21 March 2017
South Africa: Market Profile
Major Economic Indicators
- South Africa’s economy slowed to a narrow growth of 0.1% in 2016. The IMF expects the economy to recover slightly with a growth rate of 0.8% in 2017.
- South Africa’s inflation rate climbed to 6.4% in 2016 largely due to the persistently high food prices amid drought. South Africa’s exports declined 10.9% in f 2016 while imports decreased by 12.3% in the same year.
- Inward foreign direct investment (FDI) in South Africa was US$1.6 billion in 2015, a sharp decline from US$5.8 billion in 2014.
- Hong Kong's exports to South Africa decreased 7% to US$939 million in 2016, while imports dropped 15.6% to US$1,116 million in the same period.
Current Economic Situation
South Africa, the African economy with the highest per capita income, saw GDP growth slip further in 2016 to 0.1% from 1.3% in 2015 due to the poor performances of the agriculture and mining sectors amid drought and sluggish commodity prices, contracting by 7.8% and 4.7% respectively in 2016. The IMF expects South Africa’s economy to remain largely stagnant with a marginal growth of 0.8% in 2017. Infighting of the ruling African National Congress (ANC) in the lead up to the electoral summit in December 2017 may induce some short-term disturbances to the economy.
South Africa’s average consumer price inflation climbed to 6.4% in 2016, the highest level since the recession in 2009. Sharp inflation in 2016 was largely caused by rising food price amid severe drought and a weak South African rand. Inflationary pressure is expected to ease moderately by a stronger harvest foreseen in 2017.
The downtrend in South African exports has persisted, falling 10.9% in 2016 after a decline of 11.8% in 2015, drawing little help from the persistently weak rand. Imports plunged by 12.3% in 2016, after contracting 14.8% in 2015. China is the largest export market and import source of South Africa, accounting for 18% of South Africa’s imports and 9% of its exports in 2016. Other major trading partners of South Africa include Germany, the US, Nigeria, India, Namibia and Botswana. According to the World Bank, inward foreign direct investment (FDI) in South Africa was US$1.6 billion in 2015, a sharp decline from US$5.8 billion in 2014.
South Africa, well known for its precious metals and agricultural products like fruit and wines, has transformed from an agriculture- and mining-dominated economy into a sophisticated manufacturing- and services-based economy, with services comprising more than 60% of the country’s GDP in 2015. In contrast, the agricultural and mining sectors accounted for around 2% and 8% respectively of the country’s economic output.
South Africa’s manufacturing sector contributed to 12.4% of GDP in 2015, with stagnated growth since 2013. Manufacturing industries comprise cars, chemicals, metal and processed food. Electronics and textile products manufacturing can also be found in South Africa. Among various service sectors, telecommunication has been one of the bright spots in South Africa since the government liberalised the sector in 2004. According to Groupe Speciale Mobile Association (GSMA), a worldwide mobile-operators association, the country has the highest mobile penetration rate in Africa, reaching 64.6% in 2013.
South African telecom operators, such as MTN and Telkom, have expanded to other African countries. As a major supplier of ICT-related products and services to southern Africa, South Africa is a major gateway for overseas companies tapping into the southern African market. In addition, the government also aims at boosting the economy through tourism.
With a high rate of English proficiency and an advanced telecommunication infrastructure, South Africa is an upcoming business process outsourcing (BPO) destination. In the past five years, five of the world’s top 10 BPO firms have established BPO centres in South Africa. The South African government offers tax incentives to outsourcing companies committed to hiring a certain number of employees.
With over 50 million people, South Africa is one of the most populous countries in Africa. With a sizable population, along with a relatively high per-capita income (US$5,018 in 2016) and strong private consumption (over 60% of GDP), South Africa is one of the most attractive consumer markets in Africa.
To pave way for long-term economic growth, social and economic challenges including unemployment, income inequality, over-reliance on natural resources, poor infrastructure and social division are to be tackled. The government has launched the National Development Plan 2030 with state-led infrastructure and industrial investment as the main policy tools to drive employment and economic growth.
Labour Market and Employment
Meanwhile, the labour market has remained in the doldrums. The official unemployment rate reached a record-high of 26.3% in 2016, with around 50% of people aged 15-24 being unemployed. In 2014, the government launched the Employment Tax Incentive (ETI) to ease youth unemployment with salary subsidies, helping employers hire job seekers aged 18-29. In addition, the government has set up the Inter-Ministerial Committee on Public Employment Programmes (PEP-IMC) with a target of creating six million jobs by 2019, mainly through government investment on infrastructure and industry assistance. The National Youth Development Agency (NYDA) also set out initiatives to enhance youth employment.
Trade Policy and Development
South Africa is a member of the World Trade Organisation (WTO). Imports originated from other WTO members, including Hong Kong and the Chinese mainland, are subject to the country's most-favoured-nation (MFN) tariff rates. In addition to import tariffs, most goods are subject to a value-added tax (VAT), where the standard rate is currently set at 14%. However, VAT on goods imported for use in manufacturing or resale by registered traders can be claimed as an input tax reduction. Payments of import duties and VAT can be deferred if the goods are put in bonded warehouses. The South African government also relaxed some of the import taxation rules such as removing the requirement for a taxpayer to have a tax invoice prior to claiming an input tax credit.
Most goods can be imported into South Africa without a permit, except for certain goods like foodstuffs, petroleum products, chemicals, second-hand goods, finished machinery and gold. Import permits are usually issued by the Department of Trade and Industry, and are used mainly to collect information rather than to limit trade.
South Africa may initiate anti-dumping or countervailing investigation and impose duties when unfair trade allegations are substantiated. A number of China-origin products, such as wheelbarrow, are currently subject to anti-dumping duties when imported into South Africa. However, there are no anti-dumping measures against Hong Kong products at present.
Free Trade Agreements
Africa has forged good trade links in the region and abroad. The African Growth and Opportunities Act (AGOA) of the US allows some 7,000 kinds of South African products to be exported to the US with preferential quota and duty-free treatment until 2025.
South Africa has also signed a free trade agreement (FTA) with the EU, which came into force in 2000. Under the FTA, 95% of South African exports to the EU receive preferential access. South Africa has embarked on FTA negotiations with many economies, including Singapore, China, Japan, South Korea and India. South Africa is also a member of the Southern African Customs Union (SACU), comprising Botswana, Lesotho, Namibia, and Swaziland. Furthermore, South Africa is also part of IBSA (India, Brazil and South Africa), hoping to forge a trilateral South-South FTA.
In addition, South Africa is also a member of the COMESA-EAC-SADC Tripartite Free Trade Area, which was declared launched in June 2015. This tripartite free trade area comprises the three largest regional economic communities (RECs) in Africa: the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC), creating an integrated market with a combined population of almost 600 million people and a total GDP of about US$1 trillion. This agreement will come into force after the required ratification is attained among 26 member states.
South Africa joined the BRIC Summit in April 2011 to become the fifth member of the exclusive emerging market group, previously comprising Brazil, Russia, India and China. Being a member of BRICS is seen as allowing South African business to gain better access to the BRIC market, which comprises more than 40% of the world’s population and 17% of global trade.
After the seventh BRICS summit held in 2015, the New Development Bank was established with an initial authorised capital of US$100 billion, supporting infrastructure and sustainable development initiatives in emerging economies. This summit also enacted the BRICS Contingent Reserve Arrangement (CRA), which is a framework for the provision of support through liquidity and precautionary instruments in response to actual or potential short-term balance of payments pressures among the BRICS countries.
Hong Kong’s Trade with South Africa
South Africa is Hong Kong’s largest export market in Africa. In 2016, Hong Kong’s total exports to South Africa fell 7% to US$939 million, reversing the expansion of 6.2% in 2015. Major export items in the period included telecom equipment and parts (US$534 million, 56.9% of total), computers (US$99 million, 10.6% of total), watches and clocks (US$24 million, 2.6% of total), footwear (US$18 million, 1.9%) and other articles of apparel, of textile fabrics (US$17 million, 1.8% of total).
On the other hand, Hong Kong’s imports from South Africa dropped by 15.6% to US$1,116 million in 2016, after expanding by 20% in 2015. Major imports included silver & platinum (US$524 million, 47% of total), fruit and nuts (not including oil nuts), fresh or dried (US$243 million, 21.8% of total), medicaments (including veterinary medicaments) (US$61 million, 5.5% of total), telecom equipment and parts (US$47 million, 4.3% of total) and crustaceans, molluscs & aquatic invertebrates, chilled, frozen, dried, salted or in brine (US$47 million, 4.2% of total).
South Africa’s Involvement in the Hong Kong Economy
South African companies have established offices in Hong Kong, including five regional offices and ten local offices as at June 2016. The range of businesses includes trading, banking, airline, mining, food and brewery. Examples include the Standard Bank, South African Airways, Macsteel, Metspan, Sappi Trading, Sasol Chemical Pacific, Sasfin Asia and SAB Miller.
In 2016, the number of South African visitors to Hong Kong reached 66,456, dropping 7% from 71,432 in 2015.