Updated: Oct 13, 2019
In times when the South African media is filled with stories of corrupt government officials, increasing crime rates, Dollar/Rand exchange rates that make one’s eyes water and the impending doom of how the amendment of Section 25 of the constitution (expropriation without compensation) is going to pan out it is difficult to think about how we can be positive at all about the economy we live in.
However, before throwing away plans to start a business in Mzansi and flee to ‘stable’ countries like the UK (cold and wet), America (hurricanes), or Australia (every animal trying to poison you) we need to be logical and brush past the negative headlines. Remember, big media makes its money on negativity!
All it takes is a little bit of research into objective, globally recognised reports and statistics to actually get a better idea of what the South African economy is all about. It is interesting to note that there is indeed plenty to be happy about!
We at Funding Connection have had a look at some top 20 facts of the South African economy. Sources ranging from the World Economic Forum, SA Good News, World Bank, Eighty 20, and The Economist have plenty of positive facts about the South African economy. Below are our favourite top 21 pickings:
Domestic inflation: The highest inflation rate ever recorded in South Africa was in January 1986, at 20.7%. Some of you may remember those bad days where each wag of P.W. Botha’s finger put an extra percentile to the inflation rate. That year the average inflation rate was 18.7%. During the 2008 financial crisis, South Africa’s inflation rate was 11.5%. In July 2018, the latest official monthly inflation rate was 5.1%. With inflation, this low, production cost increases can be expected to remain low, despite the large hikes in the petrol price. This reduces the perceived risk of starting a business in South Africa. Compared to Venezuela (200 000% inflation rate) we are not doing too badly!
Fast growing economy: Harvard’s Centre for International Development (CID) has estimated that the three fastest-growing economies until 2026 will be India, Uganda, and Egypt, growing at 7.89%, 7.46%, and 6.63% respectively. South Africa is projected to grow at 4.9% annually until 2026. This is an indication that the socio-political sphere will eventually stabilise and thus there is no reason to fear to have to start a new business.
National Budget: According to the 2017 Open Budget Index, South Africa was ranked joint first with New Zealand for having the most transparent budget in the world, with both countries scoring 89 out of a possible 100 points. The United States and Brazil are tied 7th with 77 points, while China is near the bottom of the list with 13 points. This level of transparency provides a positive business environment for investors and will attract either local or Foreign Direct Investment into the country to invest in new ventures.
Business competition: In the 2017/2018 World Economic Forum (WEF) Global Competitiveness report, South Africa was ranked 61st out of 137 economies. This is the country’s lowest ranking ever. High levels of competition improves a country’s performance, increases business opportunities and reduces the costs of goods and services. This is the optimum environment for starting a new venture.
Wine: South Africa is the seventh largest wine producer in the world, producing 3.9% of the world’s wine. This attracts wine connoisseurs and creates a desirable flow of tourism for start-up hospitality businesses.
High-Net-Worth Individuals: The Africa Wealth Report includes data on high net worth individuals (HNWIs), defined as individuals with net assets of US$1 million upwards. In 2016, South Africa was home to the most HNWIs in Africa, having an estimated 40,400 individuals. This is followed by Egypt (around 18,100 HNWIs) and Nigeria (around 12,300 HNWIs). Having a large group of HNWIs is an indication of a positive business environment, and, despite what we see in the news, South Africans are making money. So why can’t you?
Property Prices: According to the Economist, South Africa ranks 4th on the percentage improvement to property prices 2015 from a year earlier. It was found that there was a 9.7% improvement. Ireland came first at 16%. When 2015 is compared with 2009 South Africa ranks 6th at a 40% improvement, with Brazil being first at 155%. For those wanting to start or increase their property portfolio, South Africa is the right place to be. A R5 million luxury apartment on the KZN North Coast with sea views surely beats a R5 million cupboard in London.
Currency value: According to the Economist’s BIG MAC Index of 2016, South Africa ranks 5th in the undervaluation of its currency with a 55% under evaluation against the US$. This is great for those wanting to enter the export market!
Easy business conditions: In the World Bank’s 2017 Doing Business Report, South Africa was ranked 74 out of 190 countries. The ease of doing business not only brings investment into the country, but creates a desirable environment in starting a business. It is relatively easier to start a new venture in South Africa than other economies in the world.
Tax revenue: Tax Revenue has increased from R100 billion in 1994 to R1,4 trillion in 2016 in South Africa. Not only does this indicate the efficiency of tax collection, but also a broadening tax base in South Africa. Essentially this means that an accessible target market for start-ups has increased and should continue to increase.
National debt: South Africa’s debt to GDP ratio is 48%. Compared to the USA (100%), Japan (200%), and the UK (90%) South Africa does not do too badly in this department. The World Bank recommends a ratio of 60%. With reasonable debt levels the likelihood that the government is able to repay its debt is high and that its fiscal policy is sustainable. This is conducive for starting a business in South Africa, knowing that the government will still be able to continue spending and thus stimulate the economy.
Stock market: The South African stock market is ranked 3rd in terms of regulation in the 2017 Global Competitive Report. Tight regulation prevents poor decisions, such as those that caused the financial crises in 2008. It’s comforting knowing that greed in the JSE will unlikely occur to an extent that the economy plummets and affects your new business.
Mining: South Africa is still a big player in mining. It is ranked 1st in Platinum output, 2nd in Palladium output, 5th in Gold output, and 7th in Coal output. Mining is what made South Africa and there is opportunity to start value-adding businesses that can bring huge export potential. Think of diamond cutting, and jewellery manufacturing. This is an untapped market!
Credit: South Africa is ranked 2nd out of 183 countries for good practice in protecting both borrowers and lenders when obtaining credit for business, according to the World Bank Doing Business Report. This is essential when applying for loans for your start-up.
Gender equality: According to WEF’s Global Gender Gap Report 2015, South Africa is ranked 17th out of a total of 145 economies, ahead of many developed nations, including, the UK (18th), United States (28), Canada (30), Australia (36) and France (57). For women wanting to start a new venture, South Africa provides a progressive business environment, ensuring that women reach financial success!
Stock market II: According to the Economist (2016), the JSE ranks 18th in terms of “largest market capitalisation” out of 140 countries. Even during these difficult economic circumstances it is interesting to note that South African companies are still deemed valuable and are resilient during tough times. This resilience indicates that one can still start-up a dream business in these conditions.
Property II: South Africa is ranked 23rd out of 81 countries in the Jones Lang LaSalle’s “World’s most Transparent Real Estate Markets” placing it well ahead of the other BRICS countries. “Robust governance, strong auditing and a developed legal system” were cited as the main reasons for leading the developing markets in this rating. Another indicator that investing in property in South Africa is a smart move.
US$ reserves: When it comes to holding the glorified US$, South Africa ranks 32nd out of 165 countries in terms of the size of its US$ reserves. South Africa is ranked ahead of Australia, Sweden and Chile. The USA ranks 17th, the UK 23rd, China is ranked 1. The size of a country’s US$ reserves is a reflection of its export market. South Africa clearly has a favourable export market. Again, a good market to be in for any start-up.
Agriculture: South Africa ranks in the top 20 countries for agricultural output. South Africa is one of the most fertile countries in the world and so many doors are open to start an agricultural start-up.
Exports: South Africa ranks 37th out of 192 countries in the Economist’s “Biggest Exporters” Index 2016. This is clearly the market aspiring South African business owners need to get into!
Exchange Rate: The changes of the exchange rate from US$ to South African Rand will bring challenges to importers but offers a huge opportunity to export South African products with a competitive price. It also encourages South African to source products in South Africa and will increase the production here.