The Report: South Africa 2016

Economy

South Africa’s economy has experienced relatively slow expansion in recent years, with GDP growth still short of the rates recorded prior to the global financial crisis of 2008-09. Like many of its emerging market peers, the country has been affected by falling commodity prices and the prospect of rising interest rates. However, South Africa continues to benefit from a series of comparative advantages, including its robust financial services industry and strong private sector. In addition to being Africa’s second-largest economy, it is the most globally integrated in terms of capital and trade flows, and is well placed to benefit from growth in Africa and the broader global economic recovery.

This chapter contains interviews with Nhlanhla Nene, Minister of Finance; Rob Davies, Minister of Trade and Industry; and Bobby Godsell, Chairman, Business Leadership South Africa.

Banking

While South Africa’s banking sector already ranks as one of the best regulated and well capitalised in the region, regulatory changes are set to bring further improvements to the industry’s soundness and stability, as well as the treatment of its customers. The sector does, however, continue to face headwinds. As expansion of the broader economy has slowed, loan growth for banks has also eased. High levels of consumer credit, ratings downgrades and the closure of a local bank have also raised concerns. Nonetheless, growth amongst South African banks is expected to accelerate in the medium term. The sector is also set to benefit from ongoing investment in compliance and regional expansion over the long run, though the industry’s pivot to Africa is also likely to shift risk profiles.

This chapter contains interviews with Lesetja Kganyago, Governor, South African Reserve Bank; and Mike Brown, CEO, Nedbank.

Capital Markets

South Africa’s capital markets are continuing to enjoy relatively healthy growth on the back of improved regulation and supervision. The authorities are working to strengthen the market's regulatory framework, particularly in terms of settlement cycles and systemic risk related to over-the-counter securities. Technical and regulatory improvements at the Johannesburg Stock Exchange (JSE) are continuing apace, with new products, better supervision and a renewed emphasis on cross-border activity at the forefront of market developments. Market players are working to capitalise on growing investor interest in Africa and establish South Africa as a regional epicentre for initial public offerings and derivatives trading. While the market will continue to be buffeted by international headwinds and a weaker global economy, the JSE is set to maintain its reputation as Africa’s soundest capital market.

This chapter contains interviews with Donna Oosthuyse, Director of Capital Markets, Johannesburg Stock Exchange; and Stephen van Coller, Chief Executive of Corporate and Investment Banking, Barclays Africa.

Insurance

The South African insurance market stands as one of the most advanced in the world, with one of the highest premium-to-GDP ratios and a wide cross section of well-regulated and innovative insurers. Although the market is set to become more sophisticated with the introduction of new legislation, much of the country remains unbanked and either uninsured or underinsured. Financial inclusion is still limited, with basic policies like auto or property liability insurance only optional – a rarity in the developing world, both in Africa and beyond. This presents significant opportunities for local and regional players, as they look to develop more inclusive products that meet the needs of low-income customers. In addition to providing much-needed coverage, the segment is expected to unlock substantial growth potential for insurers in the years ahead.

This chapter contains an interview with Thabo Dloti, CEO, Liberty Group.

Mining

With an estimated $2.5trn worth of proven mineral reserves, the mining sector accounts for around 8% of South Africa’s GDP and 14% of total employment, making it the second-largest employer in the country. However, the industry’s output and performance have been under pressure in recent years, as bottlenecks in labour relations, uncertainty in policy direction and power shortages have weighed on sector growth. Mining is also subject to global headwinds, as slower economic growth in commodity-consuming nations has driven down commodity prices and weakened export revenue. Financial turbulence and volatility will likely see continued fluctuations in sector share prices and could limit capital investment in the near to medium term. However, as South Africa continues to offer some the best mineral reserves in the world, the efficiencies gained now are expected to translate into greater profitability as global commodity prices recover.

This chapter contains an interview with Norman Mbazima, CEO, Kumba Iron Ore.

Industry & Retail

One of the top manufacturing powerhouses on the continent, South Africa has a strong industrial tradition dating back 150 years. The past few decades, however, have posed challenges to the industry, with external and domestic factors weighing on sector growth. To help revitalise the industry, the government and industry leaders have been working to stoke growth and develop value-added industries. By autumn of 2015, some industry pressures were showing signs of easing, with industrial action coming to an end, and new power and water infrastructure coming on-stream. While some structural issues remain, particularly in the realm of labour legislation and education, the government’s industrial strategy has allowed the sector to maintain momentum, with investment incentives and close cooperation with investors helping to offset downside risks to a degree. Over the longer term, manufacturing will be buoyed by growth across Africa, which should support higher sales. South Africa also has a well-developed retail sector ¬– one of Africa’s largest and most affluent markets – with a sizeable portfolio of major domestic players. While recent macroeconomic difficulties have affected certain segments of the market, the retail sector has continued to grow, drawing in a number of new international brands looking for an entry point to the rest of the continent. Their arrival underscores the sector’s sound fundamentals, and the market looks set to remain highly competitive and active in the coming years.

This chapter contains an interview with Andre de Ruyter, CEO, Nampak.

Transport

One of the world’s more open economies, South Africa’s commercial activity and economic performance are closely linked to its ability to transport goods both within and beyond its borders. Although South Africa’s transport infrastructure is among the best on the continent, lack of investment in recent years has led to high usage costs and bottlenecks. The government is seeking to address the situation through a series of projects that involve boosting capacity at the country’s ports and enacting key public transport improvements.

This chapter contains an interview with Mark Lamberti, CEO, Imperial Holdings.

Energy

With the most energy-intensive economy on the continent, South Africa has undergone a spate of load shedding in recent years as demand for electricity continues to outstrip supply. While faltering output and poorly maintained infrastructure have had an adverse effect on the country’s economic performance, a range of government initiatives – notably the country’s independent power producer (IPP) bidding programme – should help strengthen long-term output and reduce the risk of volatility. As the country searches to find short-term solutions to plug power gaps in the national grid, policy implementation and a renewed focus on bringing the Medupi, Kusile and Ingula plants on-line will help to accelerate IPP programmes, curb load shedding and stabilise the broader power sector.

This chapter contains an interview with Brian Molefe, Group CEO, Eskom.

Construction & Real Estate

Although South Africa’s construction industry remains a major economic engine, the industry has struggled to maintain pre-2010 highs, when work related to the 2010 FIFA World Cup propelled sector growth into the double digits. The interim has been marked by project delays, labour unrest and a subdued macroeconomic environment, which saw employment figures, profits and new projects decline in 2014 and 2015. Despite these challenges, the industry’s long-term forecast remains positive, with major new investment expected in the coming years under the government’s National Infrastructure Plan and contractors benefitting from steady expansion in the residential real estate sector. Although far from the conditions of the early 2000s, South Africa’s property market has remained resilient in spite of challenging macroeconomic conditions. Rising demand for affordable housing and a host of “new city” projects have kept the residential market steady, while A-grade commercial space – albeit on the verge of oversupply in some areas – is poised for strong growth. Although rising electricity prices are having an impact on the real estate market, the country’s burgeoning e-commerce, transport and logistics segments are expected to improve vacancy and rental rates across all property segments.

This chapter contains an interview with Eric Vemer, CEO, Group Five.

Telecoms & IT

Despite facing fierce competition and slowing revenues in 2015, South Africa’s telecoms operators are well placed to see growth in the near to medium term. The mobile market is approaching saturation and a shift from traditional voice and SMS to data is expected to drive future growth, particularly in 4G long-term evolution (LTE) services, which are slated to expand significantly in the next several years. Although market competition remains a significant challenge, recent moves to buy out illiquid companies with sizeable infrastructure networks could indicate the beginning of a period of consolidation in the industry. This could benefit long-term profitability and boost operators’ ability to improve service offerings and capture greater market share, lending an optimistic outlook to the country’s telecoms sector. South Africa’s ICT sector has shown rapid expansion over the past two decades. The government has increasingly sought to provide support for nationwide development of internet connectivity through the National Broadband Plan, while rising data demand and the burgeoning e-commerce and mobile payment segments will further underpin sector development. At the same time, a shift away from traditional voice and SMS services into the realm of data services is prompting telecoms operators to invest heavily in new fibre-optic and next-generation infrastructure. However, the country’s delayed digital TV migration and lack of available frequency spectrum, which is critical for the rollout of 4G LTE mobile broadband services, has slowed progress. Even as the country faces near-term obstacles and delays, rising recognition of ICT’s importance to inclusive economic growth should allow the sector to remain at the forefront of digital innovation on the continent.

This chapter contains interviews with Sifiso Dabengwa, Former Group CEO, MTN; and Asher Bohbot, CEO, EOH Holdings.

Tourism

South Africa’s tourism sector has come to rival the country’s mining industry in terms of overall contribution to GDP, with 2014 witnessing record levels of foreign arrivals, drawn in by the country’s natural beauty, outdoor attractions, food and culture – and increasingly by its business and conference facilities. The sector faced a significant decline in 2015, however, with stringent new visa regulations impacting visitor figures and threatening the loss of thousands of jobs and millions in revenues. In spite of the regulations’ expected impact on the industry, a significant number of positive indicators, particularly in the Cape Town area, could help some operators weather the worst of the near-term shocks.

This chapter contains an interview with Clifford Ross, CEO, City Lodge Hotel Group.

Agriculture

Contributing more than $15bn per year to the national economy, South Africa’s agriculture sector has historically been one of the strongest on the continent. Diversified and increasingly export-oriented, it enjoyed a strong year in 2014, on the back of a healthy maize crop and demand from abroad. However, 2015 looks set to be a more difficult year for parts of the sector, particularly maize and the related livestock segments, though this is largely due to climate conditions across Southern Africa. A steady recovery is expected once the drought passes, with the most competitive segments of the sector well placed for an eventual resurgence in agricultural commodity prices. Citrus fruit and other higher-value, export-oriented cash crops and niche products are expected to continue their strong performance, particularly as the weaker rand makes South African goods more competitive.

This chapter contains an interview with TP Nchocho, CEO, Land and Agricultural Development Bank of South Africa.

Media & Advertising

South Africa’s media sector is perhaps the largest and most sophisticated on the continent, with more than 850 print titles, around 250 radio stations and 16 television providers offering more than 170 channels. The reach of broadcast in particular is impressive, with a steady rise in channels and advertising revenues in recent years. Ownership is well diversified, with hundreds of independent and community options both in terms of radio and print providing targeted local and language-specific coverage. As in media markets worldwide, traditional mediums are being shaken up by the rise of digital access and “platform agnostic” content consumption, with print readership one of the most visibly impacted mediums. However, the sector also faces broader headwinds, from pressure to allow closer government regulation to job cuts and delayed digital terrestrial migration.

This chapter contains an interview with Koos Bekker, Chairman, Naspers.

Health

Basic health indicators in South Africa have improved recently thanks to surging government expenditure aimed at combating communicable diseases that have added to existing constraints in the public health system. The advent of universal health coverage under the National Health Insurance scheme in particular has created new opportunities in the sector, as well as offering the potential to reduce the economic impact of communicable diseases. Private sector participation will be critical to achieving long-term health care objectives, and a number of positive indicators – including rising investment in new facilities and strong growth within the pharmaceuticals industry – demonstrate the strong potential for continued sector growth.

This chapter contains an interview with Konji Sebati, CEO, Innovative Pharmaceutical Association South Africa.

Education

The education sector in South Africa remains a top priority for the state, with basic education receiving the largest share of government expenditure in the most recent budget, as stakeholders move to improve both the quality of learning and student outcomes. Although the sector is still confronted with a lack of available capacity and high levels of youth unemployment for graduates, the government is intensifying its efforts to expand access to basic and post-secondary education. With public expenditure intensifying and significant scope for growth in the private K-12 segment, the education sector should continue to witness improvements in 2016, with rising research and development spending to be accompanied by significant knock-on benefits for the broader economy.

This chapter contains an interview with Adam Habib, Vice Chancellor, University of Witwatersrand.

Legal Framework

OBG introduces the reader to the different aspects of the legal system in South Africa, in partnership with Cliffe Dekker Hofmeyr. OBG talks to Brent Williams, CEO, Cliffe Dekker Hofmeyr, on South Africa’s evolving legal and business environment.

Tax

In conjunction with SizweNtsalubaGobodo, OBG explores the taxation system, examining South Africa’s investor-friendly environment. OBG talks to Victor Sekese, CEO, SizweNtsalubaGobodo, on new tax rules.

Guide

This section includes information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.

Table of Contents

There are no articles in this chapter. To view the table of contents for this report, click the 'View in Online Reader' link above.