A Gateway to Africa
Outsourcing
By Peter R. Gourlay   
Monday, 15 January 2007
"There is no question that South Africa’s economy is booming,” says the World Bank’s Bernard Drum, lead private sector development specialist for the Southern Africa Region. “The hotels are full, local meeting places are overflowing and construction is everywhere.” With a population of approximately 42 million people, the country’s economy is growing by 6 percent a year. According to the 2006 World Investment Report, South Africa was Africa’s largest foreign direct investment recipient with $6.4 billion – 21 percent of Africa’s total.

“The automotive sector in South Africa is one of the best opportunities for American manufactures,” said Stephen Hayes, president and CEO of the Corporate Council on Africa (CCA). According to South Africa investment officials, vehicle production is the second-biggest industry in its manufacturing sector, and one of the fastest growing.

South Africa is increasingly seen as a lucrative market for overseas vehicle manufacturers and much of that is due to sound industrial policies to attract automotive investment. Ford, DaimlerChrysler, GM, Toyota, Volkswagen and all of the key OEMs have significant investments in the country. General Motors recently began the first production outside the United States of the Hummer H3 sports utility vehicle at a plant in Port Elizabeth, South Africa. South Africa’s investment Web site highlights GM South Africa Managing Director Robert Socia describing the project as “one of the most important milestones in the history of GM in South Africa.”

A major driver for the current booming economy is the upcoming 2010 World Cup games, the world’s biggest sporting event after the Olympic games, which are coming to various cities in South Africa. The South African government recognizes the world will be watching and, accordingly, major improvements in the rail infrastructure, telecommunications and energy sectors are underway because of existing strains from the country’s booming expansion. The government plans to spend at least $860 million on investments in Durban alone. There are huge opportunities to respond to the capital infrastructure needs and for necessary telecommunication, energy and transport equipment. The World Cup will also provide American companies with a tremendous platform for marketing to the African continent.

African countries look to emulate South Africa because it is by far the richest, most-developed country on the continent. South Africa is a major market in its own right, but it also is the gateway to the African continent, most of the world’s vital mineral resources and more than 680 million people. Mineral-rich countries in Africa hold most of the world’s critically needed minerals for manufacturing, including manganese (for steel production), cobalt and chrome vital for alloys (in aeronautics), vanadium, gold, antimony, fluorspar and germanium, as well as industrial diamonds. South Africa alone accounts for 90 percent of reserves of metals in the platinum group (platinum, palladium, rhodium, ruthenium, iridium and osmium), and 98 percent of the world’s chrome reserves are in Zimbabwe and South Africa.

While opportunities are abundant on the continent, South Africa continues to be the best base of operations for doing business in Africa. The strategic importance of South Africa to the United States can’t be understated. “South Africa is an anchor for stability for the rest of the continent,” Hayes said. The business trade group is at the forefront of strengthening and facilitating the commercial relationship between the United States and the African continent. Hayes and other concerned executives have been watching South Africa overtake the United States in non-energy investment in Africa and have also seen an upsurge in investments, primarily from China and India.

South Africa’s Business Day newspaper recently reported that China has overtaken the United Kingdom to become Africa’s third-most-important trading partner, after the United States and France. Because its oil needs are expected to double in 15 years, China has invested in particular in Sudan, Angola and Nigeria. It is also investing in forestry in Equatorial Guinea, mining in Zambia and construction in Botswana.

With India’s recent emergence as a coming global economic force, it has become re-engaged in Africa by investing in oil and IT sectors. India is South Africa’s sixth-largest trading partner in Asia, with two-way trade worth more than $2 billion a year. “There is huge mineral growth in most of the larger African countries,” said Luanne Grant, executive director of the American Chamber of Commerce in South Africa. “Little has been done to develop it.”

While most of Africa remains a daunting business environment, there are also enormous challenges related to the regulatory environment in South Africa. “Most regulations are based on best practices in a developed economy, but South Africa is still a developing economy,” Grant said. Recent business surveys such as the World Bank’s Investment Climate Assessment cite some major business concerns, including the lack of available labor pools with the necessary workforce skills, crime, complex labor regulations, labor costs and currency volatility.

“South Africa is a fascinating country with a lot of potential,” said Jeffrey L. Sturchio, vice president of external affairs, Europe, Middle East, Africa, Canada, for Merck & Co. Inc. “While South Africa scores high overall, there are some concerns in the pharmaceutical sector, key among them intellectual property protection [IPR] and regulatory delays.” South Africa has a good IPR regime and is taking the right steps to address it, but IPR is crucial to the survival of pharmaceutical companies like Merck. “South Africa is competing for inward investment with other emerging markets, such as Singapore, India and China, and companies look for where overall business conditions provide the most stable, predictable and productive environment,” he said.

The World Bank uses “Doing Business” indicators to help evaluate the impact of regulation in the world’s economies (www.doingbusiness.org). South Africa is ranked 29th worldwide and has, by far, the best business environment in Africa at this time.

“While there is room for improvement in some areas, South Africa is comparable with some of the world’s fastest-growing economies in terms of the quality of the business environment,” said the World Bank’s Drum.

American business will continue to weigh the risks and opportunities for doing business in South Africa relative to other global markets, while both China and India seem more willing to make the huge upfront business investments to reap the rewards from the region. Both countries have a long history of engagement on the continent and much of it is viewed positively from Africa’s perspective relative to the western approach. Business Day recently reported that there are more Chinese living in Nigeria now than there were Britons during the height of the British Empire. And in 2005, Angola’s energy minister said that as many as 3 million Chinese could move to his country in the next five years.

The American Chamber of Commerce and CCA are working to make sure that America understands the vital importance of the African continent, given the critical resources that reside throughout the region. They want to make sure America is aware of the recent investment surges from other competing countries and what that may mean for America’s future potential in Africa and for its own economic security. CCA is planning to hold its bi-annual summit this November in South Africa as a way to draw further attention to the region and encourage the United States to make more significant commitments to the market. 

Peter R. Gourlay is chairman of the Business Growth Committee of the World Trade Center Institute. He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it '; document.write( '' ); document.write( addy_text28780 ); document.write( '<\/a>' ); //-->\n This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .
 
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