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Small and Medium Business in South Africa
By: Christo Joubert

The South African small and medium business environment has matured over the past year and currently creates a very good climate for entrepreneurs, direct foreign investment and emigrants. This is supported by all well-recognised business indicators confirming that business outlook has never been positive.

Although it has taken time for small and medium business to take-off in the new post-apartheid economy, its time appears to have finally arrived. Some of the indicators are:

In the 2005/06 Budget Speech, government has reiterated its clear commitment to small and medium sized businesses. Previous policies to address job creation and alleviate poverty appear to have failed. Now priority is given to job creation in small and medium enterprises through tax cuts for “qualifying businesses”. This effectively refers to any business below a certain turnover that employs more than 4 fulltime staff other than the operator. Also, there has been a rethink on the regulatory environment in South Africa. Although proper governance is still a major priority, government appears now to be more cognizant that in some instances laws and regulations stifle small business. Hence, various initiatives and exemptions have been proposed that will exempt small and medium business from regulatory matters or allow a more streamlines compliance framework.

The South African Immigration Laws have also now been revamped (for the second time in so many years) to ensure a more friendly approach and guaranteed acceptance for qualifying categories. The bottom line is that should you meet the requirements and you submit all the required documentation, that is still burdensome for certain categories, you will receive a work and / or residency permit.

We have also seen a significant merger and acquisition activity in South Africa over the past year. Especially management buyouts and private equity investors entering the fray appears to indicate that the outlook is good. There are many good deals around, especially for the well-connected person. The impact of black economic empowerment should be studied before making a final decision, however, this is seldom a deal-breaker.

Although the above are certainly factors that drive the success of small and medium business in South Africa, probably the predominant factor is the awakening of spending power in Sub-Saharan Africa. With the relaxation and streamlining of import restrictions, any person with a quality product, a good marketing strategy and the right price can do very well for themselves. We have seen quite a bit of activity where foreign manufacturers or distributors buyout the local supply chain to ensure complete ownership. What is often surprising is to see the relative cheap price with which these negotiations are concluded. Also, with the increased spending power of Africa visibly increasing, South Africa provides a first-world platform to enter a mostly third world market. Having that said, Mauritius and Botswana is competing hard for some of the action and their investor and incentive programs should be considered before making a final decision.

In conclusion, the outlook is good for the entrepreneurial type. There are many solid businesses for sale or sound business opportunities, however, the skill and resources to succeed is sometimes lacking. Buying yourself an well-established small gold or diamond mine in South Africa can be arranged – should you have the temperament to ride currency risks. The real business opportunity in South Africa however lies in retail, especially fast moving consumer goods, small entertainment ventures and, of course, larger real estate developments. Come have a look!

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About The Author

Christo Joubert is a partner in www.biztrader.co.za that is the premier brokerage in small businesses and franchises.

christojoubert@biztrader.co.za

This article was posted on March 25, 2005

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