Essay: Industry South Africa

Industry South Africa

As requested by the board of directors and management, I have come up with a suitable country in African nations to locate the home appliances manufacturing industry. The particular country that I have chosen is South Africa. The reasons for choosing this specific country are described below using PEST analysis. The PEST analysis includes factors such as tariff rate, the trade regulations of South Africa, the exchange rates, economic growth rates, inflation rate, unemployment rate, demographic, education, spending habits of the South Africans and technologies available in South Africa and many more convincing factors. The United Nations Conference on Trade and Development (UNCTAD) world investment report for year 2004-2005 rated South Africa as the most attractive country in Africa for transnational corporations in 2003.

The political and legal issues of South Africa are as described below

• Import policies
• Tariff rate
• Transparency, corruption, and crime
• Free trade agreement with EU
• Incentive programs for investors by the South African government

Import policies in South Africa deter certain type of goods entering into the country. Under the Import and Export Control Act of 1963, the Ministry of Trade and Industry controls the import of certain goods into South Africa. They are such as petroleum products, ozone depleting chemicals, firearms and ammunition, gambling equipment and radioactive chemical elements. But over the recent years the list of restricted goods has decreased. The restricted goods do not include iron based and wood based materials which are more commonly required for a home appliances manufacturing industry. As natural resources are limited in South Africa, the industry is required to import raw materials from neighboring countries. But this would not cost much as South Africa has signed a free trade agreement known as ‘COMESA’ (common market for eastern and southern Africa) with 20 neighboring African countries. It eliminates tariffs on goods imported among one another. So this would help largely in reducing the production cost.

South Africa has increasingly opened its market since 1994 by reducing tariff rates and non-tariff barriers. The South African government aims to open the market further in order to increase trade and to develop more competitive industries. To comply with its WTO commitments, since 1994 South Africa has reformed and simplified its tariff structure. It had reduced tariff rates on imported goods from more than 20% to 7%. The reduce in the percentage of tax on imported goods are highly useful for industries when it is in need of importing raw materials from other continent such as Asia, Europe or the Latin American countries.

The corruption rate in South Africa has greatly reduced as the government implemented certain laws to reduce the countries corruption level. South African law provides for prosecution of government officials who demands or accepts bribes. Penalties for offering or accepting a bribe may include criminal prosecution, heavy fines, dismissal from the job. There are few agencies and anti-corruption unit such as public service commission, office of the public protector and South African police anti-corruption unit engaged in anti-corruption activities. According to transparency international’s corruption index released in 2007 South Africa was ranked 43 out of 180 countries, up from 51^st place in 2006. This is a proving evidence to show the decline in corruption rate in South Africa. This would give more confidence to investors who are planning to invest in South Africa in the future as the corruption rate is declining every year at a constant rate.

South Africa has signed a free trade agreement with the European Union. Under the agreement, South Africa and the EU established a free trade area over a limited period of up to twelve years for South Africa, and up to ten years for the EU. The FTA eliminates the duties on trade between the EU and South Africa.

There are currently various types of incentive programs for investors are implemented by the South African government. An Industrial Development Zone (IDZ) is built by the government to attract investors to South Africa. Both the local and foreign investors. The IDZ is linked to the airport and port to make it more convenient for the industry to export their goods overseas. This largely reduces cost on transportation needed to carry the goods to the airport and port if the industry is located in some inner part of the country. The aim of the IDZ is to provide demand-driven infrastructure and to generate sustainable local and foreign investment and improve international competitiveness. There are currently four IDZ located in different part of South Africa. Each IDZ offers direct link to an international port or airport, world class infrastructure, specially designed to attract tenants, suitability for export-oriented production, duty free importation of production-related raw materials and inputs, import status for finished goods, which are sold into South Africa, government incentive schemes, reduced taxation and exemption for some products and access to the latest information technology for global communications.

The economical issues of South Africa are as described below

• Economic growth rate
• Macro economic stability
• Cross-border shoppers
• Employment and unemployment rate

South Africa is known as the economic powerhouse of the African continent, with a GDP of R1.1 trillion, four times of their southern African neighbors, and comprising 25% of the entire GDP of Africa. Real GDP has grown since 1999, accelerating towards the end of 2007. The economy grew by 5.1% in 2007. Slightly higher then the previous year by 0.3%. It is also being predicted to increase constantly in the future. This is due to the increasing number of investment in the South Africa by the local and foreign investors. According to the global competitiveness report 2005/06, published by the World Bank, South Africa was ranked 42^nd out of the 115 countries surveyed in terms of its Growth Competitiveness Index (GCI). In terms of Business Competitiveness Index (BCI) rankings south Africa is ranked 28^th out 116 countries. It is one of the highest ranking highest ranking developing economies and surpasses countries such as India, Hungary, Italy and the UAE. South Africa also produces the continents 40% of the total output. The reasons mentioned above strongly prove the number of investments operating in South Africa.

South Africa’s macro economic stability has reached a level not seen in the past 40 years. The budget deficit decreased from 9.5% of GDP to in 1993, to 1.5% in 2006. Total public sector debt fell from over 60% to of GDP to in 1994 to 35% of GDP in 2006. The net open forward position of the Reserve Bank improved from US$25 billion to in 1994 to a positive $US17.2 billion by 2006, the highest level ever.

These advances create opportunities for real increases in expenditure on social services, and reduce the cost and risk for all investors, laying the foundation for increased investment and growth.

Cross borders shoppers are people who come to South Africa for a short period of time to purchase the goods which they need for their business in their home country. The goods they buy from South Africa are generally sold in their home country.

There are about 72% of the cross border shoppers who buy the goods for the purpose of reselling in their home country. The cross border shoppers generally come from the neighboring African countries such as Kenya, Zimbabwe, Nigeria, Zambia and many more. In 2005 cross border shoppers spent about $12.5 billion in South Africa. The great demand for the products made by industries located in South Africa is created by the cross border shoppers. They also largely help in the countries economic growth.

The employment rate in South Africa rate has generally been on an upward trend. The number of jobs created by the new investments in South Africa is increasing yearly. Between the period of September 2001 to September 2005, employment increased by over a million. Between the period of September 2004 to September 2005, 658000 new jobs were created by the new investments in South Africa. There was also a slight improvement in unemployment rate from 26.7% in September 2004 to 26.2% in September 2005.

The social issues of South Africa are as described below

• Adult literacy rate
• Rise in income
• Social cohesion

One of the main reasons for investors to choose South Africa to invest is the increase in percentage of the adult literacy rate. Over the past few years there is a gradual in increase in the literacy rate. In the year 1995 the literacy rate was 69.9% and by 2005 the literacy rate has increased to 74.4% in South Africa. And the numbers of the skilled workers are increasingly graduating from the

Universities. In the year 2000 there was 92,819 students graduated from the universities. But in the year 2005 the numbers of graduates have increased to 124,676. Science Engineering and Technology (SET) graduates are key skilled workers who are critical in supporting economic growth and investment in social infrastructure.

Real per capita income (average income per person) has been rising in South Africa at around 4% annually since 2004. A rise in income in South Africa and the standard of the living of the poor may lead to increased pressure on the environment in other ways, as it may lead to increased demand for the consumer goods. The spending habits of the South Africans will tend to increase when the income increases. The industries will benefit largely as the public are earning more than the previous years and they will tend to buy more quality goods produced by the South African industries.

South Africans are having a strong sense of national identity, at least in terms of association with the geographic and state entity. South Africa is also rated one of the low risk countries in terms of social instability. This could largely attract the investor confidence to invest in the country as they would not expect much protest or riots from workers which are being experienced in the neighboring African countries which could affect the running of the business and affects production of the goods.

The technological issues of South Africa are as described below

• Automation
• Computer-integrated manufacturing
• Robots

The technology of automation is widely used by many industries in South Africa for the running of their business more effectively. This particular technology is very commonly available in South available. Many skilled labors are also employed by the industries to do the maintenance work of this technology. Automation refers to the use of computers and other automated machinery to carry out business related tasks. There are various reasons to automate. The major reason to automate is to increase productivity. This is done so by many industries to keep them selves competitive in business. Automation also offers low operational variability. Variability is directly related to the quality and productivity. The major reasons to automate are to reduce the high labor cost and the hazardous working environment. Many businesses in South Africa automate processes in order to reduce production time, increase manufacturing flexibility, reduce cost, eliminate human error , or make up for labor shortage. There are few types of automation and they are Information Technology, Computer-Aided manufacturing, numerically controlled equipment, Robots, Flexible manufacturing systems and computer integrated manufacturing.

In computer-integrated manufacturing system is one which many manufacturing functions linked through an integrated computer network. The manufacturing-related functions include production planning and control, shop floor control, quality control computer-aided manufacturing, computer-aided designs, purchasing, marketing and other functions. The objective of a computer-integrated manufacturing system is to allow changes in product design, to reduce cost, and to make the best use of production requirements. This technology can be very useful to the home appliances industry as it can increase the production speed, increases the level of output and reduces labor cost.

Robots are a commonly used technology theses days in industries, in places such as semi-conductor industry and others. The Robots are a type of automated equipment that will carry out a certain order of work that are normally handled by a human operator. In manufacturing, robots are used to handle a variety of task including assembly, welding, painting, loading and unloading of heavy or hazardous materials, inspection and testing, and finishing operations.

As a business consultant I have given my best in choosing a suitable location to locate your home appliances manufacturing industry. I strongly believe it would be a very suitable location for your organization to establish your operations in the African continent and setting up a factory in South Africa would greatly reduce cost and would help you all to further expand your market in Africa. I strongly believe the valuable reasons given above would be greatly useful to your organization in making a final decision.

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