South Africa is improving conditions for budding businesses. But companies outside the country question whether to expand into it due to several issues. This PESTLE analysis will examine the many situations South Africa is currently experiencing that may affect businesses within it.
Political factors: corrupt politicians
South Africa is in the midst of local elections. Right now, this is a good thing. ANC councilors are attempting to remove corrupt politicians.
But with every election, there are people who want the corrupt to stay in power. Until all corrupt politicians can be removed, their current positions can cause inconveniences for new businesses (depending on the politician’s personal agenda).
Being mixed up in questionable politics puts a damper on those attempting to build a business and those on the fence about investing in South African businesses.
Economical factors: rand (currency) is in limbo
The South African currency, Rand, is at an all time low. The problem is, while the Reserve Bank has the ability to influence Rand, it’s staying neutral, except in relation to interest, where the Reserve Bank will respond with interest rate spikes as the rand continues to weaken.
Right now, the currency is subjected by the market forces. But with such low currency and exchange rate, it’s a wonder how businesses will start or stay in demand with the diminishing Rand.
A weak economy will cause new corporations to be cautious when thinking of expanding business into South Africa. It also makes it more difficult for businesses within South Africa to branch out — a high exchange rate makes costs and expenses for South African businessmen difficult.
Not only that, but there have been 88 longstanding strikes within South America in 2014, where workers stopped their jobs for months. This doesn’t look promising to new startups.
In relation to trades, South Africa trades primarily with China, but China’s economy has been slowing down. Because of their strong relation, this affects South Africa’s value in business as China’s investment in South Africa fell by 87% in 2015.
Social factors: high entrepreneurship spirit
The depleted rand currency and unemployment in South Africa being 25% affects the buying power of the people.
Despite the hardships, people are moving towards creating startups. But with the unemployment rate so high, it also means people can’t buy products from these startups. This could stifle the rising interest in entrepreneurship.
Technological factors: low budgets
Technological advancements, within manufacturing and supply chains, may be thin.
With the government preoccupied with lowering employment rates and removing corrupt politicians from local campaigns, plus the devalued Rand, technology may be more stagnated than in other locations, such as the United States of America.
Legal factors: laws and VAT
Many labor laws are similar to the United Kingdom’s labor laws, particularly when exporting to South Africa. Businesses started within South Africa follow the Value Added Tax (VAT).
Other taxes to consider in South Africa:
- Stamp duty
- Customs and excise duties
- Transfer duty
- Capital gains tax
- Skills development levy
Environmental factors: a good spot
At the G20, it was found South Africa is low-risk for investors looking to breakthrough. Commercial activity, like the addition of Uber and AirBnB, shows South Africa is open to outside business developments.
Location is good, but the weakened economy holds businesses within South Africa at a standstill.