- Introduction
South Africa is one of the countries in Africa that is growly immensely due to its precious goods, gold and diamonds. As a result, this has attracted a number of investors into the country in that the economy of the country is growing steadily. Foreign Direct investments have been encouraged by the South African government as it not only creates employment but also contributes to the government revenue of the country. This means that the gross domestic product, which is one of the factors that measure economy grows. It is important to note that economy is the backbone of every country in that all countries are mainly defined by the strength of the economy. Therefore, investors are a catalyst to having a strong economy in that through financial businesses, the country can increase its returns and benefits. This paper will discuss and explain South Africa one of the major growth business industry in the world.
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 (Statistics South Africa, 2011, p. 31)), 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 (Statistics South Africa, 2011, p. 29). 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 (Gonzalez-Nunes, 2008, p.43). 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 (Sager, 2010, p.19).
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.
Fig1: Employment rate in South Africa
According to Edwards, the South African economy has experienced increased public and private consumption. The growth rate has been predicted to be at 3.5% under the prevailing policy environment (Edwards, 2006, p.39). The per capita Gross Domestic Growth has been growing at 1.65 each year since 1994 to 2009; it increased to 2.2% between 2000 and 2009, Edwards is a lecturer in the School of Economics, University of Cape Town. This implies financial status of the country is sufficient to support GCC investments. South Africa offers an ideal economic climate for investors (Sager, 2010, p.46). This is a G20 destination, which offers an excellent investment opportunity for local and foreign investors who want to invest within Africa. As the largest African investor, South Africa sends at least a quarter of its manufactured products into the African market. The government’s attempts to attract foreign investment through industrial financing and investment incentives have resulted in increased commercial activity and attract foreign capital. In 2011, the country earned R42 billion in foreign direct investment (Edwards, 2006, p.46).
Since the 1970s, the country has been doing well in international business. In the 1980s there was a low but slowly increasing trend in the export of non-gold commodities despite the fact that it is a bit sluggish than it was in the 1970s (World Economic Forum, 2012). In the two decades, the export of gold reduced drastically and was being replaced by the non-gold commodities. This growth is what resulted in the 20% increase in the 1991 exports above those in the 1980s and 1970s (World Economic Forum, 2012).
Fig 2: South African Exports & Imports: Year 2000
The country has been doing well in both internal and external trade. Gonzalez-Nunes argues that South Africa’s trade policy has been undergoing many changes as it is moving towards twenty years of democracy, Gonzales is a researcher at trade & Industrial Policy Strategies (TIPS). Both the trade inside and outside the country has been growing at an increasing rate since 1990 (Gonzalez-Nunes, 2008, p.37).
According to Edwards (2006), South Africa is highly dependent on various commodity-based manufacturers including steel, iron and other ferrous metals, Edwards in a lecturer in the School of Economics at the University of Cape Town. South African imports have been growing at an average of 7.6 percent since 2000, most of the imports durables such as autos and capital inputs of production. On the other end the volume of commodity; exports have been growing at a lower rate than that of imports, at 2.7 percent (Edwards, 2006, p. 52). Over the years, the gold exports have been reducing while the export of services has been increasing at 8.6 percent every year. This means the country has access to various markets but cannot provide adequate commodities to full satisfy the demand of the customers.
- The Financial Status of South Africa
South Africa is one of the major growth business industries in the world. The World Economic Forum (2012) has ranked South Africa the second country in the entire globe is in its efforts to improve the accountability of its private financial institutions. The forum has ranked South Africa third in its efforts to develop its financial markets to suit both the local and foreign investors; The World Economic Forum is an independent international organization whose aim is to shape the world through engaging various society leaders in shaping industrial, regional, and global agendas. This has made South Africa financial markets among the few financial markets, which can be trusted after the latest economic downtown, which negatively affected most of the financial markets in the world. The South African securities exchange is among the leading 20 security exchange markets in the world.
South Africa is the best African country to invest in because it has an excellent and progressive legal framework that ensures the governance of maritime, labor and commerce is very strong. The country has put all measures to ensure that the laws, which govern the policy of competition, trademarks, disputes, patents and copyrights, are in line with the set international standards and norms (Edwards, 2009, p. 24). The country has up to date infrastructure, which offers adequate support to ensure there is efficient distribution of commodities in the entire South African regions.
The South African economy is dual, with a well-developed industrial and financial economy despite the underdeveloped informal economy. This is a second economy that presents a large potential and developmental challenge. The Gulf Cooperation Council (GCC) will like to invest in the South African economy due to the numerous investment opportunities available in the country and the government incentives that are provided by the South African government to foreign investors (Edwards, 2009, p.24). The country has well developed infrastructure and well-structured legal and economic systems that have the ability to support all the activities of the GCC, thereby enabling them get more returns for their investments. On the other end, South Africa has a large pool of skilled labor to be employed in the production section as well as a large market for their products; this means the GCC investments in the country will be highly profitable.
- Problems
Just like in any other country, in South Africa there are various setbacks for investment, however, the government has put several measures to curb them or to reduce their impact. For example, there is high competition in South African because the economy comprise of several well-established companies (Edwards, 2009, p. 32). This implies that there is a high level of competition for resources, labor, and market. Thus, the GCC investors have a challenge to come out with various strategies that will enable them survive in this highly competitive business environment. The country has a well-developed processing and manufacturing industries, this means that there are stiff competitions among the stockholders who are striving to be the market leaders. The GCC investors have to come up with a good strategy for entry into the market if they expect to generate enough profits that will enable them operate in this economy.
According to a lecturer in the School of Economics, University of cape Town, Edwards (2009), since 1994, South Africa has been amending the law to protect its domestic industries and for various foreign interest. In line with this, it has imposed tariffs on goods form various countries in effort to control the volume of imports from the countries. There have been various regulations for various companies who want to establish in the country and this is challenging for GCC countries since most of their companies have faced serious scrutiny prior to being allowed to establish in the country (United Nations, 2001, p.89).
South Africa has established good political relations with most western countries, which are the major rivals for the GCC, since the South African Independence in 1994; there have been various agreements with the western nations, which have seen them, invest highly in the country. The Western companies have taken deep roots in various industries in South Africa which include mining and ICT, this has not been taken positively by most of the GCC who consider it a major setback for making their investments in that country (Sandwick, 1987, p.67).
South Africa lacks proper laws to regulate the lending sector of the economy, which has made the national treasury to consider amending the existing laws so that they can control this trend or else the economy will be at risk. The Banking Association and The Treasury have highlighted inappropriate relief measures, loan affordability assessments and inappropriate relief measures as some of the major challenges in the country’s credit channels (United Nations, 2001, p.87). On the other end The Reserve bank has discovered major loopholes in the debt collection process and is coming up with laws that will ensure the debt collection process is streamlined for improved economic development.
- Benefits
Both the GCC and South Africa will benefit largely from the cooperation between them.
South Africa will get numerous benefits from the GCC investments in its economy. Sager (2010) argues that the emerging Asian economies are the driving forces behind the growth of the economies of various nations, and the whole world economy in general, Sager is the Chairman of the Gulf Research Center. The GCC has gained prominence to become a vital economic bloc, which has increased the volume of world economies. He further argues that the new source of growth in Africa is the combined strengths of Africa and GCC cannot be understated (Sandwick, 1987 p.58).
South Africa will experience economic growth and by establishing links with the GCC in various sectors of the economy. The country will get a stable market for its minerals, agricultural products and metals while it will get various forms of investment form the GCC, these include oil, heavy manufacturing products, and energy investments. This new symbiosis will offer various comparative advantages between South Africa and the GCC; the resulting economic interdependence will be good for the growth of the South African economy (Edwards, 2009, p.49).
GCC will get a lot of revenue from its operations in South Africa because this is the major economy in Africa. The South African workforce is well trained and relatively cheap than the Asian workforce while the large South African population will provide a stable market for their product. On the other end since South Africa is the largest economy in Africa, the GCC will benefit from the well-established trade links between South Africa and the other African countries (Sager, 2010, p.36). South Africa has a well-developed infrastructure, which makes the process of production more effective and cheaper by initiating the transportation of, people, goods, and services as well as the transfer of information. All this factors will enable the GCC to generate profits while operating in South Africa.
- Conclusion
The GCC - South Africa trade is growing steadily where both the involved parties are benefiting largely from the cooperation between them. The trade between GCC and South Africa is growing steadily with the GCC sates getting more benefits from the cooperation than South Africa, with this in mind South Africa has come out with various legislations to enable them gain more from foreign investments and protect the local industries. This report has highlighted discussed and evaluated all the issues arising from the GCC cooperation with the GCC. All the factors that promote the cooperation have been highlighted and their strengths and weaknesses evaluated. The necessary adjustments that are needed to improve the cooperation have been highlighted as well. In addition, GCC countries invest in South Africa because it is well endowed with minerals, it has a large pool of well-trained manpower, has well developed infrastructure to which make the production process easier, has a well-established trade network within Africa, and above all has established good social, economic and political ties with various nations in the world and this enables the GCC to market their products all over the world with ease.
References
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Edwards L., Cassim R., and seventer D.V., (2009). Trade policy in South Africa. Retrieved from http://www.tulane.edu/~dnelson/PEBricsConf/Edwards%20SA%20Trade%20Policy.pdf
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United Nations, (2001). Economic diversification in the oil-producing countries: the case of the Gulf Cooperation Council economies. New York: University of Michigan.
World Economic Forum (2012). The Global Competitiveneee Report 2012 - 2013. Retrieved from http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf
