What makes South Africa an exciting place to invest?

◊ The country’s middle class is burgeoning under the BEE programme, and consumer industries have added another pillar to its economy. Few countries are experiencing such an expansion of their middle-class, and it is a source of optimism that is widely shared within South Africa’s business community.

◊ South Africa has maintained a high ranking for investor protection and the extent of disclosure. The country ranked 22 globally in protecting minority investors according to the World Bank’s Doing Business index.

◊ South Africa is mineral rich, and remains the world’s largest producer and exporter of platinum and gold. Companies from the West, China, and Russia are vested in South Africa’s mineral wealth, capital gains from which will continue to support diversification efforts which have already come a long way.

Financial Technology

The influx of innovative new fintech companies into the African market is being spearheaded by South Africa. Research from Accenture estimates that one third of mainstream banking’s revenue is at threat from new fintech: PwC’s global survey of banks, insurers and asset managers states the percentage who view fintech as a threat to their business is 88%. South Africa is in a unique position to penetrate the African market – straddling as it does the African and the Western.

The percentage of ‘banked’ Africans (that is to say those who have a bank) is a mere 40%, and established fintech can not simply be cut and pasted into the African market.

An African solution is a must, and South Africa has both the local knowledge and the infrastructure – 79% of the population has a mobile phone, and there are 25 million internet users. The ‘banked’ figure is higher too in South Africa at 88%, but it still counts on 1.5 million informal businesses and half the country’s GDP comes from SMEs. 95% of shoppers have a card in South Africa, but very few of these SMEs have the capability to receive payment in this way. Enter iKhokha’s mobile point-of-sale device, allowing informal SME vendors to receive card payment for the first time through a mobile phone.

This is evidence of local knowledge working to provide African disruption, and this sphere is being driven forward by South African innovators. The 1.2 billion Africans on the continent have immense potential, and within South Africa is the capacity to unlock it.

Black Economic Empowerment

When the shadow of apartheid was lifted from South Africa, some darkness still remained: a 2012 census reported that a white family would make 73% more annually than a black family. This striking pay gap cuts to the heart of the structural impactwhich apartheid still has on South Africa today: just because in 1994 it became possible for a business to be run and owned by a black person, does not mean this immediately gave the black community parity.

Indeed it remains difficult for the black community to access South Africa’s economic bounty – the black community very much forms the lowest rung on the social ladder, with access to education, capital and opportunity often preventing them from taking their place in the South African economy.

The Black Economic Empowerment (BEE) acknowledges systemic racism within the South African economy. It seeks to address this balance through direct redistribution of assets, and thus give the black community a greater role in the economy. Involving section of the population, 90% of which is non-white, is aimed at stimulating economic growth and innovation, creating a prosperous South Africa for all South Africans.

The programme works on a points system, and non-compliance carries fines beginning at R1.5 million, although to save stifling growth companies with a turnover of less than R10 million do not have to comply. Thirty points are needed to be compliant – and points range from ownership (51% of shares) worth 20 points, Management control – 10, preferential procurement – 20 and socio-economic development – 5. The results have been striking: in 2017 black South Africans hold at least 23% of the Top 100 companies on the Johannesburg Stock Exchange.

Mining / Petrol / Oil

The physical bounty of South Africa’s land has been the foundation upon which its prosperity has been built. The discovery of the first diamond in 1867 led to an explosion in speculation, when thousands came to seek their fortune on the banks of the Orange River and at Pilgrim’s Rest. This led directly to the establishment of the Johannesburg Stock Exchange, and provided the building blocks to make South Africa the largest and most prosperous economy on the continent.

Mining contributes R419.5 billion to the South African economy, and it is the world’s largest producer of chrome, manganese and platinum. It is the fifth largest producer of gold worldwide, down from its peak in the 1970s, South Africa has one other natural resource sticky black gold: oil. 85 million barrels are proven to lie in the ground, at a potential value of $4.25 billion – with offshore reserves in the Outeniqua Basin potentially running in the hundreds of millions of barrels, the industry has attracted interest from global players such as ExxonMobil and Total SA, who have acquired rights to explore offshore South Africa.

Mineral wealth also forms an important part of South Africa’s energy security: South Africa is the world’s third largest coal exporter, exporting over 50 million tonnes annually at a value of R82 billion. But 75% of this domestically produced coal is used to generate power and 77% of the electricity used in South Africa comes from coal burning plants. The nation also has the second largest Uranium reserves in the world, and a trillion Rand is set to be invested in new nuclear power plants to exploit this resource; plants which will produce 9600 megawatts by 2030 and future-proof South Africa’s energy infrastructure.

Venture Capital

South Africa’s investment environment abounds with opportunity for the enterprising venture capitalist: the privatisation of state interests looks set to form a cornerstone of ANC economic policy in the coming years. Now March 2018 is the date by which the Zuma government and Finance Minister Malusi Gigaba, will roll out their “private sector participation framework”.

This follows a 2015 sale of the government’s stake in Vodacom, raising 23 billion rand, and with such softening attitudes among the traditionally left leaning ANC any number of venture capital firms are set to profit. Slices of South African Airways, power utility Eskom and logistics group Transnet are currently those slated to go on the Johannesburg Stock Exchange cutting table.

But at a deeper level than this, South Africa’s burgeoning startup scene is providing a fertile environment for innovative investors. Concentrated in Western Cape, which boasts 59% of the country’s start ups, and Cape Town–whose university culture has bred a new generation of proactive young graduates. It’s this wealth which has inspired the Silicon Cape Initiative, established in 2009 by Vinny Lingham and Justin Stanford, two angel investors who saw the potential of the region. Heavyweight Google followed in 2011 with Umbono (Zulu for “vision”) offering capital of up to $50,000, showing deep institutional confidence in the profitability of South African innovation: Imerio Communications, TaxTim and Peach Payments being notable success stories.