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Country Commercial Guides for FY 2000: South Africa Report prepared by U.S. Embassy Pretoria, released July 1999 Note*

I. EXECUTIVE SUMMARY

The markets of the world are progressively becoming more integrated in the wake of globalization. As economies undergo deregulation, current and capital account liberalization, and technological advancement, globalization is bringing with it new opportunities for expanded trade and investment. This is especially valid for South Africa since its return to the global economic fold during the past 5 years. Here, national stock and bond exchanges are being opened up to international participation. Domestic markets for goods and services are undergoing liberalization. With the proliferation of the Internet, resellers as well as end-users in South Africa can now engage in electronic commerce (the process whereby a transaction is concluded thanks to networked computers; E-commerce) as easily as sending E-mail.

In this regard, South Africa offers excellent potential for American exporters and investors with the right products, resources, ideas and commitment. Five years after the historic 1994 elections, the number of multinationals with direct investments or employees in South Africa has increased dramatically - with American companies leading the way. On the economic front, cautious economic policies enabled South Africa to successfully emerge from foreign exchange market pressures and weather better than most the spillover effects of the Asian crisis in 1997-98. Moreover, the recent success of the country's second democratic elections has reinforced international confidence in the country's political system. In addition, the South African government has reaffirmed its commitment to attract foreign investment through the support of initiatives to enhance trade and industrial development.

The most promising areas for increased U.S. exports and investment in South Africa include the sectors of IT (Information Technology) - particularly internet-related software and services; telecommunication equipment and services; security and safety equipment; managed health care; E-Commerce; airports; cosmetics and hair care products; air pollution and waste management technologies; tourism; infrastucture, as well as project finance and management. Some of these best prospects' sectors are of a capital expenditure nature. As new ideas and technologies are embraced in partnership with overseas companies, South Africa will continue to serve as an attractive destination for exports, foreign investment and joint ventures.

South Africa has undergone profound political and economic change over the last several years, and both the U.S. and South Africa have used this period to strengthen bilateral trade channels. The process, begun in 1994, of reintegrating the South African economy into the global economy gained further momentum during June 1997, when President Clinton launched his Partnership for Economic Growth and Opportunity Initiative. This initiative encourages greater two-way trade and private sector investment in Africa. As a result, U.S. exports to Africa have grown significantly, exceeding USD 800 million for the first four months of 1999. Major investment opportunities also continue to be identified and explored. The big investment story of 1998 was the acquisition of the South African chemical company Sentrachem by Dow Chemical in a deal valued at USD 850 million. The Dow deal was preceded by the decision of Texas headquartered SBC Communications, in partnership with Telkom Malaysia, to participate in the largest privatization project in sub-Saharan Africa. Together in 1997 they purchased a stake in Telkom South Africa valued at USD 1.3 billion. These success stories are indicative of the growing international interest and potential opportunities available in the "new" South Africa.

Upbeat economic predictions for the year 2000 and beyond, a stable socio-political environment and reinforced vigor of the South African Government (SAG) to address the issues of privatization and deregulation, while maintaining the long term goal of making the country more investor friendly, bode well for US businesses seeking trading, investment and joint venture opportunities in South Africa. The domestic market is characterized by increasing competition in almost all fields, margins are being reduced as result and many local companies used to tariff and non-tariff protection are being forced to streamline their operation in order to survive. In the wake of the SAG's policy of income redistribution in favor of the disadvantaged, certain high-end products are on the retreat; conversely the strategy of the SAG of providing basic needs to the economically disenfranchised offer good prospects, especially of a large capital nature. The SAG has vigorously explored WTO-permissible supply-side measures designed to facilitate worker retraining and technological innovation as part of its policy of helping local companies face up to foreign competition.

South Africa's market size of 43 million people, infrastructure, and pro-business environment make it the logical choice for an increasing number of companies seeking a steppingstone to conduct business on the continent. The South African economy is characterized by standards similar to those found in developed countries. It is the most advanced, broad-based, and productive economy in Africa, with a gross domestic product (GDP) that exceeds that of Egypt, Nigeria, and Kenya combined. South Africa's borders with Namibia, Botswana, Zimbabwe, Mozambique, Swaziland and Lesotho, and its well-developed road and rail links provide the platform and infrastructure for ground transportation deep into sub-Saharan Africa. The country also boasts a sophisticated financial sector, with well-developed financial institutions and a stock exchange (Johannesburg Stock Exchange) that ranks among the top exchanges in the world. The South African economy is however, also characterized by its symbiotic relationship between the first world economy and third world informal sector, born from the legacy of Apartheid. Addressing this first/third world dichotomy remains a major challenge facing South Africa.

South Africa is ideally positioned for easy access to the countries comprising the Southern African Development Community (SADC), the islands off Africa's east coast, and even the Gulf States and India. SADC in particular, with a combined gross national product (GNP) of USD 170 billion and app. 185 million people represents a significant growing market for U.S. trade and investment. In 1998, U.S. exports to SADC countries totaled approximately USD 4.4 billion. Although the tangle of conflict that has engulfed South Africa's neighbors in and around the central African sub-region may have tarnished the region's image, the extent of capital investment expected over the next several years is a clear indication of the region's largely untapped economic potential.

The South African government has made steady progress in restructuring the country's economy. Trade and industrial policy reforms, organizational and regulatory changes in the financial markets, and the relaxation of exchange control measures have been collectively aimed at transforming the economy and facilitating the country's reintegration into global markets. There remain, however, remnants of an industrial system based on import substitution and industrial protection and some attempts buy foreigners at gaining access to the market have been troubled by government bureaucracy and a lack of transparency. Although the government has stated its intention to abide by its World Trade Organization (WTO) commitments, American exporters who believe they have not received "level-playing-field" treatment are encouraged to contact the Ronald H. Brown Commercial Center in Johannesburg for support. As the Center of American Business in Africa, the Ronald H. Brown Commercial Center and the U.S. Commercial Service provide American businesses with the knowledge, support and commitment necessary to successfully compete for increased market share in southern African markets.

Note: This Country Commercial Guide (CCG) presents a comprehensive look at South Africa's commercial environment, using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. Government agencies. Country Commercial Guides (CCGs) are available for U.S. exporters from the National Trade Data Bank (NTDB) on CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at: www.stat-usa.gov, www.state.gov, and www.mac.doc.gov.

They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at 1-800-USA-TRAD(E) or by fax at (202) 482-4473.

Users of the CCG are encouraged to give feedback on its usefulness by means of returning the CCG Customer Survey and Feedback Form at the end of this document.