South Africa Market Entry

South Africa Market Entry

Subchapters:

  • Market entry
  • Forms and conditions of operation on the market
  • Marketing and Communications
  • Issues of intellectual property protection
  • Public procurement market
  • Payment terms, payment ethics and resolution of commercial disputes
  • Visas, fees, specific conditions of travel to the territory
  • Employment of citizens from the Czech Republic
  • Fairs and events

Market entry

The characteristics of the South African market are similar to those of the most developed countries in the world, although a certain duality persists here, resulting from the presence of poverty and high unemployment. All the most important global companies are represented on the South African market, and this competition, together with Chinese expansion, defines the barriers of opportunity for Czech companies interested in entering the market. Demand exists for practically all goods. For most products and goods, price is an important criterion for the end user. The Czech Republic (Czechia) brand can mean added value for a limited group of customers in selected sectors (aviation, glassmaking, some types of weapons, etc.). Professionalism and solidity in mutual cooperation are a matter of course in JAR. Before entering the market, it is necessary to ensure the method of warranty service and the resolution of complaints. Check smber for agriculture and fishing facts of South Africa.

In accordance with the current Agreement on Economic Partnership between the European Union and the countries of the Southern African Development Community (SADC), which has been implemented since 2016, it is possible to import most commodities into South Africa freely and duty-free. Only for a group of selected items, it is necessary to have an import permit (Import Permit), phytosanitary or veterinary or another certificate. Documentation requirements and customs tariffs for specific goods can be searched by HS codes in the European Commission’s Market Access Database. Useful information for exporters can be found on the website of the South African Revenue Service (SARS) in the Customs and Excise chapter, including a list of products whose import into the South African Republic is prohibited or subject to approval or import quotas (Consolidated List of Prohibited and Restricted Imports). In addition to customs duties, imported goods are also subject to the payment of VAT in the amount of 15%, which is realized when the goods enter the country. The importer is responsible for all customs fees and VAT payment. During customs clearance, the importer must present a commercial invoice, a transport document (Bill of Lading – B/L with a non-negotiable copy), a packing list and the relevant customs form (it is recommended to submit the documents in three copies).

In the South African Republic, there are so-called Special Economic Zones (SEZs), which offer a number of incentives, especially for investors in the localization of production activities, in the form of corporate income tax relief (15% instead of 28%), employee incentives, preferential rents, etc. There are currently 9 special economic zones: Atlantis SEZ (Western Cape), Nkomazi SEZ (Eastern Cape), Coega SEZ (near the city of Port Elizabeth in the Eastern Cape province), Richards Bay SEZ (about 200 km north of Durban, on the coast of the Indian Ocean, in the province of KwaZulu-Natal), East London SEZ (Eastern Cape), Saldanha Bay SEZ (Western Cape), Dube TradePort SEZ (KwaZulu-Natal) Maluti – A- Phofung SEZ (Free State), OR Tambo SEZ (in the vicinity of Johannesburg International Airport), Musina/ Makhado SEZ (in Free State Province).Detailed information on the offer and incentives within the Special Economic Zones and other industrial parks is available on the website of Invest SA, the investment agency of the South African Department of Trade, Industry and Competition.

Invest SA, the state agency of the Ministry of Trade, Industry and Competition, operates in South Africa, whose task is to support foreign investments and assist investors. The so-called Invest SA’s “one stop shop(s)” operate in every province. Basic incentives for the inflow of new capital into production and expansion of existing plants include free land rent, tax holidays, faster depreciation of construction and land costs (up to 10 years) and machinery and equipment costs (3 years). In addition, support programs were created for various industries, e.g. a program to support the development of the automotive industry (Motor Industry Development Program) etc. In 2018, a law was adopted to protect investments (the so-called Investment Protection Act), which, however, according to critics, protects investments insufficiently. Among other things, foreign investors have difficulty understanding the requirements of the current legislation to support the original disadvantaged population (so-called Broad Based Black Economic Empowerment,

Forms and conditions of operation on the market

South Africa has a hybrid legal system, a combination of written, codified and common law. This system enables the following legal forms of business:

  • Company – the rules for establishing a company and its registration in the Republic of South Africa, as well as the conditions for registering a branch of a foreign company for the purpose of doing business in the Republic of South Africa, are laid down in the “Companies Act”. Registration of the office of a foreign company for the purpose of doing business in the JAR (registered office of an external company) is mandatory and also applies to non-profit organizations;
  • Close Corporation (CC) – was very similar to “Company”. Based on the 2008 law, it is no longer possible to re-register this legal form. However, businesses established in CC form before this date may continue to exist;
  • Cooperative;
  • Partnership (Partnership) – this is a business connection between two or more persons or companies.
  • Sole trader – self-employed person.

When considering a suitable form of presence on the market and implementing a business plan in South Africa, we recommend using the legal assistance of local specialized consulting firms. A foreign company considering entering the South African market basically has the choice of establishing a South African subsidiary or registering its branch whose representative will act on behalf of the foreign company in South Africa. This decision has consequences in the tax area, in terms of the necessary (work) permits, etc. When establishing a manufacturing company, whether in the form of a joint-venture or 100% owned by a foreign entity, it is necessary to take into account what degree this company will need within the so-called.Broad Based Black Economic Empowerment (B-BBEE) considering the nature of the customer of the manufactured goods. A certain problem of South African industry in general is the lack of highly qualified workers. If a foreigner is interested in doing business in South Africa as a sole trader, he must first obtain an appropriate visa and business permit.

A Czech company can choose one of the following procedures for exporting to the South African market:

  • authorizes a representative (intermediary) in JAR to secure the deal
  • appoints a distribution company in the South African Republic
  • direct sales through the export section for the sale of goods (and for visits to South Africa) the company will use its own staff, either as part of participation in fairs and exhibitions, or as part of usual business trips
  • sells the license to a producer in the JAR

Marketing and communication

Due to the maturity of the South African market, quality marketing and advertising are one of the basic prerequisites for success. There are a number of specialized companies operating in this area that are able to provide service at a professional level. It is possible to advertise in national dailies and professional magazines, which are published by individual professional associations, or there is the possibility of advertising within larger regional chambers of commerce (for contacts, see list of South African chambers of commerce, Johannesburg Chamber of Commerce and Industry, JCCI, Western Cape Chamber of Commerce, so-called CapeChamber, etc.) and specialized portals. Advertising has a reference value for customers and is especially recommended when our products are already on the market.

South Africans are strongly oriented towards so-called branded goods with a reputation for good quality. Of course, price is one of the decisive factors, but often not the most important one, which also applies to residents with very low incomes. In order to promote popular consumer goods, an effective marketing campaign using all social media such as FB, Instagram, but also WhatsApp, etc. is needed. It is also important to realize that in South Africa there are some of the most profound differences between the poor and rich residents. Almost 60% of the population lives in a so-called township, which is basically low-budget housing or a slum, where there is poor infrastructure and an established parallel shadow economy. These areas represent a huge market potential, but operating in these markets is very difficult due to the announced absence of the necessary infrastructure and the high level of crime. In the product strategy, it is absolutely crucial to determine which income group of the population you intend to target. However, the “one size fits all” approach cannot be applied here.

Issues of intellectual property protection

The issue of intellectual property protection is dealt with by the Companies and Intellectual Property Commission (CIPC)formally falling under the Ministry of Trade, Industry and Competition. On the website of this office, you can find a summary of legal standards, the overview of which is presented below, as well as useful information. The CIPC has branches in every South African province. The so-called Patents Act (Act No. 57/1978 Coll.), Trade Marks Act (Act No. 194/1993 Coll.) and Design Act (Act No. 195/1993 Coll.) govern in particular the registration of patents, trademarks and designs in South Africa, both for citizens of South Africa and for citizens from other countries. For the protection of copyrights, the Copyright Act was adopted in 1978 (Act No. 98/1978 Coll.), which regulates the protection of copyrights both for South African authors and for foreign authors whose works are published or presented on the territory of South Africa.

The protection of trademarks of goods sold on the territory of the Republic of South Africa is dealt with by the Merchandise Marks Act (Act No. 17/1941 Coll.). Artists’ rights are protected by the Performer’s Protection Act (Act No. 11/1967 Coll.). South Africa joined the international agreement called TRIPS (Agreement on Trade Related Aspects of Intellectual Property Rights). In the area of ​​patent law, there is an international agreement known as the Patent Cooperation Treaty (PCT), to which the Republic of South Korea is a signatory. JAR is also a signatory of the Paris Convention for the Protection of Industrial Property from 1883, the Berne Convention for the Protection of Literary and Artistic Works from 1886, and also a member of the International Union for the Protection of New Varieties of Plants (UPOV).

Legislation in South Africa more recently also reflects the trend of protecting traditions, e.g. traditional medicine, as intellectual property of the original inhabitants (Traditional, Indigenous Knowledge) etc.

Public procurement market

A public procurement gazette is regularly published on the website of the South African Ministry of Finance, which contains a list of current tenders and the required documentation. Tender winners are also published on the same portal. Participation in public tenders is governed by the “State Tender Board Act” (1968, as amended later). A significant factor influencing the results of tenders is the level of the so-called B-BBEE certification. Companies applying for public contracts in South Africa must submit a B-BBEE (Broad-Based Black Economic Empowerment) Certificate. In order for a company to apply for a state contract, it needs B-BBEE at least level 4 and above. B-BBEE grades exist from 1-8 (1 being the highest, 8 being the lowest). More information about B-BBEE can be found on the dedicated BEE Navigator website. As part of the government’s efforts to create jobs, public contracts often contain requirements for so-called localization (local procurement), even with formal compliance with commitments to the World Trade Organization (WTO), even though the Republic of South Africa is not a signatory to the WTO Government Procurement Agreement (GPA) . Generally, decisions on tender winners are made based on a points system, with 90 points representing price and 10 points representing B-BBEE status. For smaller contracts, the weight ratio of the criteria is 80 to 20. The rules of so-called preferential public procurement apply to selected sectors. Based on these rules, South African authorities can award public contracts where the proportion of required local added value is determined individually and ranges from 35% to 100%. In any case, it is very difficult for a foreign company to participate in public tenders and be competitive. In general, it is recommended (not only) to cooperate with a local partner when participating in a public procurement competition.

Payment terms, payment ethics and resolution of commercial disputes

If a Czech company gets involved in a business dispute with a company in South Africa, it is useful to use the advisory assistance of a local law firm that is well acquainted with local customs and law. Legal services are quite expensive financially. Law enforcement is relatively good, but very time-consuming and thus makes legal services more expensive. For large established companies, the risk of non-payment for delivered goods is relatively low. Nevertheless, even in South Africa, there are increasingly frequent cases of luring goods that are never paid for. We therefore recommend establishing suitable conditions reducing this risk before making a trade. It is fairly common to require partial payment in advance (up to 70%), with full payment upon delivery of the goods, but other contractual security mechanisms can certainly be recommended,

The South African Republic has set rules for international payments (exchange controls), the application of which is supervised by the South African central bank SARB. The central bank’s website also lists entities (commercial banks) that are authorized to carry out international payments. However, a non-resident cannot open a bank account in the JAR. Internet fraud can take many forms, such as fake winnings in contests and lotteries and supposed inheritances. But it can also be fake exporters of commodities or other goods. More information about internet crime not only in South Africa on the website – www.cybercrime.org.za.

Visas, fees, specific conditions for traveling to the territory

The provision of binding information on travel to the South African Republic is exclusively the responsibility of the South African embassies abroad and the South African Department of Home Affairs. Holders of all types of travel documents from the Czech Republic who travel to South Africa for tourism or business purposes do not need a visa for a stay of up to 90 days. For other types of stay, information is provided by the embassies of the Republic of South Africa. If you are interested in extending your 90-day stay in South Africa, it is usually necessary to submit this request to the relevant South African authorities no later than two months before the end of said stay. It is recommended that the validity of the travel document exceeds the end of the intended period of stay in South Africa by at least 90 days. The travel document must contain at least two free pages (facing each other) for marking the entry and exit stamps. When entering the country, South African immigration officials check, whether citizens of other countries are vaccinated against yellow fever when entering the country (in a valid international vaccination card), if they are traveling to the country from areas with the occurrence of the said disease. If this condition is not met, the passenger is denied entry into the country.

Current information on travel to South Africa is available on the website of the Ministry of Foreign Affairs. Before traveling, we recommend registering in the voluntary registration system DROZD of the Ministry of Foreign Affairs of the Czech Republic.

  • The local security situation is not very favorable. It is necessary to expect a higher crime rate and at the same time heed the recommendations of the locals on where to go and where not to go. Above all, unorganized visits to city centers, slums, walks in lonely or unknown places, especially in the early evening and evening hours, are not recommended.
  • Public transport, as we know it in the Czech Republic, practically does not exist in South Africa. Although there are a number of bus lines in the big cities (in Pretoria, Johannesburg), there are no timetables and foreigners are not advised to use these buses. It is not safe to use commuter rail. On the contrary, the new Gautrain train connection between Johannesburg, OR Tambo International Airport and Pretoria is proving itself.
  • Transfers in South Africa are handled by car, the hotel reception will recommend a safe taxi service or car rental. Uber, Taxify, etc. services work relatively well. Drive on the left. When traveling by car, it is recommended to stick to the main roads. Always travel only in a locked car, lower the car windows only partially, especially vigilance is necessary in cities at intersections. Gas stations are suitable for rest and refreshments on longer journeys. It is not safe to stop for hitchhikers or cars with a breakdown (it can be fake). In general, however, it is recommended to avoid traveling after dark or moving on foot.
  • In the vast majority of cases, you can pay in JAR by credit card or using the Zapper, Snapscan, etc. Apple is not available in JAR at the moment. It is not recommended to carry large amounts of cash with you. If needed, there are ATMs literally at every turn in JAR.
  • A South African SIM card can be purchased at the airport, including credit and data. A passport is required to register a SIM card.
  • Swimming in standing water is not recommended due to the occurrence of bilharzia. When traveling to the Kruger National Park, or other places in the northeast of the country, it is a good idea, especially in the rainy season (October-April), to equip yourself with an effective recommended antimalarial, which should always be used in conjunction with a repellent. Due to the considerable intensity of solar radiation, the use of sunscreen creams with a high protection factor (30 or more) is essential.
  • In South Africa, a high percentage of the population is infected with HIV and also with TB. We recommend increased caution, especially when dealing with bleeding wounds and during intimate intercourse. Tap water is harmless to health in South Africa.

Employment of citizens from the Czech Republic

In general, employing foreigners in South Africa, including citizens of the Czech Republic, is not easy. First of all, it is necessary to apply for a work visa through the embassy of the Republic of South Africa abroad. JAR recognizes several types of work visas with different requirements and conditions. As a rule, the employer must provide evidence that an attempt was made to acquire the jobs in the JAR (copy of advertisements or a report from the employer agency) and that there are no suitable candidates in the JAR. The employee must provide evidence of appropriate qualifications and also pass health tests. In case of posting within the company, job descriptions of specific positions and salary requirements are also required. Large foreign corporations in South Africa can apply for a so-called framework corporate work permit, on the basis of which individual applications for a general work permit are processed under simplified conditions. The visa application must be submitted exclusively in person at the Embassy of the Republic of South Africa, not on behalf of another person. Business activities of foreigners are regulated by the so-called Immigration Act 13/2002, as amended. To obtain a business permit, a foreigner must submit a business plan including the employment of a certain number of residents and meet other conditions. If the business area falls into one of the priority sectors, it is possible to apply for a reduction of the right to invested capital.

Health care in South Africa is at a relatively high level. However, there is a significant difference between public health facilities with free or very cheap care and private health facilities where the prices of medical treatment are relatively high. There is no agreement on free medical care between the Czech Republic and South Africa. For this reason, we recommend that Czech citizens traveling to South Africa take out additional travel insurance with sufficient financial coverage to cover medical expenses. Travelers to South Africa are advised to take a payment card with them due to possible hospitalization. Without payment in advance (e.g. if a stroke is suspected, the hospital may require a deposit in the amount of several tens of thousands of crowns), hospitalization in a private medical facility may be refused.

Fairs and events

A good opportunity for an initial introduction to the market environment is a visit to a trade fair. Active participation in the role of an exhibitor has, in addition to promotion and the opportunity to reach customers, also a reference role. It is recommended to research potential partners before the fair with their subsequent address invitation to the stand, because in South Africa personal meetings and negotiations are of inestimable value. The major international trade fairs in South Africa, which are summarized below, are visited by potential partners from neighboring countries. The list of fairs and exhibitions on the Event Eye – Trade Shows, Exhibitions, Conferences & Business Events Worldwide portal can be a source of further information .

Illustrative selection of regular fairs in JAR:

  • Mining Indaba – the key annual mining industry conference and trade show, Cape Town (February);
  • Retail Africa – retail and payment systems, Johannesburg – Sandton Convention Center (March);
  • Propac Africa – Food Packaging and Processing, Printing, Johannesburg – Expo Center Nasrec (March);
  • Water Show Africa – Water Management, Johannesburg, Sandton (March);
  • Huntex – Hunting Guns & Equipment, Outdoor, Johannesburg – Gallagher Exhibition Centre, Midrand (April);
  • NAMPO Harvest Day, NAMPO Agricultural Show – agricultural machinery, Free State Province, Bothaville, NAMPO Park (May);
  • Securex – Security Systems and Protection Fair, Gallagher Exhibition Centre, Midrand, Johannesburg (May);
  • Africa Health – healthcare, Johannesburg – Gallagher Exhibition Centre, Midrand (May);
  • Africa Utility Week, AUW – water management and energy, wastewater treatment, sustainable energy, utilities, Cape Town (May);
  • Land Forces Africa, Disaster Management Africa – arms industry, security and rescue fields, Pretoria (once every two years, July);
  • Bauma Africa – construction machinery and materials, mining machinery, Johannesburg – Gallagher Exhibition Centre, Midrand;
  • Electra Mining – the reference trade fair for the mining industry, engineering and electrical subcontracting, Johannesburg – Expo Center Nasrec (September once every two years);
  • Africa Aerospace and Defence, AAD – defense and aerospace industry, Centurion (Pretoria), September 1 x every two years (2022);
  • South African Automotive week, SAAW – Johannesburg – Gallagher, October once every two years (2022).

South Africa Market Entry