What makes South Africa an exciting place to invest?

◊ South Africa is the largest economy in the African continent – accounting for one-quarter of the gross domestic product – with $280 billion in national GDP and $5,100 per capita GDP in 2017.

◊ South Africa is the second biggest mobile market in Africa after Nigeria but with a smaller population has a far higher mobile penetration rate – 37.5 million unique mobile subscribers make for 68% penetration.

◊ South Africa has a broadband penetration rate of 54%, significantly higher than the 31% african average, and second only to Kenya in Sub-Saharan Africa; providing a fertile environment for both entrepreneurship and established business.

◊ The National Research Foundation and the Council for Scientific and Industrial Research supported 3,239 doctoral students in 2016/17 as well as 9,353 honours and masters students, with 4,175 researchers received research grants – laying the human capital foundation for a tech-focussed future.

With demographic changes and new blocs to shake up the balance of trade, South Africa has the financial infrastructure and political will to drive Africa forward.

For a savvy investor looking for a competitive long-term advantage, South Africa should be at the forefront of their mind. South Africa can provide an international investor’s stepping stone into the 21st-century continent. Indeed, half the world’s population growth predicted to occur between now and 2050 will come in Africa: an extra 1.3 billion people.
Not that it provides the only possible route into the continent, but the country has the special combination of developing and developed, African and Western, which means it is set to spearhead Afro-economic growth. And that growth is quality as well as quantity, as human capital abounds, highlights Innovation Group CEO Andries van Staden: “There is a new middle class emerging, more people going to school and university.”
Being a member of the BRICS group also provides international significance as Chinese President Xi Jinping styles the bloc as champions of globalization and trade, the new center of gravity as the U.S.A. and U.K. turn away from such free trade and open borders. The growing closeness of South Africa with heavyweight developing nations such as China and India was emphasized in the 2017 BRICS conference title, Stronger Partnership for a Brighter Future.
But this is just one positive to investment in South Africa. According to Thiru Pillay, managing director of Deloitte Consulting Africa, these advantages are manifold: “The quality of infrastructure, sophistication of financial services, the stock exchange, regulatory environment, maturity of the auditing profession, the ICT infrastructure, ports, roads and rails” all add up to mean 80% of Deloitte Africa’s business is done in South Africa.

Financial Systems

The Johannesburg Stock Exchange (JSE) is the largest on the continent, with 42% of total African IPO value since 2012 at $2.7 billion, and in H1 2017 accounted for three of the five African IPOs. The South African financial infrastructure is present to match any in the world; indeed, South African banks average a loan-to-deposit ratio of around 95%, indicating availability of funds to the entrepreneur without overexposure, while South Africa’s banking sector is the only one in sub-Saharan Africa with assets in excess of GDP (115%, compared with 65% in Kenya and 28% in Nigeria).
South African household debt as a percentage of income has declined consistently, from 87.8% in Q1 2008 to 73.2% in Q1 2017, leaving room for greater unsecured lending, which can broaden and invigorate an economy and alleviate poverty by providing flexibility. This is something banking group Capitec is embarking on, using big data, multiple regression models and machine learning to assess applicants’ creditworthiness in order to offer unsecured loans at better rates.
Indeed, investment professionals such as Hale Matsipa of Kleoss Capital report seeing “the impact of technology across all portfolio companies,” and Pillay of Deloitte calls the financial institutions “as good as anywhere else in the world in terms of technology adoption.” Within this integration of ICT and the financial sector can be seen South Africa’s effort to diversify away from commodity reliance, with platforms such as XContent and MobileData’s TradeSwitch powering change.

A Drive Toward Privatization

By March 2018, South Africa’s ANC government will publish its “private sector participation framework,” in light of poor performance from many of the 300-plus state-owned assets. This offers investors clear opportunities to make gains in some flagship brands and follows a successful $2.3 billion sale of government shares in telecom operator Vodacom in 2015. The state looks likely to offload its shares in Telkom, as well as a managing stake in flagship airline SAA. Such sales in and of themselves would be of note to the foreign investor, but this drive takes on greater significance in the political context. Privatization of many, if not all, non–core state assets could be indicative of a changing attitude from an ANC traditionally associated with the trade unions, and for whom privatization has been something of a dirty word. Should the government empower greater private-sector involvement, it would dovetail with the “openness to allow foreign specialists to step in and combine their knowledge” noted by PCM Consulting’s Jann Prinsloo—a vital stream of FDI put to work for South Africa’s future. This could be the start of a rebasing for the local economy, with an efficient private sector being the primary engine driving growth throughout the 21st century.

ICT

South Africa’s ICT industry is the largest and the most advanced in Africa, and in spite of the country’s political and economic challenges the entrepreneurial space within this sector continues to grow. Seen as a leader within the fields of mobile software and electronic banking services, South Africa’s ICT products and services industry has already begun to crack the African market, which itself is growing rapidly. Equally, though international confidence in the country’s economy is weak, industry leaders such as Intel and IBM have opened recent ventures in the country, and Microsoft has elevated it to being among the leading countries for new product releases. All this testifies to the promise of ICT in South Africa, which will be central to generating the growth the country will inevitably achieve once again.

Cyber Security

Were you to go to a conference in 2018 about the future of industry, it is almost certain there would be a mention of the ‘Internet of Things’. From your car to your watch to the machine used to extract the nickel which goes into their batteries, if it isn’t currently connected to the internet it soon will be. While this provides a wealth of options, from optimisation through statistical modelling of large data sets, or simply real time updates, this too provides a risk. 2017 has seen more malware samples created each day than in the entire 20th Century – and conventional wisdom says if it’s connected to the internet, it can be hacked.

The average ICT intensity of jobs in South Africa has increased by 26% over the last decade, and with South Africa leading the way in all manner of technological fields, cybercrime is now the fourth most reported economic crime in South Africa. The economy loses R1 billion each year due to online criminal activities – and this is something recognised by the government, introducing the Cybercrimes and Cybersecurity Bill in February 2017. Comms giant Cisco has also launched a Cybersecurity Experience Centre and Academy, and entities such as The Cyber Security Institute of South Africa, the South African Cyber Security Academic Alliance and the government led National Cybersecurity Hub are laying the groundwork for a burgeoning industry which can apply African solutions to the African continent – one which will be as essential to business as physical security.

Renewable Energy

With most areas of South Africa averaging over 2,500 hours of sun per year and 2,500 miles of coastline adaptable to both wind and hydro-electric power, South Africa is set to lead the continent in its application of clean energy. Indeed, the Council for Scientific and Industrial Research in collaboration with the South African Energy Development Institute, Eskom and the Fraunhofer Institute for Wind Energy postulated that the technical wind power potential if wind farms were to be installed across the country (except exclusion areas such as National Parks) is large enough to supply the entire world’s electricity demand.

The government aims to reduce the share of fossil fuels in the energy mix from 86.5% in 2010 to 57% by 2030, with renewables set to account for 21% and a $100bn nuclear energy programme to make up the balance. State energy supplier Eskom will play a crucial role in the expansion and facilitation of this capacity going forward: traditionally supply to the grid has somewhat constrained the industry in South Africa, and delays when purchasing power from renewable grids have slowed the process somewhat.

But despite this, recent years have seen significant tax breaks for small scale operations of under 1MW coming into force and by 2030 eight coal plants will be decommissioned, to be replaced by solar and wind installations clustered into renewable energy zones known as REDZes.

This will stimulate the wider economy too, providing employment as well as energy. In the first eight of these zones‚ the renewable industry has already revitalised towns – a solar valley developed in the Northern Cape bringin in billions of rand in investment‚ jobs and expertise to the province. Long term it is clear that this will be a growth sector worldwide, and that South Africa has the natural resources to make clean energy central to its economy.

Venture Capital

A burgeoning tech scene with a distinct African flavour driving its innovation and informing its thinking regards problem solving would get nowhere without venture capitalists: the lifeblood of the modern startup. And just as African tech startups have the local knowledge to solve local problems, an African venture capitalist is needed to understand, believe in, and mentor these startups. Groups like AngelHub Ventures who started out as South Africa’s first group of angel investors have since transitioned to a fully fledged venture capital fund supporting like transport startup GoMetro, and educational provider Snapplify. Crowdfunding style companies like Thundafund and P2P lender Rainfin are democratising the investment process and enabling your average South African to support emerging business, and Institutional support too has been forthcoming: The South African Business Angel Network (SABAN), launched in 2016, the Department of Science and Technology supported the Technology Innovation Agency (TIA) (which launched its own seed fund in 2013) and any number of incubators and more traditional private equity firms offer the essential support mechanisms needed to gestion South Africa’s entrepreneurial environment.

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.