Top 10 challenges of doing business in South Africa

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South Africa is driving economic growth in one of the most exciting continents in the world, but navigating the complex environment can be a burdensome endeavour without the right help on board.

Economic growth in sub-Saharan Africa should significantly outpace the global average over the next three years, according to the World Bank, with an increase in investment likely to boost the continent’s growth to more than 5%. South Africa is the powerhouse of Africa and very much the driving force behind this expansion, with the most advanced, broad-based economy in Africa with infrastructure to match any first-world country.

The country’s multifaceted culture and history presents many challenges for growing businesses, although recent figures suggest that a period of consolidation has created a modern market. South Africa's black middle class has more than doubled over the last eight years, growing from 1.7-million South Africans in 2004 to an estimated 4.2 million in 2012, according to new research by the UCT Unilever Institute of Strategic Marketing.

The World Bank and International Finance Corporation (IFC) rank South Africa in 39th place in the world for ease of doing business, although there are several elements of expanding into the country that require specialist attention. What’s more, the culture and economic backdrop of South Africa can make business growth a tricky endeavour, and having a good appreciation of the country with local help is a must.

Starting a Business
Starting a business is a lengthy procedure in sub-Saharan Africa and can cost a significant proportion of income per capita. This is partly true of South Africa, although the cost of starting a business is only 0.3% of income per capita compared to over 60% elsewhere on the continent.

Dealing with Construction Permits
The cost of dealing with construction permits is also extremely cheap in South Africa in comparison to the continent as a whole. Taking 13 procedures and 127 days, it is also a relatively seamless process, although several steps must be completed that may be quite foreign to firms new to the country.

Getting Electricity
Getting electricity is a big concern for businesses in South Africa, taking 226 days and involving a string of lengthy procedures. Eskom, an electricity public utility, can take 60 days to provide an estimate after the application has been received, and 165 days to complete external connection works.

Registering Property
It takes 23 days and six procedures to register a property, although that can fluctuate significantly depending on how quickly a rates clearance certificate can be obtained from the local authority and how long it takes the conveyancer to lodge the deed at the Deeds Registry.

Getting Credit and Protecting Investors
South Africa ranks in first place in the world for ease of getting credit, according to the World Bank and IFC, and also has good structures in place to protect investors.

Paying Taxes
Paying taxes takes 200 hours to complete per year and requires nine payments. Corporate income tax and unemployment insurance contributions (UIC) are two of the most arduous procedures, the former is also one of the most expensive.

Trading Across Borders
South Africa is a notoriously tricky place to conduct overseas trade, although big strides have been made in rectifying difficulties experienced when trading across borders. Cost is a concern, but the time required to compile documents and gain approval is the most taxing aspect of international commerce.

Enforcing Contracts
Trial and judgement can take almost 500 days on average when enforcing contracts in South Africa, and the cost of an attorney and court fees can make the procedure an expensive ordeal.

Resolving Insolvency
It takes two years on average to resolve insolvency, costing 18% of the estate with a recovery rate of 35.4%.

There are multiple cultures and a number of different languages spoken in South Africa, which means adopting a bespoke approach to different regions is crucial. The business environment is quite informal and South Africans can be rather direct in their approach. Although South Africa is a transactional culture, they are a personable people who have deeply rooted traditions and it is a good idea to try to build a rapport as well as furnish counterparts with some background information about oneself or company.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in South Africa or just want to streamline your South African operations, talk to us