Purchase OBG Publications

Four main mobile operators and two fixed-line players cater to subscribers in a market that – like much of the emerging world – is seeing slowing subscriber growth and price cuts encourage a shift towards new value-added services. Delays by government agencies were cited as the biggest problem facing mobile operators, particularly in terms of getting permission to build infrastructure. Spectrum allocation delays also inhibit industry progress. The erosion of the fixed-line market will continue as mobile penetration keeps ticking upwards. There will, however, be convergence in some areas, such as termination rates. Data will continue to dominate growth as voice revenues fall and prices get even leaner. The ICT sector is growing rapidly in terms of numbers connected, speeds attained and services provided. The industry as a whole is by far the largest and most sophisticated on the continent, contributing around 6% to GDP. Robust growth has benefitted in part from strong government support and high levels of corporate consumption; however, it has also faced challenges with last-mile linkages and infrastructure constraints. The increasing deployment of fibre means that broadband performance is set to improve further, as fibre has latency of 1.5 to 2 milliseconds, whereas digital circuits are more than one hundred times slower. Growth in the ICT sector will continue to be robust, as strong levels of investment are maintained and SMEs sustain demand in promising subsectors like cloud computing. This chapter contains interviews with Sipho Maseko, CEO, Telkom; and Orlando Ayala, Corporate Vice-President & Chairman – Emerging Markets, Microsoft.

Manufacturing constitutes South Africa’s second-largest economic sector and currently accounts for 15.2% of GDP, as well as being responsible for the creation of roughly 1.7m jobs. It also ranks among the top three sectors in terms of multiplier effect. The sector’s contribution to GDP has, however, been steadily declining over the past three decades, having accounted for 19% of GDP in 1990 and 21.8% in 1980. Indeed, this is part of a broader shift with the tertiary sector. While the industrial sector has navigated through the global slowdown, it remains under duress. Many of the constraints plaguing the sector are not unique to the country, and are even more pronounced elsewhere on the continent. Home to one of the continent’s most sophisticated retail markets, South Africa boasts a wide variety of retail formats and distribution channels to match the diversity of the country itself. The retail sector has played an important role in helping South Africa rebound from the 2008-09 financial crisis relatively unscathed, as social grants, increases in public sector employment and rising real wages contributed to higher household disposable incomes and encouraged spending. However, recent years have proven somewhat more difficult, with retail sales over the course of 2014 increasing by around 2% over the same period a year prior, compared with year-on-year increases that averaged over 5% between 2004 and the end of 2013. Nevertheless, a number of the largest local retail groups have a footprint that extends well outside of the country to markets in West and East Africa, as well as closer to home – which is helping to buffer balance sheets against the slowdown in domestic sales. This chapter contains interviews with Johan van Zyl, CEO, Toyota Africa; and Gareth Ackerman, Chairman, Pick n Pay.

The construction sector benefits from strong fundamentals but has grappled recently with a slowdown in big-ticket infrastructure work and falling margins, prompting some firms to focus their efforts outside of their home turf. However, this has helped to stoke growth in smaller and newly established contractors. While significant infrastructure spending has been planned for the medium term, order books, while busy, have yet to provide the dramatic rebound that has been hoped for. Despite the lingering uncertainty, there are signs that momentum is swinging in a positive direction. A number of state-owned enterprises, for example, are beginning to implement and break ground on projects that for years have stalled at the discussion and planning phase. South Africa’s property market appears to be in a healthy place, demonstrating solid if not necessarily exceptional growth. However, there are exogenous pressures that could hamper demand, including a sluggish economy, eroding business and consumer confidence, escalating running rates, in addition to interest rate hikes, but these could serve as factors that will keep growth in check and temper the market from becoming over-exuberant. The scope for potential growth varies, unsurprisingly, but broadly speaking the outlook for the near term is fairly robust. This chapter contains interviews with Henry Laas, CEO, Murray & Roberts; and Louis van der Watt, CEO, Atterbury Group

South Africa is home to the farthest-reaching and highest-quality transport network on the African continent. For decades the country’s extensive road, air, rail and sea links have underpinned economic and social development not only in the domestic market but through the region as a whole. In recent years the government has made a concerted effort to shore up South Africa’s infrastructure and connectivity, establishing a handful of large-scale, long-term capital investment programmes, including the 2012 National Infrastructure Plan (NIP), under which the state plans to spend $407.2bn on new and upgraded infrastructure across the transport, energy, water, sanitation, health and education sectors over a 15-year period. Major transport projects include a $1.54bn initiative to revitalise the country’s rail network and a $1.4bn plan to update and expand provincial bus lines. The rapid pace of investment and development in recent years is widely considered to be a reflection of both the sector’s many strengths and long-term potential for continued growth. This chapter contains interviews with Nazir Alli, CEO, South African National Roads Agency Limited; and Monwabisi Kalawe, CEO, South African Airways.

The government has pledged to increase exploration for gas in the National Development Plan and promulgated a 20-year Integrated Resource Plan to diversify the energy mix by boosting nuclear, natural gas and renewable power generation capacities. With an estimated 3.5% of global coal reserves, South Africa has traditionally benefitted from an ample supply of cheap fuel. It has the fifth-most energy-intensive economy in the world, accounting for 30% of total power consumption in Africa. South Africa generates 94% of its electricity from coal. The Department of Energy expects to reach the National Development Plan target of universal electricity access by 2025, five years ahead of schedule. Although it has one of the largest, most developed energy sectors on the continent, after three years of less-than-expected economic growth and tight capacity margins, South Africa is again reformulating its 20-year plan in a bid to address long-term energy security, equity of access to electricity and environmental sustainability. This chapter contains interviews with Nosizwe Nokwe-Macamo, Group CEO, PetroSA; and Eddie O’Connor, CEO, Mainstream Renewable Power.

South Africa’s mining industry is the fifth largest in the world and the country has around 80% of global platinum reserves, 11% of gold reserves, and some of the largest supplies of chrome ore and manganese. The sector’s contribution to GDP has, however, been on a steady decline, falling to just under 5% in 2013 from 11% two decades earlier. Reversing this trend is a top government priority, considering mining’s importance to employment and foreign exchange earnings. Although domestic output is showing signs of a cyclical contraction, with reserves estimated to be worth $2.5trn, there remains plenty of wealth underground to still be reached. Much of this is being unlocked via advanced extraction technologies but is still awaiting new and upgraded transportation and power infrastructure to come on-stream. South Africa should retain its position as a global mining powerhouse, as few can match its sheer size and variety of reserves. This chapter contains interview with Ngoako Ramatlhodi, Minister of Mineral Resources; and Neal Froneman, CEO, Sibanye Gold.