Job and Investment opportunities in South Africa

October 12, 2010
Johannesburg, South Africa

As it turns out, vuvuzelas weren’t the only good thing to come out of the World Cup this year. In 2008 and 2009, when the rest of the world was careening off a financial cliff, South Africa was kept afloat because of its ‘World Cup stimulus’.

Billions of dollars flowed into the economy through sponsorship deals, tourism, and construction, and all of this activity provided a significant cushion during tough times.

All in all, the country suffered a brief recession and has already returned to growth, comparatively speaking.  South African banks are well capitalized (they ducked toxic asset exposure), mining company profits are surging, foreign investment is heating up, and consumers are spending.

In fact, the consumer market is one of the most interesting opportunities in South Africa; labor costs here are very low, but there are still tens of millions of consumers with discretionary income to buy products and services.

As such, the country is a cheap, off-the-radar jurisdiction for entrepreneurs to develop and test their products before expanding internationally.

In London or New York, for example, it might cost $500,000 to launch and test a new product. Here in South Africa, though, you can start and refine a business at a fraction of that cost, generate positive cash flow much sooner, and then take the concept worldwide once the idea has been tested by consumers.

I’ve met several people who are doing this– quietly developing their businesses in Cape Town and Johannesburg where there are no competitors, and then planning to relaunch in London and Frankfurt once they can prove the concept here.

For investors, it means that there are a lot of really compelling deals in this country from entrepreneurs in search of seed capital… and for people looking for work, it means that there are skill-dependent job opportunities available.

I should pause and mention that this is one of the economic anomalies in South Africa– the labor market. The headline unemployment rate is something like 25%; it’s the sort of number that would make Western politicians run for cover.

In South Africa, though, high [official] unemployment is the norm for a few reasons.

First, government figures don’t account for the millions of folks who work in the gray economy– this is a burgeoning network of self-employed artisans and small businesses that provide valuable services ranging from home healthcare to the roadside fix-a-flat guy… all earning a wage outside of the system.

Second, skilled labor is in short supply in South Africa. The headline unemployment rate may be high, but businesses are screaming for skilled workers to join their ranks. Many locals simply don’t fit the bill.

The government has committed, albeit slowly, to opening the doors for qualified foreigners in order to fill the void of much needed skilled workers… and as this is an English-speaking country, it may be a good fit for many people looking to restart their lives abroad.

I should also briefly mention South Africa’s currency, the rand. In the long-run, all of these worthless paper currencies will eventually realize their British thermal values, but for the next few years, barring a few dollar bounces, the rand should do fairly well assuming the government doesn’t play too many depreciative funny games.

Because South Africa is one of the world’s major gold producing nations, the rand now tends to move in line with other high interest rate commodity currencies such as the Brazilian real and Australian dollar.

More importantly, though, rising gold prices are generally bullish for the currency– so if you expect quantitative easing to be positive for gold, then you should also expect the rand to rise as well.

Additionally, the rand is also susceptible to international capital flows, like many developing economies.  When foreign institutions invest large amounts in the country, the currency appreciates.

There are now several multi-billion dollar deals on the table, including Wal Mart’s acquisition of MassMart for $4.25 billion, and HSBC’s $6.8 billion offer for Nedbank.  These two deals alone are worth 4% of GDP, so they should create a positive boost for the currency absent any government meddling.

Overall, I expect South Africa to do quite well in the long run for two chief reasons:

First, just like New York, London, Dubai, and Hong Kong, Johannesburg is its regional business capital.  If you do business in sub-Saharan Africa, you headquarter in the financial capital of its most developed economy. This will always provide an inflow of foreign investment and expertise to South Africa.

Second, the country is agriculturally self-sufficient.  With developed transport infrastructure, competitive costs, accomplished farmers, extensive marine and game resources, technology to improve water conditions, and diverse growing climates, South Africa will be able to withstand a major shock or food crisis.

Understandably, there are plenty of people who are pessimistic about South Africa and will think I’m crazy for having a positive outlook on the country; I call this the “yeah, but” crowd, and they don’t always share my optimism.

This country is certainly far from perfect, and there are plenty of challenges; as I mentioned yesterday, Africa is not for the faint of heart. But the ingredients for success are here, and for now, the opportunities are  compelling.

About the Author

Simon Black is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.