South African problems pose difficulties for German companies

German companies aiming to enter the South African market in the near future will face several adversities, including visa regulations, a weakening currency and stringent regulations, says the Southern African–German Chamber of Commerce and Industry (SAGCC).

Germany, South Africa’s biggest foreign investor in the European Union, is, according to the SAGCC, responsible for creating 90 000 direct jobs and another 90 000 indirect jobs across all sectors in South Africa.

“That makes Germany a very important partner for South Africa. The good infrastructure, political stability and well-functioning legal system make South Africa a good destination for investments on the African continent,” SAGCC CEO Matthias Boddenberg states.

While the fluctuating exchange rate has wreaked havoc across several industries, he notes that German companies in South Africa that have run out of stock only now will have to deal with their stock being priced using the new exchange rate, making imports costlier than before.

“This will result in a decrease in the trade volume between Germany and South Africa and it will remain expensive for South African companies to buy imported goods. Further, it became much more difficult for South African companies to replace existing machinery with new machines. This will have an impact on South African global competitiveness,” Boddenberg avers.

The South African government recently terminated the Bilateral Investors Protection Bill between Germany and South Africa, making it difficult for new German companies to invest in the country. “German companies are very risk averse and many companies don’t understand the reason for the termination. The right for international arbitration is an important factor for German companies when it comes to investment decisions.”

Persisting labour unrest and service delivery strikes have also slowed the influx of German companies investing in South Africa, as value chains are often interrupted, causing disruptions in the global value chain of companies involved.

“Labour unrest is one of the biggest challenges for German companies functioning in South Africa. Most of [them] producing in South Africa are fully integrated into the global value chain. “Interruptions in South African production can cause issues in the global value chain, which is unacceptable for most of the companies here.

“Constructive dialogue between company representatives and social partners is often difficult and, if push comes to shove, decisions with regard to new investments in South Africa will likely be declined and moved to other countries such as China, India or Brazil,” Boddenberg warns.

Skills development and education, however, remain a priority in South Africa. Owing to this, the chamber has invested in South African growth and incorporates its own training scheme, based on the German system of vocational education, namely the Commercial Advanced Training Scheme.

The scheme is structured in such a way that it enables students to learn part-time in class and work part-time at companies to practically apply the theory learnt.

Industry 4.0, or the Internet of Things, is a new trend in Germany that is also coming to South Africa.

“German companies are working hard to develop not only factories that are more efficient but also production processes that can adapt faster and more easily to individualised customer demands.”

He adds that the integration of renewable energy and energy efficiency has become a priority for German companies, noting that they will integrate methods to become more independent of power suppliers and save costs.

“Further, the chamber is setting up an Enterprise and Supplier Development Fund, through which German companies will finance projects that lead to wider support of enterprises and suppliers and include them in the value chain of German companies. We believe that it is necessary to work together in these fields rather than doing everything individually,” he concludes.