South Africa Market Opportunities

Despite the fact that South Africa was already in a so-called technical recession before the covid-19 pandemic and its average GDP growth over the last decade was only 0.9%, the South African economy has been recovering faster than initially expected since the beginning of 2021.

Negative GDP growth stopped at -7% in 2020 and a deeper decline did not occur mainly due to the increase in the price of mineral resources, which represent more than 30% of South African exports, which contributed significantly to ZAR 100 billion in the 2020/21 budget year (approx. 151 billion CZK) to a higher income of the state treasury than the South African ministry predicted at the end of 2020. The favorable export situation together with globally and locally reduced aggregate demand then result in a positive value of the current account balance.

Even so, this is the biggest economic crisis in South Africa in the last 100 years. The debt-to-GDP ratio exceeds 80%, making the management of the national debt dramatically more expensive; it currently accounts for approximately 12.3% of the state budget. All three leading rating agencies, i.e. Moody’s, Fitch and S&P, rate South Africa’s debt beyond investment grade.

Unemployment remains a pressing social and political problem, as it will hit the 35% mark in 2021. The unflattering economic situation of South Africa is mainly due to the reluctance of the ruling ANC party to accept the necessary structural reforms, among other things, to make public administration more efficient.

As part of preventing the spread of the virus, the government declared a state of national disaster on March 27, 2020, freezing all social and economic activities for more than two months and then proceeded to gradually restore economic activities within five levels (5–1). To restore the economy, the government approved a support “package” of ZAR 500 billion (approx. CZK 755 billion), which represents roughly 10% of South Africa’s GDP, consisting of tax breaks, income compensation, direct financing and state-guaranteed loans for entrepreneurs. In addition, South Africa received support in excess of ZAR 90 billion (approx. CZK 136 billion) from international financial institutions last year.

Post-COVID-19 opportunities for foreign exporters

The government identified agricultural and food, energy, including renewable resources, mining and mining, healthcare and pharmaceutical industries as sectors with maximum state support, so-called priority. Investments in production and services across sectors have sustained support. Then construction and information technology. Last but not least, great emphasis is placed on the restoration of economic growth through massive investments in infrastructure.

In connection with the increase in unemployment and the possible growth of crime, an increased demand for equipment and technologies in the area of ​​the security sector can be expected. In order to make deliveries for the South African market, it is necessary to find a local partner, a distribution company, or to establish a local branch. Foreign companies usually compete for government contracts through a local entity, as South African state-owned enterprises do not normally buy directly from foreign suppliers.

Mining, mining and oil industry

According to allcountrylist, South Africa’s exports are largely dependent on the export of raw materials, which is why the government has declared maximum support for the mining sector in the current coronavirus crisis, declaring the mining and quarrying industry to be key to the national economy. Opportunities for Czech companies in the future can be seen in the supply of innovative technologies and solutions for mineral extraction, but also related complex solutions in the field of energy self-sufficiency of mines (due to frequent power outages), geological exploration, health and safety protection of buildings, etc.

Energy industry

Last year, South African society and companies were plagued by regular power outages related to the difficulties of the state-owned energy concern ESKOM. At the same time, the need for energy self-sufficiency and grid stability are absolutely key prerequisites in terms of the production process and maintaining attractiveness for investors, which the South African government is aware of. The approved energy strategy (so-called IRP 2030) envisages increasing the share of green energy to 40% by 2030.

It is significant that South Africa does not intend to back down from its commitment to support green energy even in light of the current crisis. The most renewable energy is to be generated with the help of wind power plants, but the area of ​​solar energy, water or so-called “waste-to-energy” presents a whole range of opportunities for investors.

The plan is to introduce a cleaner form of coal energy. Among other things, these are technologies for capturing, using and storing CO2 emissions. Furthermore, the construction of several smaller and more efficient coal-fired power plants is planned, as the revitalization of many existing ones would be unprofitable.

The gradual replacement of diesel back-up power plants with gas ones can also present opportunities for Czech suppliers from this area. Other significant opportunities for Czech companies are solutions in the field of energy storage from renewable sources (so-called “energy storage”).

Healthcare and pharmaceutical industry

In connection with the pandemic, there has been a general increase in the demand for health products of an anti-infection nature, isolation, disinfection, protection, hygiene material, etc. Since 2019, the government is preparing the implementation of an approved plan for the introduction of a compulsory health insurance system (the so-called NHI), which should enable access to medical services to the broad classes. President Ramaphosa has stated that the current crisis may be a catalyst for this process.

In the future, this will mean an increased demand for medical materials and equipment for state medical facilities and hospitals and opportunities for suppliers of smart, technologically advanced, Czech solutions and products.

Agricultural and food industry

During the covid-19 pandemic, the question of the need to ensure food self-sufficiency arose more than before. The government has announced investments in livestock production, agricultural farms and subsidies for farmers. Opportunities are offered for Czech companies in the field of technology supply for agricultural production, including complete solutions for turnkey agricultural farms, storage and food production, especially dairy and meat products. Opportunities also exist for suppliers of durable foods, canned foods, pâtés, beverages, etc.

Rail and rail transport

The existing outdated railway network of approximately 27,000 km and related infrastructure was mostly built before 1994. Currently, it requires investments in the repair and maintenance of the rail network, signage, signalling, renewal and renovation of the rolling stock and related infrastructure. The government has been declaring long-term plans for investment in rail transport of goods and people. The Ministry of Transport, through the state railway and transport companies PRASA (passenger transport) and TRANSNET (freight transport), plans to replace the existing aging rails of the standard (RN45-E1) with higher quality, more durable profiles (60E1-2).

For Czech companies, these government intentions mean opportunities to participate in ongoing or planned projects, such as the production of South African locomotives by the South African-French consortium Gibela-Alstom, the possibility of supplying control, safety and other technologies for trains, signaling systems, equipment for cars and locomotives, or reconstruction and modernization existing rail networks.

South Africa Market Opportunities