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Country Commercial Guides for FY 2000: South AfricaReport prepared by U.S. Embassy Pretoria, released July 1999 |
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT1. Best Prospects for Non-Agricultural Goods and Services
1.1 Telecommunication (TES)
Until recently, telecommunications in Africa has been the preserve of government, usually through a ministry of posts, telegraphs and telephones (PTT). Profits from services however, were usually not reinvested and as a result, telecommunications services are still considerably under-provided throughout the southern Africa. However, the last few years have seen some increase in private sector involvement in southern Africa's telecommunication sector. These include large multinationals interested in equity in national telephone operators, regional investors interested in the cellular market and local companies starting up Internet operations.
There is a trend by many African governments to prepare network operators for competition and privatization. The South African Government (SAG), for example, sold 30 percent of Telkom SA to Thintana Communications (a consortium made up of SBC Communications of the US and Telekom Malaysia), for $1.261-million. Botswana and Mauritius have experienced the highest growth in main lines this decade.
In South Africa, a license for personal communication by satellite has recently been issued. This was spurred by the release of the policy by the Department of Communications in December 1998 on global personal communication by satellite (GMPCS). However, market access in the provision of satellite communications services is still somewhat hindered by Telkom's monopoly period -until May 2003.
Table 3. Telkom's economic/financial Statistics (1998)
Annual Investment $1,437 billion* As a % of gross fixed assets$ 17.82% Total capital investment per new connection: $ 2.601 per line Foreign Debt PTO: $ 784 million Operational Revenue per line: $ 738 Operational Cost per line $ 530* Telkom plans to spend $8.3 billion to $10.4 billion over five years to install 2.8 million new lines and digitise 1.27 million analogue lines.Source: BMI-Technowledge
Additional information can be obtained from Telkom S.A. Limited or on the Internet.
Telkom S.A. Limited
Private Bag X 780
Pretoria 0001
Tel: (27)(12) 311-5000 / Fax: (27)(12) 311-3023
Internet: www.telkom.co.za.1.2 Telecommunications Equipment (TEL)
Industry sources believe that after liberalization, the market will double or even treble in ten years in South Africa. However, the growth of the telecommunications equipment market will depend on whether the new entrants are encouraged to build their own network, infrastructure or to interconnect with the existing network. If the new entrants build their own networks it will have a major impact on equipment sales.
Telkom will face competition from 2003, by which time it must install 3-million lines to achieve the target laid down in its license in return for being granted a five year exclusivity period for fixed-line voice services in South Africa. The main targets for these lines are under-serviced and disadvantaged areas as well as providing telephone services that will meet the needs of the disabled. If Telkom achieves 90 percent of its total line target and 80 percent of its target for installing lines in under-serviced areas by year four of its five-year exclusivity period, the parastatal will be eligible for an extra year of exclusivity.
This will be extended by another year if Telkom meets government's network rollout service targets. South Africa's telecommunications industry was worth approximately R45-billion (USD 7.5-billion) in 1997, in terms of services and equipment, of which 53 percent consisted of telecommunications services and equipment and 47 percent of information technology (IT). In 1998, the industry generated revenues of R56-billion (USD 9.3-billion), made up of 55 percent telecommunications services and equipment, and 45 percent IT. Industry sources believe that after liberalization, the market will double or even treble in ten years.
Table 4 Telecommunications Equipment Market Statistics
1998 1999 2000 A. Total Market Size 3.1 4.1 5.1 B. Total Local Production 1.80 2.0 2.1 C. Total Exports 0.16 0.18 0.19 D. Total Imports 1.20 1.32 1.40 E. Total Imports from U.S. 0.16 0.16 0.18 F. Exchange Rates 5.2 6.1 6.3(Note: the above statistics are in USD-billions and are based on unofficial estimates. Figure includes fixed lines, cellular and broadcasting equipment. Local equipment production include foreign manufactured parts and components. Telecommunications equipment may also encompass certain types of components considered to be part of other industry sectors, i.e. IT).1.3* * Computer Software and Services.
In general, IT encompasses all aspects of hardware, software and related professional services. Specific product groups are particularly difficult to define in this industry as rapidly evolving technologies increasingly blur the distinction between data, voice, and image mediums. There are however, two areas likely to exhibit strong growth well into the millennium, and these are: e-commerce (electronic commerce) and computer software and services.
(See information under Principal Growth Sectors, page 11) Approximately 82 to 85 percent of PC software originate within the U.S., with the balance coming from Israel and Germany. Other competitors in this sector include France and the United Kingdom. There is minimal competition from local companies. In a bid to become more competitive in the global market, South African companies and parastatals are increasingly turning to outsourcing as a means of improving operational efficiencies and reducing costs. Software growth in South Africa, which has been consistently higher than the world average over the past several years, is expected to show substantial growth for the next two to three years.
Table 5. Computer Software Market Statistics
1998 1999* 2000* A. Total Market Size 454.79 545.74 682.17 B. Total Local Production 22.0 25.5 28.6 C. Total Exports 7.0 8.8 12.2 D. Total Imports 363.83 436.59 545.73 E. Imports from U.S. 301.97 358.00 447.49(Note: the above statistics are in USD-millions and are based on unofficial estimates)
*Estimates and forecasts from various sources. USD millions. 1997: U.S. Dollar R4.61. 1998: U.S. Dollar R5.5. Forecast, 1999: U.S. Dollar R6.0. 1.4 Electronic Commerce. (See information under Principal Growth Sectors, page 11)During the last quarter of 1998, there was 77 percent growth in overall transactional value as compared to the previous quarter, reflecting an online Christmas shopping spree. For the first quarter of 1999, growth increased again by another 5 percent despite the typically slow business month of January. In line with global trends, these percentages suggest a steep upward movement in e-commerce in South Africa.
It is apparent that most of the major developments in this field have sprung from the private sector, and will continue to do so in the future. The South African government has however, played an important role in promoting the understanding and application of Internet-related technologies throughout South Africa. An example of this is the Department of Communication's launch of an aggressive series of initiatives under the collective label "Info.Com 2025" program, which seeks to achieve broad-based growth and equitable development through communications and information technologies. Some of the key components of the Info.Com program include:
* Public Information Terminals (PITs), Internet-2000, and Web Internet Lab: projects designed for rapid expansion of access to the Internet and for experimentation with Internet applications
* TradeNet: liaison with the Department of Trade and Industry to promote international trade opportunities via e-commerce
Beyond South Africa's borders, half of SADC's member countries now have "full" Internet connectivity. This means that these countries have access to the complete suite of Internet services available, as well as access to dedicated Internet connections via leased lines. If current trends continue it will not be long before the region is fully connected to the Internet, thereby allowing U.S. exporters to conduct electronic commerce throughout the entire Southern African region.
1.5 Airports. Since it commenced operations over five years ago, the semi-privatized Airports Company South Africa Limited (ACSA) in which Aeroporti di Roma has a stake to the value of USD 850 million, has transformed a fragmented parastatal into a service-oriented and market-driven commercial enterprise.
ACSA's primary task has been to upgrade standards at the country's airports and improve productivity. The company currently handles approximately 90 percent of the country's aviation requirements, operating 3 international airports (Johannesburg International, Cape Town International, and Durban International) and 6 national airports (Port Elizabeth, East London, George, Kimberly, Upington and Bloemfontein). The company also recently decided to acquire the Pilanesberg Airport near Sun City as well as at Plettenberg Bay and Richards Bay. Encouraged by the potentially lucrative retail and property sectors, ACSA has also identified the opportunities existing in airport retailing and continues to make progress in developing both airport infrastructure and peripheral property. King Shaka International for which planning and financing is underway, is envisaged for between 2005 and 2010 as replacement for Durban - La Mercy.
Since 1994 international air traffic movements have increased by more than 70 percent and the number of departing international passengers by 85 percent to 2.6 million. The total number of departing passengers rose by 3.1 million to 9.5 million and aircraft landings increased by 59,112 to 187,423 over the five-year period. Forecasts for Johannesburg International and Cape Town International suggest that a four-fold increase in traffic is likely over the next twenty-five to thirty years. The market is expected to grow at an average annual growth rate of approximately 30 percent until the year 2030.
ACSA has embarked on a series of ambitious capital projects aiming to transform South Africa's major airports into world class tourist gateways, planning to spend R800 million (USD 133.3 million) in the next financial year on capital expenditure and a total of R2.6 billion (USD 433.3 million) by the end of 2004. Negotiations for investment partnerships are also being conducted with a number of airport authorities in Africa, particularly in Southern African Development Community (SADC) countries such as Namibia and Mozambique. Some 200 privatizations of airport authorities are expected to occur around the world during the next ten years, and the potential opportunities offered through investment partnerships are both significant and lucrative. ACSA is positioning itself to be a regional and international force in the airport management industry.
Finally, the months ahead will be a decisive phase of ACSA's development, as the company begins the process of securing a listing on the Johannesburg Stock Exchange (JSE). The total debt burden required for capital improvement (R2 billion; USD 333.3 million) could dampen local investor's enthusiasm when the company comes to market. To overcome such anxiety, the challenge facing ASCA will be to increase operating profits substantially during the next few years.
Table 6. Airports Company South Africa (ASCA) - Financial Highlights
1997 1998 1999* A. Turnoover 125.30 129.20 140.70 B. Operating Income 48.90 51.20 62.50 C. Other Income 16.30 15.00 10.00 D. Income Before Tax 64.20 66.00 72.80 E. Income After Tax 37.70 41.40 46.70 F. Net Income 29.50 33.30 36.70Source: ACSA, 1999 Annual Report. USD millions. 1997 U.S. Dollar R4.61. 1998 U.S. Dollar R5.5. Forecast, 1999 U.S. Dollar R6.0. *For the year ending March 31, 1999.Additional information can be obtained from ACSA's corporate office or on the Internet.
Airports Company South Africa Limited
PO Box 75480
Gardenview 2047
Tel: (27 11) 453-9116; Fax: (27 11) 453-9354
Internet: www.airports.co.za.
1.6 Air Pollution and Waste Management. (See information under Principal Growth Sectors, page 12)
According to projections, South Africa's population of 43 million in 1999 could increase to over 50 million by the year 2006. This will place increasing demands on land, water and air resources and consequently a greater need will exist for effective pollution control measures.The monitoring, measuring, and testing equipment market is estimated to be growing at roughly 10 to 12 percent per annum (real growth), and this trend is expected to continue for at least the next five years. Custom duties range from 5 to 25 percent in addition to a 14 percent value-added tax (VAT) which is levied on all non-essential goods and services.
Table 7. Air Pollution and Waste Management Market Statistics (Equipment Only)
1998 1999* 2000* A. Total Market Size 14.0 14.9 21.3 B. Total Local Production 5.0 6.1 8.5 C. Total Exports 1.0 2.8 4.8 D. Total Imports 8.0 9.3 13.9 E. Imports from U.S. 3.5 4.5 6.4(Note: the above statistics are in UDS-millions and are based on unofficial estimates)*Estimates and forecasts from various sources. Because of the diversity of the category "monitoring, measuring and testing equipment," 1999/2000, figures are also estimates - USD millions. 1997 U.S. Dollar R4.61. 1998 U.S. Dollar R5.5, 1999 U.S. Dollar R6.0.
1.7 Security and Safety Equipment. (See information under Principal Growth Sectors, page 12)
Despite new crime fighting programs and improved organization and training of the South African Police Force, crime in South Africa continues to rise. According to Martin Schnteich, of the Institute for South African Security Studies, the positive trend of decreasing crime levels between 1994 to 1997 is no longer evident.
Moreover, with so many adults dying of AIDS, the psychological and subsequent socio-economic impact on orphaned children will predispose them toward lives of crime. Mr Schnteich states, "The increase in the juvenile population and AIDS orphans will hit South Africa at the same time. These two factors will result in an increased crime rate." Observers in South Africa are in agreement that should the SAG be able to implement an effective strategy, it will take at least 2 years before any meaningful change will come about in the South African crime situation
South African companies produce basic security equipment. U.S. security companies wishing to enter the South African market will find, despite a high level of domestic and international competition, that many sales opportunities do exist - particularly for those companies offering new and innovative security products. In addition, barriers to trade do not exist in this sector although import permits are required for certain equipment.
Table 8. Security and Safety Market Statistics
1997 1998 1999* A. Total Market Size 257.4 380.0 709.9 B. Total Local Production 123.7 146.3 237.7 C. Total Exports 14.0 16.7 20.4 D. Total Imports 108.8 127.6 185.6 E. Imports from U.S. 12.0 14.7 17.3(Note: the above statistics are in USD-millions and are based on unofficial estimates)*Estimates and forecasts from various sources. USD millions. 1997 U.S. Dollar R4.61. 1998 U.S. Dollar R5.5. Forecast, 1999 U.S. Dollar R6.0.
1.8 Managed Health Care. Health care is an issue affecting most employed people on a daily basis and rapidly rising health costs have made it a top priority for employers. Systems which reduce costs but sacrifice quality are usually the forerunners in an emerging managed health care market and these products often alienate consumers, creating the impression that managed care is about lowering costs only.
For many years industries such as mining and steel have operated managed care delivery systems that mimicked the health maintenance organizations (HMOs) of the United States. Mine hospital systems employ the personnel who provide services to the employees. The efficiencies derived from this system mean that in many cases the mines are able to offer benefits similar to those offered by medical schemes at less than half the cost.
Mines, industrial funds and some larger industry medical schemes have used managed care techniques for some time - usually in the form of panel doctors. Although relatively successful, most of these plans lacked the technological infrastructure required to take managed health care to the next level. Today, these same funds and medical schemes that have not embraced managed care have felt increasing pressure to control costs within the existing panel doctor structures.
High and uncontrolled inflation of medical costs during the 1980's and early 1990's virtually forced the introduction of alternatives such as managed health care, and while some players are still reluctant to embrace this new paradigm, most have realized that the probable future lies within this field. Those administrators who have not yet developed managed care systems and technologies are in the process of doing so and analysts predict that the end of the century, will see out the last of the unmanaged fee-for-service plans.
Until 1994, the Medical Schemes Act effectively prohibited all but the very largest employers from becoming involved in managed health care. They did this by disallowing medical schemes from contracting with doctors on equity basis or from owning health care infrastructure or employing health care personnel. Since the 1994 amendments, schemes have been able to offer managed care products to many employers who are regionally based. The economies of scale that can be achieved by these managed health care plans and the fact that many medical schemes administrators are owned by insurers has meant that the financial investments required to develop managed health care technology have been forthcoming.
The managed care industry is very competitive and each new addition to the pool of companies active within the sector adds to this, while also improving technology. According to industry analysts, future competitiveness will be based on the sophistication of technology, the quality of managed care networks and economies of scale due to size and integration.
Time magazine reported in July 1999 that recent statistics released by UNICEF showed that HIV was spreading faster in southern Africa than anywhere else. Although most of the world's 33,5-million HIV/AIDS victims live in sub-Saharan Africa - with an additional 4-million people being infected each year - the continent is also pressed by issues of conflict resolution, development and famine.
While business leaders are more concerned about the Y2K computer bug than the long-term effects of AIDS, statistics show that 20% of the workforce in SA is likely to be HIV-positive by the year 2000. Time has also warned: "The way managers address AIDS in the workplace will determine whether their companies survive the first decade of the 21 century". Authoritative sources indicate that many SA companies are losing 3% of their workforce to the disease per year.
1.9 Cosmetics and Hair Care. The South African cosmetics industry has become an active and fast developing economic sector with an estimated annual turnover of R2.6 billion (USD 333 million). There are eight identifiable market segments: hair care, facial and body skin care, perfumes and fragrances, color cosmetics, bath and shower products, deodorants, oral hygiene products and men's shaving products.
The cosmetics industry directly employs approximately 65,000 people in manufacturing, sales hairdressing, therapist and clerical positions. It is surmised that there are a further 65,000 employed indirectly in supporting industries, providing a total employment of approximately 130,000. Some 120 members, including importers, distributors, manufacturers, contract packers, and direct sales companies, are registered with recognized associations, and it is further estimated that there are about 70-100 industry participants not members of associations. The industry consists of approximately 33,000 retail outlets countrywide.
Table 9. Cosmetics Industry by Market Segment
Market Segment Rand 1999 USD 2000 USD* (millions) (millions) (millions) A. Perfumes and Fragrances 415.2 69.2 70.58 B. Color Cosmetic 150.6 25.1 25.60 C. Skin Care Products 319.6 53.3 54.37 D. Hair Care Products 428.4 71.4 72.83 E. Bath and Shower Products 336.6 56.1 57.22 F. Deodorants 293.4 48.9 49.88 G. Oral Hygiene Products 347.4 57.9 59.06 H. Men's Shaving Products 265.2 44.2 45.08 TOTAL 2,556.4 426.1 434.62Forecast, 1999/2000 U.S. Dollar R6.0.
* Estimated Growth: 2%
Surveys show that the ethnic market accounts for approximately 60 percent of total product sales across all categories. There are hair care products specifically produced, targeting Black African consumers. This market is estimated at USD 166.7 million annually and its growth correlates directly with increases in disposable income. Around 2,000 identifiable urban Black hair salons operate nationwide, as well as approximately 10,000 to 12,000 informal salons servicing rural and township areas. Currently no formal regulations exist which govern training or licensing issues for Black hair salons.
2. Best Prospects for Agricultural Products
Current estimates indicate that South Africa will continue to rely partially on imports to meet its food needs for the near-term. Principal imports for the year 2000 include include wheat (600,000 tons), corn (700,000 tons), rice (550,000 tons), oil meals (350,000 tons), vegetable oils (60,000 tons) and a variety of consumer-oriented products.The U.S. is one of the major suppliers of wheat and rice to South Africa and has made inroads in several consumer oriented products. One of the strong trade growth areas is in intermediate agricultural products such as oilmeals, oils and seeds where U.S. sales increased from $52 million in 1997 to $83 million in 1998. The consumer-oriented product sector has also shown potential in recent years. The U.S. exported consumer-oriented products valued at $77 million to South Africa during 1997 and $59 million in 1998. Poultry meat accounted for a large share of those sales in both. Forest product exports reached $34 million during 1997 and $21 million in 1998. The decrease in dollar sales was mainly due to the low value of the Rand.
The best prospects for future U.S. agricultural exports to South Africa include the following products: processed and consumer oriented products (U.S. $65 million), wood and wood products (U.S. $30 million), poultry products (U.S. $35 million), pet food (U.S.$7 million) and soybean meal (U.S.$12 million). Snack food and nuts exports should reach U.S. $7.5 million in 1999. In addition, South Africa offers market opportunities for various upscale prepared foods and consumer ready products in demand by a growing number of affluent consumers.
Table 10. BEST PROSPECTS FOR INCREASED U.S. AGRICULTURAL TRADE:
U.S. Dollar Million 1996 1997 1998 1999 Est. Consumer-oriented products, 57.1 77.1 59.1 50 Including: Snack foods (excluding nuts) 3.5 4.3 4.0 4 Tree nuts 3.3 2.9 2.6 3 Poultry meat 25.4 44.2 29.7 20 Processed fruit vegetables 3.8 4.1 2.8 3 Pet food 7.8 7.2 6.0 7 Soybean meal 5.3 11.2 11.7 12 Forest products 26.3 34.1 21.4 20 Including: Hardwood lumber 18.7 24.0 14.4 15 Panel products 5.3 6.9 0.7 53. Major Projects/Significant Investment Opportunities3. Major Projects/Significant Investment Opportunities
United States foreign direct investment abroad contributes substantially to both the national and foreign policy interests of the U.S. It strengthens and expands the U.S. economy by improving U.S. competitiveness in the international marketplace and is an important tool for global US corporate positioning. It also helps developing countries expand their economies and become valuable markets for U.S. goods and services, thereby increasing U.S. exports. Recognizing the benefits that outward investment brings to the economy, the U.S. has promoted initiatives, such as the Partnership for Economic Growth and Opportunity in Africa, which support American investors and encourage exports to sub-Saharan Africa.
3.1 Capital Projects. The trends in fixed investment spending suggest that areas of potential investment include water management; power/renewable energy; health care services, particularly service delivery; the promotion of tourism and other service-related industries; airport expansion and ground support equipment and port operations such as the Richards Bay dry dock as well as information technology.
From January 1997 through June 1998 a total of 363 capital projects were announced with an aggregate Dollar value exceeding USD 22 billion. It should be noted however, that not all of the projects announced during this period are necessarily in progress at the date of writing. Some projects may be delayed or abandoned due to lack of funding or other complications. The expected completion dates of these projects range from 1999 through 2014.
The high level of fixed investment spending in 1998 was driven primarily by the acquisition of new aircraft by South Africa Airways and accelerated spending by Telkom on the expansion of the telecommunications network to previously under-serviced areas. During the first quarter of 1999 however, gross fixed capital formation by public corporations declined sharply - thus reinforcing the decline in gross fixed capital formation in the private sector. A complete listing of capital expenditure projects and/or additional information on fixed investment spending can be obtained from the Economic Unit of Nedcor, one of South Africa's four major banking groups.
Nedcor Group Economic Unit
PO Box 582
Johannesburg 2000
Tel: (27 11) 480-1048; Fax: (27 11) 480-1044
Internet: www.nedcorgroup.co.za
The following are examples of some of the major capital projects likely to drive fixed investment activity over the coming years:
Table 11. Major Capital Projects/ Fixed Investment Activity
Company Name Project Name Completion Date Dollar Value (Estimated) (Estimated) Telkom Telkom's Vision 2000 2000 6.3 billion Eskom Majuba Power Station 2001 2.4 billion Foskor Phlogopite Plant 2001 890 million Durban Metro Water Scheme 2005 297 million BP and Shell Refinery Expansion 2001 257 millionEstimated Dollar value based on average U.S. Dollar R5.055.Consultancies. The U.S. Trade and Development Agency (TDA) promotes economic development in developing countries by funding feasibility studies, consultancies, training programs, and other project planning services. In Africa, TDA assists U.S. firms by identifying major development projects that offer large export potential and by funding U.S. private sector involvement in project planning. This, in turn, helps position U.S. firms for follow-on activities during the implementation phase of the project.
TDA activities include, but are not limited to, the following sectors:
Environmental Projects Telecommunications Energy Development Food Production Minerals Development Industry Transportation Air Traffic Control Waste Management Each year TDA has engaged numerous definitional missions of technical specialists to appraise official requests for planning grants. Many of these have resulted in feasibility studies (FS), technical conferences and seminars (TS), and orientation ("reverse") trade missions (OV). Selected grants approved for FY 1999 are listed below.
Fluidized Bed Combustion Project (FS) Petroleum Storage and Tanker Mooring Project (FS) Bagasse Hydrolysis Project (FS) Light Rail Transportation Orientation Visit (OV) Digital Satellite Service Study (FS) Peacock Bay Industrial Waste Incineration Project (FS) Gauteng Province Solid Waste Management and Recycling (FS) South African Trade and Investment Conference (OV) Johannesburg-Metropolitan Area-Airport Transport Linkages (FS) Dredging Orientation Visit (OV) Glycol Processing Facility (FS) Healthcare Orientation Visit (OV) Bakery and Milling Project (FS) Durban Solid Waste (OV) Illovo Sugar (FS) Additional information can be found on the Internet at www.tda.gov
U.S. Trade and Development Agency
Africa Division
SA-16, Room 309
Washington, DC 20523-1602
Tel: (703) 875-4357; Fax: (703) 875-4009
Contact: Mr. John Richter, Regional Director
E-mail: jrichter@tda.gov
Regional Offices (U.S.)
New York Tel: (212) 466-2950; Fax: (212) 466-2959
Miami Tel: (305) 526-7425; Fax: (305) 526-7435
Chicago Tel: (312) 353-8081; Fax: (312) 353-8098
Houston Tel: (281) 721-0465; Fax: (281) 679-0156
Long Beach Tel: (562) 980-4580; Fax: (562) 980-4590
4. Best Prospects for Southern Africa Development Community (SADC)
Located at the southernmost tip of the African continent, South Africa is ideally positioned for easy access to the 13 other countries comprising the Southern African Development Community (SADC). Founded in 1992, SADC has evolved into the predominant regional organization on the continent - representing a total population of 185 million people (26 percent of the total population of the African continent) and a combined GNP of USD 170 billion.
In 1995, U.S. Vice President Gore and the SADC Executive Secretary Mbuende met in Gaborone, Botswana, to sign a memorandum of understanding endorsing and encouraging expansion of trade and investment as a means for promoting growth and job creation in the region. The U.S. Government has also provided technical assistance to SADC to help develop a regional trade protocol and a regional transportation protocol. In 1998, U.S. exports to SADC countries totaled USD 4.4 billion.
Although the macro-economic outlooks for the SADC region vary from country to country, generally the economies of the region are well-managed, with structural adjustment programs realizing some success. There are a range of obstacles however, that stand in the way of increasing SADC's role in the global economy. These obstacles include large disparities in economies and infrastructure; limited technological capacity and financial resources; varied monetary arrangements and policies; and ongoing civil conflict, particularly within the Democratic Republic of the Congo. It has been noted that SADC's economies, as a whole, rank near the bottom of any index of openness, with the exception of the smaller states - Botswana, Swaziland, Seychelles, and Mauritius.
The following table presents the findings of a survey conducted by the Ronald H. Brown Commercial Center during the month of March 1999 in which U.S. firms ranked the major impediments to conducting business in the SADC region. Corruption and bureaucracy stand out as the major barriers facing U.S. firms. Even so, relative to the rest of sub-Saharan Africa, the region has done well in terms of attracting foreign direct investment and portfolio capital. An analysis of foreign direct investment flows and a review of current and impending infrastructure projects confirms that the SADC region is regarded as a priority location for many of world's leading mining houses, oil companies, and multinationals involved in power generation and engineering.
Over the past five years, the liberalization of SADC economies, notably Mozambique, Tanzania and Zambia, has allowed for the participation of private companies in activities traditionally pursued by the state. This includes - through privatization - the ownership and/or management of water, power and gas utilities, ports and railways, and processing industries.
Table 12. Impediments to American Firms doing Business in the SADC Region Percentage of total U.S. firms surveyed (N=150)
Impediment Responding Percentage Corruption 71.0% Bureaucracy 67.0% High Tariffs 66.0% Procurement Policy 65.0% Financial Transparency and High Taxes 44.0% Cost of Labor and Materials 36.0% Customs Regulations 29.0% Interest Rates 24.0% Safety and Security 20.0% Intellectual Property Rights 9.0% Human Resources/Other 6.0%[Source: Based on a survey of 150 U.S. firms conducted by the Ronald H. Brown Commercial Center during the month of March, 1999, covering a broad range of American businesses operating directly or through a subsidiary or representative office in at least three SADC countries.]South Africa's advantage as a springboard to the region lies not only with its obvious geographical proximity, but also with its extensive dealings with African countries, and subsequent insight and understanding of many of the complex issues involved in trading with these countries. Local companies are adept both in adapting overseas goods for the African market and in marketing these goods throughout the region.
4.1 Angola. Potentially one of Africa's wealthiest countries, Angola's development has been stunted by almost twenty-five years of civil war (from 1975 to present) which resulted in near total destruction of the country's infrastructure and eroded the public sector budget. According to 1995 figures, it has a population of 11.25 million, with a GDP of USD 7.72 billion in 1992.
In recent years the government has intermittently undertaken several programs aimed at privatizing, liberalizing and generally restructuring the economy along market oriented lines, although there are still many areas where transparency is lacking. Privatization efforts have virtually halted due to political impediments and lack of available financing. A significant economic reform package, including liberalization of interest rates, authorization for the currency to float freely, and legalization of Dollar accounts, was undertaken in May 1999. Similar fiscal measures dealing with customs reform, budgetary reform, regulations harmonization, legal protections for investors, and revisions of the commercial code are proposed for late 1999.
U.S. companies have already begun to capitalize on new opportunities presented by Angola's changes, and many more opportunities exist for mutually beneficial partnerships between the U.S. and Angola. The country has many positive aspects: * An economy that continues to progress towards a free-market; * Abundant natural resources, largely untapped; and * Significant experience working with U.S. corporations in the oil sector.
The resurgence of the civil war in December 1998 has significantly inhibited commerce in Angola. Many areas of the countryside are not effectively under government control, and the rebel group UNITA has in some recent instances specifically pursued the execution of expatriate businessmen operating in rural areas.
Infrastructure throughout the country has been severely degraded by effects of the war and lack of maintenance. Railways do not function, roads are in poor repair and may be unsafe to travel, electricity supply is irregular and subject to daily outages, and municipal water supplies are dilapidated and insufficient to meet the needs of the rapidly urbanizing population. Inefficiency and corruption at the port and airports makes import and export operations cumbersome and expensive. Unskilled labor is abundant, but skilled labor is very scarce. High unemployment has led to rising crime.
The national currency, the Kwanza, has lost over 80 percent of its value in the last 18 months, and as of June 1999 trades at approximately 2.3 million Kwanzas to the U.S. Dollar. Inflation in June 1999 (annualized) stands at 217 (two hundred and seventeen) percent. Credit for industrial investment remains tight, but the Angolan government has proposed a series of measures to alleviate this problem. Those measures are proposed to begin in the third or fourth quarter of CY 1999.
Angola is the U.S.' third largest trading-partner in sub-Saharan Africa. Approximately 18 percent of Angola's total imports (some USD 354 million) were from the U.S. last year.
The petroleum industry and related service industries remain a primary American business interest, as do capital goods and heavy machinery (particularly in the mining and petroleum industries), transportation, construction and communication equipment, information technology, vehicles, spare parts, textiles, and clothing. Other areas of potential for U.S. exporters and investors include mining, and infrastructure projects in the following sectors:
Telecommunications Food Commodities Construction Power and Energy For additional information, consult the Country Commercial Guide: Angola or contact:
The Commercial Section
American Embassy
Caixa Postal 6484
Luanda, Angola
Tel: (244) (2) 345-481: Fax: (244) (2) 346-9244.2 Botswana. Botswana's market for U.S. products and services may be considered somewhat limited due to its relatively sparse population (only 1.57 million) and GDP of almost USD 4.9 billion. Although one-third of all products consumed are imported, only 2 percent is imported directly from the U.S. It is estimated that the actual amount is more than three times this if one takes into account those U.S. products that reach Botswana via South Africa.
Although commercial ventures in the private sector generally offer less scope for potential suppliers, the country's relative prosperity and political stability do offer some opportunities for trade and investment. Past major imports in terms of value have included mineral fuels, iron and steel articles, heavy machinery and mechanical appliances, electrical machinery and vehicles. Leading sectors for U.S. exports and investment include:
Heavy Mining Machinery Tourism Solar Resource Management and Design Engineering Other potentially interesting areas are:
Computer Hardware and Software Off-shore Banking Insurance Water Pipes and Infrastructure Motor Vehicle Assembly Consumer Telecommunications For additional information, consult the Country Commercial Guide: Botswana or contact:
The Commercial Section
American Embassy
PO Box 90
Gaborone
Botswana
Tel: (267) 353-982; Fax: (267) 356-947
E-mail: uscomml@mega.bw
4.3 Malawi. Malawi is a small, land-locked country about the size of Pennsylvania. Its 9.8 million people are among the world's poorest, with a per capita income of approximately USD 200.
There is a narrow economic base characterized by a highly concentrated modern sector, low levels of foreign and domestic investment, and few mineral resources. Agriculture dominates the economy, and contributes about 87 percent of export earnings, 36 percent of GDP, and employs over 80 percent of the labor force. Tobacco, tea and sugar are the key export crops.
The investment climate is relatively free, and the government is encouraging unrestricted domestic and foreign investment in most sectors. Government efforts are underway to make the climate more attractive by improving the infrastructure - which deteriorated significantly over recent years and still remains a problem - and streamlining the investment process. The privatization program, open to both domestic and foreign investors, is progressing moderately well.
South Africa remains Malawi's major supplier of imported goods, and many U.S. suppliers make use of this longstanding commercial relationship as well as the lower product and transport costs by using South Africa as a springboard to Malawi and the other SADC countries.
Malawi has been largely free of political violence since independence in 1964. While armed robberies (including carjackings) have increased in recent years, there are no nascent insurrections, belligerent neighbors or other politically motivated activities of major concern to investors. Sectors where U.S. products/services are in significant demand include:
Used Clothing Used Equipment/Vehicles Computers and Computer Peripherals Aid Projects Telecommunications Agriculture For additional information, consult the Country Commercial Guide: Malawi or contact:
The Commercial Section
American Embassy
PO Box 30016
Lilongwe 3
Malawi
Tel: (265) 783-166; Fax: (265) 780-471
4.4 Mauritius. An island with a population of only 1.2 million, Mauritius' political, legal and economic systems are among the most advanced in the region. Trade and financial activities are supported by a well-developed telecommunications and banking infrastructure, and both government and private sector are trade orientated, with the government welcoming foreign investment, particularly export-oriented industries.
Although South Africa and European countries dominate the local market, there is growing interest in American technology. Competition is keen though - the United States is Mauritius' third largest market, but ranks only tenth in terms of exports to Mauritius.
There are generous incentives available to foreign companies establishing operations the Export Processing Zone, the Offshore Business Center and the Mauritius Freeport. The most recent foreign investment has gone into:
Hotels Banking Fast Food Pharmaceuticals Information Technology Printing and Publishing Light Engineering High Quality Garments and Jewelry Other potential activities include:
Information Technology Tourism Seawater Desalination Transshipment and Re-exportation Offshore Banking and Other Financial Services Textile Industry (machinery and raw materials) Sugar Industry (machinery and equipment) Printing Industry (machinery and equipment) Telecommunications Communications and Broadcast Equipment Energy Medical Equipment and Supplies Agricultural Industry and Equipment Crude Vegetable Oil Infrastructure Projects (airport modernization; road and dam construction; light rail transport; integrated business park) Sewage Treatment For additional information, consult the Country Commercial Guide: Mauritius or contact:
The Commercial Section
American Embassy
PO Box 544
Port Louis
Mauritius
Tel: (230) 208-2347, 208-2354
Fax: (230) 208-9534
The Country Commercial Guide for Mauritius can be found on the Internet at: usis.intnet.mu/commg.htm.4.5 Mozambique. In 1994, Mozambique held its first multiparty elections, bringing to closure a seventeen-year civil war that disrupted the economy and decimated vital facilities. The country currently enjoys peace and relative stability, and has the potential to become one of the brighter spots in Africa. Mozambique is endowed with vast and untapped natural resources which could support the development of agriculture, forestry and fishing, energy and tourism. With a population of 15.5 million (in 1995), and a GDP of USD 965 million (1992), it links the Indian Ocean port of Maputo to northern South Africa, Swaziland, Zimbabwe, Zambia, and Malawi. In addition, Mozambique is in partnership with South Africa in developing the Maputo Corridor SDI to link the port of Maputo with the heavy industries town of Witbank in South Africa.
Through its Economic and Social Rehabilitation Program, the Mozambican Government has achieved significant progress in moving the economy in a market-oriented direction. The role of the State in the economy has been gradually reduced, creating space for the development of private economic agents, although entrepreneurship has at times been hampered by the lack of private capital. Mozambique's privatization program is one of the most active in Africa - more than 900 state enterprises have been privatized, including the entire banking sector and a number of state manufacturing firms. The country also stands to benefit from the Heavily Indebted Poor Countries Initiative (HIPC), under which the World Bank, the International Monetary Fund, and other creditors agreed to provide debt relief amounting to roughly USD 3 billion.
Leading sectors for U.S. exports and investment include:
Energy (natural gas exploration, alternative energy systems) Construction and Materials (agriculture-related infrastructure, hotels and tourism complexes, water supply) Mineral Resources and Mining Industry Equipment Fisheries Services (marine electronics, processing, marine engineering) Telecommunications For additional information, consult the Country Commercial Guide: Mozambique or contact:
The Commercial Section
American Embassy
PO Box 783
Maputo
Tel: (258) (1) 49-27-97; Fax: (258) (1) 49-01-144.6 Lesotho. Lesotho is a small, landlocked country, population around 2 million, which is economically dependent on South Africa. The South African Rand is legal tender in Lesotho.
Successful marketing in this country requires extensive personal contact, and consequently the geographically advantaged South African companies tend to dominate existing distribution and sales channels. The Lesotho National Development Corporation (LNDC) offers support and assistance to foreign investors and joint venture partners. The country offers a number of incentives to foreign investors, including a maximum corporate tax rate of 15 percent for manufacturers and no withholding tax on dividends; free repatriation of profits; and access to loan financing for fixed assets.
The recent privatization of Government Vehicle Pool Services and Lesotho Bank suggests that Lesotho is committed to promoting foreign investment and strengthening the private sector. In general, however, entrepreneurship remains weak and the public sector continues to dominate the economy.
The Lesotho Highlands Water and Hydro-electric project, the largest of its kind in Africa south of the Sahara, continues to require large scale construction equipment and a variety of engineering services, with Phase 1A now completed and Phase 1B in process. (The project consists of five phases - 1A, 1B, 2, 3 and 4, spanning three decades). The Lesotho-South Africa treaty governing the project requires that all foreign companies working on the project enter into joint ventures with local firms. Requests for proposals for Phase 2 are scheduled to begin early in the year 2000.
Other areas of potential involvement for U.S. exporters/investors include:
Renewable Energy Technology (e.g., solar energy) Adventure, Environmental and Cultural Tourism Development and Construction in a Multi-destination Format Business and Financial Services Focusing on Regional Trade and Commerce Machinery and Equipment for Stone Cutting and Finishing for Construction, Housing and Decorative Purposes Stand-alone Water and Waste Management Systems for Industrial, Agricultural and Residential Purposes For additional information, consult the Country Commercial Guide: Lesotho or contact:
The Commercial Section
American Embassy
PO Box 333
Maseru, 100
Lesotho
Tel: (266) 312-666; Fax: (266) 310-1164.7 Namibia. Namibia is a multi-party democracy of 1.6 million citizens (1995) that gained its independence from South Africa in 1990. The government, formerly led by the Marxist-oriented South West African People's Organization (SWAPO) party, now champions a market economy with a GDP of USD of 2,11 billion (in 1992). Job creation and foreign investment are two of the government's highest priorities.
Leading sectors for U.S. exports and investment include:
Water and Energy Technology Value-added Manufacturing and Equipment General Industrial Equipment/Supplies Tourism Oil and Gas Exploration Telecommunications Environmentally Safe Agricultural Chemicals For additional information, consult the Country Commercial Guide: Namibia or contact:
The Commercial Section
American Embassy
Private Bag 12029
Ausspannplatz
Windhoek
Namibia
Tel: (264) (61) 221-601; Fax: (264) (61) 229-792
Internet: www.usemb.org.na
4.8 Seychelles. With a population of fewer than 100,000 and a per capita income of roughly USD 6,500, Seychelles is one of Africa's smallest but wealthiest countries. Its economy is dependent on tourism, fish-processing, and foreign assistance, primarily from Europe. In recent years, Seychelles has begun to move away from the statist economic policies it followed for two decades after independence from Great Britain in 1976, but onerous regulations and controls remain.
The best opportunities for trade and investment lie in tourism, fishing and light manufacturing. Seychelles offers tax and other concessions to export-oriented manufactures. New investment opportunities may arise if the government continues its privatization program; several years ago a subsidiary of U.S. based Heinz and Company invested in an ailing government-operated tuna-processing plant. The business has grown rapidly, and the company is now the largest private-sector employer in the country.
The U.S. does not maintain an embassy in Seychelles, but a consular agent is based in Victoria to provide assistance and answer queries. Official inquiries should be directed to the U.S. Embassy in Port Louis, Mauritius.
U.S. Consular Agent
Victoria House
Victoria, Seychelles
Tel: (248) 225-256
Fax: (248) 225-189
For additional information, consult the Appendix of the Country Commercial Guide: Mauritius or contact:
The Commercial Section
American Embassy
PO Box 544
Port Louis
Mauritius
Tel: (230) 208-2347, 208-2354
Fax: (230) 208-9534
4.9 Swaziland. With just under a million inhabitants, the Kingdom of Swaziland is the smallest country on the African continent. A strongly export-driven economy with a GDP of USD 4838.76 million also means that, to an extent, Swaziland's economic performance tends to parallel global trends in growth, world commodity prices and flow of capital and aid.
Almost non-existent ten years ago, Swaziland's industrial sector has grown to over 36 percent of GDP today. This has been fueled by growth in both food processing and small manufacturing industries.
Swaziland has in place all of the systems upon which a modern economy is based, although this may not always be evident in the day to day running of the economy as only about a third of the population is urbanized and thus involved in these developments.
The Swazi business climate is similar to that of South Africa, although somewhat less dynamic and sophisticated. Over 85 percent of the country's imports come from or through South Africa, investment in Swaziland originates in South Africa, and changes in economic performance indicators for South Africa and its economic policy are of major concern for the Government of Swaziland.
Although British interests in the exploitation of natural resources and bulk agricultural production are well entrenched, there is opportunity if potential U.S. entrants are willing to market energetically. For over a decade, Swaziland's government has had a firm commitment to welcome foreign investment. While major legislation to support a solid investment climate was previously lacking, the country enacted the Swaziland Investment Promotion act in January 1998. The act established the Swaziland Investment Authority.
One of the current key issues is the privatizing of strategic parastatals such as Swazi Post and Telecommunications, and there are opportunities here for joint ventures with foreign investors. In general, the kingdom's size increases its attractiveness as a potential site for investment and infrastructure project participation rather than a source of significant revenue for U.S. export markets.
Swaziland is intensifying its efforts to maintain its tradition as a fertile ground for foreign business opportunity.
Leading sectors for U.S. exports and investment include:
Telecommunications Electrical Power Systems Food Processing/Packaging Airports and Ground Control Equipment Pulp/Paper Machinery Medical Equipment Trucks/Trailers/Buses Travel/Tourism Architectural/Construction/Engineering Services Accounting Services Computer Hardware and Services Agriculture For additional information, consult the Country Commercial Guide: Swaziland or contact:
The Commercial Section
American Embassy
PO Box 199
Mbabane
Swaziland
Tel: (268) 404-6441; Fax: (268) 404-5959
4.10 Tanzania. One of the world's least developed nations, with a population of some 29.7 million, and a GDP estimated in 1992 to be $2,35 billion, Tanzania is striving to consolidate thirteen years of economic and eight years of political restructuring. Although Tanzania continues to make concerted efforts to liberalize its underdeveloped economy, substantial barriers still exist for those firms wishing to invest in Tanzania. Bureaucratic intransigence and poor infrastructure are just two of the hurdles interested investors must overcome to establish a permanent presence in the country.
On the positive side, the Tanzanian government is still eager to attract foreign investors wishing to capitalize on one of the most politically stable countries in Africa. Over the last 12 months, the Tanzanian government has continued its efforts to rid itself of its unwieldy and unprofitable state-owned enterprises. In addition, the country continues to offer investment incentives to those individuals and firms wishing to invest in Tanzania. Furthermore, Tanzanian efforts to liberalize its foreign exchange control regime have allowed all sectors in the economy to expand their horizons and attract foreign capital.
While Tanzania still relies heavily on agriculture for the bulk of its GDP, other sectors have come to the forefront as investment possibilities. Leading sectors for U.S. exports and investment include:
General Industrial Equipment Miscellaneous Textiles Articles (mostly used clothes) Telecommunications Equipment and Services Travel and Tourism Aircraft and Parts Construction Equipment Computers and Computer Peripherals Recently, a number of American firms have established operations in Tanzania, including a large multinational manufacturing firm, a U.S. based international bank, an internationally recognized hotel chain, and a multinational communications firm. In addition, over the last 24 months, Tanzania has increased its demand for American manufactured goods, as well as U.S. grown foodstuffs.
For additional information, consult the Country Commercial Guide: Tanzania or contact:
The Commercial Section
American Embassy
PO Box 9123
Dar Es Salaam
Tel: (255) (51) 666-010; Fax: (255) (51) 666-701
E-mail: usembassy-dar2@cats-net.com
4.11 Zambia. Zambia is a landlocked southern African country of 10 million people, with good mineral resources, extensive arable land and normally adequate rainfall. The country has numerous natural attractions (including the Victoria Falls), relatively abundant wildlife and a generally pleasant climate. With an estimated per capita GDP of only USD 380 however, the country is also burdened with high unemployment, and the latest Zambian Central Statistics Office (CSO) Survey (1997) indicates that 65 percent of the country's inhabitants live below the poverty line.
Agriculture and mining (copper and cobalt) account for much of Zambia's GDP, and mining in particular accounts for the majority of Zambia's export earnings. The country began an economic reform program in 1991, and has made significant progress in trade liberalization and privatization. More than two-thirds of Zambia's 330 parastatal companies were privatized by January 1999, including portions of the dominant copper conglomerate ZCCM. The remaining parastatals are slated for privatization over the next two years.
The Zambian government actively seeks foreign investment through the Zambian Investment Center (ZIC). Although skilled and professional workers are in short supply, there is an abundance of unskilled and adequate semi-skilled labor. Thus far, the largest foreign investments have come from the United Kingdom and South Africa, or have involved the South African subsidiaries of multinational firms. There is however, a fair presence of U.S. companies in the Zambian market. Roughly 30 U.S. firms have investments or agents in Zambia and at least two major U.S. firms have taken leading positions in Zambian privatization. Overseas Private Investment Corporation (OPIC) insurance is available to U.S. investors in Zambia, and the country is a member of the Multilateral Investment Guarantee Agency (MIGA).
Leading sectors for U.S. exports and investment include:
Mining (non-copper sector) Agriculture Tourism Telecommunications Processing of Local Raw Materials For additional information, consult the Country Commercial Guide: Zambia or contact:
The Commercial Section
American Embassy
PO Box 31617
Lusaka
Zambia
Tel: (260) (1) 250-955; Fax: (260) (1) 252-225
Internet: www.zamnet.zm/zamnet/usemb/welcome.html
E-mail: usembass@zamnet.zm
4.12 Zimbabwe. Following independence in 1980 and a decade of state-dominated socialism, Zimbabwe commenced with a five-year economic reform program aimed at restructuring the economy with a GDP, in 1994, of USD 4.79 billion. The country achieved an average 1.7 percent growth between 1991-95; 7.3 percent in 1996; and 3.5 percent in 1997. The resultant improvement in the economic climate has made it easier to do business in Zimbabwe, and the country has now embarked on the second phase of its economic reform program entitled Zimbabwe Program for Economic and Structural Transformation (ZIMPREST).
The country's economy is agriculturally based and an excellent rainy season combined with new investment has resulted in unexpected growth in this sector. There has also been continued expansion in mining, and private sector services (30 percent of the GDP) are expected to grow between 3 and 5 percent.
Improved investment in water management and conservation is improving Zimbabwe's ability to withstand crippling drought, and the government is making real attempts to control public expenditure and inflation. High unemployment and inadequate wages are also major issues with which the government is struggling to cope.
Although Zimbabwe, with a population of 11.2 million (1995 estimate), is a country in transition, and considerable patience and perseverance are needed to break into the competitive market, there is promise, and the results will be worth the effort.
Leading sectors for U.S. exports and investment include:
Agricultural Equipment Transportation Equipment Power Generation and Transmission Equipment Telecommunications Equipment Franchising Textile Machinery Food Processing and Packaging Equipment Engineering Services and Construction Materials Mining Equipment For additional information, consult the Country Commercial Guide: Zimbabwe or contact:
The Commercial Section
American Embassy
PO Box 3340
Harare
Zimbabwe
Tel: (263) (4) 794-521; Fax: (263) (4) 796-488Note: Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's 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. They can also be ordered in hard copy of on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS.
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[end of document] Note* International Copyright, United States Government, 1999. All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
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