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South Africa Innovation Opportunities

by: Tatjana Guznajeva - Technopolis Group

 

Why should I read this document?

 

When confronted with the differences between your own market and the market of South Africa you will likely feel that you have to adapt your product/service significantly to make it fit the preferences and expendable income of local people. While many may see this as a challenge this can also proof to be a great opportunity for your company! Adapting to a new market, like South Africa, will allow your company to innovate. Not only will operating in South Africa lead to new insights to be more successful in South Africa, you will most likely also pick up on ideas to be more successful in your home market.

 

This document provides a short overview of innovation aspects, business opportunities and challenges in South Africa It will also give advice on best practices for starting and developing an innovative business venture, considering South Africa’s country context. May it help you to explore South Africa and lead you to innovation and success.

 

Opportunities and tips for innovation and doing business in South Africa

 

  • South Africa has a large economic potential, more developed infrastructure than in most African countries, a large and diverse manufacturing sector, and English is generally understood and spoken across the country.  
  • South Africa is the largest producer of platinum group metals in the world. The country has large deposits of gold, silver, diamonds, iron ore, chrome, manganese, sand and other minerals. Before deciding to participate in existing mining-related projects, learn about regulations on acquisition, possession, smelting, use and disposal of precious metals and minerals.
  • South Africa is one of the world leaders in development of mining-related technologies, lithium batteries, laser and optical technologies. Consider a partnership with local research institutes for development of these technologies.   
  • The government of South Africa finances large projects related to infrastructure development, alternative and renewable energy technologies, and it is looking for investors.
  • South Africa is facing a shortage of water, therefore there is a large demand in water management services and technologies.
  • The ICT sector has a large business potential in South Africa. Currently, there is a high demand in IT security products and data analytic services in cloud computing for financial and retail companies.
  • The population of South Africa has reached 57.5 mln. people, a large share of the population is moving from rural to urban areas. Hence, there is a large demand for innovative, low-cost urban housing solutions and construction supplies.
  • The variety of infectious diseases and a significant share of population that suffers from chronic illness are putting large pressure on the healthcare system. South Africa has a high demand in smart medical technologies, diagnostic applications, training for health professionals and nutritional products.
  • The fintech sector in South Africa is the third most rapidly growing in the world. The financial and business ecosystem is supporting innovative ideas, therefore it is relatively easy to find partners and opportunities. In addition, the promising growth service areas are wholesale, retail banking and insurance.
  • Due to the Trade, Development and Co-operation Agreement between South Africa and the EU, there is a free trade area that covers 90% of bilateral trade. South Africa imports crude and refined petroleum, cars, computers, broadcasting equipment, packaged medicaments, corn and wheat. Consider one of these goods for local production or trade.
  • South Africa has a growing demand for food and a large pool of agricultural workers. Due to aridity of the land, only 13.5% of it can be used for crop production, however, herb, vegetable and fruit growing as well as dairy and poultry farming are seen as good sectors for business. Additionally, crowd farming (collective investment into a farming venture) is growing in South Africa.
  • In the last five years, the size of the middle class has almost tripled and the demand for private education services, both academic and extra-curricular, increased significantly.

 


On Level 2 you can find information about innovation climate in South Africa, while Level 3 will tell you more about business activities in South Africa.

 

This page will tell you about innovation ecosystem, major technology sectors, innovation and business practices in South Africa.

 

Innovation ecosystem

 

South Africa has partially shifted from commodity-based, primary resource production to knowledge-intensive industries, however, scientific development and innovation are at an early stage in the country. Poverty (55.5% of population are considered poor in 2015), inequality (the highest in the world – 63 points out of 100) and severe environmental pressures, such as pollution and deforestation, hamper economic growth, entrepreneurship and innovation. The new governmental initiatives put emphasis on gender and black representation in science, technology and engineering, and they are aimed at addressing social and environmental challenges, particularly water and waste management. R&D efforts and innovation are concentrated in several research organisations.

 

South Africa has a few world-class universities, their research output is significantly smaller in contrast to the EU universities, on average. Recent public initiatives have enhanced the scientific and technology capacities of research organisations, however, the overall level of R&D investment is relatively low. The private R&D is low, despite existing tax incentives and 150% tax deductions on R&D expenditures. Among the major challenges for scientific and technological development in the country is the small share of population with tertiary-level education and the aging of skilled workforce.

 

Innovation sectors and technology

 

South Africa is undergoing pre-mature de-industrialisation, as the added value in services is significantly higher than in the industrial sector. Hence, the government is investing in R&D in mining, advanced metals, chemicals, platinum, energy, automotive, additive manufacturing, ICT and aerospace. A particular focus is the development of technologies for smart and affordable automation, aerostructures, advanced photonics and additive manufacturing.

 

Since South African ICT and Internet infrastructures are under-developed relative to the EU, the government is encouraging private R&D and innovation, cooperation with large companies and public-private partnerships in the ICT sector. The weak links between the business and research community hamper digitalisation and commercialisation of innovations. Nevertheless, the ICT sector in the country is expected to have a large business potential and transformative effect for the economy.

 

The South African bio-related technologies are internationally competitive, due to presence of innovative pharmaceutical companies, R&D centres and public financing. Coal-based synthesis and gas-to-liquids technologies also have a strong position in the market and a high degree of innovativeness, in contrast to other technologies in the petrochemical industry.

 

Innovation culture and practices

 

Innovation is perceived as risky by most entrepreneurs in South Africa. Most companies expect public support to invest in development of new products and services. Innovation agencies and business incubators play an important role in stimulating innovation, however, the lack of cooperation between innovation actors (entrepreneurs, financial institutions, research community, public organisations) and unwillingness to lead technological change are barriers for strengthening innovation ecosystem.

 

Innovation and research is mostly conducted in companies that have a strong financial safety net, namely, a sponsor or business partner that can support a company in case of a failure. Hence, innovation in family-owned companies is more common. According to the enterprise survey, 51% of South African companies introduce organisational innovation and 27% introduce marketing innovations, while only 8% of companies design new products or upgrade processes. Most ideas for innovation are generated within the enterprise or are based on the feedback of clients. Suppliers, business and research community play a smaller role in inspiring innovative ideas.

 

 

This page highlights major economic sectors and iconic products, shows business trends and explains how easy it is to do business in South Africa. In addition, you will find the list of websites, which provide some hands-on information.

 

What is the country known for?

 

Sectors

 

Mining, automobile assembly, machinery, metalworking, chemicals, fertilizer, textiles, iron, foodstuffs, commercial ship repair.
The service sector accounts for 67.5% of GDP, while industry and agriculture represent 29.7% and 2.8% respectively.  Financial, business, manufacturing, government, wholesale and retail trade services together account for almost 70% of all services.  

 

Iconic products

 

Gold, diamonds, platinum, iron ore, steel, coal briquettes, cars, ferroalloys, computers, fruits (particularly citrus fruits), nuts, electrical machinery and equipment, aluminium, beverages, vinegar.

 

How easy is it to do business in South Africa?

 

Based on the World Bank ranking:
  South Africa EU Average Emerging Markets Average
Overall - ease of doing business 74 30 83

 

The process of doing business in South Africa is slightly easier than in emerging markets on average. Due to a well-developed financial sector, the effort needed to get a credit in South Africa is equal to the EU. The government of South Africa realises the importance of foreign investors for the economy’ development, therefore protection of minority investors is stronger than in the EU on average. Similarly, the payment of tax is relatively simple, and the government of South Africa has made several agreements to avoid double taxation for foreign companies.

 

Among the major barriers for doing business in South Africa are getting electricity, registering a property and starting a business. The procedure for starting a business takes around 45 days, while in the OECD countries it takes 8.5 days. In addition, as a foreigner you would need to apply for a business visa or for an independent financial permit. On average, there are almost twice as many procedures associated with property registration and getting electricity than in European countries. Moreover, the procedures, amount of invested time and financial resources vary across municipalities, therefore it is easier to start a business in Johannesburg, Ekurhuleni or Tshwane, to get electricity and to enforce a contract in Mangaung, to register property in Johannesburg and to deal with construction permits in Cape Town.

 

Business trends in South Africa

 

South African consumers are brand-conscious, the middle class is spending a considerable share of income on sophisticated goods/services and entertainment. Personal appearance and perception of value for money is very important in the society. Local companies are increasingly trying to preserve their customer base by improving customer service, offering discounts and additional offers.

 

Large companies in South Africa are less flexible in applying innovative ideas, therefore a growing number of corporations start to invest in startups/small enterprises and assist in the development of innovation strategies. Once ideas are proven to be viable, large companies are implementing them on a larger scale or acquire a small enterprise.

 

South Africa is becoming an attracting location for seed funding and venture capital, as since 2012 the amount of funding has increased by 1,400%. Investments in tech startups has grown by 53% since 2016.

 

Businesses are increasingly exploring opportunities related to cloud-based software, social media and big data. Despite that digitalisation in South Africa is limited to a few industries, more companies are willing to learn and try digital solutions, and to expand their presence in social media.

 

More hands-on info

 

 

 

Bibliography

 

Level 1:

 

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Level 2:

 

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Level 3:

 

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Last updated: 10.05.2021 - 08:28