New Zealand High Commission Pretoria, South Africa

South Africa: economy and opportunity

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Background

South Africa’s is the largest national economy in Africa. Already 4-5 times the size of New Zealand’s, it consists of a first world segment that produces most national wealth (and includes over 10 million consumers) and a third world component of some 40% of the population (almost 20 million people) living in severe poverty. These worlds jostle in the same geographic and social space.

Average per person GNP (adjusted for purchasing power) in 2008 was US$10116. Statistics record official unemployment at 25%, indicating significant under-performance of the economy. The OECD in its July 2010 Survey found that South Africa had coped well with the global recession and had avoided a financial crisis. From 2000 to 2008 economic growth averaged 4%. Latest figures show a return to modest growth in 2011, but growth levels need to track between 5% and 7% to lift people out of poverty; on present policy they seem likely to settle around 3%.

The potential of South Africa lies in its population of almost 50 million; mineral wealth; agriculture (temperate and tropical); heavy industry and manufacturing; tourism and other services. It acts as a regional hub and entry point to Africa. The first world foundations are unique on the continent and the success of the developed part of the economy could act as a beacon to the wider society.

Business Environment

The South African business environment is deemed to be broadly attractive and is one of the most sophisticated in sub-Saharan Africa. However, crime and labour market rigidity remain constraints. A World Bank survey has ranked South Africa third most attractive among emerging markets for doing business; but limited competition, crime, electricity supply, corruption and access to finance are said to hold it back. Consumer markets are divided in two (a highly segmented and increasingly premium-ised sector on the one hand and extremely undeveloped on the other). Increasingly, marketing attention is focussing more on the large number of low-income consumers.

ANC and government priorities are generally business-friendly and emphasize service delivery in line with the expectations of South Africans: job creation, higher quality education; better healthcare; stronger rural development and lower crime. The Government struggles, however, to deliver consistently on these goals.

The very recent success for South Africa in hosting the 2010 FIFA World Cup is helping change some of the more negative perceptions of the country among foreign investors and businesses and could have a positive influence on South Africa/New Zealand business links. The 2011 Rugby World Cup will also draw South African attention to New Zealand

Bilateral Trade

Existing trade between South Africa and New Zealand is substantial and diverse, despite a lack of promotion effort by either government. Since 1990, bilateral trade in goods increased nine-fold to the point where South Africa is New Zealand’s 35th most important export market. In the year to June 2011, New Zealand exported goods worth NZ$234 million to South Africa, and South Africa exported NZ$137 million worth of products to New Zealand. The profile of the trading relationship is also very diverse, with significant [i.e. NZD 2 million or more] trade occurring in many sectors including automobiles, machinery, frozen fish and sheepemat, dairy products, radio and TV transmission equipment, metals, carpets, paper, wine, seeds and industrial chemicals.  As well there is a useful services trade, centred mostly on tourism (20 000 South African visitors to New Zealand a year; 8,500 for the Rugby World Cup in September/October 2011); migration (over 50 000 South Africans settled in New Zealand); and professional sporting ties.

NZ businesses in South Africa demonstrate potential for others: Gallaghers is long-established, selling electric fences and diverse security products. Fonterra has a joint venture with well-known South African brand Clover and uses South Africa as a regional base.

New Zealand/South Africa Joint Trade Study

The attached Track II study on bilateral trade ties between New Zealand and South Africa was completed in mid-2011.  It aimed to assess the state of the trade relationship between New Zealand and South Africa, establish opportunities for improving trade in goods and services as well as investment, and to propose further steps towards improving trade and investment relationship.  The study, launched in September by Trade Minister, Hon Tim Groser and his South African counterpart, was informed by the realisation by both the New Zealand and South African governments that, although trade flows were growing, joint efforts were needed to systematically investigate the bilateral trade relationship between the two countries, in order to ascertain opportunities for improving the relationship.

Conclusion

Perspective matters in considering opportunities and risks in South Africa. From a developed country point of view South Africa looks challenging and difficult, with its development weaknesses tending to encourage a pessimistic view. To those who come from an emerging market however, such as Brazil, China and India, South Africa and Africa as a whole bring to mind a more positive and familiar development trajectory with opportunities aplenty.

 

 

Attachment
File NZ-SA Trade Study_0.pdf

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