Business in South Africa

The international plans of Russian investors and businessmen have been shaken by 2022. Western markets have partially or completely closed, but new ones have opened in other directions. One of these destinations is Africa. Alexander Bespalov, co-founder of the investment and consulting group Afroinvest, told how Russian businesses can develop the mainland.

Economic situation on the mainland

Africa's potential, oddly enough, lies in its backwardness. There are many free niches, opportunities for technological breakthroughs and huge labor resources. The mainland's profit margin is higher than other regions, and the rate of economic growth is accelerating every year.

But there are also disadvantages. For example, there are serious cultural differences in most African countries, which make it difficult to enter the mainland. In such a situation, it is best to create a starting point in South Africa — a country that occupies an intermediate position between Africa and the West.

In South Africa, on the one hand, there are large cities: Cape Town and Johannesburg with all the benefits of civilization, a developed middle class and many millionaires. On the other hand, there are typical African slums, where a third of the country's population lives.

Features of doing business in South Africa

It is not very difficult for Russian business to adapt here. Business in South Africa is well protected by law. Taxes cannot be called low, but they can be optimized.

For example, a high income tax of 30% is established for legal entities. But this is income minus expenses. Therefore, most businessmen in South Africa do not strive to constantly siphon money out of business, but prefer to buy further assets or invest in profits, increasing assets and reducing the tax burden. In addition, you can sharply reduce the rate to 12.5% when paying dividends.

For individuals there is a progressive personal income tax scale from 18% to 41%. Therefore, if you have solid income, it is profitable to spend money through the company. This also applies to real estate ownership.

There are also nuances related to currency legislation and the transfer of funds, but they can be resolved. In general, South African currency legislation is considered liberal: there are no restrictions for non-residents, including on participation in joint ventures or withdrawal of funds. But recently sanctions restrictions have had an impact.

The country's banks take into account the positions of Western regulators and closely monitor the operations of Russian individuals and legal entities. The interesting thing is that there are no direct prohibitions: there are reliable channels for transferring funds, but in these matters it is better to seek the help of professionals.

Most African countries can be compared, at best, to the Russian “90-s”, and South Africa — rather, with “2000-s”. Many companies here seriously build business processes and can create a competent presentation. You can speak the same business language with them.

Disadvantages to consider:

1. It is impossible to conduct business remotely. Local entrepreneurs do not accept this format. Until you personally arrive, create a team, negotiate and find local partners, you are a “digital avatar”, not a businessman. Agreements concluded remotely mean nothing here.
2. It is necessary to become a local company. Only then will you be taken seriously. This is both a minus and a plus at the same time, since it is easier to gain a foothold in South Africa than in other African countries. It’s one thing to transfer part of the team to civilized and comfortable life in Cape Town, but quite another thing — to the undeveloped Congo or Zimbabwe.

In South Africa, informal connections in business and political circles are of great importance. Our company, for example, during the last business mission organized a gala dinner with the participation of major businessmen, officials and diplomats. This is also an investment that will certainly pay off over time.

You can get connections in South Africa from Russia. Official events help in this: for example, from the Russian Export Center and the Chamber of Commerce and Industry. New structures also help: here I’ll highlight the African International Club, at whose meetings in Moscow and St. Petersburg Russian businessmen can informally communicate with diplomats from various African countries, including South Africa. Moreover, Africa Houses are now appearing in various regions, where they also help with contacts.

The most promising areas for investment

You can find your niche in South Africa in almost any field, but we will highlight a few of the most interesting ones.

Trade

Speaking of trade, it is necessary to note the special logistics role of South Africa. Large ports, many warehouses and wholesale companies are located here. It is actually a transport hub for wholesale trade with neighboring countries.

In South Africa, for example, it is possible to arrange supplies of South African wine, which is currently represented on the Russian market much more modestly than it deserves.

South Africa itself needs supplies of equipment and technology, as well as assistance with infrastructure. The main problems of the country — These are energy and water supply. Any projects in this area have great potential.

Solar electric panels, water treatment, water supply — this should all work. The supply of equipment and technologies for mining has prospects.

South Africa lags behind Russia in terms of service quality, so transferring our standards to African soil may be successful. In this regard, I would especially highlight fintech. Our banking applications — some of the best in the world, and Russian business has a lot to offer.

With good connections, you can make money on government contracts. For example, if there is a local wholesale partner. He may be responsible for distribution, sales and warehouse operations, and you — for filling this warehouse. According to this scheme, you can work not only with South Africa, but also with neighboring countries. Also through South African wholesale partners.

Real estate

The most conservative and promising tool for making money in South Africa, in my opinion, — real estate. The market here is not overheated, but on the contrary, it is stagnating.

But in some locations the real estate market began to grow. We are talking about Johannesburg (business capital) and Cape Town (tourist capital). These two cities lead in the number of millionaires on the entire continent.

Cape Town, with its comfortable climate (+15 in winter and +25 in summer), is popular with seasonal millionaires, those who come for several months from the northern winter to the southern summer. This city is often called the “new Monaco”. Show business stars buy residences here. Hollywood films are often made.

The entry threshold in Cape Town is not very high: a square meter here is on average half as expensive as in Moscow. At the same time, rental rates are almost the same.

Long-term rent brings on average 8–12% per annum. But in coastal areas, short-term rentals are more profitable. If we take into account the increase in the value of the objects themselves, then we can quite count on 20% per annum.

Investments in hotel real estate and development are promising. In this case, a serious approach is required. It is important to have information: how the city will develop, which areas will be built up, which apartments will be rented out to employees of large companies, and so on. If you know such nuances in development, you can increase capital.

Tourism

The development of tourism itself allows us to count on the growth of the tourism real estate market. I also see potential here, since the country has many attractions.

In the south of Cape Town, where two oceans meet: Table Mountain, whales and penguins, wineries. In the depths of the continent — national parks with elephants, giraffes, lions, rhinoceroses, which you can admire right from your car. There is also a kimberlite pipe, the Drakensberg Mountains, caves, and museums. The list goes on.

Now the development of tourism is spurred by the emergence of more or less affordable air tickets. You can get here by Ethiopian Airlines from Moscow for 50-80 thousand rubles. both ways. In my opinion, Russian travel companies should develop this area due to difficulties with travel to more traditional countries, primarily Europe.

Business tourism is also interesting, as it allows you to combine sightseeing with market exploration and serious negotiations. Our company is trying to fill this niche.

Perhaps the only factor restraining tourism — this is safety. Most areas of Cape Town and other tourist areas are safe, but it is better not to go into the slums.

Opportunities for investors

Finally, about several opportunities for investors not related to running a business. If you are not yet ready to delve deeply into the features of a new country and invest seriously in it, you can start by investing through investment funds that directly finance Russian business in South Africa.

For example, you can invest in real estate not directly, but through an investment fund. At the same time, your investment will also be protected by real estate, as with a direct purchase.

Through investment funds you can finance trade projects. Due to the sanctions, problems arose with shipping insurance and bank guarantees. So this niche of financial services has become almost free. The risks here are higher than in real estate, but the risk premium is also high.