India Investing in South Africa and Africa

Published on February 2017 | Categories: Documents | Downloads: 90 | Comments: 0 | Views: 765
of 40
Download PDF   Embed   Report

Comments

Content

India investing in South Africa and Africa
kpmg.co.za

Contents
Foreword Africa Overview of the African economic environment Africa: The opportunities Africa: The key challenges Considerations for investment in South Africa Industry analysis The ‘Chindia’ Factor Investments between India and Africa KPMG in Africa KPMG’s India-Africa Corridor KPMG Services 2 6 8 12 14 18 28 30 32 34 36

Foreword
Africa is a continent whose time has come – and while the opportunities are almost self-evident and tangible, they are there primarily for the bold, the agile and the swift. At KPMG we understand this. We also understand that you’re probably reading this because you’re looking for a professional services provider to walk this road with you – for audit, tax and advisory services – who is where you are or where you want to be. Someone who you can work with, built on a relationship of trust and mutual respect, able to cut through the complexities to help you achieve your strategic objectives – simply and decisively. Our commitment to Africa speaks volumes. We began our journey several years ago and have continuously upped the ante to stay ahead of the game – anticipating change, actively seeking to recruit and retain the best available talent, and consistently investing in our people, our infrastructure and our professional service offerings to better serve our clients in numerous respects. Two years ago, we established – for the first time – a singular Executive Committee for KPMG Africa, enabling responsibility with authority. What all of this means to you, our client, is that KPMG is positioned to serve you across Africa, with the full benefit of KPMG’s global reach. You can be assured of the same levels of professional service, practical understanding and relevant insights from us – across the continent – regardless of where your business operations are located. We know that you expect this of us and we are confident of our delivery. This is good for our business, grows our people and allows us to extend our positive reach into the communities in which we coexist. All of this fosters an ethos of a long-term, sustainable, responsible business, which is what we believe Africa needs. Under the leadership of our Africa Board, we have a clearly articulated strategy that is focused on seven key business priorities. These include delighting our clients, maintaining global consistency, operating as one across Africa and inspiring our people, who are motivated and equipped to serve you. Looking very much at the world outside our own allows us to focus on Africa as you see it and your related needs, and not based on our own structures. This flexibility offers further advantages to our clients in mobilising our teams – and further simplifies how we may help you. Centred on the premise of consistent service delivery, I invite you to read in this brochure more about the context of Africa today, KPMG’s extraordinary value proposition, our positioning in Africa and something about what we’re doing to shape a positive future for the continent and all its people. Importantly, we’ve included the details for our India-Africa Corridor, inviting you to contact any of our people. I am excited about the many possibilities that Africa presents to all of us. I am even more excited about how KPMG can work with you, across Africa, in mutually rewarding engagements that add value, bringing to the fore the benefits of the full reach of KPMG’s global network with local resources who understand you and the markets in which you operate.

Moses Kgosana Chairman and Senior Partner, KPMG Africa Limited Chief Executive, KPMG in South Africa

1|

Africa

|2

Why invest in Africa?
• Growth: six of the ten fastest growing economies between • One of the key reasons Africa has been a focus region for 2000 and 2010 were located in sub-Saharan Africa: Angola, investors is its current and potential economic growth. Nigeria, Ethiopia, Chad, Mozambique and Rwanda According to African Economic Outlook, the African economy is expected to grow at 5.8 percent in 2012. In the world’s ten • Capital markets: 18 stock exchanges in sub-Saharan African fastest-growing economies (2001 - 2010) list published by alone. South Africa, Egypt and Nigeria account for around The Economist and the International Monetary Fund (IMF), 75% of Africa’s listings six of these economies are African. More importantly, for the period 2011 - 2015, seven of the ten fastest growing economies will be in Africa. Such high growth has created enormous business opportunities on the continent and Go south, young man thereby attracted investors. • Return on investment in Africa is higher than in developed countries • The continent is rich in natural resources such as gold, platinum-group metals, copper etc • It is largely an untapped market, with low penetration and less competitive markets • The burgeoning size of the African market and urbanisation mean 50% of Africans will be living in cities by 2030 with increased access to markets • High export volumes with significant growth forecast • Infrastructure investment is half to one-fifth of the BRICS, with much scope for improvement • Intra-African trade opportunity is immense. South-south trade comprised 50% of total African trade – only 11% of this was intra-African • Stability: the number of hostile conflicts in Africa declined from an average of around 4.8 per year in the 1990s to 2.6 in the 2000s

World’s ten fastest-growing economies*
Annual average GDP growth, %
2001 - 2010 ✝ Angola China Myanmar Nigeria Ethiopia Kazakhstan Chad Mozambique Cambodia Rwanda 2011 - 2015 ✝ China India Ethiopia Mozambique Tanzania Vietnam Congo Ghana Zambia Nigeria

11.1 10.5 10.3 8.9 8.4 8.2 7.9 7.9 7.7 7.6

9.5 8.2 8.1 7.7 7.2 7.2 7.0 7.0 6.9 6.8

* Excluding countries with less than 10m population and Iraq and Afghanistan ✝ 2010 estimate ✝ IMF forecast

Sources: The Economist, IMF

Africa today and tomorrow

CURRENT
Africa’s collective GDP in 2008, roughly equal to Brazil’s or Russia’s Africa’s combined consumer spending in 2008 Africa’s share of the World’s total amount of uncultivated, arable land The number of African cities with more than 1 million people The number of African companies with revenues of at least $3 billion

FUTURE
Africa’s collective GDP in 2020 Africa’s consumer spending in 2020 the number of Africans of working age in 2040 The number of African households with discretionary income in 2020 The number of Africans living in cities in 2030

$1.6 trillion

$2.6 trillion $1.4 trillion $1.1 billion

$860 billion 60%

128 million

52 20

50%

3|

Category

Africa

India

China

Ease of doing business (ranking)

Top three: SA - 34 Botswana - 52 Ghana - 67 6.5 442 million 56.2 Over 1.1 billion 12 443

134

79

Internet users (per 100 people) Cell phone subscribers Workforce population (% of total) Workforce by 2040 Internal freshwater resources (per capita, m3)

4.5 670 million 64.3 1 billion 1 105

22.5 747 million 72.1 900 million 2 124

Source: Private equity in emerging markets: investing in Africa

|4

Why invest in South Africa?
• A member of BRICS • The gateway to the African continent and Indian Ocean markets • Greater industrial infrastructure than the rest of the continent • Ease of doing business – ahead of Italy and France • Biggest producer of platinum, leading producer of gold, diamonds, base metals and coal • Stable political environment • Sound macro-economic policy • Large, growing domestic market • Modern transport and communication • Self-sufficiency in agriculture • Modern banking and financial services • Liberal repatriation of funds • Excellent quality of life. South Africa has one of the most attractive business environments. The country’s business environment ranking is expected to remain unchanged in 2010 - 14, although its global and regional rankings will slip. This will be the result of a worsening macroeconomic environment, lower capital inflows and weakening market opportunities.

South Africa
• Population – 50.492 million • Land area – 1.221 million km² • Population density – 41 pop/km²
Source: African Economic Outlook

5|

Overview of the African economic environment

|6

Home to over 1 billion people, Africa has been referred to as ‘the continent whose time has come’. Before the global economic downturn of 2009, the majority of African economies had enjoyed notable economic growth. Average annual growth in 2006 - 08 amounted to about six percent, while the Gross Domestic Product (GDP) per capita grew by almost four percent. The growth can be ascribed to a combination of favourable factors, some of which include: • high commodity prices • growth in export volumes • generally sensible macro policies • debt relief • sustained aid • Foreign Direct Investment (FDI) inflows. Moves towards more market-friendly economic policies have also aided growth. The world economic crisis brought this period of relatively high African growth to an abrupt end. However, although the African economy has also been negatively impacted by the global economic downturn, the continent has, on average, maintained positive economic growth. Due to the relatively low degree of integration of African banks with international financial markets, the impact of the global economic downturn on Africa has happened through other transmission mechanisms. Some of these include: • the collapse of commodity prices, which impacted the mining sector • the reduction in export volumes, impacting the manufacturing sector • the decline of workers’ remittances due to job losses or wage declines • the decline of FDI due to a reduction of the investments of global firms, in particular in the mining and tourism sectors. On the positive side, donor countries have generally maintained their aid commitments and disbursements to Africa, despite substantial fiscal pressures at home, and debt relief has reduced debt service costs and helped African countries to deal better with the crisis. It appears that the African economy has been more resilient to the global crisis than other emerging economies, except those in Asia, notably China and India. The effect of the crisis, although less severe than on most other continents, was nonetheless significant. The global expansion remains unbalanced during 2011. Growth in many advanced economies is still weak, with the growth in most

emerging and developing economies continuing to be strong. Overall, the global economy expanded at an annualised rate of 4.3 percent in the first quarter of 2011, and growth forecasts for 2011 - 12 are broadly unchanged, with offsetting changes across various economies. However, greater than anticipated weakness in US activity and renewed financial volatility from concerns about the depth of fiscal challenges in the euro area periphery, pose greater downside risks. Market concerns about possible setbacks to the US recovery have also surfaced. If these risks materialise, they will reverberate across the world, possibly seriously impairing funding conditions for banks and corporations in advanced economies and undercutting capital flows to emerging economies. Key among the negative surprises for the world economy, was the devastating effect of the earthquake and tsunami on the Japanese economy. Supply disruptions weighed heavily on industrial production, and consumer sentiment and spending. Africa’s economies are also recovering from the slump caused by the global recession, and are mainly driven by higher commodity prices and export volumes. In 2010, Africa’s average rate of growth amounted to 4.9 percent, up from 3.1 percent in 2009. The current economic recovery in Africa is likely to reduce the cyclical component of unemployment, but structural unemployment remains high in many countries. Driven by the expansion of global demand, commodity prices continued to increase in 2010, and in the first months of 2011, some prices reached a historical peak. Changes in the price of oil depend, however, on further political developments in oil-producing countries, notably Libya, and on the supply response to the recent hike in oil prices to between US$110 and US$120. The political events in North Africa are likely to depress the continent’s growth to 3.7 percent in 2011 and to result in sub-Saharan Africa growing faster than North Africa. However, considerable uncertainty surrounds this forecast. With the assumption that economic normality returns to countries such as Libya and Côte d’Ivoire, Africa’s average growth is expected to accelerate to 5.8 percent in 2012. Africa is becoming more integrated with the world economy and its partnerships are diversifying, revealing unprecedented economic opportunities. In 2009, China surpassed the US to become Africa’s main trading partner, while the share of trade conducted by Africa with emerging partners has grown from approximately 23 percent to 39 percent in the last ten years. Africa’s top five emerging trade partners are now China (38 percent), India (14 percent), Korea (7.2 percent), Brazil (7.1 percent), and Turkey (6.5 percent).
[Sources: World Economic Outlook, Africa Economic Outlook, World Bank, KPMG research, African Development Bank]

The table below provides an overview of Africa’s historical and expected growth trends.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
growth (percent)

GDP

6.2

6.4

5.6

3.1

4.9

3.7

5.8

6.4

6.8

7.1

Source: Africa Economic Outlook

7|

Africa: The opportunities

|8

Infrastructure development: physical and people
It is evident that the unique needs in Africa all present opportunities in one way or another. Some of these opportunities are more recognised than others, as seen in the investment in the oil and gas sector in West Africa. Studies performed on the investment requirements for Africa as an emerging market provide interesting feedback on African infrastructure needs: the three sectors with the biggest needs are energy, water, waste and sewage (WWS) and irrigation. Clearly, infrastructure development continues to be significant in Africa. However, it is important to focus on the dual nature of infrastructure development – namely development of the people (in areas such as health and education) as well as physical development (such as roads and ports). According to the United Nations Development Programme (UNDP) Regional Bureau for Africa, “Prioritising health, education and basic services is key to ensuring that the most vulnerable are not left behind”. Growth alone is not enough for human development. Growth must be broad-based and bring down high levels of inequality. At the Climate Investment Funds Partnership Forum recently held in Cape Town, the African Development Bank (AfDB) described the opportunities for Africa in developing a clean energy industry. The AfDB indicated that this development can create a whole industry, providing good quality jobs for local populations and can ensure the sustainability of renewable energy in Africa.

Growing middle class
• Another side of Africa is gradually emerging with the development of capital markets, consumerism and technology (ie opportunities created by the private sector). • The number of middle-class Africans has tripled over the last 30 years to 313 million people, or more than 34 percent of the continent’s population, according to a new report from the African Development Bank (AfDB) – July 2011. • Increase in size and purchasing power of the African middle class is due to strong economic growth, and a move towards a stable, salaried job culture and away from traditional agricultural activities. • Africa’s steadily growing per capita income drives the emergence of aspiring African consumer markets with a surprising level of sophistication and growing spending power. Yet these consumers are not yet being offered products or services commensurate with their lifestyle and aspirations. Therefore, there are significant opportunities across many sectors.

Natural resources/mining
• As global demand for hard and soft commodities grows, Africa is in an enviable position with its vast natural resources. • Africa has impressive stores of resources, not only in minerals but also in food — 60 percent of the world’s uncultivated arable land is in Africa. • Substantial wealth in natural resources: gold, oil, platinum, iron ore, copper and large areas of arable land means Africa is well-placed to benefit from increased growth and higher demand in emerging markets such as China and India. • Africa holds significant reserves of the world’s metals and minerals and is therefore of key importance for mining groups.

Population and Growth
• Africa’s population is vast and, when compared to the developed world, relatively underserviced. • Africa is expected to grow more than seven percent annually in the next 20 years, due to an improving investment environment, better economic management and China’s and India’s rising demand for Africa’s resources. • More than 100 African companies have revenues in excess of $1 billion. One priority for Africa is realising that it cannot just be a source of natural resources, that it has to start industrialising, producing agriculture services. Wages are rising in Asia and people are asking, ‘Where can we start producing in a competitive way?’ Africa provides an example of one of the important areas.

Other sectors: telco, retail, manufacturing, infrastructure, etc
• Natural resources generate only a third of Africa’s GDP growth. • The remainder comes from other sectors: wholesale and retail, transportation, telecommunications and manufacturing.

Fast growing/ rapidly rising private investment
As Africa’s economic fortunes begin to turn, investor interest has picked up. Africa offers unique opportunities to multi-national enterprises (MNEs) as part of their strategies for growth. Several African countries compare very well to the famed BRICS economies on ease of doing business and political risk. Since 2004, Africa has had the highest growth rate of private Foreign Direct Investment (FDI) into emerging markets, which in 2010 increased by more than 20 percent. The rate of return on FDI in Africa has averaged 29 percent since 1990, and since 1991 it has been higher than in all other regions – by a high margin in a number of years.

9|

Asia’s expanding footprint in Africa
• Asia has emerged as a key financier and developer of infrastructure projects in Africa. 1. Asian companies are often willing to undertake projects that many Western firms consider uneconomic. 2. Asian loans and technical assistance are disbursed very quickly. 3. Asian companies are typically able to deliver projects at a lower cost (in part because of their access to cheap loans from the government, which allows them to operate on profit margins of less than 10 percent as against 15 - 20 percent for most other firms). • Asia’s rising presence has been complemented by dramatic growth in private investment in infrastructure, albeit from a very low base. • As larger emerging markets increasingly invest in Africa, a lot of money is funnelled toward infrastructure projects such as roads, bridges, schools and hospitals, all of which are likely to benefit African economies over the years to come.

High commodity prices
• Improvements in infrastructure are also being facilitated by buoyant commodity prices, which are contributing to strong revenue collection in the resource-rich states. • Commodity prices are expected to stay high and will continue to support spending.

Stronger political will among governments
• There are moves afoot to co-operate on infrastructure serving multiple countries. • African governments are more open to private participation in managing infrastructure and are doing more to attract private investment. • Cross-border co-operation is also vital for integrating Africa’s many tiny markets — 20 countries have populations of fewer than 5 million and economies worth less than US$5bn — by attracting non-mining investment and enabling local companies to harness economies of scale.

| 10

11 |

Africa: The key challenges

| 12

To capitalise on the diverse opportunities in Africa, it is necessary to explore the challenges that exist from both from a people and a business perspective. • FDI in Africa continues to be concentrated in a few countries and sectors, with 15 oil-exporting countries receiving 75 percent of FDI flows. As such, attracting FDI into diversified and higher value-added sectors remains the ongoing challenge for Africa’s economies. • Reducing inefficiencies related to poor transport infrastructure, including maintenance of existing infrastructure and the provision of new infrastructure. For instance, only 30 percent of the African road network is paved. The continent’s railway network is also very poor. • Accessing finance for infrastructure development is a major challenge. Recent estimates by the World Bank indicate that the annual infrastructure investment requirement in Africa is about US$93 billion over the next decade, more than double the previous estimate by the Commission for Africa. • Reducing political instability and the lack of security within and among several regions. • Reducing intra-African trade barriers. A further challenge is the lack of a coherent regional approach to managing and harnessing partnership agreements, which could improve the competitiveness of African countries, driving FDI. On the back of the need for combined and coherent strategies, it is crucial that there is a greater degree of co-operation between the private sector and government. • Africa needs a comprehensive approach to address the problem of unemployment in general and of youth unemployment in particular. In North Africa, where political upheavals disrupted economic activity, unemployment is likely to further increase in 2011. Youth unemployment has long been a major problem in North Africa (but also in many other African countries) and contributed to the political unrest which led to the overthrow of governments in Tunisia and Egypt. • The prevalence of HIV/AIDS, specifically in the southern African regions, will continue to subdue growth in 2011. • The recently launched 2011 edition of the African Economic Outlook emphasises that governments’ efforts need to include measures to create jobs, invest in basic social services, health and education, and promote gender equality.

Linked to this challenge, is the lack of bargaining power in multilateral negotiations. Currently, the only agreement that holds weight on the international scene is the Brazil-South Africa-India axis. It is critical that Africa, as one bargaining power, promotes an agenda harnessing the capabilities and resources of the continent for the benefit of all Africans. However, this is easier said than done, as each country has unique political, humanitarian and economic requirements. Africa offers potential for great rewards, but there are also significant risks associated with an expansion strategy in Africa – degree and nature of risk varies from country to country. Despite Africa’s problems, the long term outlook for the continent is bright.

13 |

Considerations for investment in South Africa

| 14

Maximising the return on investment is the ultimate goal of all investors. One way to achieve this is to minimise the investment costs. Thus, new investors should obtain a fair understanding of the legal requirements, tax regulations, foreign exchange control and certain other statutory regulations or obligations to be met in the investing country, in order to set up the investment in the most cost-effective way. Such a set-up would help an investor avoid unnecessary penalties and administration costs, and achieve tax savings in the long term. As one of the largest professional services organisations in the world, with a high quality of expertise, KPMG can help investors structure investments that are best suited to the client as well as cost-effective. We have outlined some key considerations below for investors:

• Tax deductions –various tax deductions (such as interest, royalties, foreign exchange gains and losses etc) also vary, depending on the tax status of the entity. • Thin capitalisation rules – when a foreign company advances financial assistance to a connected party in South Africa and the resident company’s interest-bearing foreign debt is excessive in relation to its equity share capital, thin capitalisation rules may apply.

Exchange control
An understanding of the South African Exchange Control regulations and practices which may be relevant (including the rules relating to the various methods for repatriating profits and the implications for providing equity and loan funding) is required. Income derived from investments in South Africa is generally freely transferrable to foreign investors, subject to certain restrictions. • Local borrowing restrictions – while there are generally no restrictions on local borrowings, there are a few instances where restrictions will be applicable • Foreign loan to South African company – this requires approval from the Exchange Control Authorities before acceptance. Interest payment can be remitted abroad. However, this is also subject to the Exchange Control Authorities’ approval. • Management fees – payment of management fees abroad is subject to the approval of Authorised Dealer and certain fees need to be supported by a transfer pricing analysis. • Dividends/profits – dividends can be remitted abroad to non-resident shareholders. Repatriation of profits is subject to certain exchange control requirements. • Using South Africa as a head office for operations throughout Africa could result in numerous exchange controls being active within the group’s business. • Exchange controls vary from ownership requirements to basic control of the money in and out of a country. • Exchange controls are detailed. The governments in Africa are constantly changing these requirements in the hope of foreign investors expanding operations into Africa.

Legal
South Africa’s Companies Act sets out comprehensive regulations and requirements for all entities that operate in South Africa. Different entity structures encounter different legal requirements. In general, an investor should consider the following key areas: • Legal status and limited liability – the legal status of the entity determines the level of liability and associated risks for the entity. • Registration requirement and penalties – penalties are enforced on companies which fail to register with the Companies and Intellectual Property Commission (‘CIPC’). Investors should comply with applicable registration requirements within the specified time frames to avoid unnecessary penalties. • Financing alternatives – different types of entity are allowed different forms of finance (debt only or equity and debt). This has a massive impact on the flexibility of the funding and total of expenses (eg interest expense) for the entity. • Requirement of audit – depending on the type of entity, the entity may have to be audited on an annual basis. • Annual returns – depending on the type of entity, annual returns may need to be submitted to the Companies and Intellectual Property Commission (CIPC). The annual fee varies for different types of entities.

Taxation
There are also specific tax impacts on different entity set-ups. In order to establish an entity structure with long-term tax savings, an investor should consider the following: • General principles – the general principles (such as whether an entity is resident or non-resident, taxed on worldwide income or African-sourced income only etc) provide guidance on the type of income to be taxed. • Rate of tax – general rate of tax is 28 percent for South African companies. However, branches in South Africa are taxed at 33 percent. More detailed tax rates are outlined in Fiscal Guides. • Capital gains tax (CGT) – the disposal of certain local assets or worldwide assets (depending on the type of entity) could attract CGT.

VAT
South Africa has a standard VAT rate of 14 percent on taxable supplies. However, VAT registration is only required if the total taxable supplies exceed R1 million in a period of 12 months. Even though the standard rate is 14 percent, there are some exempt supplies and zero-rated supplies outlined in the VAT Act.

15 |

Statutory obligations on employers
• Employees’ tax – a resident employer or representative employer is required, in terms of the South African Income Tax Act, to withhold employees’ tax and pay it over to the South African Revenue Service (‘SARS’) monthly. • When an employer pays remuneration to employees, the employer must also contribute towards:

Regulatory Requirements
• Apart from tax, investors bound for Africa need to carefully to consider the impact of local regulatory restrictions. • The nature and extent of restrictions vary significantly from country to country. • Different regulatory and reporting requirements for each region, including reporting to central banks and reporting to foreign shareholders • Requirements for foreign reporting. Understanding the requirements at a local level requires training and implementation of processes.

  

Skilled development levies monthly Compensation for occupational injuries Unemployment Insurance Fund.

This guidance is based on South African regulations. However, an investor should also consider it when planning to invest in other African countries. KPMG can provide further guidance and assistance through our expert advisors in other African countries.

Public sector and government interaction
• In many African countries there is a distinct lack of cooperation between the private sector and government.

Transfer Pricing
• Many African countries do not have specific transfer pricing legislation in the various African countries. This in itself raises the risk. The lack of transfer pricing legislation leaves this area of transfer pricing open to interpretation by the company operating in Africa, and by the tax authority. • African countries’ tax authorities look to the principle of ‘arm’s length’ as the guiding principle. • Processes must be established to have appropriately detailed documentation that can support the ‘arm’s length’ value. • The African continent, as an emerging market does not always provide the backdrop to establish the arm’s length value. This difficulty in establishing arm’s length values, may focus tax authorities’ efforts on transfer pricing.

Corruption
• Corruption is a significant problem in Africa. • Current global interest in the African continent is making it a competitive market. A large percentage of businesses in Africa factor bribery into their operating costs.

| 16

Financial Management
• Lack of technical accounting resources. • Lack of valuation, risk management knowledge and experience. • Low level and knowledge of IFRS, particularly around IAS 39 and financial instruments. This is mainly due to limited trade of derivatives in many African countries. • Lack of ability to take on IFRS conversions on the African continent. • Most valuations of financial instruments are denominated in African currency because of a severe lack of trade and inactive markets. There are no liquid exchange rate or interest rate markets, and very often currencies are just pegged to the USD for reference. This makes it very difficult to establish any sort of fair value. • Collaboration, particularly the finance department’s collaboration with other internal departments, such as IT and human resources. As banks rely heavily on IT, any IT or finance transformation initiatives will need to be closely managed and monitored, to ensure collaboration between these two functions, as well as collaboration and integration with the rest of the business.

• Centralisation of systems also requires large amounts of data transfer between countries on the continent. Many African countries experience bandwidth constraints, resulting in data delays. Banks also run the risk of transferred data being interrupted. • Certain countries in African have basic payment and settlement systems. The maturity and automation on settlement systems requires refinement.

Islamic Banking
• Most African countries do not have specific tax legislation related to Islamic banking products. Certain countries, eg South Africa and Nigeria, have recognised the need to place Islamic banking on an equal footing with conventional banks. • South Africa has drafted legislation to treat certain Islamic banking products on a similar basis to conventional products. It is likely other African countries will follow suit.

Product Differentiation
African countries require different products, depending on the culture and requirements of the various nationalities. These products need to be developed.

Systems
• Many African countries’ banking systems are considered sub-standard. • Certain of these countries have a distinct lack of banking infrastructure, ie ATMs and credit card facilities. • Many African countries run their operations through systems centralised in South Africa. The centralisation of systems creates a discord between front office and back office operations. This can create issues around accountability.

17 |

Industry analysis

| 18

Although Africa’s growth prospects are bright, they differ not only country by country but also sector by sector. Perhaps the most fundamental point is that Africa’s growth story is hardly limited to the extractive industries. As many as 200 million Africans will enter the consumer goods market by 2015. Banking and telecommunications are growing rapidly too, and infrastructure expenditures are rising significantly faster in Africa than in the world as a whole. The continent has more than one-quarter of the world’s arable land. Eleven of its countries rank among the top ten sources for at least one major mineral. Africa will produce 13 percent of global oil by 2015, up from 9 percent in 1998. For many companies, this is a future worth investing in.

• where the private party performs an institutional/municipal function • where the private party acquires the use of state/municipal property for its own commercial purposes. A PPP may also be a hybrid of these types. Payment in any scenario involves one of three mechanisms: • the institution/municipality pays the private party for the delivery of the service • the private party collects fees or charges users of the service • a combination of these. This enormous investment in the infrastructure industry has created opportunities for private investors, such as in giving advice on technical matters and the development of plans and projects, assistance in financing the projects, regulatory services, developing tariff/pricing models, financing transmission and distribution lines and much more. With interconnection electricity projects in sub-Saharan Africa gaining some traction, electrical engineering companies with the expertise to undertake more complex projects and to benefit from engineering, procurement and construction contract awards. A study conducted to determine the required capital investment for regional transmission projects estimates the amount for transmission projects alone to be US$8.4bn. The study covered Burundi, Djibouti, DRC, Egypt, Ethiopia, Kenya, Rwanda, Sudan, Tanzania and Uganda – all the countries affiliated with the EAPP. Accordingly, US$1.7bn will be required until 2013, US$3.7bn between 2013 and 2018, US$2.5bn between 2019 and 2023 and US$500m between 2024 and 2028. Cross-border power trading is unlikely to take off over the next decade despite its huge potential to improve supply. Africa’s enormous, largely untapped hydropower potential is concentrated in a few countries. Cross-border power trading could allow electricity costs to fall sharply in smaller countries with national grids below the 500 MW threshold. The states with the greatest hydropower potential lack the resources to develop it. This creates the need for cross-border financing, which requires a high level of mutual trust and collaboration.
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2008 Revision and World Urbanization Prospects: The 2009 Revision Source: Africa Economic Outlook Source: UN, Business monitor international and KPMG research

Infrastructure
According to the World Bank, Africa spends US$45 billion per annum on infrastructure, when it should be spending about US$93 billion. The population of Africa is set to rise from about 1 billion people today to more than 2 billion in 2050. The urbanisation rate is expected to increase from 40 percent in 2010 to 42 percent in 2015. The GDP is expected to grow at 5.8 percent by 2012. Due to this rapid growth of the population, economy and urbanisation, the demand for efficient infrastructure is high. However, in large parts of Africa, infrastructure has been neglected for decades, while in other parts it is non-existent. Africa’s Infrastructure: A Time for Transformation, published by the World Bank, outlined the following challenges in the infrastructure industry: • Africa’s difficult geography and poor rail connectivity presents a challenge for infrastructure development • Africa’s infrastructure is twice as expensive as elsewhere, reflecting diseconomies of scale in production and high profit margins caused by lack of competition. For example, power costs are high due to the low megawatt threshold provided by national power systems. High road freight tariffs are due to high profit margins, caused by limited competition and centralised queuing methods for crossing borders • Power is Africa’s largest infrastructure challenge • Infrastructure funding faces a gap of US$31 billion a year. The South African government estimates it will need to invest approximately R1 trillion (US$142bn) over the long term, with estimated expenditure of R850bn (US$121bn) between 2011 and 2014 alone, which is to be largely driven by energy and transport projects. In the South African infrastructure report from Business Monitor International, the infrastructure value is expected to grow from US$7.4 billion in 2010 to US$14.4 billion in 2015, forecast as a 2 percent-share of GDP. However, all these infrastructure developments are not to be undertaken by the government alone. South Africa enjoys the established concept of a public-private partnership (PPP). It is a contract between a public sector institution/municipality and a private party, in which the private party assumes substantial financial, technical and operational risk in the design, financing, building and operation of a project. Two types of PPPs are specifically defined:

19 |

Agriculture
With 60 percent of the world’s uncultivated arable land and low crop yields, Africa is ripe for a ‘green revolution’ similar to those that have increased agricultural production in Asia and Brazil. Agriculture is Africa’s largest economic sector, representing 15 percent of the continent’s total GDP, or more than $100 billion annually. It is highly concentrated, with Egypt and Nigeria alone accounting for one-third of total agricultural output and the top ten countries generating 75 percent. Africa’s agro-ecological potential is massively larger than its current output, but so are its food requirements. While more than one-quarter of the world’s arable land lies in this continent, it generates only 10 percent of global agricultural output. Africa is a net importer of food and is unable to meet local demand. There is huge potential for growth in a sector now expanding only moderately, at a rate of 2 to 5 percent a year. Four main challenges inhibit the faster growth of agricultural output in Africa. • Fragmentation. With 85 percent of Africa’s farms each occupying less than two hectares, production is highly fragmented. In Brazil, Germany, and the United States, for example, only 11 percent or fewer farms operate on this scale. Therefore, new industry models that allow small farms to gain some of the benefits of scale are required. • Interdependence and complexity. A successful agricultural system requires reliable access to financing, as well as high-quality seeds, fertiliser and water. Other essentials include access to robust markets that could absorb the higher level of agricultural output, a solid postharvest value chain for the output of farmers, and programmes to train them in best practices so that they can raise productivity. Africa has diverse agro-ecological conditions, so countries need to adopt many different farming models to create an African green revolution. • Underinvestment. To make the agricultural system work better, experts estimate, sub-Saharan Africa alone requires additional annual investments of as much as $50 billion. African agriculture therefore needs business models that can significantly increase the level of investment from the private and public sectors, as well as donors. • Enabling conditions. A successful agricultural transformation requires some basics to be in place – transportation and other kinds of infrastructure, stable business and economic conditions, and trained business and scientific talent. Many African countries are making great strides in laying the groundwork, but others are lagging behind. Over the past five years, the world has reenergised its efforts to improve African agriculture. Africa’s countries have committed themselves to increasing agriculture’s share of their budgets to 10 percent, donors are making significantly increased commitments, and private-sector players and investment funds are pouring serious money into the area. These increased investments flow toward three general opportunities. • Developing technological breakthroughs, such as droughttolerant maize, that would yield high returns on investment and could sustainably raise small farmers from poverty. • New value chain approaches aim to improve access to markets and help groups of farmers raise their productivity. • The development of selected large tracts of high-potential agricultural land.
Source: UN, SOCAP, McKinsey and KPMG research

| 20

Banking and IT
The International finance corporation (IFC) estimates that there are 4 billion people at the bottom of the economic pyramid in the world. Most are unbanked, meaning they do not have bank accounts. The unbanked are the largest untapped retail market in the world. Their primary needs are the ability to transfer money to family and friends, accessibility, availability and affordability. IFC estimates that the unbanked represent a $5 trillion market. Lowering transaction costs by one percent would mean over $1 billion extra would directly reach the poor each year, according to the World Bank. In Africa, 700 million people out of a population of 1 billion are unbanked. This equates to 70 percent. It is often not worthwhile for banks to target low-income segments, which are often in distant and rural areas with limited infrastructure. Those living in poverty either cannot afford banking fees or are not able to go through the bureaucratic process of opening an account. The evolution of payments is converging with the growth of mobile. Africa has more mobile phone users than fixed-line subscribers. The continent has become the world’s fastest growing mobile phone market, where mobile phone use has increased at an annual rate of 65 percent, twice the global average, according to Wizzit. This provides significant opportunities for mobile as a transactional channel. The key challenges are: • Reducing service costs to align with revenue generated. • Educating the unbanked about products (many do not believe they qualify for products). • Competition from non banks • Reaching the unbanked in remote areas. Mobile operators see opportunities in the unbanked market for cost savings, new revenue streams, customer retention and acquisition. Some 18 percent of South Africans use mobile phones to transfer money. The 2011 World Wide Worx research, which probed the use of mobile phones for banking, showed that almost two out of every 10 South Africans are now using their phones to transfer cash to family and friends. Mobile money is one of the fastest growing sectors in the financial services environment – with many people opting for an electronic wallet instead of a leather one. The number of eWallet holders has doubled within 6 months, from 250 000 in October 2010 to over 500 000 in April 2011. Figures show that the majority of its senders (79 percent) are younger than 40. This is not surprising, since most of the senders are techno-savvy mobile phone banking users.
Source: Economist, KPMG research, IMF

21 |

Healthcare
The health status of Africans remains far worse than that of people in many other developing regions. Although a lack of access to health care and serious health system deficiencies are important reasons for this phenomenon, other elements aggravate it. One is insufficient research and development aimed at addressing Africa’s unmet health needs. A look at the relationship between GDP per capita and life expectancies, illustrates the magnitude of the problem. While the GDP of Africa as a whole has grown by over 200 percent in the past 20 years, only two extra years of life expectancy were added during that time. Asian countries with comparable GDPs per capita tend to have life expectancies five to 10 years higher than those of their African counterparts. Undoubtedly, Africa’s weak health systems and HIV/AIDS epidemic are contributing to the problem. Yet several countries elsewhere, such as Jamaica and Thailand, with similarly weak systems or similarly burdensome HIV/AIDS rates, still have life expectancies that are 5 to 25 years longer. A big part of the problem is a lack of tools to diagnose and treat the diseases of Africa. Some available drugs addressing diseases that affect Africa disproportionately are not fully effective and present high toxicity levels. While emerging public-private partnerships between international organisations and pharmaceutical companies are making inroads, these efforts are still few and far between. Current R&D efforts aimed at treating African diseases mostly depend on organisations outside Africa. They try to find solutions for its pressing health needs but not to create a sustainable R&D structure on the African continent. Sub-Saharan Africa carries 24 percent of the global burden of disease, but receives less than three percent of the

world’s health workers and only a percent of world health expenditure. Almost half the world’s deaths of children under five take place in Africa. The vast majority of the region’s poor, both urban and rural, rely on private health care. Public resources are limited: around 60 percent of health financing comes from private sources, 10 percent from donor aid. Of $16.7 billion (2005) of total health expenditure, 50 percent was captured by private providers. The market for healthcare is likely to more than double by 2016, going up to $35 billion. 550 000 to 650 000 additional hospital beds will be needed. An additional 90 000 physicians, about 500 000 nurses, and 300 000 community health workers will be required over and above the numbers that will graduate from existing medical colleges and training institutions. Most health expenditure in Africa is from out-of-pocket payments – around 60 percent. Risk pooling arrangements are expected to present a $1.4 billion to $2.5 billion investment opportunity in sub-Saharan Africa over the next ten years. $25 billion to $30 billion in new investments will be needed to meet demand between now and 2016 – of which $11 billion to $20 billion is likely to come from the private sector. A number of investment opportunities exist in Africa’s health care sector. • Opportunities can be found in inpatient and outpatient care, preventative care and diagnostic services. High-end clinics that target growing middle- and upper-income groups are especially profitable, providing high quality care that attracts patients as well as experienced staff. High-volume, lowcost hospitals usually located in high-density areas targeting low income earners, also offer high returns. • Development of distribution infrastructure (warehouses, trucks and supply chain management information systems). The retail sector, though significantly smaller, is the most

| 22

profitable segment within healthcare in sub-Saharan Africa, with net margins of up to 50 percent. Hospitals and clinics heavily depend on their pharmacies to subsidise their businesses. • Generics manufacturing involves formulation of generic medicines, both prescription and over the counter. • Medical supplies manufacturing provides supplies such as long-lasting mosquito nets, medical gauzes, and medical furniture. • South African life sciences innovation finances the development and commercialisation of entrepreneurship innovation in South Africa’s life sciences sector. • Commercialisation of infectious disease innovation. Financing phase three and production of products for infectious diseases developed all around the world. • The unavailability of skilled human resources is a significant barrier to the growth of health care provision in the region. The role of the private sector in the provision of medical education has been hampered by challenges including government regulations which traditionally restrict private investors in this sector, as well as the huge capital required to establish medical schools. However, evidence from developing countries such as Egypt and India indicates that private medical and nursing schools can be profitable.
Source: KPMG research and McKinsey

Wedged between the recent economic crises and looming population growth, most African governments will need to make strategic decisions on how to budget for education, says Unesco. The population of sub-Saharan Africa’s five- to 14-year-olds is expected to grow by more than 34 percent over the next 20 years, and the region will need to respond to the demands of 77 million new students. As neither domestic resources nor donor funding are likely to increase enough over the coming years, governments will need to make difficult decisions. Most countries in sub-Saharan Africa spend at least 10 times more on a university student than on a primary school pupil, says the report. On average, eight out of every $10 spent on university education in Africa is subsidised by country governments. Within South Africa, the greatest challenge lies in poorer, rural provinces, eg Eastern Cape, KwaZulu-Natal, Limpopo, Mpumalanga and North West. Challenges include: • Low literacy rate • Quality of teaching – teachers are poorly qualified and trained • Low availability of learner and teacher support material.

Education
According to a report released by the UN educational, scientific and cultural organisation (Unesco), over the last decade, public spending on education in Africa has increased by more than six percent each year. The increase in investment has been accompanied by some spectacular results. Between 2000 and 2008, the number of children in primary schooling increased by 48 percent – from 87 million to 129 million. Enrolment in pre-primary, secondary and tertiary education has also grown by more than 60 percent during the same period. Some key findings of the report are: • In Burundi and Mozambique, education spending rose by an average of 12 percent annually over the last decade. • Out of the 26 countries with comprehensive data, only one – the Central African Republic – reduced education spending since 2000. • Overall, sub-Saharan Africa spends five percent of its Gross Domestic Product on education, which is second only to North America and Europe at 5.3 percent. However, in onethird of the region’s countries, half of all children still do not complete primary education. • A total of 32 million children remain out of school. • In some countries, such as Guinea, Mali, Rwanda and Zambia, development aid accounts for about 50 percent of government education budgets, yet in the region as a whole, aid accounts for a much smaller fraction of 5.6 percent.

23 |

Other priorities not addressed enough: • Curriculum changes • Early childhood development • Adult basic education and training • HIV/AIDS awareness programmes.
Source: KPMG research

expected to reach 2 million tonnes in the next five to seven years. South Africa holds the world’s largest natural reserves of gold, platinum-group metals, chrome ore and manganese ore, and the second-largest reserves of zirconium, vanadium and titanium. The country is the world’s largest producer of platinum, and among the leading producers of gold, diamonds, base metals and coal. Clearly, mining, as one of the main industries in South Africa, makes a significant contribution to the overall economy. A Business Monitor International forecast expects the value of the South African mining sector to grow from US$27.5 billion in 2010 to US$53.2 billion by 2015, an annual average growth rate of 4.6 percent. The mining sector’s share of overall South African GDP is forecast at 7.7 percent. In comparison to other African countries, South Africa has a well-established regulatory environment and infrastructure for mining, which limits the obstacles confronting foreign investments and reduces risks. This is further shown through the survey of the African mining business environment conducted by Business Monitor International, where South Africa achieved an overall ranking of second place for ease of doing business in mining. The following are some of the discussions and potential changes that could affect the South African mining industry: • Nationalisation of mines • Tax increase on mining entities from three percent to five percent • Implementation of the Electronic Mineral Management System.

Mining in Africa
Africa’s mining potential is unfolding as a number of economies are increasingly becoming more important in terms of global mineral production. The DRC for example, has enormous high-value reserves of copper, cobalt, gold and diamonds and offers an opportunity for mineral exploitation activities. The IMF recently praised the DRC’s economic progress and approved the release of US$77 million as part of an existing loan facility. Generally, the West African greenstone belts have seen strong investment which has transformed countries like Mali, Burkina Faso and has the potential for so doing in Côte d’Ivoire, Sénégal and Sierra Leone. Other emerging mining economies include leading gold producers Ghana and Tanzania. In addition, Namibia may become a leading resource economy due to its enormous uranium potential. Zambia on the other hand is experiencing a revival of its major copper industry with new mines being developed. Copper production in Zambia, Africa’s largest producer of the metal, is likely to rise to 850 000 tonnes in 2011 from just below 750 000 tonnes in 2010. Zambia’s copper output may continue increasing, with production

| 24

African Mining Indaba
Every year, Cape Town, South Africa hosts the African Mining Indaba conference. The conference attracts the world’s largest gathering of the most influential stakeholders in African mining, including financiers, investors, mining professionals, etc. During the 2011 conference, the following key areas were outlined: • The need for effective partnership among shareholders. This group should create enabling platforms and arrangements for successful mining activity to benefit all stakeholders, and enhance the responsibilities and accountabilities of each member • Announcement of introduction of Electronic Mineral Management System, which requires greater transparency and accountability • Reaffirmation of mining sector’s commitment to sustainability • Communities’ welfare • Political circumstances.
Source: KPMG research

25 |

Consumer goods
By 2015, 221 million additional basic-needs consumers will enter the market in Africa. Resources are not Africa’s only driver of growth. Underlying it, the African consumer is on the rise. In last few years, consumer spending across the continent increased at a compound annual rate of 16 percent, more than twice the GDP growth rate. Many consumers have moved from the destitute level of income (less than $1 000 a year) to the basicneeds ($1 000 to $5 000) or middle-income (up to $25 000) levels. In Nigeria, for example, the collective buying power of households earning $1 000 to $5 000 a year doubled from 2000 to 2007, reaching $20 billion. Nearly seven million additional households have enough discretionary income to take their place as consumers. This evolution is critically important to consumerfacing businesses, from fast-moving consumer goods manufacturers to banks to telecommunications companies: when people begin earning money at the basic-needs level, they start buying and consuming goods and services. While the exact inflection point differs among categories, many of them are just entering this phase of accelerated growth. The enormous expansion of mobile telephony in Africa provides clear evidence of this phenomenon. Despite the recent slowdown in economic expansion, GDP per capita should continue on its positive trajectory of a 4.5 percent compound annual growth rate (CAGR) until 2015. That would mean an increase in spending power of more than 35 percent. Combined with strong population growth (two percent) and continued urbanisation (3 percent), this increase leads us to estimate that 221 million basic-needs consumers will enter the market by 2015. As a result, the number of attractive or highly attractive national markets — with more than ten million consumers and gross national income exceeding $10 billion a year — will increase to 26 in 2014, from 19 in 2008. Many local and multinational consumer companies are already thriving in Africa and delivering handsome returns to their shareholders. To succeed, consumer companies must address five major challenges, some familiar to businesses operating in other emerging markets. • Heterogeneous market structure. Africa has more than 50 countries, with large differences in spending power and consumer behaviour, so a one-size-fits-all approach will not work. • Underdeveloped distribution and route to market. Modern trade is still nascent in most of Africa. The traditional momand-pop shops, open markets, umbrella vendors, and the like, dominate the retail scene, making up more than 85 percent of the trade volumes. Poor roads and infrastructure can make delivering products to consumers a daunting task, so companies must build strong sales and distribution networks by leveraging a mix of third party, wholesale, and direct-distribution models.

• Nascent categories. In Africa, many categories still are not fully developed; for example, usage per capita of toothpaste is lower here than it is in comparable Asian countries. Data about consumers’ needs and behaviour are scarce, making it harder to develop specific consumer insights. In addition, the state of the communications media and education levels make it challenging to reach consumers with specific product messages. Competing in Africa therefore is not a share game. Rather, companies need to bring a market-development mind-set, investing in consumer education and non-traditional marketing techniques. • Talent shortages. Despite the abundant work opportunities, talent remains scarce across Africa. Truly competing and winning in the long term, however, will require local knowhow and talent. At first, companies will need to bridge the gap by using a mix of local and international employees. In parallel, investments in developing and retaining local talent are required. Local capability-building programs, attractive career paths and apprenticeship opportunities will be critical to achieving long-term success.

| 26

Africa will be home to the world’s 6th largest nation in 2050: Nigeria
Source: UN, KPMG research, Mckinsey

36 million $26.1 billion 32 million $161.4 billion 3.2% 3.3%

+10.4 million $100 billion 3.7% +10.4 million $90.67 billion 4.2% +82 million $497.8 billion 5.1%

+12 million $23.88 billion 4.2%

+34 million $42.16 billion 5.2%

+21.4 million $37.2 billion 2.6%

+24 million $61.97 billion 5.7% +155 million $377.9 billion 8.4% +71 million $23.12 billion 7.2% +19 million $44.33 billion 3%

+39 million $66.03 billion 5%
• Seychelles

+42 million $58.44 billion 6.6%

+22 million +13 million $107.3 billion 1.6% +2 million $28.49 billion 8.6% +15 million $12.98 billion 6.6% $21.81 billion 7%

+2 million $14.6 billion 4.4%

+49 million $524 billion 2.8%

+13 million $20.04 billion 7.6%

+12 million $5.457 billion 9%

27 |

The ‘Chindia’ Factor

| 28

Africa, India and China are three transitional economies in different stages of development and growing at different rates on different development models. They will shape the global economy and shift its global power base as they evolve. This development cannot take place in isolation and trade between these countries and the rest of the world will be the medium through which their evolution will take place. While China has taken the clear lead, and India is powering on strongly in pursuit, Africa has only recently entered the growth phase, mainly driven by the global demand for resources but not uniquely.

Category GDP US$ million GDP % share GDP growth GDP per capita Land surface area Population density

Africa 1 184 891 2.0% 1.7% 1 185 30 221 535 km2 1 000 010 000 33

India 1 235 975 2.2% 5.7% 1 041 9 640 011 km2 1 187 640 000 123

China 4 908 982 8.4% 8.7% 3 665 3 287 263 km2 1 339 490 000 407

Top Exports to India
2.3% 2.4% 5.5% 13.7% Ores, slag and ash Edible fruit, nuts, peel of citrus fruit, melons Inorganic chemicals, precious metal compound, isotopes Pearls, precious stones, metals, coins, etc. Minerals fuels, oils, distillation products,ect

Top Imports from India
1,7.4% 7.5%

Top Exports to China

Top Imports from China
3.8%

2.4% 3.8% 4.1%

7.2%

9.4% Machinery, nuclear reactors & boilers 11.1% Vehicles other than railway Pharmaceutical products Electrical & electronic equipment 19.5% Mineral fuels & oils

14.1%

7.9% Articles of apparel, accessories, knit or crochet 13.5% Articles of iron or steel Vehicles other than railway Machinery, nuclear reactors & boilers 16.3% Electrical & electronic equipment

Iron and steel Copper and articles thereof 64.4% Pearls, precious stones, metals, coins, etc Ores, slag and ash Mineral fuels, oils, distillation products, etc

66.0%

Africa’s share of change in economic growth, 2000 - 07 ($235bn)
Other services Utilities Tourism Real estate and business services Construction Public administration Financial intermediation Manufacturing Transport and ICT Agriculture Wholesale and retail Resource 0 5 1 1 2 2 5 5 6 6 9 1 1 1 ?% 7.9% 6

An estimated $2.6 trillion business opportunity per annum is expected in Africa from four sectors by 2020:
3.8% •

Consumer industries — $ 1,380bn

• Resources — $540bn • Agriculture — $500bn • Infrastructure — $200bn.

13.5%

2 2 2

29 |

Investments between India and Africa

| 30

India-Africa
The India-Africa relationship is not new. It draws on a long, shared history of struggle against European colonialism, and a determination to ensure equality in the post-colonial world order. India is the third-biggest contributor of UN peacekeepers to the continent, helping clamp down on civil wars in Sudan and Congo. India’s navy tracks Somali pirates and India’s record of speaking out against apartheid in South Africa was an honourable one. Growing trade relations between India and Africa have achieved thriving business partnerships across key African economies. Various Indian companies are now increasing their business reach within the African region through adopting organic growth measures. It is evident that economic optimisation, increased government support, a strong pipeline for new products launches and resource abundance, are the key enablers which will drive the investments to Africa. Fundamental differences in the resources, labour, and capital endowments of Africa and India make them complementary business partners – meaning that the trend will likely be sustained. Annual trade between India and Africa increased 15-fold within a decade to US$46 billion in 2010 from $3 billion in 2000. The Indian government is determined to achieve a target of $70 billion in trade well before 2014. India has become one of the leading investors in African countries, with investments in joint ventures and wholly owned subsidiaries touching the $33 billion mark. The investment covers sectors such as oil and gas, pharmaceuticals, petrochemicals, IT, fertilisers and infrastructure. India’s investments in agriculture and telecommunications may also have more of a direct economic impact on the lives of ordinary Africans, 70 percent of whom are engaged in some form of agriculture, and at least 30 percent of whom have access to a mobile phone. Last year, the Indian telecoms giant Bharti Airtel announced a $9 billion deal to purchase the African operations of Zain Telecommunications.
Source: KPMG research

India-South Africa
Commercial relations between these two countries have flourished since the establishment of diplomatic relations in 1993. On the trade front, the value of bilateral trade has trebled from US$2.5 billion in 2003 - 04 to US$7.5 billion in 2008 - 09. During the visit of President Zuma to India, both sides agreed to work towards a target of US$ 10 billion in bilateral trade by 2012. The trade target was revised to US$ 15 billion by 2014 during the visit of the Commerce and Industry Minister in January, 2011 to South Africa, as it was estimated that the bilateral trade target of US$ 12 billion would be achieved in FY 2010-11. Recent bilateral trade figures are as follows: There is substantial potential for trade growth between the two countries. Exports from India to South Africa include vehicles and components thereof, transport equipment, drugs and pharmaceuticals, computer software, engineering goods, footwear, dyes and intermediates, chemicals, textiles, rice, and gems and jewellery, etc. Imports of South Africa into India include rock phosphates, precious stones and minerals, fertilizers, steel, coal, transport equipment, pulp and pulp manufacturing, etc. Investment from South Africa to India from April 2000 to December 2010 was estimated at US$109.88 million [Source: DIPP]. Further, cumulative investment from India into South Africa from January 1994 to January 2011 was estimated at US$212 million. Major investors include Tata (automobiles, IT, hospitality, and ferrochrome plant), UB Group (breweries, hotels), Mahindra (automobiles) and a number of pharmaceutical companies, including Ranbaxy, CIPLA, etc as well as IT companies and some investments in the mining sector. There is also growing South African investments in India led by SABMiller (breweries), ACSA (upgradation of Mumbai airport), SANLAM and Old Mutual (insurance), ALTECH (set-top boxes), Adcock Ingram (pharmaceuticals) and Rand Merchant Bank (banking). The presence of Indian banks in South Africa (State Bank of India, Bank of Baroda, Bank of India, EXIM Bank and ICICI Bank) has also promoted economic interaction. India-South Africa relations today are warm, co-operative and multi-dimensional. Rooted deeply in history, they now cover virtually all fields of human endeavor and enjoy regional and international significance. Sustained efforts are underway to strengthen, deepen and diversify them in future.
Source: High Commission of India in SA

31 |

KPMG in Africa

| 32

KPMG in Africa
Global consistency, local delivery Africa is showing extraordinary potential and KPMG is operational right around the continent. KPMG is therefore well positioned to serve our clients’ needs across Africa.
Currently KPMG Africa Limited practices are situated in the following countries: • Botswana • Ghana • Kenya • Lesotho • Malawi • Mauritius • Mozambique • Rwanda • Namibia • Sierra Leone • South Africa • Swaziland • Tanzania • Uganda • Zambia • Zimbabwe.

KPMG is well represented across the African continent. Our offices in Africa are officially integrated, and are managed as one practice across the continent. Individual countries retain their legal independence and local Director ownership. This aligns with KPMG’s objective to provide consistent, high-quality services to multi-national, regional and local clients and to enhance the product offering in certain previously under-serviced markets. Our extensive network of practices allows KPMG clients access to a blend of professionals who are well versed with local conditions, offering clients skilled resources, no matter where they are in Africa.

What makes KPMG Africa different
• Comprehensive ‘African footprint’ ensuring we can be where our clients are and that we know each other, with a blend of local knowledge and skills • Africa-wide consistency through the implementation, support and monitoring of key audit and other initiatives from a single point • Leaders in the key markets of Central, East, West and southern Africa • High quality, maintained through KPMG’s rigorous quality performance procedures.

Tunisia Morocco

Algeria Western Sahara Libya Egypt

Mauritania Mali Sénégal The Gambia Guinea Bissau Guinea Sierra Leone Cote D’Ivoire (Ivory Coast) Liberia Benin Togo Ghana Cameroon Nigeria Ethiopia Central African Republic Burkina Faso Chad Sudan Niger

Cape Verde

Eritrea Djibouti Somalia

Regions and sub-regions
KPMG in East Africa KPMG in Southern Africa KPMG in Central Africa KPMG in Lusophone Africa

Equatorial Guinea Uganda Gabon Congo Democratic Republic of Congo Rwanda Kenya

Burundi Tanzania

Seychelles

Angola Zambia

Mozambique Malawi

Zimbabwe Namibia

Madagascar

KPMG in West Africa KPMG in Francophone Africa KPMG in North Africa

Botswana Mauritius Swaziland Mauritius

33 |

KPMG’s India Africa Corridor

| 34

KPMG’s dedicated India-Africa Corridor
In view of the significant growth in trade and investment between India and Africa, KPMG has set up a dedicated team of experienced professionals to support clients operating in the India-Africa corridor. Our focus is to develop, support and facilitate Africa-India bilateral business opportunities – both for Indian businesses entering the African market as well as African businesses setting up in India. In addition, our team has deep insight and up-to-the minute experience of the opportunities and challenges that businesses face in Indo-African cross-border activities. Our network of specifically identified KPMG professionals in both Africa and India work seamlessly together to ensure our clients are best equipped to operate effectively and optimally in this Corridor. The team also regularly produces through leadership articles and newsletters in the marketplace in which the latest relevant insights and experiences are shared.

35 |

KPMG Services

| 36

KPMG Services
Our people are specialists and the best at what they do. We apply deep market knowledge and expertise in Audit, Tax and Advisory to distinguish the relevant and important from the complex and the unnecessary.
Our practitioners use methodologies and toolkits that enable standardised working practices while allowing them the opportunity to learn from others, regardless of their location. Our approach is commercial, practical and efficient; working with our clients to solve the most complex of issues.

High-performing professionals cutting through complexity

KPMG’s network of firms has long been a leader in serving the various industries and is actively engaged with clients around the world, combining global consistency with service that is attuned to the local marketplace. Clients can expect to work with honed professionals experienced in the issues, challenges and risks unique to particular industries and sectors.

We are organised around our Audit, Tax and Advisory practices:
AUDIT Our Audit professionals seek to drive efficiency and effectiveness, and enhance the audit experience for the client. TAX Our Tax professionals recognise that the globalisation of business and capital flows will lead to greater transparencies and cooperation among tax authorities, and a greater need for tax planning and strategy. ADVISORY Our Advisory professionals are at the forefront of risk and capital flows, and seek to provide strategies and tools to help member firm clients mitigate risk, reduce costs and sustain value. KPMG offers our clients unrivalled experience and expert skills through the integration of a shared vision, local knowledge and global best practice. Our services are tailored, our advice is specific and our commitment to excellence is absolute.

KPMG’s Advisory practice – impartiality and a value-adding, progressive spirit
KPMG’s Advisory team works with clients to tackle their most complex challenges. Combining our wide range of specialist skills, we provide objective advice and assist clients with the execution of their agreed strategies to help address their issues and realise their opportunities. In today’s business environment, businesses are continuously expanding, restructuring and refining themselves. Making the right decisions at the right time is essential to achieving optimal benefits while mitigating risks. At KPMG, we aim to understand our clients’ broader needs, deliver exceptional, well-informed advice and integrate our expertise into viable, relevant, practical end-to-end solutions for implementation.

Our Advisory practice works with our clients to address challenges in: Growth (creating value) Governance (preserving value) Performance (maximising value) working closely with our clients as they expand and restructure, either through acquisitions or organically. providing support to our clients as they adapt to new regulatory environments and assisting in all areas of risk governance. assisting with improving efficiency and capacity for growth.

KPMG’s Advisory practices: • Take an objective, long-term view • KPMG professionals bring local knowledge to local issues • Have an integrated approach to client service, fielding teams of experienced professionals with a breadth of specific Advisory, technical and industry sector skills • KPMG firms provide advice and assistance to companies, intermediaries and public sector bodies. Our Advisory Services can help you respond to immediate needs as well as put in place the strategies for the longer term.

Contact us
Neeraj Shah Head: India-Africa Corridor +27 (0)11 647 7825 [email protected]

Manish Bhatia Senior Manager: India-Africa Corridor +27 (0)11 647 5844 [email protected]

kpmg.co.za

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2011 KPMG Services (Proprietary) Limited, a South African company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in South Africa MC6958. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close