South Africa – Mandela Magic versus

Nation Gone Astray

An Introduction, May 2015

Contact information

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Amatka (Pty) Ltd

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Cape Town, South Africa

Amatka – Insight Africa Services

Amatka (Pty) Ltd is a South African company founded and owned by Finnish entrepreneurs based in

Cape Town. Amatka provides knowledge and views of business opportunities in Africa with focus on

Southern and Eastern Africa. Insight Africa also supports networking in these countries.

Tekes – the Finnish Funding Agency for Innovation

Tekes is the main public funding organisation for research, development and innovation in Finland.

Tekes funds wide-ranging innovation activities in research communities, industry and service

sectors; and especially promotes co-operative and risk-intensive projects. Tekes’ current strategy

puts strong emphasis on growth seeking SMEs.

Contents

Introduction ...................................................................................... 2

Background ....................................................................................................... 2

Purpose ............................................................................................................. 2

Recommended Use and Liability Disclaimer ...................................................... 2

South Africa in a Nutshell ................................................................................... 3

Political Economic Climate: Business Point of View ................... 5

Trade and Investment ........................................................................................ 5

Growth: Drivers and Challenges ........................................................................ 5

Political Economy: Supporting Factors and Challenges ...................................... 6

Key Areas of Potential Growth ........................................................................... 7

Innovation Ecosystems ................................................................. 10

Innovation Hubs............................................................................................... 10

Research ......................................................................................................... 11

Private Companies .......................................................................................... 11

Sectors in Focus ............................................................................ 12

Energy and Environment ................................................................................. 12

Healthcare and Wellbeing ................................................................................ 14

Education ........................................................................................................ 15

ICT, Digitalisation and Mobile Solutions ........................................................... 16

Future ............................................................................................. 18

SWOT: South Africa ........................................................................................ 18

Scenarios ........................................................................................................ 18

Information Sources ...................................................................... 19

Front cover picture: Johannesburg CBD 2015 by Sirje Nikulainen

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Introduction

Background

This report briefly provides facts of South Africa, and insights into future business

opportunities. The report is based on statistics; recent articles and publications; and

expert views.

The report has been prepared by an international team coordinated by Amatka (Pty)

Ltd, a private company owned by Finnish entrepreneurs, based in Cape Town, South

Africa. The report is part of Team Finland’s Future Watch Programme in Africa, called

Strategic Partners for Innovation Actives Africa Services; and coordinated by Tekes,

the Finnish Funding Agency for Innovation.

The focus of the process rests on the four most promising Sub-Saharan African

countries (defined by size, growth and ease of doing business): Kenya, Nigeria,

South Africa and Tanzania. Sectors in focus are: ICT; mobile and digitalisation;

education; health and wellbeing; energy & environment.

Elements of Strategic Partners for Innovation Activities Africa Services are: Continent

Report Sub-Saharan Africa; Country Reports (Kenya, Nigeria, South Africa and

Tanzania); Alerts (arising signals for the future); Updates (frequent summaries of

alerts); and Contact Database.

Purpose

The reports – and this service – focuses on issues, facts, signals and insights that

are likely to play a role in doing business in, for example, South Africa’s medium-term

future (2 – 5 years). This report DOES NOT provide sales leads or provide a picture

of how to establish operations in South Africa.

Using present facts and information – combined with future insights, signals, and

scenarios – the report suggests possible futures and the related implications for

Finnish SMEs interested in doing business in South Africa.

Recommended Use and Liability Disclaimer

Before reading this report, it is recommended to get familiar with the Sub-Saharan

Africa Continent report. Additionally, it is strongly recommended that the readers

always check the latest information; situations in Africa can change overnight.

Amatka has made every attempt to ensure the accuracy and reliability of the

information provided in this report. However, the information is provided "as is"

without warranty of any kind. Amatka does not accept any responsibility or liability for

the accuracy, content, completeness or reliability of the information contained in this

report. No warranties, promises and/or representations of any kind, expressed or

implied, are given as to the nature, standard, accuracy or otherwise of the information

provided in this report; nor to the suitability or otherwise of the information to any

particular circumstances. Amatka is not liable for any loss or damage of any nature

(direct, indirect, consequential, or other), which may arise as a result of the use of

this report, or from use of the information in this report.

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South Africa in a Nutshell

A Brief History

Besides the original San people, the rest of the South African population trace their

history to immigration. Indigenous Africans in South Africa are descendants of black

immigrants from further north in Africa, who first entered about 2000 years ago. White

South Africans are descendants of European settlers, who started to arrive in the 17th

century – they came mainly from the Netherlands, Germany, France and Britain. The

so-called coloureds, as they were officially classified, are descended at least in part

from all of these groups; they can also be traced back to slaves from Madagascar,

East Africa and Indonesia. Additionally there are many South Africans of Indian and

Chinese origin; descendants of labourers who arrived in the nineteenth and early

twentieth centuries.

South Africa was under an official system of racial segregation and White minority

rule from 1948 known as Apartheid, until its first egalitarian elections on 27 April

1994, when the African National Congress came to power and dominated the politics

of the country.

South Africa Today

The government is based in Pretoria, the parliament is in Cape Town and the

Supreme Court is in Bloemfontein. Johannesburg is the commercial hub and the

largest city. While there are 11 official languages, English is the language of

business. Jacob Zuma of the African National Congress (ANC) has been the

president, selected by the National Assembly, since 2009. The ANC has directed

politics since the end of apartheid in 1994 and also governs eight out of nine

provinces.

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South Africa is ranked as an upper-middle income economy by the World Bank, and

is considered to be a newly industrialised country. Its economy is the second-largest

in Sub-Saharan Africa and the thirty-fourth largest in the world. However, there

remains widespread poverty and inequality in this country, with about a quarter of the

population living on less than US$1.25 a day.

Figure 1 provides some of the numeric indicators at a glance; it also depicts the

distances between the commercial hub, Johannesburg, and a few other cities.

Figure 1. Key Indicators – South Africa

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Political

Economic

Climate:

Business

Point of View

Trade and Investment

South Africa’s largest export partners in 2012 were China, the United States and India. The largest import partners in 2012 were China, Germany and the United States. See Figure 2 below.

Figure 2. South Africa’s export destinations and import origins 2012 (source:

Observatory of Economic Complexity/United Nations COMTRADE)

Figure 3. Trade between Finland and South Africa 2012 (source: Observatory of

Economic Complexity/United Nations COMTRADE)

According to the UNCTAD World Investment Report, South Africa obtained nearly a fifth of the FDI received by the continent in 2013, with investments of $8 billion. Major investing countries in 2012 were the United Kingdom (46%), Netherlands (19%) and the United States (7%). China’s share was 3%.

Growth: Drivers and Challenges

According to Oxford Business Group (2015) lower oil prices and a rise in domestic

demand could fuel a modest rebound for South Africa’s economy in 2015 after power

supply and labour disruptions slowed GDP growth in 2014 to less than 2%. The

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World Bank forecasts GDP growth to remain between 2 and 3 % for the next three

years.

Despite the modest economic outlook, South Africa is a developed country –

especially in the African context. South Africa generates about two-thirds of power in

Sub-Saharan Africa. Doing business in South Africa is relatively easy (especially in

the African context). The country has a sophisticated infrastructure, diversified

economy and vibrant business sector. On the surface, South Africa clearly looks like

a developed country, and sometimes people and businesses are misled by this

appearance. However, lying underneath the surface rests the African aspect of South

Africa.

There are a number of challenges:

1. Slow economic growth. The country needs a GDP growth of 5% to be able

to tackle the huge problem of unemployment. Government has identified the

SMME and SME sectors as the key focus areas to tackle this problem.

2. Poor education. South Africa spends a lot of money in this area, but the

general quality of schooling is poor.

3. Crime. South Africa has a very high rate of murders, assaults, rapes (adult,

child and infant), and other crimes compared to most countries.

4. Politics and governance. The political sphere is in disarray at present. It

seems like the one who shouts loudest, wins. There appears to be little

accountability, and corruption flourishes.

5. Race relations. “A nation still obsessed with race”. Even if most people are

not consumed with hatred for other races, the extremists often take a

platform on either side of the race debate.

6. Poverty and unemployment. After two decades of democracy, economic

inequality in South Africa remains very high. Moreover, the unemployment

rate is one of the highest in the world (depending on the source, between 24

and 42%).

7. Poor execution. Although many of the required policy actions are known,

implementation of these has been hampered by a lack of political consensus

and the “deficit in trust between business, labour unions and government.”

Political Economy: Supporting Factors and Challenges

South Africa’s dream of growing an inclusive economy through the National

Development Plan 2030 was launched in August 2012. The proposed interventions

aim to expand economic opportunity for all in order to eliminate poverty and reduce

inequality by 2030.

The National Development Plan 2030 surmises that this can be accomplished by:

Investing in and improving infrastructure, as well as supporting industries

such as mining and agriculture

Diversifying exports

Strengthening links to faster-growing economies

Enacting reforms to lower the cost of doing business

Reducing constraints to growth in various sectors

Moving to more efficient and climate-friendly production systems

Encouraging entrepreneurship and innovation

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There are several supporting factors in the political economy. The main factors

include:

Financial System. The financial system has undergone modernisation, and

banking has been resilient and sound.

Legal system. Although judicial and prosecutorial independence is under

political pressure, for example property rights have so far been relatively well

protected and contracts are generally secure.

The economy has a marked duality. With a sophisticated financial and

industrial economy having grown alongside an underdeveloped informal

economy, it is this “second economy” which presents untold potential.

Green economy. One of the most important elements of the New Growth

Plan is a green economy; and the potential that a lower-carbon economy has

as a possible job generator, and a catalyst for industrial development. South

Africa has committed to slowing its growth in greenhouse gas emissions by

34% before 2020, and by 42% no later than 2025.

Good infrastructure (in most cases) and commitment to future

investment. With some good infrastructure already in place, the government

has committed massive public-sector investment.

However, the political economy also faces some challenges. The key challenges

include:

Government. South African companies indicate that bureaucracy, and the current economic situation managed by the government, is their biggest challenge. At the same time, government procurement favours domestic firms. Public procurement is often politically driven and opaque, and enforcement of anti-corruption statutes is inadequate.

Power outages. Power outages, which seem to be getting worse, come at a time when the economy is starting to show signs of improvement. This alone will translate into lower business confidence, which in turn means fewer investments and less job creation.

Black Economic Empowerment (BEE). The Department of Trade and Industry (DTI) strongly encourages businesses to adopt ever-changing BEE regulations.

Key Areas of Potential Growth

South Africa's economy has traditionally been rooted in the primary sectors – the result of a wealth of mineral resources and favourable agricultural conditions. But recent decades have seen a structural shift in output. Since the early 1990s, economic growth has been driven mainly by the tertiary sector – which includes wholesale and retail trade, tourism and communications. Currently South Africa is moving towards becoming a knowledge-based economy, with a greater focus on technology, e-commerce and financial and other services.

Among the key sectors that contribute to the GDP and keep the economic engine

running are manufacturing, retail, financial services, communications, mining,

agriculture and tourism.

South African government provides incentives for investing in specific, usually highly

labour intensive, industries:

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General manufacturing

Automotive

Aquaculture

Business process service

Textiles

Film and television

Tourism

VIEW: Top sectors for South Africa

According to Christo Botes, spokesperson for the 2015 Sanlam / Business Partners

Entrepreneur of the Year competition, the challenges the country currently faces – such as

the weakened rand and poor infrastructure – have provided gaps in various sectors for

entrepreneurs to capitalise upon.

“While the problems the country has had to face over the last year – from water and power

shortages – are negative, these issues also provide opportunities in the market for

entrepreneurs to take advantage of.”

Education: Both government and the private sector have allocated large budgets to

improve this sector. More franchises are increasingly being established, especially

technical and vocational education and training colleges, owing to the demand for such

facilities and the need for skills in the country. One of the known listed groups in the

education and training arena, ADvTECH, recently announced their acquisition of the

Maravest Group, and as a result is now expected to grow their student base by 70% in

2015. This business, together with the Curro model – an independent education company

that provides affordable private schooling from pre-schools through to tertiary education

level – are proving that there is a dire need and still some further niche markets to be

serviced in the marketplace.

Manufacturing: While the sector will continue to offer opportunities in 2015, entrepreneurs

should be exploring export-orientated manufacturing. Government offers attractive

incentives – such as rebates and tax deductions – for component manufacturing. As an

example: In the automotive industry, vehicle brands such as Mercedes, Toyota, VW, BMW

and Ford are being exported in greater quantities from South Africa, and this has led to a

growing supply chain that can offer new opportunities. Local businesses are also

increasing the manufacturing of vehicle components for brands manufactured elsewhere in

the world; they are thus becoming part of these countries’ supply chains.

Tourism: As seen, manufacturing should be export orientated because of the weak rand;

entrepreneurs should take advantage of this in the tourism sector as foreign tourists benefit

from the favourable exchange rate. Business tourism is becoming more and more attractive

as South Africa is being recognised as the gateway to Africa; savvy entrepreneurs can

capitalise on the country – with its weak currency – being a fairly cheap destination to host

international conferences. In terms of vacation tourism, there is a growing opportunity to

market the region as a destination; and offer attractive deals with various airlines, hotel

groups, and different cities and resorts around South Africa.

Mining: While at a low base owing to the labour disputes encountered, the sector has

recently experienced an increase in expenditure on capital programmes, especially in coal

mines, as the older mines’ reserves are shrinking and coming increasingly under pressure

to supply more coal to the mainly coal-fired electricity generating power stations. This

offers various opportunities for entrepreneurs in primary and secondary supply chains,

such as shops and other infrastructure that is needed in the area where the mines are

being developed and/or redeveloped.

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Infrastructure at large: The government is investing in upgrading services and facilities at

all levels. Smaller contractors should seek ways to get involved in the various scheduled

projects. Apart from low-cost housing, basic services such as water; electricity; sewage

plants; as well as repairs and upgrades to government buildings and recreation sites, are

needed in cities and towns across the country.

Some suggest that the next big crisis the country is going to face is a water shortage. In

order to conserve water, much is needed to upgrade the existing poor infrastructure which

is under severe pressure because of old pipes bursting underground.

Source: How we made it in Africa

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Innovation

Ecosystems

Innovation ecosystems are relevant for Finnish companies as at their best these

ecosystems provide vital networks, potential co-operation partners as well as insight

into local market dynamics. Often these key stakeholders and influencers in the

ecosystems are also important entry points to new markets.

In general, the African innovation ecosystems differ from their European

counterparts: In Africa, the individuals and mentors play a larger role, and there is an

extensive involvement of international donors.

This section illustrates the potential role played by the different types of organisations

and institutions in the larger innovation environment.

The South African innovation ecosystem, with examples of actors, is depicted in

Figure 4 below.

Figure 4. Innovation Ecosystem Framework in South Africa

Innovation Hubs

South Africa has experienced a rapid growth in innovation hubs supporting

technology entrepreneurs across the country. These include:

The Innovation Hub (Pretoria)

The Barn (Cape Town)

Eastern Cape Information Technology Initiative (ECITI) Incubation

Programme (East London)

Invo Tech Incubator at Durban University of Technology

JoziHub (Johannesburg)

Softstart BTI (Johannesburg)

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StartUp 90 (Cape Town)

Start-Up Garage (Cape Town)

LaunchLab (University of Stellenbosch)

Impact Hub (Johannesburg)

Additionally, there are initiatives such as Silicon Cape and Startup Nations as well as

a number of Living Labs that were initially supported through the COFISA and

SAFIPA Finnish Programmes.

Research

South Africa has a total number of 23 universities. The TOP 10 are listed below.

Figure 5. List of TOP 10 Universities in South Africa (source: Webometrics

Ranking of World Universities)

Private Companies

A Forbes report (2014) on South Africa’s most valuable brands, listed corporations

(listed on the Johannesburg Stock Exchange) according to their brand value. The

Top 10 most valuable brands in South Africa including their brand value were:

1. MTN (telecom)

2. Sasol (energy/chemicals)

3. Vodacom (telecom)

4. Standard Bank (finance)

5. Absa (finance)

6. Nedbank (finance)

7. First National Bank (finance)

8. Mediclinic (healthcare)

9. Investec (finance)

10. Woolworths (retail)

Other brands that made it into the top 50 included telecom companies Telkom,

Altech, and Cell C; retailers Pick n Pay, Truworths, Makro and Game; and insurance

companies Sanlam, Discovery, Liberty and Santam.

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Sectors in

Focus

Energy and Environment

South Africa's installed electricity capacity is about 45,000 MW, which is nearly half of

the total produced in the whole of Sub-Saharan Africa. Parastatal Eskom provides

roughly 95% of South Africa's electricity, and the remainder comes from independent

power producers (IPPs) and imports.

Eskom also buys from and sells electricity to neighbouring countries. South Africa is

a member of the Southern African Power Pool (SAPP), which began in 1996 as the

first formal international power pool in Africa with a mission to provide reliable and

economical electricity supply to consumers in SAPP member countries.

South Africa's electricity system is constrained as the margin between peak demand

and available electricity supply has been narrow since 2008. Power problems

escalated in late 2014 as it became evident that there are problems with the fragile

electricity infrastructure, as the vast majority of coal power plants are outdated, poorly

maintained, and pushed to their maximum working capacity. Inadequate investment

during periods of increased economic growth; rising electricity demand; and

mismanagement of the sector have been attributed to the power failures.

Eskom has plans to bring approximately 12,000 MW of new electricity installed

capacity. However, cost overruns, construction delays and labour strikes have

caused project delays. In addition to building new coal plants (Medupi and Kusile),

South Africa also plans to diversify its electricity generation mix. South Africa is the

twelfth largest greenhouse gas emitter in the world, mainly because of its abundant

coal reserves and dependence on its electricity production. Currently, more than 85%

of South Africa's installed electricity capacity is coal-fired power stations; 10%

hydroelectric plants; 4%, a nuclear power plant; and 1% non-hydro renewable

energy.

South Africa's renewable energy industry is small, but the country has plans to

expand the renewable electricity capacity through its Renewable Independent Power

Producer (IPP) Procurement Programme. Solar power capacity is expected to reach

8,400 MW by 2030, along with 8,400 MW of wind power. Additionally, there are plans

to build eight nuclear reactors (an agreement with Russian Rosatom is apparently

inexistence) worth up to $50 billion to add 9,600 MW of generating capacity; although

the first unit is only expected to be connected to the grid in 2023.

"The potential impacts that load shedding (scheduled rolling blackouts) will have on

business, business confidence and consumers alike is inestimable," said South Africa

Chamber of Commerce and Industry chief Vusi Khumalo in 2015.

Henk Langenhoven, chief economist for a federation representing the energy-

intensive steel and engineering industries estimated that electricity disruptions could

slash production by 23%. "As long as the power crisis is still with us, I don't see how

the country can manage growth and create much needed jobs," said economist

Loane Sharp of the Free Market Foundation think tank.

Small businesses with limited resources have been hit hard by the outages. Those

without generators have to close their shops when it becomes dark, and traffic slows

to a near standstill as traffic lights cease to work. The problem is not expected to be

resolved any time soon.

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CASE: Norway firm set to provide solar power to SA

Scatec Solar ASA, a Norwegian developer of renewable-energy facilities, is among preferred

bidders for three solar-power projects in the fourth round of five programmes, to increase

electricity from clean sources in South Africa.

The country’s Department of Energy awarded Scatec preferred-bidder status for projects in

the Northern Cape province with a combined capacity of 258 MW.

South Africa is expanding its capacity, as the state utility – generating approximately 95% of

the country’s power using mostly coal – has been forced to implement managed blackouts

due to breakdowns of its ageing fleet of plants, and the failure to invest in new facilities on

time.

The country procured about 3 900 MW of capacity through the first three competitive rounds

of bids by clean-energy producers – with about $10bn invested so far, the Department of

Energy said in December 2014. That already exceeded the 3 725 MW which was initially

sought from five bid windows.

The Department of Energy added that Scatec has arranged financing for the projects which

will be built near Upington, about 870km northeast of Cape Town. Construction will start in

early 2017, according to the company.

The department further explained that it will own 42% of the plants, while the Norwegian

Investment Fund for Developing Countries, or Norfund, will hold 18%; and a trust for local

South African communities will control the rest.

Source: News24

The Department of Environmental Affairs (DEA) has set up a Green Fund to support the transition to a low-carbon, resource-efficient and climate-resilient development path delivering high impact economic, environmental and social benefits.

The Green Fund has identified three thematic funding windows which will contribute

to the transition to a green economy:

1. Green Cities and Towns (GCT). The vision of the GCT window is to strive

for well-run, compact and efficient cities and towns that deliver essential

services to their residents; utilising available natural resources efficiently and

sustainably. Focus areas are:

Sustainable transport

Sustainable Wwste management and recycling

Renewable energy – including off grid and mini grid

Sustainable water management

Energy efficiency and demand side management

Sustainable human settlements – the built environment and green

buildings

Ecosystem services

2. Low Carbon Economy (LCE). The vision of the LCE window is to strive

towards a low-carbon growth trajectory in line with national climate change

policy principles. Focus areas are:

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Energy efficiency

Renewable energy

Rural energy – including off grid and mini grid

Biogas and biofuels

Sustainable transport

Industrial cleaner production and consumption projects

3. Environmental and Natural Resource Management (NRM). The vision of

the NRM window is to strive for protected and conserved resources for

sustained ecosystem services to support South Africa's development path.

Focus areas are:

Payment for Ecosystem Services (PES) projects

Biodiversity benefiting businesses – including sustainable farming

Land use management and models

Rural adaptation projects and plans

Healthcare and Wellbeing

According to the Centre of Health Market Innovations, the public healthcare sector

provides services to roughly 84% of the South African population without private

health insurance, and yet the government-spend on healthcare is less than half the

total health expenditure. Annual per capita expenditure on health ranges from $1 400

per patient in the private sector, to approximately $140 in the public sector. This

discrepancy is also reflected in the availability of healthcare providers across the two

spheres; around 70% of doctors only work in the private sector, which leaves 30% to

service the public sector.

Healthcare in South Africa reflects the country’s position as a mix of the first and third

worlds: some public healthcare facilities in rural areas are extremely basic, while

some private facilities (and medical research) are cutting-edge – placing South Africa

firmly at the forefront of medical advances.

According to an article in The Guardian (2014) one alarming trend in South Africa is

obesity: South Africa has become the world’s third fattest nation. Nearly two-thirds of

the population is overweight and, unlike in the developed world, the problem afflicts

more women than men. Incredibly, 69% of South African females display unhealthy

levels of body fat and more than four in ten are clinically obese (defined as having a

BMI higher than 30). Obesity is on the rise in poorer nations even among children;

more than a quarter of girls and almost one in five boys in South Africa are

overweight.

Of the Sub-Saharan African countries, South Africa is the only one with large enough

upper-middle class to sustain a “wellbeing” market. In addition to a sizeable group of

South Africans investing in healthy and active lifestyle, wellness tourism is increasing.

In 2013, Sub-Saharan Africa saw 4.2 million wellness trips with visitors spending $3.2

billion on wellness, and the amount has been increasing by more than 10% during

the past years.

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Education

Under the South African Schools Act of 1996, education is compulsory for all South

Africans from the age of seven (grade 1) to the age 15; or the completion of grade 9.

The central government provides a national framework for school policy, but

administrative responsibility lies with the provinces. Private schools and higher

education institutions have a fair amount of autonomy, but are expected to fall in line

with certain government non-negotiables: no child may be excluded from a school on

grounds of his or her race or religion, for example.

South Africa spends 20% of its budget on education, or 7% of GDP (considerably

more than many other emerging market economies) and yet performs dismally in

comparison to international standards. The World Economic Forum’s

competitiveness index for 2012–2013 ranks South Africa’s overall education system

at 140 out of 144 countries, and its Maths and Science education at 143 out of 144.

Not all government schools are unpleasant. Still, the number of pupils in independent

schools nearly doubled between 2000 and 2012 to over 500 000. South Africa has a

growing, low-fee private schooling sector. No one knows the exact size of the sector,

but evidence suggests it is much larger than the 4% of total school-goers indicated in

the latest census figures. The Independent School Association of Southern Africa

says there are more than 2 500 independent schools. Umalusi, the statutory quality

assurance body, says there are about 3 500 registered independent schools.

Significant developments are taking place in the low-fee sector. Curro Holdings, a

private schooling company that aims to grow to 100 schools in the next decade, was

listed on the JSE in 2011 and now has a market capitalisation of more than R5 billion.

It has recently bought a privately run teacher-training college producing 1 000

teachers a year to serve the needs of its schools.

Some of the challenges facing education in South Africa are:

Children are coming out of school without the basics of education: ability to

read, write and do arithmetic.

Teachers do not always have the basic pedagogic and content knowledge

competencies needed.

Resources are being used in a non-efficient manner with little accountability

and transparency.

There is a constant shift in South Africa’s educational curriculum.

The Education Departments fail to deliver on their core responsibilities.

Children do not have a culture of reading; they also lack the motivational

push to learn from their community and families.

Teachers are adopting a culture of late-coming and absenteeism; there is an

inability to enact the basic functions of teaching.

There is a lack of basic amenities, infrastructure and learning resources in

townships and rural schools.

Many children in townships and rural areas come from families affected by

poverty and hunger; in addition, their parents have little or no education

themselves.

The suggested solutions include:

Early in the schooling system the focus should be on ensuring that all

children can read, write and count.

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Reopening teacher training colleges, since they provided a focused approach

in the development of teachers; the training colleges insilled a sense of pride

among teachers and teaching in general.

Put in place internal controls to increase accountability; transparency of the

learning process; and the use of resources towards education at all

government levels, and in the classroom.

Dedicated focus in improving the resources and infrastructure in township

and rural schools.

Celebrate South Africa’s entrepreneurs and learned academic successes;

and conduct career guidance counselling at an early age.

Stability in the education curriculum by involving all stakeholders in

developing an effective curriculum.

Introduce adult education programmes, libraries and career guidance

programmes in the townships and rural areas, to encourage a culture of

reading among learners and their families.

The government should take political control of the education system and

depoliticise unions in the education sector.

National programmes to equip the supply of learning materials; the provision

of libraries, toilets, repair of windows and leaking roofs; and the maintenance

of desks and infrastructure in rural and township schools.

Provide bursaries, school feeding programmes, life orientation programmes

and counselling programmes to learners in rural areas and townships.

Open vocational training centres and out-of-school programmes to improve

the skills of South Africans who are not in school and are out of work.

ICT, Digitalisation and Mobile Solutions

According to IST Africa (2014) the South African ICT sector is the largest on the

African continent and the twentieth biggest in the world. Several international

corporates operate subsidiaries or regional headquarters from South Africa, including

IBM, Unisys, Microsoft, Intel, SAP, Dell, Novell and Compaq.

Government led ICT activities are fragmented across a number of government

departments, research institutions, universities and the private sector. The country’s

ICT vision: “South Africa is an inclusive information society where ICT-based

innovation flourishes. Entrepreneurs from historically disadvantaged population

groups, rural communities and the knowledge-intensive industry benefit and

contribute to the well-being and quality of life of our citizens. South Africa has a

strong national ICT brand that captures the vibrancy of an industry and research

community striving for excellence, characterised by innovative approaches to local

and global challenges, and recognised for its contribution to the economic growth and

well-being of our people and region.”

In line with this vision the key ICT R&D and Innovation strategic objectives are:

To develop focused and strengthened ICT research activities to achieve

world-class research competencies in identified key S&T areas.

To build a strong and robust ICT innovation environment, with an indigenous

ICT sector that is competitive and growing.

To build advanced human capital (ICT skills base) for research and

development, as well as the proliferation of ICT in other sectors of the

economy.

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The context for the National ICT RDI Strategy is based on the following:

The Internet economy contributes 2% to South Africa's GDP. This

contribution is rising by 0.1% per year and it is planned to reach 2.5% by

2016.

The total spent by consumers, SMEs and Government on products and

services via the Internet, as well as on Internet access and infrastructures, is

R59 billion.

In the near future, the Internet economy will be approaching the size of the

construction sector (estimated R120 billion in 2011), potentially becoming

one of the new building blocks of the South African Economy.

South Africa spends close to 10% of GDP on ICT goods and services, most

of which are imported.

In 2011, the South African ICT Sector was R187 billion (estimate for 2020 is

R250 billion).

The R&D intensity of South Africa has stabilised at around 0.92% of GDP

over the past few years, but is still below the global norm of 2%.

Between 2006 and 2010, South Africa produced, on average, 20 – 25 PhDs

in ICT-related fields of study.

Government, universities and science councils have a keen interest in ICT

R&D, but funding and current spending on ICT R&D is limited compared to

other fields.

The ICT RDI Innovation Roadmap was adopted in early 2013 as a plan and set of

actions to guide R&D investments over the next ten years. In total, 63 technology

themes and trends were identified and analysed throughout the process. Utilising this

total list, 27 market opportunities of interest to the South African ICT RDI ecosystem

were identified, evaluated and clustered. The following are the six clusters and the

market opportunities under each cluster:

Broadband Infrastructure and Services (Future Wireless Technologies;

Broadband Services Infrastructure)

Development (e-inclusion; Development and ICT for Agriculture)

Sustainability and Environment (green and ICT; Global Change; Geo-spatial

applications)

Grand Science (Astronomy; Biomedical sciences)

Industry Applications (Smart infrastructure; Mining, Manufacture; Future internet

applications; Content creation and delivery; Import replacement; Supply chain

optimisation; Asset management)

The Service Economy (m-health; e-Services; e-Education; Business model

innovation; Payment solutions; Outsourced SA capability; Systems

integration; Content)

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Future SWOT: South Africa

The SWOT matrix below provides an investors’ viewpoint of South Africa.

Strengths Weaknesses

The government has made it clear that foreign investment is welcome (if they provide employment).

World class infrastructure in African context.

Favourable legal and business environment in African context. Relative ease of doing business (index).

Political risk is relatively low in African context.

One of the top tourist destinations in Africa.

Large middle class. Large English-speaking population (everybody speaks at least some English).

Gateway to other Southern African countries.

Rich in minerals; significant amount of natural gas reserves.

Good banking system.

Relatively favourable tax environment.

Business culture leans to the West –with an African twist.

Entrepreneurial spirit is bubbling under and can be a huge growth driver in the future.

The disparity between rich and poor is high, leading to social unrest in many areas.

Struggles with the energy sector.

Identifying and employing local sector skills may be challenging (poor education).

Inflexible labour laws. Unions are strong; and protracted strikes affect businesses and the quality of living (e.g. municipal strikes, mining strikes).

The relationship between government and the private sector is dysfunctional.

Government bureaucracy and some corruption.

Heterogeneous population (languages, cultures, tastes) – there is not one nation but many.

Complicated and changing Black Economic Empowerment (BEE) laws.

TB and HIV infections are very common.

Political instability and unpredictability makes long-term planning hard.

A country of lost momentum, drive and direction (at present).

Opportunities Threats

South Africa plays an important role in the Sub-Saharan African economy.

South Africa’s retail sector and its financial services industry are the most sophisticated on the continent, and both have a significant regional presence.

As government fails to supply electricity, quality schooling and healthcare, there is a rapidly growing need to replace low-cost alternatives.

Business process outsourcing and manufacturing (requiring a low to semi-skilled workforce).

Electricity challenges may get worse before they get better.

Xenophobia towards other African nations is influencing how people view South Africa and its products.

Enforcing strict immigration laws makes the sending of expats expensive/impossible.

In many ways South Africa is a developed country with mature markets; competition is sometimes fierce.

South Africa was an isolated country for years, a “not invented here” syndrome still exists.

No improvement in poor worker productivity.

Scenarios

Four scenarios for South Africa 2020, based on various sources of information and

signals, and information available, are illustrated in Figure 6. The two main

components of the scenarios are:

1. Level of economic diversification and growth rate;

2. Openness of the economy.

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Any of the scenarios, or combinations of the scenarios, could come true. A great deal depends on local government policies and actions of international players, and other uncontrollable factors. Two of the scenario names – Mandela Magic and Bafana Bafana (the name of South

Africa’s national soccer team) – are adopted from reports exploring what the South

African social, economic and political landscape could look like in the future,

complied by the Institute of Security Studies (ISS) in 2014.

Bafana Bafana is the well-known story of a perennial underachiever always playing in

the second league, when the potential for international championship success and

flashes of brilliance are evident for all to see. According to ISS, in this scenario South

Africa stays in its current course, toeing the line between the decisive socio-economic

action by the ruling party, and keeping with populist views to keep the support of the

masses.

Mandela Magic is the story of a country with a clear economic and developmental

vision, which it pursues across all sectors of society. “In this scenario, Team South

Africa plays to a single game plan and is consistent in execution during every match,

refining and harmonising its strategy as it goes along.” This scenario would ultimately

see a major turnaround in the socio-political landscape; a competitive drive to hit

NDP targets and govern better; South African carbon emissions would pick up

drastically, as industry thrives; and economic growth would pick up to 5% per annum.

Amatka has added two other scenarios into the picture. These, among the two

above, are illustrated in Figure 7.

Figure 6. Scenario framework

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Figure 7. Four Scenarios for South Africa 2020

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Information

Sources

Publications:

African Development Bank. 2014. Tracking Africa’s Progress in Figures

African Development Bank, Development Centre of the Organisation for Economic Co-

operation and Development, United Nations Development Programme. African Economic

Outlook. 2014. Global Value Chains and Africa’s Industrialisation

The Economist. Africa is the horizon – 2015 African Business Outlook Survey

Institute for Security Studies. 2014. South African Futures 2030: How Bafana Bafana made

Mandela Magic

International Energy Association. 2014. Africa Energy Outlook

World Bank. 2015. World Development Report

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