South Africa

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South AfricaThe eyes of the world turn to South Africa this month as the nation hosts soccer’s World Cup from June 11 to July 11, the first time that the world’s biggest sporting event is taking place in Africa. It is an opportunity for South Africa to showcase itself as a place to do business: it has a large and relatively affluent market — 48 million people with a per capita income of $4,500 and a substantial middle class — and serves as a gateway to southern Africa. Import tariffs average 7 percent, which compares favorably with many developing countries, and there is good protection of intellectual property.

Equally important, customs is not corrupt, says Craig Allen, the senior U.S. Commercial Service officer in South Africa. “I’ve never heard any allegations of corruption” about customs, he says.

The country has excellent value-added logistics, highly developed financial, legal and energy services, and abundant natural resources, including gold, platinum, coal and titanium. “It’s a good place to live,” says Allen, citing the country’s food and wine as examples. South African wine has begun showing success in global markets.

Business opportunities have been good enough that about 600 U.S.

companies operate in South Africa, including Coca-Cola — the principal sponsor of the World Cup — Colgate-Palmolive, DuPont, General Motors and many others of the Fortune 500’s top 100. But South Africa also has serious problems. Crime tops the list. And while considerable corruption exists at the highest levels between business and government, it’s not that bad by global standards. South Africa ranks 55th out of 180 countries on Transparency International’s Corruption Perceptions Index.

Despite high unemployment, labor costs are unusually high for a developing nation, thanks to strong labor unions that also make it very difficult to fire workers. Finding skilled workers can be difficult because of poor education. “As a result of apartheid, many teachers were poorly prepared,” Allen says.

The combined rate for unemployment and underemployment is 40 percent, and many South Africans feel that their economic circumstances have not improved since the end of apartheid in 1994. That said, it is perhaps the most attractive place in Africa to do business, accounting for 24 percent of the continent’s gross domestic product, according to the U.S. consulate in Johannesburg. “There are so many opportunities. We’re a launching pad into Africa,” says Carol O’Brien, executive director of the American Chamber of Commerce in South Africa.

“The government has made it very attractive. There’s a whole myriad of incentives,” she says, citing cheap electricity and tax incentives as examples.

One of the key considerations for foreign investors is the government’s policy of Black Economic Empowerment, designed to increase Black participation in business in a land where whites still control 85 percent of the nation’s wealth, despite having only 15 percent of the population. Companies are graded on a BEE scorecard in seven areas: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socioeconomic development. The higher the score, the higher the incentives.

As with most countries, the global recession took its toll on South Africa, but it fared better than most. The GDP grew 3 percent in 2008 and then fell 1.8 percent in 2009. “The World Cup came at just the right time. It forced them to improve their infrastructure,” Allen says. Massive spending on roads, airports and soccer stadiums helped stimulate the economy and reduce the recession’s impact. Estimates for growth this year range from 2.3 to 3.5 percent.

Transportation infrastructure is just one of the many advantages South Africa offers, says Allen, who has served there for four years. Durban, the nation’s second-largest city, opened a brand-new airport in May. The airport in Johannesburg, the largest city and commercial capital, was recently expanded. Airports in other cities have also  expanded. South African Airways has a global network, including daily passenger flights to New York and Washington. It has the best passenger and cargo network in Africa, with service to 21 cities. That helps to explain why most major multinationals doing business in Africa have their regional headquarters there. Foreign airlines that serve South Africa include Delta, British Airways, Air France-KLM, Lufthansa of Germany, and Dubai-based Emirates Airlines.

FedEx, UPS and DHL all have extensive service. “We have no problems with outbound cargo. It’s all commercial lift,” says Ken Jackson of Supaswift, the FedEx affiliate in South Africa.

Roads in many areas are in good shape and compare favorably to pothole-strewn streets in and around U.S. cities. Rail transportation, however, on both the passenger and freight sides, is lacking. Electric power is also a problem. Brownouts are common and are likely to become more frequent until the first stage of a controversial coal-fired power plant begins operating in 2012. It will supply power not only to South Africa but also to Botswana, Lesotho, Namibia and Swaziland. Environmentalists both inside and outside Africa oppose the project because of concerns about pollution.

South Africa’s two biggest ports, Durban and Cape Town, are world class.  Safmarine, the continent’s largest shipping company, has a global reach and offers extensive service to other African nations.  The nation’s role as a gateway to the region prompted DHL Global Forwarding to launch a new service, starting this month, aimed at U.S. exporters to counter the lack of direct shipping service to most sub-Saharan nations. The idea is for them to ship their oceanborne cargo with Safmarine to Durban. DHL will then arrange transportation within Africa, whether it’s by sea, air, road or rail.