How to set up business in Johannesburg

Johannesburg business guide

A high-tech boom, a surge in infrastructure investment and a huge respect for British expertise make Johannesburg a hotbed of commercial opportunities. Social injustice and security risks remain, but, according to leaders of UK firms that are thriving here, entrepreneurs who take a smart approach can be a real force for progress while boosting their bottom lines

In 1941 Nelson Mandela was on the run, fleeing an arranged marriage in his Eastern Cape homeland. There was only one destination for the 22-year-old fugitive: Johannesburg.

It was, as he later described in Long Walk to Freedom, a “city of dreams, a place where one could transform oneself from a poor peasant into a wealthy sophisticate – a city of danger and opportunity”.

Back then the metropolis was still prospering from a gold rush that had started in 1886, with deposits in the surrounding Witwatersrand basin attracting fortune-seeking miners from around the world (Mandela himself would work briefly as nightwatchman at Crown Mines in central Joburg).

Today the term “gold rush” is returning to the lips of entrepreneurs in the city. But this new bonanza is not about minerals. Instead, it concerns the nation’s burgeoning hi-tech sector and a boom in infrastructure projects.

“ Johannesburg has a frontiersman orientation,” says Peter Bauer, co-founder and CEO of UK-based data security firm Mimecast, who set up an office here in 2004.

“As it was in the gold rush, it’s a place where people seek their fortunes. The same enterprising nature, willingness to take risks and sense of possibility permeates society.”

Indeed, Joburg is a magnet again, with an estimated 10,000 people flocking from across the continent here every month.

The city, long seen as a crime-ravaged no-go zone, has smartened up its act considerably since 2000. In hipster enclave Maboneng, for instance, a multiracial crowd enjoys craft gin distilleries and Instagram-friendly galleries in a neighbourhood where squalid warehouses and waist-high piles of rubbish once stood.

It’s important to note that, as when Mandela first arrived, there is still danger and stark social inequality in Joburg – more on that later – but there’s an opportunity to make a positive impact too, as British companies are increasingly finding.

BP, Shell, Unilever, Virgin and Vodafone all have offices here, with annual bilateral trade worth just under £10bn.

And, as the mayor, Herman Mashaba, plans to “turn the city into a construction site” to develop the infrastructure of commerce, UK firms are well placed to take advantage.

“Infrastructure growth here has seen British project management companies do very well,” notes Elena Williams, the UK’s trade director for southern Africa at the Department for International Trade.

“But they’re doing well in agriculture too, covering aspects such as waste, energy and machinery. There’s a lot of respect for British quality and expertise.”

US tech giants Facebook, Google and Microsoft have also established bases in Johannesburg while the suburb of Braamfontein has emerged as a digital hub. It’s set to usurp “Silicon Cape” as the African base of choice for IT companies of all sizes.

“Cape Town is where you test your products, but Joburg is where you can play around with fintech and blockchain technology, because the money’s here,” Williams explains.

Outsourcing is another growth industry in the city, reports Donald Stuart, co-founder of management consultancy the TMARA Group.

“There’s a lot of call-centre development. It’s not quite India, but it is time-zone-relevant,” he says, highlighting the fact that South Africa is only two hours ahead of GMT.

Johannesburg business guide

Empirical evidence

A boon for British businesses in Joburg is that the UK and South Africa have similar commercial and legal frameworks – a legacy of their Commonwealth links.

“All of the big names in the consulting and legal world are here,” Williams says. “People joke that every second person here is an accountant. All of my South African friends have an ACA in their family.”

South Africa is also home to the strongest banks in the world, according to a 2017 quality study by Lafferty Group.

“Banking services here are definitely ahead of London’s when it comes to innovation, with SMS banking confirmations and cardless ATM withdrawals,” says Barry Doran, chief financial officer at G4S Africa.

The 2010 Fifa World Cup didn’t just leave Johannesburg with a much-expanded Soccer City stadium and a vuvuzela headache.

The city’s telecoms infrastructure was upgraded, while public transport projects included the construction of Gautrain (the first high-speed urban rail service in Africa) and the modernisation of O R Tambo International Airport.

This has left Johannesburg with “better bandwidth than London”, in Stuart’s view, and “the best infrastructure on the continent”, according to David Dawson, CEO of the British Chamber of Business in Southern Africa.

Although David Davis hasn’t mentioned South Africa in the same breath as India and China when talking of the government’s post-Brexit plans, Dawson is optimistic about the future of trade between the UK and South Africa.

“We have a relationship going back hundreds of years,” he says. “And there’s a recently established EU economic partnership agreement, which we’ll build on instead of starting from scratch.”

Indeed, the UK has seen significant inward investment from South Africa in recent times. Afrikaner retail tycoon Christo Wiese has acquired controlling stakes in Iceland Foods, New Look and Virgin Active through his Brait investment house, for instance.

“South Africans are very entrepreneurial. When you talk to them, it’s always about starting a business,” Williams says.

Doran agrees, arguing that their “empowering can-do attitude is very different from what you see in the UK. Joburgers don’t wait to be asked to fix something. They will quickly rally together and make a plan.”

Despite this, there’s an enduring skills shortage in South Africa that’s a hangover from the racist education policies of the apartheid era.

British companies setting up here “won’t be walking into a more skilled workforce than the UK’s”, Stuart warns.

It’s almost certain that any UK firm employing local labour will need to invest heavily in training. Mimecast South Africa, for instance, runs an annual scheme training 12 graduates before employing them in different parts of the business.

“We offer the best ones a full-time job, but many others use us as a springboard to get jobs with other companies,” Bauer says. “You’re not just there to siphon profits, you’re also there to invest in a healthy ecosystem. That has to be your orientation if you go into any emerging economy. ”

Williams observes that many foreign firms have recognised that trading in South Africa is “a partnership. Be clear that you are a business, but also be aware that you can contribute to the betterment of the country.”

In 2003 the government introduced the Broad-Based Black Economic Empowerment Act (BBBEE) to redress the racial inequality remaining after the end of apartheid in 1991.

Affecting all companies operating in South Africa with annual revenues exceeding R10m (£560,000), this complex and controversial affirmative-action law features a points system and a code of good practice against which employers are measured.

“You need this embedded into the heart of your strategy from the outset,” Doran advises.

BBBEE’s efficacy is a moot point. At 27 per cent, South Africa has one of the world’s worst unemployment rates, but white citizens, comprising only eight per cent of the population, are still disproportionately represented in boardrooms.

“I have mixed feelings about BBBEE,” Bauer says. “The policy has had some unintended consequences, such as a brain drain. There are opportunities for people to abuse it too. We’ve ended up with an oligarch-like elite who’ve worked out how to capitalise on it for personal gain.”

Johannesburg business guide

Street wisdom

Johannesburg has found it hard to shake its reputation as a hotspot for violent crime. While the annual murder rate here has dropped below the national average of 34 per 100,000 people, the number of carjackings has risen recently.

“You have to think about security differently from how you would in Europe,” says Bauer, who recommends that incoming firms seek expert guidance on office location, access control, surveillance and staff training.

“It’s an uncomfortable reality that your business may be affected by crime. Statistically, you will have employees who’ve been held up at gunpoint or knifepoint.”

Unsurprisingly, security is a growth industry here. Stuart notes that it has spawned some intriguing innovations, adding: “Drones have now entered the commercial arena, doing tasks such as insurance inspections.”

In the early 2010s South Africa was a standout emerging economy, but earlier this year it plunged into recession and the country’s credit rating has been downgraded to “junk status” by Standard & Poor’s.

This couldn’t have come at a worse time for the president, Jacob Zuma, who faces the prospect of a judge-led inquiry into his relationship with the wealthy Gupta family, which has denied using presidential links to win public contracts.

South Africa’s uncertain political and economic future may have taken some of the lustre off Joburg’s Gold Rush 2.0. But, as the nation prepares to celebrate the centenary of Mandela’s birth next year, it’s worth remembering another Madiba quote: “Difficulties break some men, but make others.”

Just like the great man himself, this boisterous city of gold will clearly find opportunities to shine through any adversity.

Click here for Director’s city guide to Johannesburg

About author

Christian Koch

Christian Koch

Alongside his work for Director, Christian has written features for the Evening Standard, The Guardian, Sunday Times Style, The Independent, Q, Cosmopolitan, Stylist, ShortList and Glamour in an eclectic career which has seen him interview everybody from Mariah Carey to Michael Douglas through to Richard Branson with newspaper assignments including reporting on the Japanese tsunami and living with an Italian cult.

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