PWC South Africa

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South Africa

South Africa has the largest economy in Africa and is


the most developed in sub-Saharan Africa. As a member
Best performer
of the BRICS countries, an association of five major in Africa for trade
emerging market economies, South Africa is recognised facilitation logistics

as a key emerging market along with other members of


the group Brazil, Russia, India and China.i Key factors supporting South Africa’s
position are its well-developed
financial, legal, communications and
transport sectors, as well as an open
trade policy and a comparatively
strong domestic market. South
Zimbabwe Africa is the best performer in Africa
Botswana ay
Hi
gh
w
when it comes to trade facilitation
ir o
Mozambique
wn-
Ca logistics and among the best in
Tripoli-Windhoek-Cap

To
Ca
pe terms of transport infrastructure.
However, there are some obstacles,
Pretoria
O.R. Tambo Int.
Airport
including rigid labour policies that
Namibia eMalahleni
diminish growth prospects to a
e Town

Gautrain
Johannesburg mediocre level. Furthermore, South
Gauteng Freeway Ermelo
Improvement Project Swaziland Africa faces the triple challenge of
Walvis
Bay
poverty, unemployment and income
Sishen inequality.
N3

King Shaka Richards Bay


Int. Airport Port of
Durban
Richards To address these weaknesses
Bay
Lesotho cabinet has officially endorsed a
Port of programme of action, the National
N1

Durban
Development Plan (NDP). This plan
represents the most comprehensive
and constructive attempt at
N2

Saldanha providing recommendations for


Port of redressing structural imbalances
Saldanha Cape Town
Int. Airport Port of Ngqura in the economy. However, there
Cape Town Port Elizabeth
has been a loss of momentum with
Mossel Port of Port Elizabeth
Bay the implementation of the NDP
Port of Cape Town
due to political developments and
industrial unrest.

These bubbles represent the cities of South Africa and the size of the bubbles indicates the population size of the city

Airport Port Future Airport Future Port Future Railway Future Road Railway Road

PwC 67
Relatively low More than Average GDP
tariff rates are growth lagging
supportive of 75% of peers and projected
trade activity manufacturing
firms export to
at 3% annually
until 2017
African countries
South Africa

Provided it can get to grips with African Customs Union (SACU). This The country is acknowledged for its
fundamental issues undermining provides significant regional trade resilient and stable banking sector.
business confidence, notably policy opportunities. The private business regulatory
uncertainty, South Africa has the climate is also regarded as one of the
potential to establish itself as a The rest of Africa is a prime most conducive in Africa.
top investment destination. As an export destination for South
important gateway to the African African manufacturers, according While the general governance
continent, it stands to benefit vastly to the latest survey by the environment is robust, corruption
from the extraordinary economic Manufacturing Circle, which is an issue, though not endemic.
growth in neighbouring countries. showed that more than 75% There are a number of initiatives and
of manufacturing firms were structures in place to fight it. This
Economic exporting to Africa.iii means that the situation is better
than in most other African countries.
performance South Africa is endowed with
abundant natural resources. It is The tax and financial regulatory
the world’s largest producer and climate is robust, while the tax
South Africa’s economic
exporter of gold, chromium and regime is progressive and includes a
growth correlates with the platinum – 90% of the world’s global number of incentives for non-South
global economy. platinum mineral resources are Africans.
estimated to be in South Africa’s
South Africa has an open economy, Bushveld Complex.iv South Africa has long been
with trade activity making up a struggling with very high crime
significant component of domestic Structural constraints have rates, which not only pose a threat
economic activity. Exports and weighed on South Africa’s growth to individuals, but also impose
imports accounting for 29% and momentum. Average GDP growth considerable costs on business
30% of domestic GDP respectively. between 2010 and 2012 registered operations in the country. The
a tepid 3.0%, which compares impact of high levels of crime on
Exports are dominated by minerals, unfavourably with that of its sub- business is clear, with ‘crime and
but there has also been an increase Saharan African peers. The economy theft’ frequently cited as one of
in manufacturing exports in recent appears incapable of extricating the most problematic issues facing
years.ii There has been much itself from a rut of suboptimal business in South Africa.
debate focused on recent losses in growth which is projected to be
exports as a result of more intense around 3% annually between 2012 Labour
competition from the east and the and 2017.
impact of high labour costs in South
Africa. South African imports, on the Business environment An inadequate education
other hand, consist mainly of capital system, skills shortages and
and intermediate goods. Tariff high unemployment are
liberalisation undertaken since A fairly favourable business significant challenges.
the early 1990s has been a major environment supports South
contributor to South Africa’s strong Africa’s status as a regional
economic growth. Today relatively The literacy rate in South Africa
economic powerhouse. is fairly high at 89%, and the
low tariff rates are supportive of
trade activity. percentage of the population with at
South Africa has one of the most least a secondary education is also
Trade policy is underpinned by sophisticated business environments very robust at 70.4%. Yet, the quality
deepening functional integration in sub-Saharan Africa and strong of South Africa’s education system
in the region, on the continent, state institutions, which are key to rates poorly by global standards and
and with emerging economies, its status as a regional economic remains a considerable obstacle
particularly the BRIC nations. powerhouse. Importantly, the low to the country’s attractiveness as
South Africa is a member of the cost of starting a business, estimated an investment destination. South
Southern African Development at 0.3% of per capita income, means Africa’s labour force is fairly well-
Community (SADC) and Southern that entrepreneurs can respond educated and skilled in comparison
quickly to developing opportunities. to many other sub-Saharan
countries.

68 Africa gearing up
The ratio of State-owned power Services and
minimum wage to utility is expanding manufacturing
value added is capacity that will have overtaken
3x the average
add 17GW by 2019 agriculture
and mining in
for other BRICS contribution to GDP
countries

Energy
One of the biggest obstacles to Energy and utilities infrastructure
growth in the country is putting its Energy capacity has become has historically accounted for a
human capital to work. The labour a government priority small portion of total infrastructure
market is relatively inflexible and following the power crisis industry value. However, this has
lacks a robust labour relations that began in late 2007. changed since the power crisis,
framework. According to the World with energy and utilities having
Economic Forum, although South After years of underfunding, South accounted for the largest portion
Africa has very low non-wage labour Africa’s power sector reached a crisis since 2008.
costs (such as social insurance point at the beginning of 2008.
expenditure), the country has some The state-owned power utility,
Power shortages and steep tariff
of the most excessively rigid hiring Eskom, is busy with a capacity
increases have seriously damaged
and firing practices, as well as expansion programme that will
South Africa’s economy, as well as its
very low flexibility with regard to cost 337 billion Rand (about
appeal to foreign investors.vi
wage determination. The ratio of US$33 billion) and add 17GW of
minimum wage to value added is Despite there being two large-scale new generating capacity to the
almost three times the average for 4 800MW coal-fired power stations national grid by 2019.
other BRICS countries.v currently under construction as well
as a number of renewable energy Consumer market
projects, energy supply remains a
major risk factor in South Africa.
Growth in purchasing power
opens new opportunities in
the consumer market.

Key indicators South Africa’s economy was


originally based on agriculture
and mining. But this has
Population size (million, 2012) 51.2
changed over the years with
Population growth (2012-2020, avg p.a.) 0.3% services and manufacturing now
contributing the greatest share
GDP (US$ billion, 2012) 384.3
to GDP. The country’s economy
GDP growth forecast 2012-2017 (avg, y/y rate) 3.0% is reasonably diversified with key
economic sectors including mining,
GDP per capita (US$, 2012) 7 525
agriculture and fishery, vehicle
Global competitiveness index 2012 (global rank/144 52 (4.37) manufacturing and assembly, food
(score 1-7)) processing, clothing and textiles,
Corp. Income Tax (CIT) rate 28.0% telecommunication, energy,
financial and business services, real
Top exports Platinum unwrought estate, tourism, transportation, and
or in powder form
wholesale and retail trade.
(7.6%); Gold (incl. gold
plated with platinum), in
unwrought forms (excl. South Africa’s per capita GDP is high
powder) (6.9%); Iron ores due to the sizeable and developed
& concentrates, non- nature of its economy. Per capita
agglomerated GDP (based on purchasing power
Logistics Performance Index 2012 (global rank/155 23 (3.67) parity) is US$11 375, compared to
(score 1-5)) the average of US$2 476 for sub-
Saharan Africa. Real GDP per capita
Global Competitiveness Index 2012 – Infrastructure 63 (4.13)
is expected to more than double in
(global rank/144 (score 1-7))
US-dollar terms over the coming
10 years, which will further increase

PwC 69
Physical infrastructure Government has budgeted
received substantial expenditure of
boost hosting 2010 FIFA
World Cup US$80bn
over 3 years to boost
infrastructure
South Africa

the purchasing power of consumers On the African continent, South Despite its impressive credentials,
and drive forward sectors such as Africa is by far the best performer, South Africa’s transport
wholesale and retail. Additionally, followed by Tunisia (41st) and infrastructure also faces some
South Africa’s rising black middle Morocco (50th). challenges and it is no longer the
class will play a determining role only gateway to Africa. Because of
in further shifting the country’s increasing infrastructure bottlenecks
Transport hampering growth, investment has
economy from an export-oriented to
a more consumption-based one. begun to bypass South Africa.
The need to move goods to
The continued absence of an
Logistics inland centres of commerce
intermodal solution – which usually
has created a transport- provides the most efficient transport
Logistics Performance Index intensive domestic economy. solution – has led to a significant
increase in South Africa’s truck fleet
Customs The transport sector is a key in an attempt to address freight
5

4
contributor to South Africa’s owners’ door-to-door needs for
3 competitiveness in global reliability and performance.
Timeliness Infrastructure
2 markets. The country’s transport
1
0
infrastructure is modern and among Infrastructure funding for roads
the most developed in Africa. Its is largely provided by South
physical infrastructure received Africa’s national government.
Tracking International a substantial boost from projects Parastatal companies have
and tracing shipments
associated with the 2010 FIFA provided funding for freight rail
World Cup. and port infrastructure and they
Logistics quality and competence
also undertake infrastructure
South Africa Best performer internationally The air and rail networks are the development in other sectors,
(Singapore)
largest on the continent, and the while other initiatives include the
Source: World Bank
major roads are in good condition. government’s Expanded Public
South African port efficiency has Works Programme, and public-
improved considerably as a result private partnerships.
South Africa’s logistics of investment in new assets such
performance outperforms as ship-to-shore cranes and other For the 2012/2013 fiscal year
that of its regional peers. supporting handling equipment. and subsequent three fiscal years,
the South African Government
However, tariffs have remained high has adopted an aggressive new
The efficiency of South Africa’s in comparison to global benchmarks. National Infrastructure Plan. It has
customs clearance procedures (i.e. A re-positioning of South African a budgeted expenditure of R827
speed, simplicity and predictability ports and a reduction in tariffs could billion (about US$80 billion) over
of formalities) is generally attract further transshipment traffic the three years, beginning in the
considerably better than its to and from Europe, the Americas, 2013/2014 fiscal year, to boost
neighbours’ and is amongst the best Asia, Australasia and both coasts of both existing and new major
in the region. Africa. infrastructure projects.vii
Globally, South Africa’s logistics Some 35.6% of the country’s GDP is
performance is also very good with concentrated in Gauteng, which lies
an overall ranking of 23rd out of 1 400m above sea level and more
155 countries in the 2012 Logistics than 500km from the nearest local
Performance Index. South Africa port at Durban. This has resulted in
made progress between 2010 and very long freight corridors.
2012, improving by five ranks and
now ranks between Norway and
Italy.

70 Africa gearing up
96% of Port of Durban is
Africa’s busiest – No. 1 South
exports are making it a suitable African Airways, the
conveyed by sea candidate for national flag carrier
establishing a mega was voted best airline in
port Africa for 10th year in a
row

Ports Air transport


significant investment in ship-to- South Africa has an excellent
Africa’s busiest port, Durban, shore cranes and straddle carriers infrastructure of airports, with
will be extended by the area at Durban, South Africa remains airports in all major cities.
of an old airport. behind its global competitors These include the three main
regarding port productivity. international gateways of OR Tambo
South African ports are generally in Johannesburg with a capacity
considered to be the gateway to Comparatively high tariffs payable of 21 million passengers a year,
southern Africa. Approximately by vessels calling at South African Cape Town International Airport
96% of the country’s exports ports have also contributed to lower (14.5 million) and King Shaka
are conveyed by sea, and its volumes and shorter port stay times. International Airport in Durban (7.5
commercial ports are the conduits Although port capacity is not the million).
for trade between South Africa and biggest constraint in operations,
its southern African neighbours as operational efficiencies, port Capacity is not a major issue
well as hubs for traffic to and from charges, customs procedures and within the South African air
Europe, Asia, the Americas and the inland linkages all serve to constrain transport system and the state
east and west coasts of Africa. port performance. of infrastructure and associated
services is good. In fact, over-
South Africa has eight main Port infrastructure development capacity in the airport sector has
commercial ports. Some focus is currently being prioritised, resulted in airlines paying higher
almost exclusively on bulk although investment is also airport charges. Airports have been
commodities, while others serve required to enhance performance significantly upgraded in recent
one major industry only, such as the and efficiencies. Transnet – South years, mainly in preparation for the
offshore oil industry in the case of Africa’s state-owned transport 2010 FIFA World Cup.
Mossel Bay. Richards Bay has the company and main operator of
world’s largest bulk coal terminal. ports, railway and pipelines – is South African Airways (SAA) is
Durban was previously the largest focused on expanding handling the national flag-carrier which
container handling facility in the capacity at the main container ports continues to hold considerable
southern hemisphere (overtaken in of Durban, Cape Town and Ngqura. aviation market share in Southern
recent years by Jakarta, Indonesia). Africa and has considerably
With regard to long-term growth expanded the number of African
Ngqura, which opened in 2009 near
in container terminal capacity, destinations to which it now flies.
Port Elizabeth in the Eastern Cape,
Transnet is looking beyond current In 2012, it was voted the best
is the deepest container terminal in
investment programmes. A airline in Africa for the 10th year
Africa.
comprehensive container strategy in a row by UK global aviation
Durban is Africa’s busiest port. is being developed, including both research organisation Skytrax.
More than three out of every five port capacity and inland terminals.
containers entering or leaving
Expansion of the Port of Durban
the country go through this port.
will include the conversion of an
Durban’s position in relation
800-hectare site, including the
to the N3 highway and its high
old Durban International Airport,
throughput volumes make it
into a dig-out port with a planned
a suitable candidate for the
handling capacity of approximately
establishment of a mega port to
9.5 million TEU. The first phase
attract world trade.
is expected to be operational by
Constraints at the Port of Durban 2019, with the project scheduled for
have, however, resulted in some completion by 2050.viii
importers and exporters bypassing
Durban in favour of ports such
as Port Elizabeth, Walvis Bay
in Namibia and Maputo in
Mozambique. While there has been

PwC 71
Rail infrastructure represents

80% of Africa’s total 89% of freight relies


on the road network
South Africa

Rail Road
There has been significant
Progress in the rail investment in the rail sector and Long-term failure to
sector has been impeded infrastructure has considerably maintain roads has resulted
by decades of under- improved, although freight densities in the network becoming
investment. and performance still require increasingly unable to cope
attention. There are, however, with rising demand.
The country’s rail infrastructure, already major limitations on the
which connects the ports with the network.
South Africa’s road network is the
rest of South Africa, represents longest of any African country and
about 80% of Africa’s total. The In the next ten years, system
about 89% of the country’s freight
country’s rail system is significantly limitations will become more
relies on this mode of transport.ix
more developed than those in the serious, especially on key corridors,
About 19% of the national roads are
majority of other emerging markets including the coal line to Richards
toll roads. While 90% of the national
and more than two million people Bay. The network is already
network is in good to excellent
travel by train every day within experiencing major operational,
condition, and metropolitan roads
South African cities. institutional and technical
are in satisfactory condition, the
constraints. Rolling stock failures,
paved provincial road network has
South Africa’s extensive rail network signalling failures, security and
deteriorated significantly over time.
– the 14th longest in the world power outages (including power
– connects with other networks outages as a result of cable theft)
The major challenge for South
in the sub-Saharan region and are major issues. The South African
Africa’s road network is that 78%
neighbouring Namibia, Botswana, rail industry will only become
is estimated to be older than
Mozambique, Zimbabwe and a cost-effective alternative to
its original 20-year design life.
Swaziland. road transport if the operational
There is a massive backlog in road
efficiencies of freight rail are
maintenance and rehabilitation.
The Gautrain, Africa’s only high- increased to deliver a predictable
Despite increased funding for
speed train, was opened just and reliable service at lower cost
roads, resources allocated to roads
days before the start of the 2010 than competing road freight
infrastructure remain inadequate
FIFA World Cup. Connecting offerings.
for eliminating the huge backlogs
Johannesburg, Pretoria and OR in maintenance over the next five to
Tambo International Airport, it Improving the country’s rail network
ten years.
transports about 40 000 people is one of the government’s top
every day. priorities, with projects aiming to
Recognising the constraints and
increase freight rail volumes and
imbalances in the existing transport
In terms of freight rail, South increase market share of container
system, in 2007 the Government
Africa’s rail network developed traffic. Significant investment is
initiated a project to develop the
historically in support of the growth being made in rolling stock as well as
National Transport Master Plan
of the mining sector and other heavy other equipment such as signalling
2050 to guide the development of a
industries, as well as large-scale equipment, infrastructure, processes
multimodal transportation system
agriculture and forestry. and improving efficiencies.
to meet South Africa’s long-term
transport needs. Amongst other
South Africa is currently feeling the initiatives, the plan will prioritise
effects of almost 30 years of under- a major shift from road to rail
investment in its rail system. The transport for both passenger and
average age of the fleet is 30 to 40 freight traffic.x
years (with a maximum life span
being 46 years) and 51% of the fleet
soon due to be retired.

72 Africa gearing up
Conclusion
Based on our analysis, we’ve assessed the investment potential for South
Africa’s transportation and logistics sector as shown in the graphic below.

South Africa – Investment potential assessment

1. Demographics and resources

2. Economics

3. Business environment

4. Trade and logistics

5. Transport and infrastructure

Key: Attractive Strong improvement expected

Average Some improvement expected

Unattractive Stagnation/marginal change expected

End notes
i
South African Government Information, http://www.info.gov.za/events/2013/brics_
background.html
ii
“Imports and exports”, South African Reserve Bank, http://www2.resbank.co.za/internet/
Glossary.nsf/0/0e423e39f84af20042256b43002da8ac?OpenDocument
iii
“Manufacturing Bulletin”, Manufacturing Circle, http://www.manufacturingcircle.co.za/
docs/80885-bulletin-8th-edition-2013.pdf
iv
“Estimated Western World Gold Production (1887-2002)”, Chamber of Mines of South Africa,
http://www.bullion.org.za/content/?pid=79&pagename=Historical+Summary
v
African Economic Outlook, South Africa 2012, http://www.africaneconomicoutlook.org/
fileadmin/uploads/aeo/PDF/South%20Africa%20Full%20PDF%20Country%20Note.pdf
vi
Thomas Hartleb, “Expect tight energy supply for four years”, Mail & Guardian, http://mg.co.
za/article/2008-02-11-expect-tight-energy-supply-for-four-years
vii
“Summary of SA National Infrastructure Plan”, Department of Economic Development, http://
www.economic.gov.za/communications/presidential-infrastructure-coordinating-commission
viii
Lisa Steyn, “Pressure on to build new Durban port”, Mail & Guardian, http://mg.co.za/
article/2013-07-05-00-pressure-on-to-build-new-durban-port
ix
CSIR: “The fifth annual State of Logistics Survey for South Africa 2008”, http://www.csir.
co.za/sol/docs/SOL_2008.pdf
x
“National Transport Master Plan plots the path to 2050”, Engineering News, http://
www.engineeringnews.co.za/article/national-transport-master-plan-plots-the-path-
to-2050-2008-09-12

PwC 73

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