PESTLE Analysis

PESTLE ANALYSIS
Summary
South Africa's governance indicators are better than those of most African countries. It fares particularly well on
indicators like voice and accountability and government effectiveness. However, the state of law and order continues to
be grave, with increasing unemployment and violent crime.
The South African economy is the most developed of those in Africa. The country has weathered the global economic
crisis relatively well due to strict government regulation of the banking sector. However, increasing household debt and
sluggish economic growth remain areas of concern.
The HIV/AIDS pandemic continues to overshadow South Africa's social fabric, complemented by inequality.
South Africa's R&D spending is relatively low compared to international standards, but its mobile telecommunications
market is highly acclaimed.
The South African legal system has an independent judiciary and complies with the provisions of the World Intellectual
Property Organization (WIPO). The promulgation of the Intellectual Property Law Amendment Act and the Counterfeit
Goods Act has further ensured South Africa's compliance with the Trade-Related Aspects of Intellectual Property Rights
(TRIPS) initiative and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT)
South Africa is renowned for its distinctive environmental landscape. The South African government has collaborated
with other developing countries to ensure safer urban biodiversity and is keen on improving the country's environment
indicators. However, the recent acid mine drainage is a major health and safety concern. The increasing poaching of
rhinos is threatening the very existence of the species.

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Political analysis
Overview
Since the restoration of democracy in 1994, South Africa has been under the governance of a single ruling party, which
has led to continuity in government policies. South Africa's healthy relations with international organizations and
neighboring countries have consolidated its position in the global political arena. The country performs comparably well
in most governance indicators but has scope for improvement in the sphere of law and order, which, with increasing
unemployment and violent crime, continues to be a major issue. This has caused many educated white citizens to
migrate to safer destinations like the UK, Australia and New Zealand. Although the African National Congress (ANC) won
its fifth consecutive election in May 2014, the voter base of the ruling party fell significantly since the last election.

Table 3:

Analysis of South Africa's political landscape

Current strengths

Current challenges

Good governance compared to peers

Violent crime

Continuation of ANC policies

High corruption

Future prospects

Future risks

Increasing international influence

Waning confidence in the ANC

Political stability
Source: MarketLine

MARKETLINE

Current strengths
Good governance compared to peers
South Africa fares well on governance indicators when compared to other African countries. According to the World
Bank's governance indicators (2013), the country was ranked in the 66.51 percentile for government effectiveness, 65.40
percentile for voice and accountability, and 64.11 percentile for regulatory quality. Other major African countries like
Egypt and Nigeria have been ranked lower on these indicators. However, in global terms, there is much scope for
improvement in South Africa.
Continuation of ANC policies
Since the restoration of democracy in 1994, South Africa has been under the governance of the ANC, the anti-apartheid
political party once led by Nelson Mandela. Consequently, there has been continuity in terms of policy implementation
since the party came to power. Most of these policies have focused on integrating the numerous social groups in the
country and elevating the living standards of people in rural areas. The former president's market-driven economic policy
known as the Growth, Employment, and Redistribution (GEAR) Strategy played a crucial role in making South Africa a
major stakeholder in the international economy. Moreover, the Truth and Reconciliation Committee headed by
Archbishop Desmond Tutu spearheaded measures to reinstate the country's social heritage, which was weakened during
the apartheid era. These policies are still under play.
The ANC secured its fifth successive election victory in May 2014 and Jacob Zuma was re-elected as the president.

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Zuma enjoys strong support among trade unionists and the South African Communist Party, an ANC ally, which believes
that he will redistribute South Africa's wealth in favor of the poor. However, Zuma has adopted a pragmatic approach.
Moderates remain in powerful positions, although left wingers (including the ANC's trade union and communist allies)
have been rewarded for their continuous support. President Zuma is expected to continue with the economic policies of
the ANC.
Current challenges
Violent crime
Violent crime remains a serious concern in South Africa. The country has one of the highest murder rates per capita in
the world, outside of a war zone. According to the South Africa 2014 OSAC Crime and Safety Report, Johannesburg,
Durban, Cape Town, and Pretoria fall under the "critical" category. The crime rate in the country is high and offences
include burglaries, street muggings, armed home invasion robberies, smash-and-grabs, and organized attacks on
commercial centers. Carjacking is also a major concern in the country.
According to the South African Police Service crime statistics, 2,172,876 cases were registered under "serious crime"
during 2013-14. The high level of inequality in the country may be seen as a contributing factor to the violence. High
crime rates have a negative impact on the country's image as a business destination and may deter investors.
High corruption
Corruption is a serious problem in South Africa. In Transparency International's 2014 Corruption Perceptions Index,
South Africa ranked 67th among 174 countries. Corruption is considered chronic, especially in the department of police
and home affairs. According to the Global Corruption barometer, 54% of the South African population believes corruption
has increased "a lot" during the previous two years. Around 77% felt of those surveyed in South Africa felt that political
parties were corrupt/extremely corrupt, 70% of respondents felt that parliament was corrupt/extremely corrupt and 83%
and 50% felt that the police and the judiciary are corrupt/extremely corrupt. The government should take relevant
measures to increase transparency and bring down the levels of corruption.
Future prospects
Increasing international influence
South Africa has been elected to serve an additional term in the UN Security Council from January 2011, alongside
Colombia, Germany, India and Portugal. South Africa previously held a seat in the UN Security Council during 2007-08.
This indicates the country's influence as a leader on the African continent, not only in terms of its economy but also in
terms of its political influence. The country also intends to play a prominent role in global and regional affairs as a
gateway to Africa. South Africa has good relations with neighboring states. The country's active participation in the New
Partnership for Africa's Development has enabled it to claim international support towards ensuring political and
economic stability throughout the region, and in the past it has supported countries like Burundi and the Republic of
Congo in their efforts to restore political stability. This has provided South Africa with economic assurance from
international organizations like the African Union and the Commonwealth of Nations.
Political stability
The previous government under Mr. Zuma got re-elected with a thumping win in the May 2014 elections. There is
political stability in the country, as the government is not dependent on the support from other parties in parliament to
pass legislation. The African National Congress, which Zuma leads, accounts for 249 of the 400 seats, is in a strong
position in parliament, which has enabled it to pass legislation without the need of support from the opposition.

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Future risks
Waning confidence in the ANC
The ANC came to power in 1994 with Nelson Mandela at the helm. This heralded the end of apartheid and gave the
party a legacy that made them unbeatable for 18 years. Although technically a multi-party democracy, no party has
popular support rivaling that of the ANC. While the ANC has had commendable success in driving social and economic
progress, it is struggling to uphold its ideals.
Public confidence in the ANC is declining due to its weak response to corruption, rising unemployment, poor
implementation of land reforms and growing labor unrest. Factionalism within the party also points to the difference of
opinion among them. Measures to maintain political supremacy and upholding public confidence are likely to remain
challenges in the medium term.

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Economic analysis
Overview
South Africa's economy is the most developed one in Africa. The country has weathered the global economic crisis
relatively well, due to strict government regulation of the banking sector. In fact, South Africa's banking system is seen as
world class, with sufficient capital resources, a strong regulatory and supervisory environment, and innovative technology
and infrastructure. However, elevated levels of current account deficit and sluggish economic growth remain areas of
concern.

Table 4:

Analysis of the South African economy

Current strengths

Current challenges

Sound banking sector

Current account deficit

A significant tourist destination

Sluggish economic growth

Future prospects

Future risks

Investments in economic and social infrastructure

Rising public debt

Source: MarketLine

MARKETLINE

Current strengths
Sound banking sector
South Africa's banking system is seen as world class, with sufficient capital resources, a strong regulatory and
supervisory environment, and innovative technology and infrastructure. The regulatory framework shielded the banking
sector from the 2008-09 financial crises that resulted in bank bailouts in several countries. For a middle-income country
like South Africa, the performance of its banking system after the crisis has been relatively better. The sector boasts of a
robust risk management system due to timely implementation of the Basel accords, with Basel III norms in place since
January 1, 2013.
The banking sector is adequately capitalized and as of 2014Q2, Tier 1 capital stood at 13.5% of risk weighted assets,
which is well above the minimum requirement of 6%. Higher capital ratios provides the much-needed boost to the
banking sector to absorb more losses from customer defaults on loans, and increasing non-performing assets.
Additionally, non-performing loans (NPLs) to total gross loans declined from its peak during 2009 (5.9%) to 3.5% as of
2014Q2, according to South African Reserve Bank. Decreasing impaired advances and NPLs play a crucial role in
increasing the profitability of the banking sector and improving the lending power of banks. Overall, the banking sector in
the country is strong.
A significant tourist destination
In 2013, South Africa emerged as one of the most successful tourist destinations in the world, with arrivals growing by
4.7% to 9.6 million visitors. The tourism industry is labor-intensive and it is known that one job is created for every 16
visitors. Tourists are defined as visitors who stay for at least one night in the country. During 2011-13, South Africa's
international tourist arrivals grew at an annual average growth rate of 7.4%, which is well above the global average of

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PESTLE Analysis
4.5%. The fact that tourism is a labor-intensive industry and the country is emerging as a tourist destination augurs well
for the economy.
Current challenges
Current account deficit
South Africa's external deficit stood at 5.82% of GDP as of 2013, which is high by its own standards. In the recent past
current account deficit increased on the back of softened commodity prices and weak external demand, high imports of
capital goods, apart from persistent competitiveness issues. Additionally, low saving rate and easy availability of credit
also contributed to the deficit. The IMF expects that over the medium to longer term, the deficit is expected to narrow as
import-intensive infrastructure projects get completed. Nevertheless risks remain in the short term since non-FDI inflows,
especially portfolio investments finance most of the deficit, any slowdown in capital flows could worsen macroeconomic
situation.
Sluggish economic growth
South Africa's economy recorded growth of 4.24% during 2001-08 before contracting by 1.53% in 2009 due to spillover
effects of the global financial meltdown. The economy revived and recorded growth of 3.14% in 2010 and 3.60% in 2011
according to MarketLine estimates. Expansion of the tertiary sector and development in the secondary sector brought
about economic growth. However, the economy lost momentum in 2012 and growth decelerated to 2.48% due to rising
inflation expectations, growing labor unrest, electricity supply constraints, and a decline in investor confidence. The
southward trend of GDP growth continued with the economy posting a paltry growth rate of 1.90% in 2013, and it is
estimated to fall down to 1.35% in 2014. The deceleration in the growth rate is mainly due to fall in private investment
and consumption, fall in public investment and slowdown in exports. The protracted strikes and electricity shortages
deeply affected economic activity. The recovery is expected to be muted and it will be a challenge for the government to
spur the economy to a faster pace of growth.
Future prospects
Investments in economic and social infrastructure
The government aims to further upgrade its transport and electricity infrastructure. The government adopted a National
Infrastructure Plan in 2012 to transform the country's economic landscape. The plan aims to create jobs, strengthen the
availability of basic services and supports the integration of African economies. During 2013-17, the government is
expected to spend ZAR383.7 billion ($33.11 billion) on economic infrastructure only to build new infrastructure and
upgrade the existing. Apart from this, in the 2014 budget the government has also allocated significant amount of sums
towards improving social infrastructure, The investment is likely to improve South Africa's social environment, as it would
improve access to schools, healthcare facilities, water, sanitation, electrification and housing. Simultaneously, investment
in roads, railways, ports and electricity plants are likely to contribute to faster economic growth.
Future risks
Rising public debt
The prudent management of public finances and public debt is vital for macroeconomic and financial stability. The
European sovereign debt crisis pointed out the harmful effects of high public debt on the stability of financial system.
High public debt often results in a ratings downgrade. The ripple effect of the downgrade is likely to be seen in the form
of a decline in bond purchases by non-residents. South Africa's public debt has increased over the years from 38.8% of
GDP to around 48.1% of GDP in 2014, according to IMF. The ratings downgrade by the major agencies might lead to a

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PESTLE Analysis
reversal of sentiment among foreign investors. In such a scenario, South African bonds are likely to face severe
consequences. Moreover, the rise in public debt might increase funding costs, which in turn is likely to affect the ability of
the country to raise funds from international capital markets.

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Social analysis
Overview
South Africa is a multi-ethnic country frequently referred to as the "Rainbow Nation." This is an expression used to
describe the nation's multicultural diversity. The country emerged from a society that was troubled by the separatist
apartheid ideology. Its history of colonization and immigration introduced an eclectic population to South Africa, creating
a society of racially diverse cultures, languages, and beliefs. Cultural influences range from the black origins of South
Africa, to Europe, India, Malaysia and China. South Africa has transformed itself into a progressive nation seeking unity
and integrity. However, elevated poverty levels may create social upheaval if remedial measures are not taken.

Table 5:

Analysis of the South African social system

Current strengths

Current challenges

Affirmative social movements

Lackluster performance in education sector

Bridging the gender gap

Poor performance on human development indicators

Future prospects

Future risks

Combating substance abuse

Poverty and income inequality

Land reforms to address inequality

Source: MarketLine

MARKETLINE

Current strengths
Affirmative social movements
Social movements in South Africa have grown significantly over the past few years, engaging in a range of local and
national actions such as electricity reconnection and the reclamation of land and homes for those who have been forcibly
removed or evicted. These movements have joined forces with an array of international organizations and have pledged
to fight for sustainable development in the country. Furthermore, government-backed socioeconomic policies like the
Black Economic Empowerment program and the GEAR Strategy have played a crucial role in elevating the living
standards of the black population.
Bridging the gender gap
The ability to attract, develop and retain the best talent influences the future of any country. Women make up one half of
the world's human resources so it is essential to nurture their talent and leadership in the global economy. Against the
forecast of talent shortages in developed as well as developing countries, enhancing female talent is important for
business. According to the OECD (Closing the Gender Gap, November 2012), South Africa boasts of a nearly full
enrolment rate for girls (98.6%) and boys (98.3%) between 7 and 15 years with high access to primary and secondary
education.
According to the World Economic Forum, South Africa has performed well in the Global Gender Gap Index 2012 by
securing 14th place out of 142 countries. The country has performed well in terms of the labor force participation,
professional and technical workers, literacy rate, enrolment in primary education, enrolment in secondary education, sex

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PESTLE Analysis
ratio and healthy life expectancy. The country has performed well compared to countries in the BRICS in the Global
Gender Gap index and is ahead of the Russian Federation (75th), Brazil (71st), China (87th) and India (114th).
Current challenges
Lacklustre performance in public education system
South Africa's public education system needs substantial improvement in many respects, including infrastructure and
teaching quality. The poor outcome in the educational sector is often attributed to dysfunctions that originate in the
apartheid era. The most important dysfunction has been the lack of capacity in schools and poor teaching quality. The
lack of infrastructure and a teacher shortage have contributed to South Africa's poor performance in education. A weak
educational system is a key reason for the shortage of skilled workers in South Africa. Therefore, improving the
education system is necessary to improve the overall competitiveness of the South African workforce.
Poor performance on human development indicators
South Africa has performed poorly on some social parameters. According to the UN Development Program's "Human
Development Report 2014," the Human Development Index (HDI) for South Africa is 0.658. This places South Africa at
118th position out of 187 countries. The country's score falls in the medium category in all three dimensions of the HDI:
health, education, and income. The index is indicative of the large proportion of people below basic levels in terms of life
expectancy, access to education and standard of living. Among the BRICS countries, South Africa is only ahead of India
(135th). South Africa's performance on these indicators suggests that much needs to be improved in terms of social
development.
Future prospects
Combating substance abuse
According to the Department of Social Development (National Drug Master Plan 2013 to 2017, April, 2013), South Africa
is affected by a drug problem. The problem mostly relates to the demand for illicit drugs but in South Africa it has been
extended to include demand for substances like alcohol that create dependence. The country needs to take steps to
combat the drug problem by applying policies and practices acceptable to the country and the world community. The
Central Drug Authority (CDA) formulated the National Drug Master Plan (NDMP) 2013-17; this was approved by
parliament to meet the requirements of the concerned international bodies and the particular needs of South African
communities. The NDMP is designed to enable joint action by government departments at the national and provincial
level to fight substance abuse.
Land reforms to address inequality
Years after the end of apartheid, the majority of commercial farms in South Africa remain white-owned, with white
farmers owning more than 85% of the nation's farmland as of 2010. To redress this situation, the Ministry of Rural
Development and Land Affairs proposed a plan to speed up the transfer of agricultural land from white land owners to
landless black citizens. This will be achieved by identifying state land to be leased out, and private land under freehold
but with a limited scope. To assist the greater participation of black citizens in agriculture, the government introduced the
"willing seller, willing buyer" policy that encourages white farmers to sell their land to the state. Under this plan, the
government aims to transfer 30% or around 25 million hectares of agricultural land to landless black South Africans by
2014. This target may be optimistic as only 8% had been transferred up until 2011; though the target is likely to be
deferred, this represents a significant step towards reducing inequality. The proposed system is expected to even out the
skewed distribution of land among South Africans.

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Future risks
Poverty and income inequality
Statistics on poverty show that the proportion of people living in poverty in South Africa has not changed significantly
since 1996. Around 45.5% of the people in South Africa were poor as of 2011, according to Statistics South Africa, while
around 20.2% of the people lived in extreme poverty. Additionally, share of national consumption of the richest 20% (per
capita) was around 61.3%, while the share of national consumption of the poorest 20% (per capita) was around 4.3%.
These figures suggest of wide inequality in South Africa. The country's Gini coefficient (income per capita including
salaries, wages and social grants) stood at 0.69 as of 2011. A Gini index of 0 represents perfect equality, while a score of
1 implies perfect inequality. The government needs to take significant measures to bring down its poverty rate and
promote equality.

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Technology analysis
Overview
South Africa's IT standards have been universally commended. Noted IT companies and foundations have lauded the
South African government for applying IT standards within public sector organizations. The government has also
encouraged the move towards open source software, which allows users to modify and redistribute existing software.
South Africa's National Research Foundation (NRF) signed an agreement with the European Synchroton Radiation
Facility (ESRF) in May 2013; this agreement is expected to boost South African research as scientists can now access
the ESRF research facility. Declining R&D expenditure and high rate of piracy are areas of concern.

Table 6:

Analysis of South Africa's technology landscape

Current strengths

Current challenges

Laudable IT standards

Declining R&D expenditure

Agreement to facilitate scientific research

Future prospects

Future risks

Technological think tank

High software piracy levels

Nationwide broadband access by 2030

Low patents

Source: MarketLine

MARKETLINE

Current strengths
Laudable IT standards
South Africa's IT industry has been lauded by international IT majors like IBM and the Shuttleworth Foundation for
applying IT standards that promote interoperability among public sector computer systems, as well as for its move
towards open source software. Open source software permits users to use, change, and improve software and
redistribute it in a modified or unmodified form. This facilitates accountability and transparency within public organizations
and further ensures the speedy implementation of government projects and proposals. Moreover, the country has good
mobile penetration and network coverage while the presence of eminent research bodies such as the Council for
Scientific and Industrial Research creates an environment conducive to technological development in the country. The
national system of innovation is also in place, which is likely to provide a fillip to innovation.
Agreement to facilitate scientific research
In May 2013, South Africa's National Research Foundation (NRF) signed an agreement with the European Synchroton
Radiation Facility (ESRF) in France, making it a full time partner in the facility along with 18 European countries. The
agreement recognizes the expertise of South African scientists and showcases the country's potential in scientific
research. South Africa's research efforts in biosciences, medicine and nanoscience are likely to be boosted by its access
to the ESRF research facility.

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Current challenges
Declining R&D expenditure
South Africa has not yet met its target of spending 1% of GDP by 2010. South Africa's R&D expenditure has steadily
declined over the past few years. During 2007-08, R&D expenditure as a percentage of GDP was around 0.93% of GDP,
which declined to 0.92% of GDP during 2008-09. The downward trend continued during 2009-10, 2010-11 and 2011-12,
when it was 0.87%, 0.76% and 0.76%, respectively. Going by the present trend it seems difficult to attend the spending
target 1.5% of GDP on R&D by 2018 set by the African National Congress's election manifesto.
Future prospects
Technological think tank
In August 2013, Microsoft announced their first Microsoft Technology Center (MTC) in Africa. The MTC has stocks of
hardware and devices from local partners and is equipped with architects and developers. The crux of MTC lies in the
fact that it will help their customers to find new ways to grow their businesses and optimize their existing technologies.
The center is likely to play an important role assisting Microsoft's 4Afrika initiative. The MTC creates an environment to
ensure excellent learning and development experiences. Technology hubs like this are likely to sharpen innovative skills
and help South Africa establish itself as a regional technological hub in the medium term.
Nationwide broadband access by 2030
The South African government aims to provide basic broadband access throughout the country by 2030, having finalized
a broadband policy referred to as 'South Africa Connect'. The plan seeks to ensure that all South Africans have basic
broadband access by 2030 and that half of the South Africans population have access to 100Mbps broadband speeds by
2020. These initiatives will go a long way towards supporting the digital economy.
Future risks
High software piracy levels
More than a third of the software used in South Africa, valued at about $385m in 2013, is unlicensedaccording to the
BSA Global Software Piracy Study. Legitimate sellers are losing millions due to high piracy, which is hurting revenues
and acting as a major barrier to the development of the technology market. The government must take urgent measures
to reduce such violation of intellectual property, as this can hamper innovation.
Low patents
Patents are often seen as a sign of competitiveness. South Africa's record in this area has been very poor. The
government had intervened in order to increase the number patent applications by establishing the Technology
Innovation Agency (TIA) and National Intellectual Property Management Office (NIPMO). However, these initiatives failed
to provide the desired results. According to the USPTO, in 2013, the number of patents granted was 161. This is much
lower than its BRICS counterparts.

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Legal analysis
Overview
The South African legal system has an independent judiciary and complies with the provisions of the World Intellectual
Property Organization (WIPO). The promulgation of the Intellectual Property Law Amendment Act and the Counterfeit
Goods Act has further ensured South Africa's compliance with the Trade-Related Aspects of Intellectual Property Rights
(TRIPS) initiative and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).

Table 7:

Analysis of South Africa's legal landscape

Current strengths

Current challenges

Independent judiciary

Product market regulation

Intellectual property rights

Oligopolies continue to impede competition

Providing incubation to small businesses

Future prospects

Future risks

Enforcing contracts made easier

Discriminatory foreign investment practices

Low tax compliance cost

Source: MarketLine

MARKETLINE

Current strengths
Independent judiciary
South Africa's judiciary is independent and of a high quality. The legal environment for foreign investors is considered to
be secure, while the courts are open to foreigners on exactly the same terms and conditions as South African citizens.
Moreover, trade and industrial activities are undertaken within the framework of a free enterprise economy, which has
boosted foreign investment considerably. The legal framework to penalize public office holders who abuse their powers
is substantial. For instance, in 1999, the Public Finance Act was ratified and in 2003 the Prevention of Corruption and
Combating of Corrupt Activities Act was approved by parliament, making it illegal to receive political bribes.
Intellectual property rights
South Africa actively participates in almost all international conventions on the protection of intellectual property. Patents,
trademarks, copyrights, and industrial designs and models are legally acknowledged. South Africa was also one of the
first signatories to the Trademarks Law Treaty at the WIPO in 1994. The Companies and Intellectual Property
Registration Office of South Africa oversees intellectual property rights within the country. Furthermore, the Intellectual
Property Law Amendment Act and the Counterfeit Goods Act reflect the government's determination to uphold its World
Trade Organization commitments and protect the rights of local and foreign companies. This has ensured compliance
with the TRIPS initiative and agreements made under the Uruguay Round of the GATT.
Providing incubation to small businesses
Small businesses in South Africa are expected to play an important role in creating jobs and under such a scenario, it is
essential that the government helps them in the initial stages. Small enterprises often face the problem of stabilizing in

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their initial years and it is at this time that they require government support. The Provision of incubation to these
businesses implies providing crucial business infrastructure and guidance. Incubating also involves the creation of an
environment where there is an exchange of ideas, information and experiences. Seda's Technology Programme since its
inception, has created 31 incubators across the country and has helped many small enterprises to survive. In September
2012, the Incubation Support Programme was launched in order to encourage partnerships between the government and
private sector to support the development of incubators for small businesses. Furthermore, a memorandum of
understanding was signed between the United Nations Development Programme (UNDP) and DTI regarding the
promotion of business incubators in the country. Such steps are likely to help small enterprises survive and develop,
leading to greater job creation.
Current challenges
Product market regulation
Product market regulation (PMR) describes the restrictions in a market. The OECD uses indicators such as state control,
barriers to entrepreneurship, and barriers to international trade and investment to gauge the performance of an economy.
Liberalizing product market regulation is seen as an important step to get better labor market outcomes. In order to
converge to OECD income levels it is necessary to increase productivity, by improving the economic and technical
efficiency of production. One can find a strong relationship between competition in product markets and the performance
of firms in important areas of capital deepening (or capital intensity), innovation and corporate management. Competition
prevents distortions that originate from monopolistic market structures. The product market regulation in South Africa
fails to bring about robust competition. The OECD's product market regulation indicator puts the country along with other
countries that have high regulation. Compared to other BRICS countries, South Africa's product market regulation is less
restrictive, but is fairly restrictive from a global perspective.

South Africa product market regulation (2013)

3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00

India
China
Brazil
Turkey
Russia
South Africa
Israel
Croatia
Mexico
Korea
Greece
Slovenia
Romania
Cyprus
Poland
Latvia
Bulgaria
Malta
Sweden
Lithuania
Chile
Switzerland
Iceland
France
Norway
Luxembourg
Ireland
Spain
Canada
Japan
Czech Republic
Belgium
Slovak Republic
Hungary
Portugal
Germany
Finland
Estonia
Australia
Italy
New Zealand
Denmark
Austria
United Kingdom
Netherlands

0 (not regulated ) to 6 (fully regulated)

Figure 2:

Source: OECD

MARKETLINE

Oligopolies continue to impede competition

Although several reforms have been introduced, the utility, transport, mining and media industries continue to be dogged
by oligopolies. In fact, dominant companies and collusive practices have been a part of the South African business
landscape since the introduction of apartheid. Even though the government has made efforts to improve conditions, it

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has suffered longstanding pressure from labor organizations to protect strategic and labor-intensive industries from
competition.
Future prospects
Enforcing contracts made easier
The government has brought changes to regulation which would make it easy to enforce contracts. The new regulations
has amended the monetary jurisdiction of its lower courts and introducing voluntary mediation. Measures such as these
are likely to encourage foreign investment in South Africa.
Low tax compliance cost
South Africa has one of the lowest tax compliance cost in Africa, according Paying Taxes 2015. South Africa's total tax
rate (aggregate of profit taxes, labor taxes and other taxes) was 28.8% compared Africa average of 46.6%. In addition,
time to comply (hours) is 200, when compared to the African average of 317. Further, number of payment (7) is also on
the lower side compared to African average of 36.2. A low tax compliance burden makes a country more investment
friendly for businesses and startups.
Future risks
Discriminatory foreign investment practices
Since 1994, both foreign portfolio and direct investments in South Africa have increased substantially. The South African
government is conscious of its need to attract more FDI. However, a volatile currency, cumbersome regulatory
environment, and the dominance of large industrial conglomerates in some sectors are likely to impede foreign
investment. Furthermore, the requirements of the Black Economic Empowerment program that are applicable to
international companies if they seek government contracts is likely to be another dampener for foreign investors. When
the ANC came to power in 1994, it recognized the Black Economic Empowerment program as a major vehicle for
addressing the injustice of the apartheid regime. However, these restrictions are most likely to limit the entry of FDI in the
near future.

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Environmental analysis
Overview
South Africa is renowned for its distinctive environmental landscape. The South African government has collaborated
with other developing countries to ensure safer urban biodiversity, and has further stressed the importance of sustainably
developing the country's environment and energy resources. Furthermore, South Africa has adopted the UN's Agenda 21
to ensure sustainable development. The South African government is encouraging investment in renewable energy and
is collaborating with other countries in this field. However, the recent acid mine drainage is a major health and safety
concern. The rise in rhino poaching is threatening the very existence of the species.

Table 8:

Analysis of South Africa's environmental landscape

Current strengths

Current challenges

Climate change policy

Acid mine drainage

Sustainable development initiatives

Neglect of environmental issues in infrastructure and housing

construction projects

Future prospects

Future risks

Energy partnership with Germany

Rhinoceros poaching

Source: MarketLine

MARKETLINE

Current strengths
Climate change policy
In October 2011, South Africa launched its National Climate Change Response Policy. The policy set clear guidelines for
responding to climate change while pushing towards a green economy. The government is aware that climate change
has a huge impact on economic growth, sustainable development and quality of life. Furthermore, South Africa's
vulnerability to these impacts is widely known, as the nation has felt the impact of climate change on food security,
agricultural production and food prices. The main aim of the policy is to manage the impact of climate change effectively
and to build South Africa's capacity to respond to such issues.
Furthermore, addressing the issue of climate change also requires adoption of green energy. South Africa, over the
years, has stepped up its efforts to promote green energy. In December 2011, the country formed a partnership with the
European Investment Bank (EIB) and four other European countries to provide funding and expertise to support its target
of increasing the share of green energy.
Sustainable development initiatives
South Africa has taken several steps towards implementing the UN's Agenda 21 on sustainable energy and
environmental development, actively participating in many global and regional sustainable development initiatives.
Further measures taken include reforming environmental policies and ratifying international agreements. The South
African government has also decided that it will reduce the country's greenhouse gas emissions by 34% by 2020.
Moreover, it played a major role in the ratification of the Kyoto Protocol for the second time during the Durban

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PESTLE Analysis
Conference of the Parties event in December 2011. These initiatives will go a long way towards protecting South Africa's
natural biodiversity.
Current challenges
Acid mine drainage
South Africa faces a water crisis that could impede its future economic growth and cause several health problems. An
immediate challenge facing the country is acid mine drainage, which is polluting a vast area from the Witwatersrand to
Mpumalanga. Acid mine drainage, which occurs when mines close and stop pumping water out of shafts, has
contaminated many streams and dams. Acid mine drainage in South Africa has long been a threat to the environment
and the government must take immediate measures to contain it.
Neglect of environmental issues in infrastructure and housing construction projects
Environmental standards have been particularly neglected within infrastructure and housing construction; in South Africa,
the environment remains a third priority after economic and social issues. For instance, the government has given
precedence to housing, primarily aimed at the poorest sections of society. However, new housing projects have mostly
been implemented with scant regard for the environment. The government has been slow in implementing its progressive
environmental policies and laws, apparently due to the lack of finance, human resources, and the regulatory frameworks
required to put these in practice. Furthermore, manufacturing companies have frequently neglected environmental
concerns, leading to heavy air and river pollution. The neglect of environmental issues is clearly reflected in the country's
Environmental Performance Index published by Yale University in 2014, where it ranked 72nd out of 178 countries.
Future prospects
Energy partnership with Germany
In February 2013, South Africa and Germany signed a memorandum of understanding to promote cooperation on energy
issues and to help South Africa develop sound energy infrastructure. A cooperation agreement signed between the two
countries highlighted a strategic framework for further development of energy cooperation and lays emphasis on
supporting investment for the development of renewable energy. The memorandum, which is based on agreements,
aims to provide a general framework for dialogue and cooperation in politics and energy. According to the South African
Department of Energy, the crux of the partnership lies in the fact that it would promote energy efficiency, new carbon
market instruments to finance investments in renewable energy and opportunities for cooperation in nuclear safety. The
agreement will also encourage companies from both the countries to cooperate and explore business opportunities in the
field of renewable energy.
Future risks
Rhinoceros poaching
According to the World Wildlife Fund (WWF), more than 75% of the world's rhinos are found in South Africa. However,
the population of rhinos is dwindling due to increased poaching. There is great demand for rhinoceros horn in Asian
countries due to its supposed medicinal value. The poaching of rhinos has increased tremendously over the last five
years. According to the South African Department of Environmental Affairs, the number of killings shot up from 13 in
2007 to 1116 as of Dec 10th, 2014. The majority of the killings took place in the state-owned Kruger Park, where
poachers are equipped with high-caliber rifles and night vision goggles.
The government's efforts to prevent the killings so far have failed to yield results. According to the Convention on

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International Trade in Endangered Species of Wild Fauna and Flora, trade in rhino horn is prohibited and cannot be
conducted unless the horn is removed officially. In order to bring the situation under control, the government has
suggested legalizing the horn trade. As killing the animal is not necessary to remove horns, lifting the ban might motivate
hunters to leave the animal alive and would thus preserve the population. A move to legalize the horn trade needs proper
scrutiny before implementation as it does not ensure a reduction in demand. Corruption may affect its implementation
too.

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