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South Africa: the economic lowdown


South Africa enjoys a healthy economic growth rate and a wealth of natural resources, although its reputation is somewhat tarnished by violent crime, high unemployment and acute income disparities.

Reforms undertaken since Apartheid ended in 1994 have had mixed results. The government of Thabo Mbeki simplified regulation and made the country more amenable to investment, but red tape remains a significant hindrance to businesses in South Africa. 

Africa's wealthiest country, which is 25th in the world for GDP, performs reasonably well on the respected Doing Business Index. As of 2011, it is ranked 34 out of 183 countries for investment and running businesses. 

South Africa was deemed the second best place in the world for getting credit, behind only Malaysia. It also performed well for protecting investors (10th) and paying taxes (24th).

The country lags among comparable economies on measures such as trading across borders (149th) (though that is by dint of its geographical location rather than the South African government's ineptitude), registering property (91st), enforcing contracts (85th) and starting a business (75th). 

The first post-Apartheid government succeeded in bringing down inflation and stabilising public finances that had spiralled out of control following years of external sanctions, and foreign capital poured into the country. Growth, however, remained fairly anaemic.

The downturn was alleviated by the 2010 World Cup, which drove a huge programme of government investment and delivered a timely boost to the beleaguered construction industry

Rapid growth

In 2000 Nelson Mandela's successor as president, Thabo Mbeki, relaxed labour laws, accelerated privatisation and cut unnecessary government spending. This approach was rewarded with rapid economic growth and a modest rise in employment from 2004 onwards.

In 2009 South Africa followed the Western world into recession, its first since 1992. Driven by a slowdown in the mining and manufacturing sectors, the downturn was alleviated somewhat by the 2010 World Cup, which drove a huge programme of government investment and delivered a timely boost to the beleaguered construction industry.

South Africa's principal trading partners, African nations aside, are Germany, the US, China, Japan, the UK and Spain. 

Mining and quarrying, notably of gold, metals, minerals, chemicals and petroleum, are hugely significant sectors in a country with abundant natural resources. Other exports include manufactured goods and agricultural goods, which accounted for 8% of its exports between 2005 and 2010, particularly corn, maize, fruits, sugar, and wool.

South Africa has a large agricultural sector and is a net exporter of farming products. It is also the eighth largest wine producer in the world.

Unfortunately, the arid climate renders 87% of the land unsuitable to growing crops, and only 3% is particularly productive. Livestock farming forms a significant part of the sector's output.

South Africa is a popular tourist destination and tourism accounts for about 2% of GDP. Attracted by its game reserves, breathtaking landscapes and highly regarded wines, 860,000 tourists visit the 'rainbow nation' every month. Other attractions include the notorious Robben Island, where opponents of Apartheid, including Nelson Mandela, were incarcerated.

Ten percent of manufacturing exports are automotive related and automotive production contributes 7.5% to national GDP. 

A mixed economy, South Africa also has sizeable legal, communications and transport sectors. It also has a significant financial industry and its stock exchange ranks among the top 20 in the world.

A well developed energy sector, however, failed to prevent an electricity crisis since 2007. Government attempts to stimulate private investment in power generation facilities had limited success and rolling blackouts have since occurred periodically. The situation has been stable for a while, although there is still precious little safety margin between capacity and demand.

Transport and communications infrastructure is of a high standard. Goods are distributed effectively throughout the country so retailers generally have few problems replenishing stock.

South Africa's has several longstanding and well-publicised problems. Africa's largest economy suffers from a high unemployment rate that persists at about 25%, and is among the worst 10 countries for income inequality.

Beyond the four main economic regions - Cape Town, Port Elizabeth, Durban, and Pretoria/Johannesburg - the country is generally impoverished. However, there are signs of improvement in this area as development has recently accelerated beyond the economic hubs.

Overregulation is another bugbear of entrepreneurs and investors. South African businesses are burdened with more red tape, particularly in terms of labour regulations, than their counterparts in most developed countries.

State ownership or interference erects high barriers to entry in some industries, so buying from among businesses for sale in South Africa is an appealing way to get into business in Africa's richest nation.

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