International Business Practices IP #4 Michelle Satten Professor Asefaw Indrias December 16, 2013 Introduction Opening an office in Johannesburg would ensure a more efficient management of the bank’s assets in the African region. A local presence will allow the bank to extend its coverage of markets in Africa, and will facilitate its round the clock operations on the foreign exchange market for example, to enforce the minimum exchange rate. To reduce concentration risk, the bank should aim for a broad diversification of its investments, and it is important turn to new markets so as to facilitate this. Africa’s economic importance is growing considerably in modern years, similar to its bond and stock markets. Challenges in the new environment Macroeconomic Policy. Macroeconomic policy had direct relation to budget deficit and price rises rate, which auxiliary affect the economic constancy. Macroeconomic guiding principles of African countries are still going through reforms, and faces significant restraints like crime restrictive fiscal and monetary policies, low domestic savings, low skill levels, labor market rigidities and inadequate levels of FDI. Labor Market. Though population in African countries is extremely high, the percentage of people in employment is rather very low. Squat employment and elevated unemployment rate, coupled with unfairly dispersed educational qualifications is a stern disadvantage for labor market. An additional problem companies face is absence of skilled manual labor and low litheness of labor market. Economic Inequality and Poverty. Deficiency in Africa is characterized by ethnic and regional magnitudes, and as per studies, more than 75% of poor people live in countryside areas. Besides severe levels of poverty, lofty levels of disparity of wealth and income co-exist in the economies. South Africa is one of the most developed economies in Africa yet it is also the country with highest economic inequality. Political Instability. Political instabilities are a sensitive issue for foreign investors and one of the biggest reasons to drive them away. Internal tensions, coups, border conflicts etc have been common in history of African economies. Occasionally, even though a country is politically firm, conflicts faced by neighboring countries have negative impact on their economy. Political and legal systems in Johannesburg South Africa's legal system, similar to the rest of the political system, was thoroughly transformed as the apartheid-based constitutional system was rationalized during the early 1990s. Nonetheless, many laws not related to apartheid unrelated to be rooted in the older legal system. Thus, the justice structure after 1994 reflected elements of both the apartheid-era system and fair reforms. South Africa has an amalgam or 'mixed' legal system, fashioned by interweaving of a number of different legal traditions: a civil law system hereditary from the Dutch, a common law system hereditary from the .

1. International Business Practices IP #4
Michelle Satten
Professor Asefaw Indrias
December 16, 2013
Introduction
Opening an office in Johannesburg would ensure a more
efficient management of the bank’s assets in the African region.
A local presence will allow the bank to extend its coverage of
markets in Africa, and will facilitate its round the clock
operations on the foreign exchange market for example, to
enforce the minimum exchange rate. To reduce concentration
risk, the bank should aim for a broad diversification of its
investments, and it is important turn to new markets so as to
facilitate this. Africa’s economic importance is growing
considerably in modern years, similar to its bond and stock
markets.
Challenges in the new environment
Macroeconomic Policy. Macroeconomic policy had direct
relation to budget deficit and price rises rate, which auxiliary
affect the economic constancy. Macroeconomic guiding
principles of African countries are still going through reforms,
and faces significant restraints like crime restrictive fiscal and
monetary policies, low domestic savings, low skill levels, labor
market rigidities and inadequate levels of FDI.
Labor Market. Though population in African countries is
extremely high, the percentage of people in employment is
rather very low. Squat employment and elevated unemployment
rate, coupled with unfairly dispersed educational qualifications
is a stern disadvantage for labor market. An additional problem
companies face is absence of skilled manual labor and low
litheness of labor market.
Economic Inequality and Poverty. Deficiency in Africa is
characterized by ethnic and regional magnitudes, and as per

2. studies, more than 75% of poor people live in countryside areas.
Besides severe levels of poverty, lofty levels of disparity of
wealth and income co-exist in the economies. South Africa is
one of the most developed economies in Africa yet it is also the
country with highest economic inequality.
Political Instability. Political instabilities are a sensitive issue
for foreign investors and one of the biggest reasons to drive
them away. Internal tensions, coups, border conflicts etc have
been common in history of African economies. Occasionally,
even though a country is politically firm, conflicts faced by
neighboring countries have negative impact on their economy.
Political and legal systems in Johannesburg
South Africa's legal system, similar to the rest of the political
system, was thoroughly transformed as the apartheid-based
constitutional system was rationalized during the early 1990s.
Nonetheless, many laws not related to apartheid unrelated to be
rooted in the older legal system. Thus, the justice structure after
1994 reflected elements of both the apartheid-era system and
fair reforms.
South Africa has an amalgam or 'mixed' legal system, fashioned
by interweaving of a number of different legal traditions: a civil
law system hereditary from the Dutch, a common law system
hereditary from the British, and a customary law system
hereditary from indigenous Africans. These traditions have had
a multifaceted interrelationship, with the English pressure most
apparent in routine aspects of the legal system and manner of
adjudication, and the Roman-Dutch pressure most noticeable in
its substantive classified law. As a universal rule, South Africa
pursues English law in both illicit and civil procedure,
constitutional law company law, and the law of evidence;
whereas Roman-Dutch common law is pursued in the South
African contract law, law of tort, law of persons, family law,
etc. With the beginning in 1994 of the provisional Constitution,
and in 1997 its substitute, the ultimate Constitution, an extra
thread has been added to this intertwine.

3. South Africa's economic services sector, supported by a
appropriate regulatory and lawful structure, is complex,
blustering numerous home and alien institutions providing a
complete variety of services; retail, commercial, and merchant
banking, insurance, mortgage lending, and investment.
Legislation prevailing the financial sector is chiefly the Banks
Act 1990 and the Mutual Banks Act 1993, which provide the
attainment of a sound, competent banking system in the concern
of the depositors of banks and the financial system as a whole.
An office lead by the Registrar of Banks, in service as part of
the Reserve Bank, is in charge for registering institutions as
banks or mutual banks as well as imposing all the requirements
of the Acts.
The National Credit Regulator is responsible for regulating the
South African credit industry, as well as the registration of
credit donors or providers, credit bureaux and liability
counsellors. It is accountable for enforcing conformity with the
National Credit Act, and is alert on developing a reachable
credit market to convene and promote the requirements of the
people who are marginalized, especially economically. The
Banking Association of South Africa is an industry body
representing all registered banks in South Africa. It is the
authorized agent of the sector, and embodies the industry
through engagement with stakeholders, lobbying, and political
influence.
General commercial legal practices relating to transactions and
the drafting of commercial agreements are generally globally
applicable and in line with international norms and conventions.
There is a world-class and modern Constitution (including a Bill
of Rights) in place that regulates human rights and the entire
legislation. It assures the autonomy of the judiciary.
Trade and industry is undertaken within the framework of a free
enterprise economy.
The courts are open to foreigners on exactly the same terms and
conditions as South African citizens, even though numerous

4. commercial rows are resolved through arbitration by agreement
between the parties.
Government intervention
The South African government intervenes in the private sector
economy, through systems such as higher taxations, and existing
labor legislation and the rules governing black economic
empowerment, in the country. In times of crisis, like the global
financial crisis that posed a serious danger to South Africa's
economy which is strongly integrated into the world economy
thus prompting more government intervention, the South
African government comes to the rescue of private firms
through industrial financing and incentive instruments.
However, despite all this, increased government intervention
adds further intricacy to the division. The gloom of elevated
taxes, restraining regulation and indigenization looms large
over a sector already grappling with risks normally associated
with lending and new market entry. This might affect the
financial sector by exerting a lot of pressure on its compliance
requirements. In particular financial expenditures that might not
have been foreseen may became a reality placing the institution
at a risk of making losses.
Type of economic system
South Africa uses a traditional economic system. Owing to the
county's political constancy and well capitalized banking
organization, the country has shun away from the worldwide
financial meltdown. It has a regular mixed market capitalistic
economy system and is the economic powerhouse of Africa,
with a gross domestic product (GDP) four times that of its
southern African neighbors and comprising around 25% of the
whole continent's GDP. The country tops the continent in
manufacturing output (40% of total output) and mineral
production (45%) and generates most of Africa's electricity
(over 50%). Its major strengths include its physical and
economic infrastructure, metal resources and natural mineral, a
rising manufacturing sector, and strong growth capability in the
tourism, advanced value-added manufacturing and service

5. industries. South African banking policies position with the
finest in the world. The segment has extensively been rated
within the top 10 globally. There are fifty five locally
controlled banks and five mutual banks twelve foreign-
controlled banks.
South Africa's economy has been in an upward phase of the
business cycle since September 1999 - the longest period of
economic expansion in the country's recorded history. During
this upswing - from September 1999 through to June 2005 - the
annual economic growth rate averaged 3.5%. In the decade prior
to 1994, economic growth averaged below one percent a year.
As by the South African Reserve Bank, there is no indication of
this period of development coming to a conclusion.
History of the economic system
South Africa's economy had been shaped over several centuries
by its abundant natural resources and by the attempts of
immigrant populations to dominate and to exploit those who had
got in prior to them. For the majority of the twentieth century,
its mineral prosperity had exceeded that of nearly any other
country in the world, apart from the Soviet Union. South Africa
produced almost half of the world's gold and positioned among
the top ten producers of a dozen other precious minerals,
counting copper and diamonds. The mining industries offered
the foundation for the strongest financial system on the
continent, which, by the mid-twentieth century, incorporated a
widespread transportation system, a far-reaching electric power
network, and a large manufacturing sector.
By the mid-1980s, the economy was distorted by government
policies designed to bolster the economic and political power of
a small minority and to exclude many of South Africa's citizens,
chosen by race, from noteworthy contribution to the nation's
wealth. By the early 1990s, the weaknesses in the economy were
increasingly evident despite the country's dazzling mineral
wealth. The government cast off the constraints of apartheid in
the 1990s, partly to tackle the grave economic tribulations
caused by that system. The novel government in the mid-1990s

6. faced the vast challenges of civilizing living standards and
running the country's resources profitably.
South Africa’s involvement to international trade
South Africa's trade and industrial policy is moving away from
an exceedingly protected, interior looking economy aiming an
internationally competitive economy, capitalizing on its
competitive and proportional advantages. For quite some time,
South Africa's capability to trade with the exterior world was
sternly limited by the sanctions imposed on the country by most
urbanized countries as castigation for South Africa's dedication
to apartheid. With the conclusion of apartheid in the 1990s,
global trade has prolonged vividly so that in year 2000
international trade constituted 16 percent of the GDP. Europe is
the biggest source of trade for South Africa. In actuality, 7 out
of 10 of South Africa's peak trading associates are European
countries.
South Africa is a member of the World Trade Organization
(WTO). U.S. products qualify for South Africa's most-favored-
nation tariff charges. South Africa as well is a qualified country
for the benefits under the African Growth and Opportunity Act
(AGOA), and most of its products can enter the United States
free of market duty. South Africa has discarded most import
permits except on used products and products regulated by
international treaties. It also remains committed to the
simplification and continued reduction of tariffs within the
WTO framework and maintains active discussions with that
body and its major trading partners.
As a result of a November 1993 mutual agreement, the Overseas
Private Investment Corporation (OPIC) can help U.S. investors
in the South African market with services such as political
threat insurance, loans as well as loan guarantees. In July the
year 1996, the United States and South Africa agreed on an
investment finance protocol for a $120 million OPIC fund to
build equity investments in South Africa and Southern Africa at

7. large. OPIC is creating an extra fund--the Sub-Saharan Africa
Infrastructure Fund, capitalized at $350 million--for investment
in communications projects. The Trade and Development
Agency as well has been enthusiastically involved in financing
feasibility studies and discovering investment opportunities in
South Africa for U.S. business
The Department of Trade and Industry(DTI) is the department
of the South African government with responsibility for
commercial policy and industrial policy. The DTI and its
subsidiary agencies are involved in promoting economic
progression, Empowerment of the black economy, executing
commercial law, promoting and regulating international trade,
and consumer protection. Through the regulation of
international trade, this means that the financial institution will
be exposed to a fair competition which is healthy for the bank.
The government of South Africa also encourages foreign
investors to come into the countries by providing incentives to
them as a way of promoting the local economy. The Government
attempts to attract investment in economic activity by creating a
steady macro-economic atmosphere. Triumph has been attained
considering issues such as fiscal stability, low inflation, and a
commitment to privatization and the development of free
enterprise. The majority incentives for investment are in non-
tax incentives form.
Being one of the best developed countries ahead of other
countries in Africa, South African is definitely the best place to
start off in a journey to enter other developing countries. It
would serve as an avenue for us to study, learn and get well
acquitted with the local systems and emerging trends in
developing countries for informed decision making
Involvement in regional integration efforts
There is a sizeable difference between the role that South Africa
- the undisputed economic powerhouse of the Southern African

8. Development Community (SADC) - can play in the process of
regional cooperation and the far more self-interested role that it
actually plays. South Africa dominates the region in economic
terms, accounting for sixty percent of SADC's sum trade and
about 70 percent of SADC's GDP - so clearly it has a critical
role to play in regional integration.
Moreover, South Africa is the lone country in Southern Africa
that has the essential economic capability and levels of
diversification that are required to drive economic integration in
a manner that is mutually beneficial.
And regional economic integration can be extremely beneficial -
helping to encourage economic growth, foster social
development, reduce poverty, and encourage collective
protection of the environment, mostly in relation to shared
trans-boundary natural resources. South Africa has also played a
critical role in terms of being a launching pad for foreign
investment into the larger African continent, thus its reception
into the BRICS (Brazil, Russia, India, China and South Africa).
This function is verified by the exponential growth in the
number of Trans National Corporations (TNCs) that operate out
of South Africa between. In the 1990s, South Africa had an
estimated 900 TNCs - a figure that had swelled to 2044 by
2002. Most of these companies and their subsidiaries have/had a
Sub-Saharan outlook.
Reason for choosing Johannesburg
As one of the largest financial market places in Africa, and with
its geographical proximity to a number of emerging economies,
Johannesburg is an ideal location for the bank to launch a new
area office. A proper infrastructure and a steady legal
environment also provide good conditions for smooth
operations. Johannesburg is poised to be the financial hub of a
continent which represents more than 900 million consumers
and one of the world's fastest growing markets.
The South African city has the most developed business

9. infrastructure south of the Sahara and South Africa generally
gets strong marks for its financial sophistication.
Overall Assessment
In any language, risk is risk. The commerce world is in the
middle of a fresh and vibrant phase of globalization. Upcoming
markets, formerly desired chiefly for their cost-saving potential,
are now a critical destination – the new growth frontier. There
are risks associated with investing in any fresh market, but the
rate of growth in these high-growth economies has lead to
rapidly changing and highly complex and diverse risk
environments. Despite these challenges South Africa has
tremendous opportunity for organizations that approach its
market with a clearly defined risk strategy. Therefore, the
financial risks associated with entry into the South African
market are worth it.
References
Wild, Wild (2014). International Business: The Challenges of
Globalization. Pearson
KPMG and Innovaro (2007): Banking on Innovation? The
Challenge for Retail Banks.
[http://www.kpmg.com/uk/en/issuesandinsights/articlespublicati
ons/pages/banking-on-innovation-challenge-for-retail-
banks.aspx]
PwC (2012): Maintaining stability amid uncertainty. South

10. Africa –major banks analysis.
[http://www.pwc.co.za/en_ZA/za/assets/pdf/major-banks-
analysis-march-2012-v1.pdf]
The Economist (19 May 2012): Special Report –International
Banking
Suarez, F. (2008): Actual risk: Is the Banking Industry still
attractive?
[http://www.actuarisk.be/files/BankingSite.pdf]
Basel 3 (2010, rev Jun 2011): A global regulatory framework
for more resilient banks and
banking systems, [http://www.bis.org/publ/bcbs189.pdf]