South Africa is located in the continent of Africa, gaining the position of being in the top 3 economic productive regions. The country is in developing phase which creates a blend of opportunities and risks for businesses. The PESTLE analysis of South Africa outlines these different factors present in the external environment of the country.
Political Factors
South Africa has indicated some positive development trends politically as efforts were made to curtail racial discrimination and violence after the apartheid. Nevertheless, the country continues to experience political instability and violent outbreaks in the community that disrupt the business activities.
For instance, in 2021 South Africa experienced unrest which turned violent, leading to death of 340 people. This unrest was not just a single event, but was followed by other series of conflicts between local people. In addition, the conflict between military veterans and government officials also causes high degree of uncertainty in the country.
This turmoil within the country has caused interruption of business operations, including banks and other organizations. It has been found that 40,000 organizations faced losses due to the unrest, as the violence resulted in damage to company stock and property (Vhumbunu, 2021).
South Africa has close political ties with countries within African continent such as Angola, and beyond the borders such as UK. The country also maintains close ties with Russia, despite the Russian involvement in Ukraine war. The neutrality in this regard has been criticized by other countries, however South Africa continues with amiable relations with Russia.
Economic Factors
South Africa had been struggling in the economic domain. Despite the efforts of the government, the GDP growth only increased 1%. Furthermore, COVID had a massive impact on the country’s economy that was already struggling with poor economic growth rate. The GDP growth rate had slowed down during pandemic while unemployment significantly increased.
In addition, a hike in inflation and rising interest rate create a challenging business environment. In 2010, inflation was 4.1 and in 2023, it has reached more than 7%, indicating economic issues (Naidoo, 2023). South Africa continues to face the challenge of poverty, which has intensified during the pandemic and lockdown.
In case of trading, countries included in the BRICS bloc are major trade partners for the region, especially India and Brazil. Besides these countries, South Africa engages in trading with the US, where it has the advantage of bilateral tax treaty. A large part of exports involves the contribution of the mining sector such as gold, platinum and coal.
Social Factors
The population of South Africa is 57,516,665, with the largest segment of black African and a smaller proportion of other ethnicities. Changes have occurred in the post apartheid time as the discrimination against people of color declined, yet the elimination of this deep rooted bias has not been achieved.
Nevertheless, post apartheid has allowed the business to prosper, as consumer spending experienced gradual increase. The rising population provides further expansion opportunities to the businesses as they would be required to cater to a larger number of customers.
The recent shift of economic situation and the post pandemic economic complications have changed the consumer behavior in South Africa. Due to higher inflation, unemployment and lower income, people were focusing more on necessities. A positive trend that emerged during the lockdown was the consumer shift to online purchase (The Economist, 2020).
Another sector that gained growth during pandemic was the rural construction, which flourished as people moved to rural areas to settle down. The ease of constructing a residence was a primary motivation associated with this move. However, other segments of the market faced losses due to a decline of consumer spending.
Technological Factors
South Africa is embracing the technological development, incorporating the advancements as a part of the industries. Wireless networks and shift to virtual business interaction are two of the examples of the technological developments the country has adopted. Within the continent of Africa, the country is renowned as having a strong IT foundation.
Organizations in South Africa benefit from the country’s focus on technology. The availability of technology helps the businesses to engage in innovation. However, the country still needs to further invest in the advancement of its technological capability to facilitate the organizations.
Developed countries offer better business innovation opportunities due to access to upgraded technology. To retain a favorable business outlook, South African government needs to invest further in strengthening the technology sector. Some of the sectors still predominantly rely on a combination of manual and semi-automated tools (Andreoni & Avenyo, 2021).
Legal Factors
The organizations operating in South Africa have to follow the business rules related to domains, employment and business practices. Competition Amendment Act aims to limit the price based competition involving quoting unfair prices to gain advantage. In addition, mergers with organizations operating in other countries are guided by government’s approval (Kleitman & Hofmey, 2020).
Post apartheid South Africa has made efforts to bring more equality to the workplace. A notable addition to the legal framework was Broad-Based Black Economic Empowerment Act (BEE Act) which influences the human resource management practices of organizations.
Despite these positive steps towards a legally balanced business environment, the issue of corruption creates barriers for business growth. Organizations operating in the region have to deal with the consequences of corruption in the form of slower economic growth and poverty.
Environmental Factors
The South African government is trying to focus on inculcating sustainable practices through The Department of Environment, Forestry & Fisheries. The country continues to face challenge of having high carbon emission, primarily attributed to the use of coal for energy generation. Additionally, non-sustainable business practices are a contributing factor.
Carbon tax and stricter environmental policies have been adopted to reduce the harm being caused to the environment. Even though the aim is to achieve zero carbon emission by 2050, radical steps are required to meet this goal (UNDP, 2023).
Conclusion
Overall, it can be seen that South Africa is facing numerous challenges and struggling economically. However there are growth opportunities as well. The factors discussed above have to be taken into consideration by organizations in South Africa for their decision making process.
References
Andreoni, A. & Avenyo, E. (2021). South Africa is failing to ride the digital revolution wave. What it needs to do. The Conversation. Retrieved from: https://theconversation.com/south-africa-is-failing-to-ride-the-digital-revolution-wave-what-it-needs-to-do-171515
Kleitman, Y. & Hofmey, C. D. (2020). Doing Business in South Africa: Overview. Retrieved from: https://content.next.westlaw.com/practical-law/document/I2ef128301ed511e38578f7ccc38dcbee/Doing-Business-in-South-Africa-Overview?viewType=FullText&transitionType=Default&contextData=(sc.Default)&firstPage=true
Naidoo, P. (2023). Mounting Pressures Threaten South Africa Inflation Slowdown. Bloomberg. Retrieved from: https://www.bloomberg.com/news/articles/2023-01-18/mounting-pressures-jeopardize-south-african-inflation-slowdown
The Economist (2020). South Africa’s post-pandemic consumer: Building on new foundations. Retrieved from: https://impact.economist.com/perspectives/sites/default/files/eiu-sa-post-pandemic-consumer.pdf
UNDP (2023). Climate Promise: South Africa. United Nations Development Programme. Retrieved from: https://climatepromise.undp.org/what-we-do/where-we-work/south-africa#:~:text=In%20its%20updated%20NDC%2C%20South,its%20Low%2DEmission%20Development%20Strategy.
Vhumbunu, C. H. (2021). The July 2021 Protests and Socio-political Unrest in South Africa. Accord. Retrieved from: https://www.accord.org.za/conflict-trends/the-july-2021-protests-and-socio-political-unrest-in-south-africa/