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| World Marketplace |
Goal-Oriented
James Thompson and Ian MacMillan
10/01/2004
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Fiscal Fortitude
Despite these formidable long-term challenges, there is
good news. Much is going right in South Africa today. Mbeki’s African National
Congress, having secured 69.68 percent of the votes in the 2004 national
election, is stable and may well be the most democratic emerging-market
government today.
Its accomplishments in the past decade are astonishing and
symptomatic of enormous adaptive potential. In what is surely one of the
steepest political learning curves in history, the nation has recovered from the
near financial meltdown of the apartheid era, entrenched a democratic
constitution, reduced inflation to within reach of the officially targeted 3
percent to 6 percent range, and reduced the sovereign risk premium from
approximately 300 basis points in mid-2002 to a less than 100 basis
points.
Following its plunge in late 2001, the rand has recovered from its
sordid reputation as the world’s worst-performing currency, and it has a stable
long-term outlook. Moreover, the economy has grown consistently. Though GDP
growth needs to reach 6 percent to cut a significant swath in unemployment, it
has inexorably climbed from the 2 percent to 3 percent range of the past few
years to a projected 3.5 percent in 2004 and 4 percent in 2005.
South
African companies have recently begun retooling, which bodes well for future
competitiveness, and there has been a surge in private investment spending. Both
are likely indicators of renewed confidence in the political and economic course
of the nation, and will send a positive signal to candidate foreign
investors.
The prospects of several business sectors are improving. The
government has announced that it will invest 1 percent of GDP in the
biotechnology sector to spur its growth. Foreign banks are likely to follow the
example of Standard Chartered’s expansion into South Africa last year, now that
the banking sector has consolidated into four major players that enjoy
relatively high profit margins. Foreign companies are eyeing growth
opportunities in the retail and telecom sectors, both of which are pushing
vigorously into countries to the north, as far as the Sahara, and will need
funding to support this expansion.
The great hope of all investors, however,
is in the tourism industry, which has become the fastest-growing sector,
expanding at more than 4 percent last year. It has overtaken mining as the
country’s largest foreign currency earner. To accommodate surges in tourism from
Europe and Asia, the Durban area has completed the first phase of a new
waterfront development, and South African safaris are becoming a destination of
choice for travelers wishing to enjoy first-class amenities with their African
bush experience.
The market for retirement communities and services is
another growth area. The moderate climate, stunning geography, relatively low
cost of real estate and significantly lower global costs of private medical
services will combine to make South Africa a hugely attractive magnet for
retirees, who are pouring in from Europe already. One “only in Africa” offer
that European visitors in particular seem to be snapping up: Get a hip
replacement and undertake a recuperative safari in a luxury game park—all for
less than you would pay for private surgery at home, including airfare. If this
degree of inventiveness thrives throughout the country, the prospects for its
economic health are strong indeed.James Thompson is an associate director of Wharton Entrepreneurial Programs
at the Wharton School, University of Pennsylvania, where he oversees a
private-sector HIV management initiative. Ian C. MacMillan is the academic
director of the Sol C. Snider Entrepreneurial Research Programs and the Fred
Sullivan professor of management at the Wharton School.
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