Business risk in South Africa
Introduction
The South African economy is the largest in the continent, PPP accounts for approximately 24% of its GDP. The World Bank has ranked South Africa an upper-middle income economy alongside four other countries in Africa namely; Mauritius, Botswana, and Gabon. Official reports from statistics South Africa (2011), a government body which is responsible for analyzing population statistics in South Africa, there are at least a quarter of the population without proper jobs whereas the unofficial reports indicate that at least 40% of the population is not employed. 25% of South Africans spend less than 1.25 USD a day. The country is well endowed with minerals and farming land, which gives it comparative advantage in manufacturing several products. Unlike most African countries which have primary and secondary economies, South Africa is primary driven by the tertiary sector, which accounts for an estimated 65% of the GDP. A tertiary economy is a well-developed economy that can support various forms of investment without need for structural adjustments. The unemployed citizens are a rich source of affordable labor for the investors.
The GCC investors prefer South Africa as the best destination for their investments because this is the strongest economy in Africa. In this paper, I have discussed all the factors in South Africa, which are favorable or unfavorable to the GCC investors and how the GCC investors are reacting to fit in this rich regional market. According to the data above, the country has a large pool of labor that provide a large pool of labor for the GCC investors, this alongside the rich minerals in the country and well-developed infrastructure highly attract GCC investment.
Business Issues
Various issues play a big role in the success or failure of businesses in South Africa and it is important to scan both the external and internal environment of a business. The issues that influence information and communication technology businesses in South Africa can be examined from macro perspective view with the assessment of the external environment. These include legal requirements such as the broad-based Black Economic Empowerment (BEE) policy, tax, licenses among others. Economic stability is also a major issue that influences the standing of any business and considering the economic prowess of South Africa as leading economy in Africa and the 26th largest economy in the world. The country was able to withstand the impacts of the global recession because of South Africa has a highly regulated financial system, the infrastructural preparations and the expected boom in tourism associated with 2010 soccer world cup.
The political stability of the country has immensely contributed to the growth of businesses in the country, environmental diversity, cultural factors also play a major role in the successes of the business. Despite social friction such as the xenophobia incidence affected the country’s business growth and investment in general the country has regained normalcy within the social circles. Technological advancement is playing a major role in businesses and investors are embracing technology considering that the internet has opened up a global market.On micro issues, issues of food security, rural issues, water issues, poverty, xenophobia, gender issues and children’s issues emerge as the contemporary issues in South Africa that firms should focus on in highlighting the situation in South Africa. Despite such challenges, there are still some issues that serve as market opportunities and these include, the growth of its consumer base and its efforts to develop facilities and infrastructure to help fuel economic growth of the country. Other opportunities include, sophisticated banking sector, the recent strong performance of the rand versus the U.S. dollar, and the fact that the country provides a gateway to landlocked countries found Southern Africa.
The main risks
According to the South Africa Country Commercial guide (2011) it provides more of business specific issues that are to be emphasized in business in South Africa which includes the mature and competitive market, the broad-based Black Economic Empowerment (BEE) policies on redressing economic imbalances. Another issue is crime against business and individuals, which requires attention. High telecommunications and security expenses add the cost of doing business in South Africa. The guide also asserts that power shortages could restrict opportunities for energy-intensive industries.
Thesis Statement: South Africa only has 11% use of internet, however, on average, countries around the world use 37%.
Figure 1: Internet users in South Africa as a percentage of the population
Findings
There are various issues that the study highlights in relation to the investment into the information and communication technology industry. These relates to geographical challenges, government regulations and international connectivity costs.
Government regulations
Various government policies and regulations play a big role in the operations business and South Africa has such regulation which all the businesses operating in the country should adhere to. These policies are basically meant to brings check and balances within the socio-economic fabric of the country.
Geographical challenges
As the 25th largest country in the world, the country provides a vast geographical area for investment. There is focus in investment in capital goods as the vast geographical areas provides an array of investment opportunities in various industries such as telecommunication services and equipment, information technology, automotive components, franchising, renewable energy, electrical power systems, and aviation (South Africa Country Commercial Guide, 2011)
Broad-Based Black Economic Empowerment (B-BBEE) policies
The Broad-Based Black Economic Empowerment (B-BBEE) policy has had an immense contribution to the operations of business. The policy is aimed at redressing various economic imbalances that tries to ensure that racial injustices are placed in check. A few companies have managed to address the ownership element of BEE by implementing “equity equivalent” programs that emphasize training and development of local companies (Department of Trade and Industry, 2013).
Economic unprivileged communities
Tanya (2009) highlights the World Bank 2006 World Development Report (Equity and Development) in countries that have high income inequality to begin with, that the potential of any program or state spending to eradicate or reduce poverty is extremely low, given that the structural nature of exclusion will not allow people to move out of poverty and into sustainable livelihoods.
The disparity is clear in the South African context and is an area of consideration in any business venture. The top 10% of South African earners earn 50% of the income, and Tanya demystifies it by providing the distribution based on the years between 1996 and 2001, that whites as total share of the population fell from 11% to 9%, but their share of the total income increased from 47% to 48%. During this same period, the share of black Africans as a total share of the population rose from 78% to 80%, but the total share of income to black Africans remained at 38% of total income. Such inequalities make it difficult for the unprivileged communities to close the economic gap that exist between such groups.
Figure 2: Income shared by the top 10% of the population
International internet connectivity costs
Connectivity in the country has been a challenging issue due to many factors. With more use on wireless networks which have been having connection issues problems that are attributed to service provider network. Providing multiple services over wireless networks entails broadband capability. With the increasing number of broadband wireless networks agreeable to providing multiple-play services is rapidly increasing in the country, there is growing interest in using VoIP (Voice Over Internet Protocol) over wireless local access networks. The country has allocated spectrum to broadband wireless service providers and allowed this band to be used to provide telephone services. Correspondingly, a number of 3G operators have begun to offer their subscribers video on demand (Department of Trade and Industry, 2013).
Internet costs
The costs of internet is very expensive for a considerable segment of South Africa’s’ population cannot access internet with around 10% of the entire population being in a position to access the internet according to South Africa official website. The issue of internet costs is a major issue and the government is working on substantially reducing the costs of accessing the internet based on the drive of having an information based economy. The progress in the technology of internet is also playing a huge role in cost reduction considering connection global system for mobile (GSM) and code division multiple access (CDMA) to advanced wireless systems such as 3G networks and broadband wireless. The landing of the fibre optic cable in the country is expected to also increase connectivity and reduce internet costs substantially.
Internet speed
On average, internet is very slow, consumers do not purchase wireless internet and consider using cyber for faster internet connection, Lawrie (1997). The penetration of other companies that offer internet services played a huge role in wiping out monopoly that characterized the industry before other companies entered the market. With the entry of new companies, the service delivery has improved in relation to connectivity and costs.
Benefits
Big population
The population of over 50 million provides a considerable and ready market for any business venture in South Africa with about half of the population having access to internet. The country is also integrated into the regional economy through its membership to the Southern African Development Community (SADC) providing an extended market of South Africa products at a reduced cost in distribution and legal costs. With these countries embracing information and communication technology, there is thus a greater potential for the industry to provide a substantial market share.
Increase in business in South Africa
The South African Commercial Guide (2011) expresses that The South African economy is characterized by standards similar to those found in developed countries. The service sector is well established and growing. The banking system is stable and was largely immune to the worldwide financial crisis. The country also boasts of a well-developed physical infrastructure comparable to OECD standards. South Africa has a well developed financial sector with well-developed financial institutions and a stock exchange in Johannesburg that ranks among the top exchanges in the world (Department of Trade and Industry, 2013). These factors provide a solid foundation for investment both from internal and external investors due to the sustainability nature of economic environment.
Economically developed country
The South African country is one of the leading economies in Africa and the 26th largest economy in the world. These provide it with a potential to attract major investors and participate in bilateral trade with other developed economies in the world. The country enjoys a remarkable macroeconomic stability and a pro-business environment therefore providing an attractive and logical choice for companies to enter sub-Sahara Africa.
Conclusion
Despite the various risks that have been explored, it is evident that the benefits overweigh the risks which can be controlled by collaboration with all other stakeholders in the industry. The challenges can only get out hand if only they are not monitored; evaluated and controlled thus there is also a need of a strong framework of operations and in dealing with the risks and benefits involved. With the growing demand of internet, competition of service providers, growing population, diversification in economy, there is indeed a great potential of the country benefiting from our internet which will ensure fair costs, faster and reliable connectivity and efficiency in our operations. With customer satisfaction and ensured efficiency in operations the investors of GCC will definitely maximize their profits.
References:
Lawrie, M. (1997). The history of the internet in South Africa: how it began. South Africa: Rhodes University.
Singh, R. & Raja, S. (2010). Convergence in information and communication technology: strategic and regulatory considerations. Washington DC: The World Bank.
South Africa Country Commercial Guide (2011). Foreign commercial service and U.S. department of state, 2010.
World Economic Forum (2012). The Global Competitiveneee Report 2012 - 2013. Retrieved from http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf
Sager A. (2010). The GCC and Africa: Growing economic complementaries. Retrieved from http://gaic.kcorp.net/data/Chairman_-_GAIF-Nov_10.pdf
