South Africa as an Emerging Market for International Business

Introduction: South Africa's Emerging Economy

The Republic of South Africa is a burgeoning international market for trade and investment. Since the establishment of freedom from apartheid in 1994, the country has seen dramatic political, economic, cultural, and legal changes that have brought it to the forefront of international business. The economic picture of the country is in a growth phase and will continue to be so if conditions in other areas continue to improve.

South Africa is a middle-income, emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; a stock exchange that ranks among the 10 largest in the world; and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region (U.S. Central Intelligence Agency, The World Factbook, 2003).

In addition to these positive economic aspects, South Africa stands on the brink of a major transition — and transitions are not shouldered without conflict and strain. Growth has not been strong enough to lower the country's high unemployment rate, and daunting economic problems remain from the apartheid era, especially poverty and lack of economic empowerment among disadvantaged groups. High crime rates and HIV/AIDS infection rates also deter investment. South African economic policy is fiscally conservative but pragmatic, focusing on targeting inflation and liberalizing trade as means to increase job growth and household income (CIA, World Factbook, 2003).

South Africa, though in a growth phase with a real growth rate of approximately 3% (2002 est.), has serious disparities not yet bridged by progress. With a gross domestic product purchasing power parity of $432 billion (2002 est.), the country still carries an estimated unemployment rate of 37% — including workers no longer actively seeking employment — and an estimated 50% of the population lives below the poverty level. The GDP per capita (purchasing power parity) averages a low $10,000, and the lowest-earning 10% of the population consumes only 1.1% of income, while the highest 10% shares 45.9% (1994 figures). The estimated inflation rate in 2002 was a relatively high 9.9%. Of the total population of approximately 42,768,678, an estimated 17 million are economically active (CIA, World Factbook, 2003).

As of October 28, 2004, currency exchange rates reflected ongoing growth:

1 South African Rand = 0.16243 U.S. Dollar; 1 U.S. Dollar (USD) = 6.15650 South African Rand (ZAR). The median price was 0.16164 / 0.16243 (bid/ask), the minimum price was 0.15835 / 0.16003, and the maximum price was 0.16264 / 0.16407 (FXConverter, OANDA.com, 1997–2004).

The strength of the Rand has continued to grow, as reflected in exchange rates over preceding years: rand per U.S. dollar — 10.5407 (2002), 8.6092 (2001), 6.9398 (2000), 6.1095 (1999), 5.5283 (1998) (CIA, World Factbook, 2003).

Political Transition and Constitutional Change

Politically, the country is in the transitional phase out of the apartheid era, now defined by universal suffrage and a modern constitution. The constitution, slowly implemented since its inception in 1996, has marked a period of change that has left the historically white-minority-controlled infrastructure in a relatively unstable condition.

Despite obstacles and delays, an interim constitution was completed in 1993, ending nearly three centuries of white rule in South Africa and marking the end of white-minority rule on the African continent. A 32-member multiparty transitional government council was formed with blacks in the majority. In April 1994, days after the Inkatha Freedom Party ended an electoral boycott, the republic's first multiracial election was held. The ANC won an overwhelming victory, and Nelson Mandela became president. South Africa rejoined the Commonwealth in 1994 and also relinquished its last hold in Namibia, ceding the exclave of Walvis Bay (The Columbia Electronic Encyclopedia, Sixth Edition).

After almost three hundred years of white-minority rule, the challenges are immense for individuals who have never known a time — in their own lives or those of their parents — when they were not subjugated. The realities of compromise and reconciliation between the differing factions of the freedom movement have been disappointing to some, yet for the most part people are taking an active role in the changes needed to recover from the grave disparities that persist today. Many years of defiance and struggle as a way of life have made the political climate in South Africa as heated and raw as might be expected, yet free elections and universal suffrage are beginning to resolve differences as former freedom fighters pave the way toward living in peace.

In 1994 and 1995 the last vestiges of apartheid were dismantled, and a new national constitution was approved and adopted in May 1996. It provided for a strong presidency and eliminated provisions guaranteeing white-led and other minority parties representation in the government. De Klerk and the National Party supported the new charter despite disagreement over some provisions; Inkatha followers had walked out of constitutional talks and did not participate in voting. Shortly afterward, De Klerk and the National Party quit the national unity government to form part of the opposition, operating after 1998 as the New National Party. The new government faced the daunting task of addressing the inequities produced by decades of apartheid while simultaneously promoting privatization and a favorable investment climate (The Columbia Electronic Encyclopedia, Sixth Edition).

Challenges are many, but with strong leadership and the country's commitment to self-government, people remain politically active and hopeful for the future. The fundamental problems that must be addressed for continued economic and cultural growth are the ongoing economic disparity between rich and poor and the social tensions that result from it. Foreign investment is greatly needed to create more jobs with livable wages for the less privileged in society.

As pressures related to international competition intensify, South African companies will be obliged to make rapid organizational and cultural changes — changes that can only be effected through people. Unless the right people are in the right places at the right time, with the right skills and attitudes, the necessary changes will not come about. The key to the desired result is therefore effective leadership. The South African situation is incredibly complex, as many organizations in the productive system have long operated within structures of authoritarianism and bureaucratic hierarchy (Nel, 1994). This situation demands that leaders recognize the dynamics of change and do a great deal of pioneering to move their organizations away from industrial conflict, low productivity, and lack of global competitiveness (Grobler, 1996).

Cultural Diversity and Urbanization

Culturally, the country is highly diverse as a result of many years of intensive international involvement in both industry and settlement. The population is still mostly composed of indigenous African-born citizens, with a majority African/Black demographic across most provinces — with the exception of the Western and Northern Cape provinces.

Eleven official languages are spoken, including Afrikaans, English, Ndebele, Pedi, Sotho, Swazi, Tsonga, Tswana, Venda, Xhosa, and Zulu. Most African people speak Afrikaans or English as a second language, as these are the most widely used languages in the region. Many issues relevant to international business arise from this linguistic and cultural diversity, as both new and established international markets must be aware of and sensitive to changes in the available workforce and the demands for inclusion in growth made by historically marginalized populations. As the infrastructure — including transportation — is strengthened, international business leaders must enforce the social and political standards established nationwide for inclusion and equitable growth.

Though the country has a fairly even urban-to-rural population distribution, there is a remarkable difference in income and standard of living between those who live in cities and those in rural areas who rely on agriculture or mining for subsistence. Only an estimated 53.7% of the population lives within an urban environment. There is increased migration to the cities, driven mainly by a declining agricultural sector and growth in urban unemployment. Declining precious metals prices and other factors — leading to possible retrenchments in the mining industry — further exacerbate this situation (Tladi, Baloyi, & Von Boom, 2003).