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What impression are we providing the rest of the world?

13 March 2014 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

South Africa has always been a country which has never been too far from the international spotlight. This intensified after 1994 when South Africa held its first ever democratic elections. Since then, a number of events have kept the spotlight on the country and these events played a crucial role in maintaining the country's positive international image.

The lights are on - for now

While South Africa is a small player in the international market, the South African economy is seen as the giant of Africa. The country prides itself on a sophisticated economy which is backed up by a well-established infrastructure backbone.

But this infrastructure backbone has its weaknesses. For the first time since 2008, State owned power utility Eskom announced that it would have to reintroduce its load shedding programme in March in order to take pressure off the national grid. This was blamed on the inclement weather that badgered much of the country earlier in the month which caused the utility's coal supply to become wet.

Besides the irritation factor - which for many people is the foremost gripe that they have with Eskom - there are other factors which unfortunately fall prey to the load shedding programme.

Although it was abandoned the day after being enforced, the threat of load shedding is ever present and has an effect on local business.

A report on iol.co.za pointed out that local business leaders were counting the costs of the recent outages and Peter Attard Montalto, an economist at Nomura in London, said the outages might cut gross domestic product by about 0.2% a day. Neren Rau, the Chief Executive of the South African Chamber of Commerce and Industry, said, "If we are looking at power constraints of about a day or two, then our losses would in the lower billions, but if you're looking at a week or more, it's going to escalate very fast."

Mining industry blues

But the biggest industry that is affected by load shedding is the mining industry. In an effort to avert this, Eskom has often asked mines and other large industrial companies to reduce their energy consumption by 10%, which in itself takes its toll on the industry.

A report by Monyweb points out that South Africa's coal, platinum and gold mines produced over $360 billion of worth of product last year, which amounts to R1 billion per day. These mines stand to lose millions of rands a day in lost production just by trying to adhere to Eskom's request of reducing electricity usage by 10%.

There is also the safety factor. While there are many opencast mines in South Africa, the mining industry is typified by its deep level platinum and gold mines. Electricity is used to firstly run the lifts which take workers in and out of the work area. It is also used to run cooling systems to cool down the work area and to pump air into the tunnels to prevent asphyxiation. If there is load shedding in the middle of the shift.

The cooling and air systems don't work, and the mining company will struggle to get workers out of the work area safely.

Are we still a gateway to Africa?

Despite its challenges, Africa still presents interesting opportunities to international investors.

Business in Africa is tricky at the best of times where the barriers of entry are very high. A successful presence in Africa may often depend on a presence on the continent.

Many companies have expressed interest in establishing this presence in South Africa. But if you were an international investor, would you want to set up a company in South Africa with the current fragile electricity infrastructure?

The IOL report adds that Sandile Zungu, the General Secretary of the Black Business Council, said the unreliability of power supply would severely compromise the confidence of business in the state's capacity. "This will dampen our hopes for accelerated industrial capacity expansion as the private sector begins to take a cautious investment approach."

With this in mind, how different is South Africa's barriers of entry to other African countries?

There is also the tax framework that needs to be taken into consideration. Currently, the corporate tax ratio in South Africa is 28%, which is considerably high when you compare it to the rest of the world where corporate tax levels have been reduced to around 22% in order to encourage foreign direct investment.

The dark cloud does have a silver lining

While South Africa does have its challenges, there are still a lot of positives that can be taken out of the current attention that the Oscar Pistorius trail is bringing to the country.

Besides the positive economical spinoff of having international journalists staying in South Africa and spending money, one of the biggest misperceptions of doing business in South Africa is being silenced.

Questions have often been raised about the South African legal system, its functionality, and its ability to protect the public. Addressing the media during the trial, Efficient Group Director, Dawie Roodt pointed out that an advantage of having media coverage of the trial is that it shows that the South African legal system is a sophisticated, functioning system.

It also shows that when one enters into a contract in South Africa, they are legally bound to uphold that contract. This is an issue which has been a sore point with international investors who see Africa as a cesspool of bribery and corruption.

Editor's Thoughts:
We need to take a step back and ask: what type of an impression are we presenting to the rest of the world? Granted, we should be trying to create a good impression even when we are not in the spotlight. However, we need to seize this opportunity with both hands to show the rest of the world that South Africa really is open for business. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Fergus sings the blues, 13 Mar 2014
South Africa is well suited to be a big (if not the main) player in Africa, but foresee that we will have our fair share of issues maintaining that favour. It is not just power supply that will dampen enthusiasm for SA, but labour strikes, service delivery protests, constant focus by government on the next elections (national, local government and then party elections - they always happen in different years!). And then there is conditions that aren't entirely business friendly. Red tape and regulation hampers growth and or expansion.

It will fall to the country that panders best to the whims of the international community that will win that favour. At the moment, Nigeria seems to be gaining some of that favour. Time is now to stop the turning of that tide.
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Added by Gerrit, 13 Mar 2014
Weren't our first elections 1994? Ed: You are 100% correct - thank you for advising Gerrit.
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