South African Business 2017 edition

Looking north

Looking north South African companies are looking to intra-African trade to expand their businesses and improved infrastructure is key. Africa has a population of 1.2-billion, but less than 10% of the trade that happens on the continent is between African countries. Fully 30% of South Africa's exports are to other countries in Africa, but a massive 83% of this volume is into Southern Africa. This means that the potential for South Africa to grow its exports into other parts of Africa is enormous, if the infrastructural obstacles can be overcome. According to Taku Dundira, writing for tralac.org, South African exports into Africa in 2014 amounted to 16% of the total from other countries within Africa, putting SA in second place in the league table (Nigeria was ranked first, Angola third). The value exported by SA into Africa was -billion and just over half of the exports coming from the manufacturing sector. The four biggest manufacturing sub-sectors were machinery (33%), transport equipment (including light vehicles, 22%), base metals (20%) and textiles and clothing (5%). A number of South African companies have been looking north to expand their operations. Shoprite has been spectacularly successful in rolling out is supermarkets across the continent, Procter & Gamble has manufacturing facilities in Nigeria and Sanlam has 20% of the insurance market in Sub- Saharan Africa. Old Mutual has purchased Oceanic Life, a Nigerian life insurance company. There are plans to create a Tripartite Free Trade Area covering three regional groupings across 26 countries. Extending from South Africa in the south and to Uganda and Kenya in the north, the proposed free trade area would encompass more than 620-million consumers in these three regional organisations: Southern African Development Community (SADC), the Common Market for East and Southern Africa (Comesa) and the East African Community (EAC). The buzz-words in promoting intra-African trade are "bureaucracy", "corridors" and "infrastructure". South African retailer Shoprite has noted that it spends about R20 000 per week in permits, and long waits at border posts are routine. But the Chirundu one-stop border post in Zambia has reduced transit times by a third. Passenger transport delays have been reduced from three hours to 30 minutes and freight is now cleared in one day instead of three. A number of corridor projects are in the pipeline or have already been implemented. The Maputo Development Corridor has successfully linked the thriving industrial and business centre of Gauteng Province in South Africa with the Mozambican port city of Maputo. The idea of corridors has been adopted by the Infrastructure Consortium for Africa (ICA), and several corridors have been conceptualised since that decision, for example the Northern Corridor of Central and East Africa. A corridor strategy relies on infrastructure, with inter-related plans being developed involving the SOUTH AFRICAN BUSINESS 2017 36

SPECIAL FEATURE upgrading and standardisation of facilities at ports, railway lines, customs posts and energy projects. South African rail, ports and pipeline operator Transnet is already active in African countries north of the South African border, and is intending to offer its services more widely. This is part of Transnet's Market Demand Strategy (MDS), which seeks to grow the business by responding to the market. Instead of simply making rail wagons for Transnet Freight Rail, the broader strategy looks for new customers (elsewhere in Africa, or in India, China or Australia) where rail wagons can be sold. Transnet Engineering's own Trans- Africa Locomotive (for branch lines and shunting yards) is being marketed to other African countries and mining companies. Another strand of the MDS is evident in Transnet Engineering planning to set up Maintenance Repair and Operations (MRO) centres in four African countries. Transnet Ports Authority might similarly offer its expertise in running harbours and logistics to countries in the corridor. The Sustainable Development Investment Partnership (SDIP) comprises 30 institutions that aim to see 16 African infrastructure projects (valued at more than -billion) carried out. The founders of the SDIP were the World Economic Forum (WEF) and the Organisation for Economic Co-operation and Development (OECD) and other members now include the Bill and Melinda Gates Foundation, the Senegal Strategic Investment Fund (FONSIS), US Agency for International Development (USAID), the Industrial Development Corporation of South Africa (IDC) and the Development Bank of Southern Africa (DBSA). The DBSA is concentrating on energy, transport and bulk water projects in its area and has plans to increase its investments to about R20-billion in the short term. The focus of organisations such as the DBSA is on infrastructure, and this will have a positive spin-off for trade of all kinds, through improved ports and roads, and healthier populations in rural and urban areas. China has pledged to support the rehabilitation of the railway line between Zambia and Tanzania while the Industrial and Commercial Bank of China is to invest R20-billion in renewable energy in Africa. Lack of reliable power supply is a constraint to trade so this and other ventures in the power sector will help to foster trade. The South African Department of Trade and Industry (dti) plays a key role in terms of promoting trade between South Africa and the rest of Africa, but also supports regional bodies such as SADC and promotes the kind of integration contained in the plans of the New Partnership for Africa’s Development (NEPAD) and the African Union’s Agenda 2063. During 2016 the dti launched the Trade Invest Africa initiative to coordinate and implement South Africa's economic strategy for Africa. By working with the private sector, government hopes to take advantage of export and investment opportunities on the continent. The Export Credit Insurance Corporation of South Africa (ECIC) exists to help trade and investment across borders. The ECIC can provide insurance for bank loans that are taken by investors and South Africans can get insurance for investments and for small and medium enterprises there is a product available (performance bonds) to anyone exporting capital goods and services. 37 SOUTH AFRICAN BUSINESS 2017