank. Its aim is to achieve price

stability in order to attain sustainable economic growth. (South African Reserve Bank)

South Africa belongs to SADC, Southern African Development Community, intended to

harmonize currencies, payment systems and financial regulation.

South Africa’s financial sector is well developed and it is composed of 30 banks with almost

4000 branches, two mutual banks and many foreign banks branches. Johannesburg Stock Exchange is

the 18th largest in the world. (South Africa: Financial Sector Profile)

South Africa possesses a strong supervisory framework. Regulators cooperate and exchange

information regularly. The percentage of South Africans with access to a bank account has increased

considerably in the last decade. Insurance companies play an important role in the financial sector.

Insurance premiums to GDP is among the highest in the world (16% of GDP).

Despite the economy improvements in the South African economy over the last decades, it

stills has one of the highest unemployment and income inequality rates in the world. The 2008 global

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financial crises aggravated the problem and because of that, banks are increasingly exposed to credit

risk. (imf.org)

An example of it, occurred in August 2014, when African Bank recorded losses from

unsecured lending. Because of this issue, letters of credit are key when engaging in international trade

with South African businesses.

The South African financial system is confronted by risk and uncertainty in the global

environment. The domestic economic growth has also challenged the functioning of their financial

system. (Financial Stability Review)

According to the Financial Stability review of the South African Reserve Bank, the main

financial stability risks that South Africa has to face are a sovereign rating downgrade to non-

investment grade, spillovers from volatility and risk aversion in global financial markets, a low

domestic economic growth, and the fragility of global banks.

The expected probability of downgrading of sovereign debt is high because of the negative

perceptions about the direction of the economic policy. The current account deficit and budget deficit

play an important role in the decision. Further downgrading will lead capital outflows, reduced credit

to the private sector, a lowered business confidence and a high credit risk of financial and

nonfinancial sectors.

Spillovers from volatility and risk aversion in global financial markets are also expected to be

high. One of the reasons of it is that South African political risk is leading to severe financial market

volatility. This will increase interest rates and slow credit growth and decrease the economic growth.

Low domestic economic growth is a risk that South Africa is facing. The nation is

experiencing lower external demand due to low commodity prices and lower global growth. South

Africa is experiencing an increase in the cost of living; as well as in property prices and mortgage

loan costs. This will lead to higher unemployment and low levels of credit growth. Economic growth

forecasts have been revised downwards by the IMF. South Africa GDP annual growth rate can be

observed in the graph with a downwards trend.

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Source: Trading Economics

Moreover, it has been envisioned a fragility of global banks, weakening their profitability,

which may reduce incentives for banks to play an important role in being intermediaries of credit to

the real economy. (Financial Stability Review).

Benchmark Countries Financial Risk

NigeriaNigeria’s financial sector has experienced big changes in the recent years. The banking sector

consolidation reduced the number of banks from 89 to 20. Consequently, banks engaged in new

activities as for instance, financing infrastructure and oil projects. (Nigeria: Financial Sector Profile)

The Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDIC), are

currently modernizing the regulatory framework of Nigeria’s financial system. In order to preserve

the integrity of the financial system, these regulators have imposed on bank regulations to implement

initiatives such as risk management and international financial reporting standards.

There has been market speculation about the quality of some banks balance sheets. In 2009, it

was reported that 10 banks that accounted for a third of total assets in the Nigerian banking system

were insolvent. The reforms implemented were effective in restore the soundness of the financial

system as the ratio of defaulted loans to total loans decreased by 20 per cent by 2011. (Rohner in

Financial Difficulties)

Botswana

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The banking system is well capitalized and liquid, but there exist concerns about the rapid

growth of credit to households and the non-bank financial sector. Botswana poverty and

unemployment rates are quite high. Income inequality is one of the highest in the world. (IMF

Country Report)

The financial system in Botswana has diversified over the last decades, and counts on many

financial institutions, pension funds and banks being the most important ones.

According to World Bank, the Bank of Botswana has successfully pursued its monetary

policy stability objective to date, but excess liquidity continues to be a challenge. Moreover, the cost

of monetary policy operations need to be improved as well as the access to finance and effectiveness

of government programs. (WorldBank.org)

BrazilThe Brazilian banking sector is well consolidated due to mergers and acquisitions. Eighty per

cent of the total bank assets are under the six leading Brazilian Banks. (Rebecca Keats)

Financial regulation in Brazil is based on specialist agencies. The Central Bank regulates and

supervises the banking sector, the Securities Commission oversees securities, and other agencies are

in charge of insurance and pensions.

According to the financial stability report 2016 of “Banco Central Do Brazil”, Brazilian banks

have increased their capability to absorb short term liquidity shocks, and long-term assets are

supported by stable funding. However, credit risk indicators continue to be a problem. Non-

performing loans increased during the first semester of 2016. Consequently, the banking system

profitability has declined. However, their leverage ratios are above the international requirements.

(Financial System Indicators)

Cultural Characteristics and Aspects of Business Etiquette

Looking at the culture of South Africa through the context of Hofstede’s dimensions can help

put into perspective the greater culture that grew out from the colonial period. In most regards the

business culture and main culture is rather similar to that of the United States, even in dress. Although

there are key indicators that can cause problems in day to day business rhetoric and tone. While most

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South Africans wear western clothing, women will mostly be seen clothed in a Sari, this small

difference can be a key identifier to who and who isn’t a South African. What can be used as a visual

queue can also be used in the context of verbal discourse.

Hofstede’s Dimensions for South Africa

Graph taken from Geert-Hofstede.com

Looking at the above graph the similarities between the US and South Africa are very clear,

in many categories they are relatively equal but clear outliers can shape the way conversation and the

business environment should be developed. Individualism is a clear pitfall that many Americans may

trip up on when dealing in South Africa, while the country may seem similar, the ties to family and

the in-group may be far stronger than in the United States and this can change the way possible

expatriates and their families may be perceived within South Africa as well as it may affect group

dynamics in the workplace.

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There could be greater analysis into specific tribal cultures depending on the location the

business plans to locate within South Africa. The levels of each dimension will vary depending on the

heritage of the people involved. Within South Africa that can mean seemingly similar applicants and

co-workers could have a very different lense in which they see the workplace, this should be

understood as best as possible before advancing into any large scale operations in South Africa or

understood by the employee before leaving to do business with investors and clients in South Africa.

Making Conversation

South Africa is a multicultural country with 11 official languages most all of them originating

from the border overlap created when Britain combined many separate tribes into the same

overarching state. It is also a popular destination for immigrants from Europe and Asia. It is more

than likely visitors will interact with people whose home language is not English. Although, English

is recognised as the principal language for business communications and most of the people within the

greater business environment will have a sufficient command of English (IOE, 2016).

Meetings

Meetings can range from an informal meet at a coffee shop to a formal meeting in a company

boardroom. It is advisable to get as much information about the planned meeting beforehand. In

phone calls when someone says they will do something "just now" it means not immediately. And if

they say "Now now"- they mean shortly, as in: "I will be there now now." Dress code for meetings in

Johannesburg are more formal compared to cities like Cape Town or Durban. Shaking hands is

common for both men and women. Business cards are usually exchanged by all parties present at

meetings no matter the background. It’s common to meet various representatives from an

organisation. It is useful to have more than one contact from each organisation (IOE, 2016).

Presentations

Within the context of South Africa, presentations should be concise, informative and well

planned out. It is better to have a shorter presentation, that will allow for a question and answer

session afterwards, than a longer presentation that leaves the audience with little time to discuss key

points. It’s best to check media problems in advance, such as, for example, if a projector or audio

visual equipment are available and are working properly (IOE, 2016).

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Entertainment

South Africans are generally outgoing and enjoy entertaining guests. Receptions, events or

golf days are often held where business people get to network in a more relaxed atmosphere than in a

formal meeting. The host will usually pay for entertainment, but it is always a good idea to offer to

pay. A gesture such as offering to split a dinner bill can help in building a better relationship with

clients and employees. Be aware of the cultural diversity within South Africa when entertaining

guests - some may have religious or cultural beliefs that prevent them from drinking alcohol or eating

certain animal products. (IOE, 2016).

Gift Giving

It is not recommended to give gifts or any tokens of appreciation to potential clients or

providers one meets with. South Africans tend to reserve gifts for those with whom they already have

a business relationship, to give a gift prior to a full business relationship could be seen as bribery and

this could hurt reputation (IOE, 2016).

Tractor Specific Market Demand and Sales Trends

Month Percentage Year-to-date Percentage September change September change 2016 2015 % 2016 2015 %

Tractors 623 637 -2.2 4 486 5 199 -13.7Combine Harvesters 14 19 -26.3 152 180 -15.6

September tractor sales of 623 units were (2%) down on the 637 units sold in September,

2015. On a year-to-date basis, tractor sales are approximately 14% down on those for the same period

in 2015. September combine harvester sales of 14 units were 26% down on the 19 units sold in

September of 2015. Through the year 2015 into 2016 combine harvester sales are approximately 16%

down on last year (SAAMA Press Release, 2016).

Rainfall is one of the greatest issues facing the success of the tractor industry due to its effect

on the greater agricultural industry and its ability to produce product. South Africa is heavily

influenced by the El Niño and La Niña effects and this can vary the success of each year's crop

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outputs. This could be an additive factor to why the following trends are cyclical in nature outside of

the usual economic troughs and peaks found in most markets (SAAMA Press Release, 2016).

Industry expectations for 2016 have not changed recently and expectations are still that

overall tractor sales will be down on last year, perhaps by between 15 to 20%. This trend is expected

to continue, below is a graph showing the current trend and the cyclical nature of the tractor industry

in South Africa (SAAMA Press Release, 2016). The HTS Code for Tractors in South Africa is

8433.20.1 at a 0% MFN duty rate with a 14% sales tax (PitneyBowes, 2016).

Tractor Long Term Sales Trend in South Africa

This graph showcases the trends within South Africa for tractor sales throughout the past

three decades. A key attribute to notice is that the cyclical nature of it does not bode well for the

tractor industry within South Africa in the coming years. It seems 2012 was an exceptional peak year

for the tractor sales cycle (SAAMA Sales Statistics, 2016) with US exports at 315 million dollars, up

47% from the previous year (tractorexport.com, 2013), which could mean a large trough is occurring

over the next few years. So it’s best to wait out this trough before entering the market. Alternative

strategies can counter this by establishing markets in the surrounding countries as well to spread risk,

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although if the pattern is weather and climate dependent this may not change the risk associated

within the market. Hedging the risk by investing in opposite markets could help to stabilize the

investment.

Long Term Sales Possibilities in the Surrounding Regions

It’s crucial that the previous information must be weighed against the market potential for the

entire region around South Africa as well. While South Africa is a late stage developing market, some

markets north of the country have yet to even begin developing their agriculture sector outside of beef

production (Moorhead,2005), such as their nearest neighbor Botswana, and so being within the

market as the boom begins will mean a greater potential for market penetration. These neighboring

countries come with their own challenges and rewards, so it may be best to do separate analysis for

each country before entering. This can range from tribal culture to political hurdles.

It may be best to prepare a line of economy tractors geared toward very low income buyers

who are just beginning to enter the large field and large scale farming markets. Another possible way

to help promote the agribusiness sector of Africa is a set of payment plans and loans in order to

capitalize on the needs of the people. This loan system has been used effectively to stimulate growth

in developing markets with positive returns allowing possible market entrants to develop their long

term business without having to worry about daily financial needs (Skowronski, 2010).

Requisites and Barriers to Entry

South Africa’s comprehensive requisites for importing and extensive protective tariffs have

proven to be one of the main barriers to entry into the South African market from abroad. Other

examples of barriers to entry are port congestion, technical standards, customs valuation above

invoice prices, theft of goods, import permits, antidumping measures, IPR crime, an inefficient

bureaucracy, and excessive regulation (export.gov). The average tariff rate of all products coming into

South Africa was 8.3% in 1996 but was almost cut in half by 2012 at 4.2% (WorldBank).

Additionally, South Africa’s sales tax is currently 14% of the sum of the FOB value. South African

Customs reserves the right to examine any and all products entering the country and has an extensive

customs requirements list on the SARS website. Products must be properly documented using the

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forms on the website. Multiple permits are also required on certain products such as mechanical and

materials products which heavy agricultural equipment falls into. The current HS code for tractors in

South Africa is 8703.33.908, while the HTS code is 4012.19.2000.

These numbers combined with extremely high freight costs associated with shipping huge

agricultural machinery squeeze margins and will make it harder to find profit in the direct export to

South Africa. However, the United States is able to produce for much cheaper and higher quality than

most other countries which face similar barriers creating a competitive environment. One way that

many companies overcome these barriers is to form some sort of alliance or team up with an entity in

South Africa. Many companies start out exporting into South Africa by using a South African sales

agent as a platform to get established and get their products to market. The agents are experts on all of

the documentation and legal barriers that must be meticulously navigated. They are also able to

supply the company with distribution channels and link them to customers. While using an agent, a

company will be able to create relationships and get accustomed to exporting their goods to South

Africa and navigating the complex requisites to importing.

The next step after becoming an established exporter by means of a sales agent is to create

relationships with other firms in South Africa and possibly enter into an agreement or even a joint

venture with another firm. This common practice will create a framework that will make exporting a

seamless operation and will capitalize on the abilities of both firms.

Other Potential Imports into South Africa

Green Building is a highly promising service import into South Africa. This could be by

means of sending an experienced green builder into South Africa and securing contracts or simply by

exporting green equipment into the country. For example, this would consist of products such as solar

water heaters, greenroofs, permeable paving, water efficient technologies etc. The demand for green

building in South Africa is increasing exponentially due to the cost mitigating benefits of operating a

business/living in a “green building.” According to the World Green Building Trends Survey, the

growth of green building increased from 16% in 2012 to 52% by 2015 and “a total of 60% of firms in

the survey reported future green commercial developments by 2015, while retrofits came in at 58%”

(export.gov). Firms in South Africa are very interested in the idea of saving on energy costs while

24

being economically friendly, but the technology for this type of building in South Africa is so far

behind that of the American green building industry.

Potential Exports

The South African diamond industry has a long and infamous history for its awful working

conditions and poverty stricken areas that have suffered from the harsh climate created by the large

wealthy firms of the industry. However, the government passed laws years ago to change this cycle

forcing firms to be more humane in their practices. This made labor more expensive and caused a

decline in the profitability of the industry. Exports bottomed out in 2008, but now the industry is

beginning to restructure itself and the profits are starting to come back. South Africa has a rich supply

of diamonds that is still untapped while the demand in the rest of the world is quickly increasing and

prices are projected to skyrocket. This will enable the South African diamond industry to offer

workers better pay and improve working conditions while capitalizing on expanding margins. In

2014, South African exports of diamonds totaled 10.4 million carats which translated to $1.7 billion.

This is 8.4% of the global production by value but it is a fraction of the potential that South Africa has

to produce diamonds (Laniado).

Recommendation

With all of these results from our research we, as a group, have come to the decision that

exporting tractors to South Africa can indeed be both a feasible and profitable venture. While this

holds true, we also have suggestions as to other ways to sell tractors in South Africa yet also gain

larger profits. Our main idea is through either a subsidiary or a greenfield investment into South

Africa. If either of these options are taken, it would help to skip costs associated with the shipping of

the finished products overseas, as finished products and heavy equipment generally cost more to

transport globally. This would also help to jump over any importation barriers that may be placed on

the tractors, including the possibility of additional barriers due to tractors technically being

agricultural goods. Another possible idea we had is to manufacture all of the parts for the tractor and

then ship those over to South Africa, and somewhere within the country then assembling the parts into

a full tractor. This is another method that could help reduce shipping costs or trade barriers. With this

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in mind, South Africa is also a very strong economy to gain a foothold in, because if the tractors sell

well in the nation then it opens up the possibility of selling the tractors to other African countries.

With South Africa’s relatively well-developed economy and its location in Sub-Saharan Africa, we

believe that the sales of tractors is a business venture that can have astonishing success.

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