Country outlook South Africa - CaixaBank Research
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Country outlook South Africa
Closing date of this issue: March 2020
Form of Government: Parliamentary Republic
South Africa Capital: Pretoria, Cape Town, Bloemfontein
Official language: English, Afrikaans and nine languages from
the Bantu family (primarily Zulu and Xhosa)
Population: 59 million inhabitants (2019)
Currency: Rand (ZAR)
Exchange rate: 1 EUR = 17.28 ZAR (29/02/2020)
1 USD = 15.73 ZAR (29/02/2020)
GDP: $358 billion (0.6% of world GDP)
GDP per capita: $6,100 ($13,754 purchasing power parity)
Ease of doing business: 84th in the world out of 190
according to the World Bank (Doing Business)
Religion: Catholic: 88%
Country Outlook is a publication that is produced jointly by CaixaBank Research and BPI Research (UEEF) and it contains information and opinions from sources that we consider to be reliable. This
document is for information purposes only, so CaixaBank and BPI are not liable in any way for any use that may be made of it. The opinions and estimates are provided by CaixaBank Research and BPI and
may be changed without prior notice.South Africa
PIB. Variación interanual (%)
Economic GDP. Year-on-year change (%) CPI. Year-on-year change (%)
forecast 3.0
Forecast
7
Forecast
2.5
6
2.0
1.5 5
5.2 5.0
1.0
1.0 0.8
0.2 4
0.5 4.1
0.0 3
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14
3,0
• The economy has performed poorly in the last •2,5
Inflation in 2019 reached its lowest level since
years, reflecting governance problems and 2005 and stood 7within the South African
2,0
structural rigidities (weak institutional Reserve Bank’s 6 range (3%-6%). This
1,5
framework, policy uncertainty and power performance was due to weak economic
1,0
cuts), contributing to the deterioration of activity, which offset
0,5 5 the impact from the
business confidence and weak private increase in energy prices. For 2020-21, we are
0,0
investment. For 2020-21, we are expecting a 4
expecting an increase in inflation to levels
slight recovery, but with significant risks: around 5%, in line with the recovery of the
3
public sector problems, slower implementation economy and looser financial conditions. In
of reforms, the deterioration of business addition, the enlarged bill of imported food
sentiment, the evolution of commodity prices, (due to the depreciation of the Rand) and
trade tensions, the impacts of coronavirus and fuel, electricity and water prices will probably
of downgrading to a non-investment grade put upwards pressure on the evolution of
rating by Moody’s. domestic prices.
Economic Benchmark interest rate (%)
policy and exchange rate (ZAR/USD) Fiscal balance (% GDP)
Forecast Forecast
8 16 0
15.1 15.2
14.4
14 -2
6
6.6 6.2 6.1
12
4 -4
EE. UU. Eurozona Emergentes
10
2Fuente: CaixaBank Research, a partir de datos deCitigroup y Bloomberg. 8 -6
-6.1
-6.7 -6.8
6 -8
0
Average Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14 2010-14
Benchmark interest rate (left scale)
Exchange rate (right scale)
Note: FYI the Central Bank just cut the depo rate.
Current account (% GDP) Public debt (% GDP)
Forecast 0
Forecast
0 80 69.6
65.3 -2
8 -1 60.8
60
-2 16 -4
6
-3.0 40
-3 14 -6
4 -3.7 -3.7
-4 12 20
-8
2
-5 10 0
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
0 2010-14 8 2010-14
6
• On monetary policy, after the increase in the • The government’s objective to boost growth
repo rate to 6.75% in November 2018 to control while adjusting its fiscal position will prove
the evolution of prices, the South African increasingly difficult, given the context of
Reserve Bank (SARB) decreased the reference subdued economic growth and slow reform
rate by 25 basis points in mid-2019, to 6.5%, and implementation.
0 Moreover,80 financial problems
again to 6.25% at the beginning of 2020. SARB in SOEs, especially
-1 the public utility company
should continue lowering the repo rate in 2020- Eskom, are -2 expected to60 continue to drain
21, given that inflation expectations remain public funds
-3 and further 40
contribute to the
relatively contained and the economic recovery fiscal slippage.
-4 As a result, without corrective
is fragile. It is unlikely that, after the Moody’s measures,-5 the country will 20 continue to face
downgrading, the SARB would react by increasing-6 fiscal deficits and public debt ratios.
tightening the repo rate, but if the pressure on The context will be even0 more difficult after
the Rand is intense then a “wait and see” phase Moody’s has downgrade the rating to non-
(maybe accompanied with selective intervention) investment grade.
is probable.South Africa
Financial Private credit (% GDP) Gross external debt (% GDP)
conditions Forecast Forecast
74 70
72 60 63.1
60.6
71.3 50 56.4
70
40
69.8
68 30
68.3
20
66
10
64 0
Average 2015 2016 2017 2018 2019 2020 2021 Average 2015 2016 2017 2018 2019 2020 2021
2010-14 2010-14
• The country displays a healthy financial and • The current account deficit is expected to
banking sector, despite the decrease in bank widen over 2020-2021, in part due to the
revenues. The system is facing some difficulties74
economy’s low external
70 competitiveness. This
in increasing its profitability, and asset quality
72 will create a challenging
60 environment for
worsened due to the constraints in the 70 South Africa, given
50 its high dependence on
construction sector. However, the bank’s 40 finance the external deficit.
capital inflows to
68
exposure to Eskom and the government is Additionally, a 30
significant share of external
20
limited. 66 debt is denominated in domestic currency,
10
64 which makes the 0country more vulnerable to a
currency shock, an event that is non-negligible
if we take into account the very likely rating
downgrading by Moody´s.
Political •
The ruling African National Congress (ANC) • However, the relatively comfortable majority
situation won the 2019 elections and President Cyril gives President Ramaphosa the legitimacy to
Ramaphosa was subsequently reappointed. advance the implementation of his reform
Nevertheless, the ANC won the election with a agenda, focused on raising potential growth
smaller majority of 57.5% of the vote, down (through reforms aimed at lifting productivity,
from the 62.5% obtained in the 2014 election. improving competitiveness, and attracting
This was also ANC’s worst result since the end investment), tackling the rising government
of apartheid in 1994. Several corruption debt, and rebuilding South Africa’s institutions.
scandals, high levels of unemployment and Nevertheless, it is far from certain whether he
persistent racial inequality in the access to will manage to implement this policy agenda
land and housing are behind the erosion of its in full, given that opposing factions within the
electorate support. ANC will continue to act as a brake. In this
context, losing the investment grade rating
after the downgrading by Moody’s should be
an incentive for a stronger reform impulse.
Long-term GDP growth (%) Population (milions of inhabitants)
outlook 4 66
64.8
64
3
62
1.7
2 60
1.5
57.9
58
1
56
0 54
Average 2009 -18 Average 2019 -29 2018 2028
The South African economy is expected to • The main problems faced by the country include:
•
grow near to but below 2% per year in the a very high incidence of AIDS; widespread
long run. The country’s ability to tackle major poverty; an undeveloped educational system; an
socioeconomic challenges in the upcoming inefficient labour market (unemployment
years will be the main determinant of its long- ≈30%); leveraged state-owned enterprises;
term growth. However, it is likely that such weakened institutions and high levels of
fundamental shifts cannot be accomplished corruption.
without affecting some political elites.South Africa
Country Last CDS* 5 years (basis points)
Rating Outlook
risk changed
195
192.5
190
BB 23/03/18 Negative
185
178.0
Ba1 27/03/20 Negative 180
175
170
BB+ 07/04/17 Negative
Average 2016-19 29/02/2020
Indicates that the country has an “investment grade”. *Credit default swap: measurement of country risk that reflects
the cost of ensuring the non-payment of the sovereign bond.
Indicates that the country does not have an “investment grade”.
Risks SHORT-TERM LONG-TERM
• Public finance imbalances - + • Dependence on mining
industry - +
• Impact of coronavirus
on the world economy - + • High inequality - +
• Greater impact of rating • Inefficient labour market - +
downgrading - + • Corruption and weak
institutional framework - +
• Policy uncertainty and slow
implementation of reforms - +
• Financial problems in SOEs - +
• Weak business confidence - +
Business STRENGTHS WEAKNESSES
environment • Healthy and developed financial • High inequality and poverty.
and banking sector. • Shortage of infrastructures.
• Market size. • Inefficient labour market.
• Use of technological innovation. • Weak educational system.
• Corruption and weak institutions.
• Power outages.
Main sectors • Mining industry, financial sector, tourism, transport and logistics.
CIBI | CaixaBank POSITION PILLARS SUBPILLARS
Index for Business IN COUNTRY
Internationalisation 1. Accessibility
RANKING 100
Top
Easiness of operating
80
44 5. Stability
60
42.4
40
2. Ease of
a business
67 20
55.2 operating Infrastructures
43.9
0 Similar tastes to Spain
53.3 51.2
Bottom
Purchasing Power
4. Financial environment 3. Commercial
and innovation attractiveness
Macroeconomic stability
Distance, communications,
— Africa — South Africa and agreements with Spain
(Min. 0 - Max. 100)
100
80
60
40
20
Source: CaixaBank Research, based on data from Bloomberg, IMF, OECD, Oxford Economics and Thomson Reuters Datastream.South Africa
Taxation There are two types of tax on the earnings progressive tax in line with their profits.
obtained by the different companies Earnings below ZAR 70,700 do not have to
operating in South Africa, depending on pay any tax; companies with earnings
their size. The general rate for large between ZAR 70,701 and ZAR 365,000 are
companies is set at 28%. In the case of trust levied at 7%; earnings from ZAR 365,001 to
companies the rate rises to 40%, although 550,000 ZAR at 21%; and all companies
special trusts are charged tax at a rate of exceeding ZAR 550,001 pay the general rate
between 18% and 40%. There is also a tax of 28%. For micro-enterprises (turnover
on long-term insurance company funds that below one million ZAR), there is a sliding tax
varies from 28% to 30%. Companies scale different from the one for small firms:
distributing profits after tax as dividends are up to ZAR 150,000, 0%; from ZAR 150,001 to
subject to a withholding tax of 15% on the ZAR 300,000, 1%; from ZAR 300,001 to ZAR
dividend paid out. Smaller companies (small 500,000, 2%; up to ZAR 750,000, 4%, and
business corporations, SBC) whose turnover earnings above ZAR 750,001, 6%.
is less than ZAR 14 million are subject to a
Investment In South Africa, foreign direct investment for sectors that continue to absorb funds from
2019 was 1.137 billion dollars. This inflow of other countries are: financial services, mining,
investment is expected to continue falling. The manufacturing, logistics and trade.
Establishment LOCAL COMPANY
The main forms of companies that exist in companies (Pty. Ltd.), the number of
South Africa are: public companies (Ltd.) or shareholders must be between one and 50.
private companies (Pty. Ltd.), commercial Neither of these two forms of company require
partnerships, sole owner, trust companies and a minimum capital in order to be established.
branches of foreign firms. The procedures to Collaborations or partnershipsse can be
set up a company are relatively simple. So- formed between non-resident shareholders or
called public companies (Ltd.) are similar to with South African resident shareholders, but
limited liability companies and must have a there must be at least two and a maximum of
minimum of seven shareholders, with no 20; these shareholders are fully liable for the
maximum limit. In the case of private company’s debts.
BRANCH
To set up a branch of a foreign firm, it must be Commission of South Africa within the first 20
registered as an external company with the days after starting commercial activity.
Companies and Intellectual Properties
Alliances FREE TRADE ZONE
strategic In South Africa there are “industrial the competitiveness of South African products.
development zones”, with a total of five These five zones are: East London, Coega,
throughout the country. These are located close Richards Bay, Mafikeng and OR Tambo airport.
to airports or ports and are aimed at boosting
JOINT VENTURE
There are two ways of setting up a joint be set up via a partnership agreement specifying
venture in South Africa according to South all the basic aspects of the association. The
African law: non-equity joint ventures and latter case is more like a joint company and is an
equity joint ventures. The former is more like a independent commercial enterprise. It must be
collaboration between two or more firms and registered in the country in accordance with
the resulting company does not have its own current legislation and comes under the
legal personality. This kind of association must Company Act as if it were a local firm.
Customs FREE TRADE AGREEMENTS
conditions The main treaties signed by South Africa and Other agreements:
the rest of the world are as follows: • With the United States: Trade and Investment
• With the EU: Trade, Development and Framework Agreement (TIFA) and Trade,
Cooperation Agreement (TDCA). Investment and Development Cooperation
• With Switzerland, Norway, Liechtenstein and Agreement (TIDCA).
Iceland: EFTA-SACU FTA. Negotiations are currently under way with
Preferential trade agreements: India for a Preferential Trade Agreement and a
• With Argentina, Brazil, Paraguay, Uruguay tripartite Free Trade Treaty: SADC-EAC-
and Zimbabwe. COMESA.South Africa
Customs INDUSTRIAL DEVELOPMENT ZONE
conditions The benefits of these zones centre on: Customs exported; easy access to administrative
(continuation) security (Customs Controlled Area), making information to carry out investment projects;
customs services and procedures much easier, better quality infrastructures than in other
being able to import without VAT machinery zones of the country, and access to the South
and commodities if these are to be used to African government’s incentive scheme.
manufacture products that are going to be
GENERALISED SYSTEM OF PREFERENCES (GSP)
South Africa no longer forms part, as a beneficiary, of the European Union’s GSP, as of 1 January
2014 when the new system was approved, which will last until 2024.
Negotiations BUSINESS CULTURE
and protocol South Africa is a country affected by its history. advisable to use a local agent-distributor, and
International isolation as rejection to apartheid once initial contact has been established, you
has produced businesspeople who are reluctant must be constant. Negotiations are usually
to do business with foreign firms, so their carried out in a cordial atmosphere and pressure
character and culture must therefore be taken should be avoided.
into account. To begin commercial relations, it is
Top fairs • IFEA. • Africa’s Big Seven.
• Decorex Urban. • Africa Investment Forum
• Africa Energy.
Websites • Chamber of Commerce: www.sacci.org.za
of interest • Investment Incentives in South Africa: www.investmentincentives.co.za
• Southern African Customs Union: www.sacu.int
• Industrial Development Corporation: www.idc.co.za
• Information for trade and investment: www.tradeinvestsa.co.za
Payment MEANS OF COLLECTION
and charging It is advisable to always ensure payments are often used as the bank can help to manage all
methods received by using the usual international the commercial documentation procedures; at
methods, primarily documentary credit, which sight (CAD – Cash against Documents) or term
offers more guarantees. This must be carried (DA – Delivery against Acceptance). Further on,
out in the initial phases of international when there is more trust, international transfers
commercial relations to effectively ensure can be used via SWIFT. The managing and
payment collection options on the part of the factoring of invoices is also commonly done by
company. Documentary remittances are also international financial institutions.
MEANS OF PAYMENT
Documentary credit is the most secure means of payment for both parties. It is customary in almost
all international trade transactions.
EXCHANGE RATE INSURANCE
International transactions are affected by currency whose risk can be hedged through an
market fluctuations, and it is therefore advisable exchange insurance and which is listed in
to hedge this kind of transaction against international exchange markets.
exchange rate risk. The South Africa Rand is a
CaixaBank At the South African office, in addition to and transactions, as well as accompanying
in the country facilitating close collaboration with local companies that wish to establish themselves in
financial institutions, the main objective of the the country with investments and deployment
representative office is to support CaixaBank projects.
customers in the country, both in foreign tradeCaixaBank Bogotá (Colombia)
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South Africa representative office
13 Fredman Drive
Fredman Towers, 9th floor, Sandton 2146
Johannesburg
South Africa
Director: Jose María Segurola
Tel: +27 (0) 724172909You can also read
