With a population of 55 million, a strong, business-friendly infrastructure, an expanding base of online shoppers—especially among smartphone users— and widespread use of English, South Africa represents a compelling option for U.S. businesses considering cross-border expansion. What’s equally attractive is that expanding your e-commerce business in South Africa could be a valuable entry point into the African continent as a whole.
Before going global, it’s important to consider your company’s strengths and unique appeal, then determine whether your products and services fit into the South African market and economy. If you decide to jump into the region after studying the data below, it may pay to join forces with local and international partner organizations, so you start your new venture off on the right foot.
When looking for stable markets for your products in sub-Saharan Africa, South Africa is a likely choice. According to the World Bank’s Doing Business 2019 report, the country is 82nd on the list of easiest countries to do business in. This is ahead of other African economies such as Botswana, which came in 86th. Furthermore, South Africa’s raw score of 66.03 is significantly higher than the sub-Saharan African average of 51.61. These favorable numbers indicate South Africa is a likely place to start a relatively low-friction expansion into sub-Saharan Africa for your small or medium-sized business.
According to the Department of Commerce (DOC), the gross domestic product of South Africa reached $350 billion in 2017, or $736.3 billion when measuring in terms of purchasing power parity—the actual ability to purchase goods in the country. While that only represents growth of 0.5% from the year before, it’s worth mentioning that e-commerce’s share of the economy is growing much more quickly, indicating that your company may find a more welcoming market than the raw GDP data suggests.
According to the DOC, tertiary sectors make Up 69% of the local GDP. These tertiary sectors include:
Secondary indicators such as manufacturing, construction and utilities comprise 21%, and primary elements including agriculture, fishing and mining contribute a mere 10%. Rather than being a producer of raw materials, South Africa has become a mature consumer culture, one that may be a great market for your business.
In recent years, South Africa has made special efforts to enhance its tourism business, seeing 12.8% growth in 2017 compared to a global average of 8%. A large amount of foreign currency flows into South Africa through its tourist trade, with the sale of minerals, agricultural goods and high-tech manufactured goods also serving as top international trade areas.
When you enter South Africa’s e-commerce market, you’ll have ample opportunities to connect with the country’s diverse population. While e-commerce often makes its presence felt in cities, the opposite pattern has taken effect in the African nation, with traditional retail proving expensive and inefficient in communities far from the central hubs. Eager for an alternative to in-person purchases, shoppers in rural and isolated areas of the country have embraced e-commerce, and make up some of the most enthusiastic online shoppers.
A strategy targeting areas of low population density may work better in South Africa as opposed to other countries. For businesses that are looking for markets to grow their international e-commerce footprint, the DOC’s predicted 15% compound annual growth rate of South African e-commerce through 2021 makes the country hugely attractive.
South Africa has a digitally connected customer base, that has grown rapidly in recent years. With internet use at 47% and expected to rise to 60% by 2021, a large swath of the South African populace is ready to shop online. Even better, mobile penetration sits at 65% and rising, demonstrating that a strong mobile presence will be key to securing customers in areas not fully served by traditional desktop computers.
When it comes to these shoppers’ willingness to engage in cross-border commerce, the signs are promising, especially for American companies. The DOC added that credit and debit cards are the most common payment methods in South African e-commerce, which will likely require little modification of your business’ existing capabilities. While domestic retailers are more popular than overseas options, 27% of South Africans already buy from U.S. companies. With the right strategy, your business could be one of those organizations making inroads into this attractive market.
With membership in the Southern African Development Community, the Southern African Customs Union, the World Trade Organization, the G20 and BRICS, South Africa is an established trade partner for many other large and developing economies, with solid international agreements to ensure a minimum of friction at the borders.
The DOC added that the U.S. ranks third in South Africa in two-way trade, and the two countries have recent trade pacts dating back to 2012 and 2008 that make international trade with the country a relative snap for businesses Powered by a strengthening currency and new political leadership, recent years have brought renewed optimism to the South African economy that the World Bank now calls “globally positioned, sophisticated and diversified.”
Importing into South Africa, aided by the agreements between the country and international partners including the U.S., should prove relatively simple within its region. U.S. companies already deal extensively with South Africa in both general trade and technology in particular. The other main countries with established relationships include Japan, China and multiple nations in Europe.
If you feel that your company isn’t ready to go it alone in the South African e-commerce market, you may still find success. According to the DOC, there are multiple options for partnerships between U.S. and South African organizations. Local businesses in South Africa are often hoping to pair up with American firms and enter the U.S. market – these organizations could be especially happy to make a mutually beneficial deal. From joint ventures to licensing and mergers, local companies are ready to make a deal, potentially giving you a head start on your new market strategy.
Doing Business in South Africa
When it’s time to set up meetings with your potential partners, you’ll be pleased to discover that business culture in South Africa is similar to the U.S. model. When you’re introducing yourself to someone new, handing over a simple business card will generally suffice, without the need for highly detailed information. You should make all meetings in advance and be punctual about showing up on time.
The DOC noted that when the dress code is described as:
- Business: It’s best to have a jacket and tie or business dress
- Smart Casual: You can forego a tie and be a bit more casual, but you should never wear jeans or sneakers
Partnering with DHL
Whether your next international e-commerce venture takes you to South Africa or beyond, it’s key to look for specialized help to improve your performance in areas such as delivery, shipment tracking, customs management and reverse logistics. This is where organizations like DHL can assist you. With services like dedicated warehouses and distribution centers and second-to-none market insights and experience, these partnerships can increase your ability to reach customers with efficient and convenient deliveries, even if shoppers are geographically distant.
As with any new market, South Africa is easier to approach if you perform preliminary research and become familiar with the conditions present among customers and partners. Success in the country could be the beginning of a greater expansion into Africa, and a promising development for your growing e-commerce business in general. Check out DHL’s South Africa country guide to learn more.