1. INVESTING IN SOUTH AFRICA Ryan Robinson McKenna Forrest Lauren Schreiber

2. Where in the World is South Africa?

3. Topography

4. Major Minerals & Resources 90% of Earth’s platinum metals 80% of manganese 73% of chrome 45% of vanadium 41% of gold Leading producer of precious metals 4 th largest producer of diamonds

5. Size/Population 25 largest country in the world Population: 49.3 million o Africans (blacks) o Whites o Coloured o Asians

6. A Rainbow Nation Colonization and immigration has formed a diverse country Population of racially diverse origins, cultures, languages, and beliefs Makes it difficult to generalize business and social culture

7. Communication 11 Official languages: o Zulu 23.8%, Xhosa 17.6%, Afrikaans 13.3%, Sepedi 9.4%, English 8.2%, Setswana 8.2%, Sesotho 7.9%, Xitsonga 4.4%, other 7.2% Literacy Rate: 86.4% Must be able to understand and identify individual’s cultural ancestry o English-speakers: avoid conflict, more reserved o Afrikaaner: more direct, forthright and honest

8. Labor Force Unemployment Rate (2010): 25.2% o ranked in the top 10 countries in the world for income inequality Literacy Rate (2010): 86.4% Strong network of universities host international academics and researchers, with the majority of research and development in South Africa Government has introduced wide-ranging legislation to promote training and skills development

9. Unions & Strikes Union membership rate: 3.1m members o 25% of the formal work force # of labor days lost to strikes: 497,436 (2008) Drawn out strikes and corruption are major concerns o Could be remedied by government spending, but that runs the risk of higher inflation and higher deficits.

10. BEE – Black Economic Empowerment Created by SA government to redress the inequalities of Apartheid Aimed to be a “growth strategy” Companies graded by a scorecard on: o Direct empowerment through ownership/control of enterprises o Management at senior level o Employment equity o Indirect empowerment

11. Imports/Exports Imports: - machinery and equipment - chemicals - petroleum products - scientific instruments Major Trading partners: China, Germany, US Exports: - gold - diamonds - machinery and equipment

12. Government Structure Parliamentary Democracy Federal system of government comprised of national, provincial, and local levels Power is shared between President & Parliament 5 Year term for President elect

13. Government & Society President: Jacob Zuma President acts of Head of State, Commander in Chief of Military Currently 16 Political Parties represented in Parliament African National Congress, dominant political party since 1994 Capitalist society 3 capital cities: o Cape Town (legislative) o Pretoria (administrative) o Bloemfontein (judicial)

14. Government Debt South African debt predominantly based on paying for the funding of the apartheid regime’s - military operations in Namibia and Angola National government debt decreased from 50.4% of GDP (1995) to 23.8% (2008) resulting in a reduction in government's liability over the years. Estimated to increase to 44% of GDP in the next 5 years before gradually declining According to the IMF SA ranks 17 th for lowest level of debt in relation to size of the economy

15. Government Involvement Recent government policies have been focused on fiscal and monetary discipline, which is seen in:  lower inflation  low budget deficit  stable and strong currency. The Industrial Policy Action Plan has also provided incentives to industries.

16. Currency Rand (R) divided into 100 cents (c) ISO code: ZAR Current currency exchange rate o 7.13 R / $ Rand survived 3 crises & currently improving o Currency risk has declined o Appreciated

17. Rand Fluctuations ZAR to USD

18. Currency & Translation Risk Currency Risk: o Rand is currently overvalued  Finance Minister plans on building larger reserves to take more money off of the market.  Due to the large influx of foreign direct investment over recent years, the Rand has been appreciating at a rapid rate  The government is trying to stem the amount of foreign direct investment flowing into SA to slow down currency appreciation. Translation Risk: o Due to the currency appreciation, it’s also become more risky in terms of converting currencies. o Ideal conditions for investment would be a relatively constant exchange rate; the SA Rand has been rapidly appreciating which means currency exchanges are volatile.

19. Economic History 1652: Dutch Settlers arrive followed by French and German 18th Century: British take control of colony and establish the Boer Republics 1948: National Party gains control, instills Apartheid Policy 1980's: Stringent sanctions placed on SA due to racial prejudiced policies 1994: ANC (African National Congress) Party & Nelson Mandela wins first multi-racial elections and dismantles Apartheid

20. Economic Environment GDP PPP (2009): $505.3 billion o GDP grew by 5.2 % in 2007 o Country comparison to the world: 26 GDP nominal: $287.2 billion GDP per capita: $5,787 Inflation Rate (2009): 7.1% World Economic Forum's Global Competitiveness Report 2008 ranked South Africa 45th out of 134 global nations for ease of doing business

21. Macro Economic Stability Government has i mplemented macro-economic policies directed at promoting domestic competitiveness, growth and employment. Economy is growing substantially and additional jobs have been created Economic expansion strengthened by investment and domestic expenditure. GEAR strategy: growth, employment and redistribution

22. Trade Trade Balance: deficit of $3.8 billion Trade Balance with US: deficit $US 1.6 billion Favors free trade Member of the WTO, G-20, and SACU

23. Financial Markets The SA Banking system is comprised of; o a central bank, o several large banking and investing institutions o small local banks SA has a Reserve Bank and Financial Services Board SA Exchange Market: The JSE Limited (Johannesburg Stock Exchange) o SA's only Securities Exchange is the world's o 18th largest exchange market with over 400 companies listed and a market capitalization of R3.3 Trillion

24. Portfolio Investment World Economic Forum's Global Competitiveness Report 2010-11 ranks South Africa high for its regulation of securities exchanges JSE emphasizes the importance of a well-regulated securities exchange for international investors post the global financial crisis o during the crisis, unlike many exchanges, the JSE did not introduce circuit breakers or ban short selling

25. Foreign Direct Investment (FDI) South Africans prefer doing business with locals: FDI is a great opportunity because foreign investors can utilize existing SA companies to engage in Joint Ventures with and do business locally Real Estate development is a booming business in South Africa; there is a high demand for affordable housing and there is currently a lot of Foreign Direct Investment from North America going into development into new homes and apartments Attractive investment opportunity due to: o low costs o great climate o huge pool of creative people o skillfully managed economy

26. Recommendations PROS: o rich in natural resources o skilled labor o need for housing and advancement in infrastructure post- apartheid o emerging market and economy CONS: o corruption and bribery o fluctuating currency o still developing in international markets Advice: o invest in FDI o hesitant but optimistic about Portfolio

27. The End With its advantageous location and a government receptive to foreign direct investment, South Africa certainly looks as though it is becoming an international force to be reckoned with!