Are you interested in starting a business in South Africa without money? If YES, here is a complete guide to starting a business in South Africa as a foreigner.
Okay, having provided an in-depth analysis of the top 50 best small business ideas in South Africa and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in South Africa. So put on your entrepreneurial hat and let’s proceed.
Why Start a Business in South Africa?
If you are thinking of starting a business in Africa, then you should probably think of South Africa. South Africa which is one of the most diverse and sophisticated market offers investors a great deal of stability, a vibrant emerging market, and a climate – political, cultural, social, and environment – that promotes and fosters growth. South Africa’s location at the tip of the continent is of great asset to investors, as this means that apart from the commercial opportunities within, it also has the potential of allowing investors access other markets – the rest of the continent.
Johannesburg Stock Exchange (JSE) ranks among the 20 top exchanges in the world by market capitalization. According to the 2015 – 16 Global Competitiveness Index by the World Economic Forum, South Africa out of 140 countries was ranked 1st for financing via the local equity market. It was also ranked 2nd for the regulation of securities exchanges.
South Africa operates a free economy where trade and industry take place. Foreigners and locals are treated alike by the courts especially when it relates to businesses. However, most business disputes are settled out of court and being resolved via arbitration or agreement between the two parties. General legal practices that are of a commercial nature and relate to transactions are of international standard and adhere to best practices.
Starting a Business in South Africa as a Foreigner – A Complete Guide
- General Overview
According to the Lancet Health Journal, the life expectancy of an average South African is now 62 years as compared to 2009 when it was 54. South Africa has 11 official languages more than any other country. Also, South Africa’s Western Deep Level mines are the world’s deepest mines approaching at 4km. South Africa has 53 million cell phones that are active in a population of about 53 million, and ranks globally in terms of cell phone coverage as fifth. Also, South Africa is the first and only country to build and dismantle nuclear weapons.
South Africa in terms of PPP is the 27th biggest economy globally, even though they have had poor political rankings since 2002. The country ranks 40th as regards tax rate out of 189 economies. The country has 9th longest road network, the 6th longest rail network in the world. It also ranks 19th as the largest producer of energy.
The government of South Africa gives incentives for value-added manufacturing projects. The government also supports industrial innovation and an enabling environment for small businesses to develop. South Africa also has a well regulated competition regime that is based on best international practice. Their competition legislation follows that of the United States, the European Union as well as the Canadian models.
Facts and Figures of South Africa That Will Interest You as an Investor/Entrepreneur
South Africa has got many facts and figures that make it one of the best countries to do business with in the African continent. Which is why so many foreign brands have sprouted up and so many indigenous brands are going strong and becoming international brands. Here are some facts and figures that will come in handy for you;
- As at 2016, South Africa ranked 49th out of 140 countries, an improvement from 2015, where they ranked 56th out of 144 countries.
- In 2015, the Open Budget Index stated that South Africa has the 3rd most transparent budget in the world.
- South Africa is a member of G20, and the only African country.
- As at 2015, South Africa ranked 4th overall in the Ibrahim Index, which measures the quality of African governance.
- South Africa contributes 23% to the combined Gross Domestic Product (GDP) of Africa.
- South African has a modern transport network, widely available energy that is of low cost, and a high standard of infrastructure.
- South Africa contributes about 35% to the combined GDP of sub-Saharan 48 African States.
- Even though it is home to only 6% of the continent’s population, it boasts of a 45% mineral production, and 50% of its buying power.
Factors or Incentives Encouraging Investors to Venture into Business in South Africa
South Africa is a promising emerging market that is diverse and sophisticated. It has enormous potential as an investment destination especially as it is located at the tip of the African continent. Here are some factors that will be of benefits to investors who venture into business in South Africa;
- Sound economic policies
- World class infrastructure
- Favorable legal and business environment
- Access to markets
- Trade reform and strategic alliances
- Global competitiveness
- Industrial capability
- Cutting edge technology
Starting a Business in South Africa – Market Feasibility Research
Due to South Africa’s economic policies especially that of its Black Economic Empowerment (BEE), it has seen an increase in the country’s growth rate, thereby helping South Africa move ahead of India as a destination for foreign direct investment. This was also made possible through the help of foreign brands in the country such as Deutsche Bank, Merrill Lynch and Blackstar investors.
South Africa’s investment in its infrastructure is as a result of its needing to pave the way for sustainable growth. Also, the country’s location makes it an ideal gateway to other African markets.
South Africa is also one of the largest investors in Africa. According to a 2003 research by LiquidAfrica, South Africa was the largest investor between 1990 and 2000, and pumped back over $12.5 billion into the continent. It is also the first country to sponsor FIFA in Africa with a total investment of $65 million in the 2010 tournament.
List of 10 Well Known Foreign Brands Doing Business in South Africa
Even though South Africa is a home to many indigenous popular brands, the foreign brands have also gained a strong foothold and aren’t doing badly for themselves. Here is a list of 10 well known foreign brands in South Africa;
- Coca Cola
List of 10 well known indigenous Entrepreneurs in South Africa
Every country has indigenous entrepreneurs who are doing so well that they can compete favorably with their foreign counterparts. These indigenous entrepreneurs have so become a force to be reckoned with that they are also known outside of the country.
Here is a list of indigenous entrepreneurs doing business in South Africa;
- Elon Musk – PayPal, SpaceX and Tesla
- Mark Shuttleworth – Canonical Ltd
- Patrice Motsepe – African Rainbow Minerals
- Anton Rupert – Rembrandt Group
- Tokyo Sexwale – Mvelaphanda Holdings
- Sol Kerzner – Sun City
- Raymond Ackerman – Pick n Pay
- Cyril Ramaphosa – Bidvest group Ltd and MTN
- Herman Mashaba – Black Like Me
- Ronnie Apteker – Internet Solutions
List of 10 Most Popular Indigenous Entrepreneurs/Business Owners
South Africa is blessed to have many indigenous brands that have not only become popular within the country – from telecommunications, banks, to food and retail – but outside as well, which is a testament to how the country strives at being the best in Africa. Here are 10 most popular indigenous businesses in South Africa;
Top 5 Best Cities to do Business in South Africa
Even though a country might have factors to attract investors who are willing to start a business, not all cities in the country will have all the best factors possible. South Africa is no different as there are cities where investors prefer to launch their business in due to stability, profitability, and demographic composition. Here is a list of top 5 best cities to do business in South Africa;
- Western Cape – Cape Town
- Gauteng – Johannesburg
- KwaZulu-Natal – Durban
- Gauteng – Pretoria
- Eastern Cape – Port Elizabeth
Even though South Africa might not be the easiest of places to start a business in due to its multifaceted culture and history, it is still ranked by the World Bank and International Finance Corporation (IFC) as the 39th best place in the world as regards the ease of doing business. South Africa is also regarded as the powerhouse of Africa and is tipped to boost the continent’s growth by 5%.
As at 2014, the South African economy was forecast to grow to 2% by 2015. The forecast was also expected to improve further in 2016 and 2017. South Africa is regarded as the most sophisticated and developed economy in Africa with some indigenous big brand companies in finance, real estate and business services, manufacturing and wholesale and retail trade. South Africa is also regarded by the investors as a gateway to Africa due to its ease of doing business, comparative sophistication, and continental expertise as compared to the rest of the African countries.
South Africa’s business environment challenges are pale when compared to other developing nations in the world, especially as the country has a well developed transport infrastructure, robust financial and legal frameworks, as well as sound macro conditions. South Africa’s weather condition is also fair and the country has an abundance of natural resources.
Possible Threats and Challenges You Will Face in South Africa
Every country poses threats and challenges to businesses and South Africa which is a multifaceted country is no different, here are some challenges to face when you do business there;
- Bribery and Corruption
- Black Economic Empowerment (BEE) Fronting
- Getting Electricity
- Dealing with Construction Permits
Starting a Business in South Africa as a Foreigner – Legal Aspect
- Business Licenses and Permits That are Needed to Start a Business in South Africa
Before starting a business, you would need to be sure if licenses are required so that you don’t break the laws. However, not all businesses require a license or permit before it can be run, but if it does, you would need to get a license before you can trade. They include the following;
- Food provision license – This is for those who intend to start a business that either involves sale of meals, perishable foodstuffs or take-away.
- Health and entertainment license – This is for those who intend to own business establishments such as nightclubs, adult premises, cinemas, massage treatments, health baths, electronic games etc
- South African Regional Service (SARS) Tax Certificate – This is for tax purposes.
- Zoning permit
- Liquor license
The Best Legal Entity to Use in South Africa
It doesn’t matter the kind of business you intend to run, you would need a legal structure. A business that has a legal entity is one that has the legal capacity to litigate and also the competence to contract contracts. Here is a list of entities in South Africa to guide you;
- Sole Proprietorship
This is the simplest business entity where the owner of the business trades under his or her name with no separation of assets and liabilities. This means the sole proprietor does not enjoy unlimited liability as he can be held liable for any debts that might be incurred during the course of the business.
- Private Company (Pty) Ltd
In this kind of business entity, which is also known as a One-Man Company; the business is founded and managed by one director. The business must have at least a shareholder and if it has to take on more shareholders, the numbers must not exceed 50.
- Personal Liability Companies (Inc.)
In this kind of business entity, both the current and previous directors can be held liable for acts such as debts and liabilities that occurred during their time in office. Most firms where this kind of business entity is used are mostly that of professionals such as doctors, lawyers and accountants.
- Public Companies (Ltd)-: This is a kind of business entity where shares are issued and most times listed on the stock exchange. This kind of business is usually liable to shareholders and the management of such businesses is invested in a Board of Directors.
- State Owned Companies (SOC)-: This is a business entity that is owned by the state.
List of Legal Documents You Need to Run a Business in South Africa
There are several documents that are needed to run a business in South Africa. Having the documents will save you from a whole lot of hassles from the government agencies that are in place to check defaulters. Listed below are some of the documents that you will be needing;
- Certificate of Incorporation
- Business Plan
- Insurance Policy
- Contract documents
- Business License
List of Government Agencies and Parastatals that are In-charge of Registering businesses and Issuing Licenses and Permits in South Africa
South Africa has different government agencies and parastatals that have been empowered to be in charge of registering businesses. Not registering with the companies would mean the business is at risk of closure, so business owners must ensure that they know the necessary requirements necessary to start a business with.
Here is a brief list;
- Regional Service Council
This is for specialized enterprises such as liquor stores and arm dealers. No business in South Africa requires a license to trade. However, businesses must register with the Regional Service Council (RSC) in the area in which they operate.
- Unemployment Insurance Fund (UIF)
This is a requirement for all employers of labor, which means that all employees must be registered by their employers. It is a fund that provides temporary relief for workers who for one reason or the other can no longer work.
- Department of Labor
Registering with the department of labor is mandatory especially if you have an employee or several, and regardless of your business entity. Registering with the department of labor is important in terms of the Compensation for Occupational Injuries and Diseases Act (COIDA)
- South African Revenue Services (SARS)
Registration with SARS is pertinent whether your business entity is that of a sole proprietor, partnership or a private company. SARS is in charge of taxes, and sole proprietors or partners would need to register as provisional tax payers directly.