Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
The areas in and around the cities of Johannesburg, Cape Town, Durban, Pretoria, and Port Elizabeth hold approximately 90% of South Africa’s economically active population. These five cities represent the country’s major areas of economic activity and consumer markets.
The distribution chain within a given industry varies depending on the nature and type of the imported equipment and/or products. For example, local subsidiaries or joint-venture partners distribute consumer-oriented products to a fixed number of distributors who sell to wholesalers and/or retailers who in turn sell to end-users. There may be more intermediaries within the chain, depending on the arrangement worked out by the original equipment manufacturer (OEM).
The traditional sales channels found in developed economies are also prevalent in SA.
Wholesalers - Established South African wholesalers often import industrial raw materials and/or consumer goods requiring maintenance of stocks.
Retail organizations - Many exporters of consumer goods sell directly to South African retail organizations, including consumer corporations, department stores, chain stores, and co-operative groups of independent retailers which assume the functions of wholesale buying, selling and warehousing.
Consumer Retail - South Africa offers the full spectrum of retail outlets: small general dealers; specialty stores handling a single product line (such as clothing, electronics, or furniture); exclusive boutiques; chain stores (groceries, clothing, toiletries, household goods); department stores; cash and carry wholesale retail outlets; and co-operative stores serving rural areas. Large-scale supermarkets, or hypermarkets, are located in suburban shopping malls and sell large quantities of almost all consumer goods. These stores domestically source about 90% of consumer trade inventories.
Franchises - Franchising is well established in South Africa, with the sector showing strong and continued growth. Around 30% of South African franchises are non-food systems, with an emphasis on service. Building, office and home services sectors are dominant, with automotive, restaurant, health, education, and training franchises also available.
After-Sales Agents - For products of a technical nature, it is advisable to appoint an official after-sales agent in South Africa. Ideally, this agent should not import or market the product in question, but rather, because of its geographical reach, technical ability, and goodwill in the market, it acts as the certified service agent. Appointing an appropriate after sales agent is crucial in ensuring that the product develops a respected reputation in the South African market.
Agents & Distributors - In South Africa, the terms “agent” and “distributor” have very specific meanings.
Agent: In the strict legal sense, an “agent” means a person who, for and on behalf of a principal, either introduces a third party to the principal by soliciting orders from the third party or concludes contracts with the third party on behalf of the principal. The normal reward for an agent is a commission, paid by the principal.
Distributor: A “distributor” buys and holds stock of a product. In return, the foreign firm usually grants the distributor an exclusive right to sell the product in an area or to a particular customer. An agreement with a distributor is similar to an agreement with an agent, except that price and delivery terms will differ because the distributor is a principal. When appointing a distributor in South Africa, the same considerations apply as when appointing an agent. These are (1) whomever the foreign firm appoints to be a distributor must to know the market well and (2) the foreign firm should consider the distributor’s ability to supply the product nationally given South Africa’s geographic size. South Africa is a large country, with nine provinces. Lacking the support of a national infrastructure, smaller agents often tend to operate provincially. This means that a parent company may need to appoint an agent in each of the larger cities -– Johannesburg, Cape Town, Port Elizabeth, and Durban -– to cover the country. Larger companies who take on agencies often have an office in each of the major centers, making any agency agreement easier to control.
In South Africa, each industry sector has a limited number of major distributors, but often hundreds of small distributors. Major distributors prefer an exclusive agent/distributor agreement with the foreign firm. The country’s largest airport in Johannesburg or one of three of the country’s ports: Durban, Cape Town, and Port Elizabeth handle most imports into South Africa. The major distribution point is Johannesburg, which has bonded inland port status for custom and excise purposes.
The City of Johannesburg is the commercial hub of South Africa. As the country’s transportation hub, it is the center for all aviation, rail, and road infrastructure. It also has the continent’s busiest international airport, which can handle 20 million passengers and 400,000 metric tons of cargo annually. The headquarters of the National Ports Authority of South Africa (NPA) is also located in Johannesburg. Johannesburg is one of the world’s few major cities located on neither an ocean nor a major river. Yet it hosts the largest and busiest “port” in Africa – an export-import freight container terminal and bonded warehouse called City Deep, which handles 30% of South Africa’s exports.
Durban is the busiest ocean port in Africa, and the Durban Container Terminal is the largest and best-equipped container terminal in the southern hemisphere. Durban’s location on the eastern coast of South Africa makes the terminal a pivotal hub for the entire southern African region of the Indian and South Atlantic Oceans, serving trade routes linking North and South America with the Middle East, India, Asia and Australia. The terminal is a crucial interface for the distribution of cargos between ocean carriers and the markets of South Africa, Botswana, Zimbabwe, Zambia and the Democratic Republic of the Congo. On the landside, there is direct connection with surface transport via rail sidings and speedy connection to South Africa’s trunk road network. The facility handles more than 4,000 ships annually, with an estimated gross tonnage of 81,700,000. Containers handled at Durban port represent 64% of the total number of containers handled at South African ports. Durban port is currently undergoing extensive upgrades aimed at increasing both efficiencies and net capacity.
Cape Town, located at the southern-most point of Africa, is ideally positioned as a hub terminal for cargo to South America and the Far East. West/East Africa cargo has grown substantially, making the Cape Town Container Terminal the terminal of choice for trans-shipment cargo. The terminal currently handles 3,161 vessels per year for a gross tonnage of 44,501,297.
The Port Elizabeth Container Terminal is one of the three specialized container-handling facilities along the South African coastline. Port Elizabeth serves the immediate area of the Eastern Cape, where its main business focuses on the needs and requirements of the motor vehicle and components industry as well as various agricultural products. The terminal offers value-added services in the form of storage, packing and unpacking of containers, and logistics management. The terminal currently handles 1,271 ships with a total gross tonnage of 25,756,823.
Express delivery has experienced rapid growth in South Africa as a popular retail mode of distribution, and recent investments and development of this niche by leading global brands testify to its prospects; e-commerce has also been driving this as have grocery home-delivery order services offered by departmental stores. Mobile compact products for B2C transactions primarily use express delivery services since it is still comparatively more expensive than in other more developed economies. A major reason for this is that the growing number of sub-contractors to the multinational service providers do not have the necessary national delivery footprint. This results in added costs that consumers ultimately bear. In the mining and offshore sectors, express delivery of spares for critical maintenance of capital equipment in Africa has been an established business, but this is currently experiencing a downturn, given the high costs.
Using an Agent to Sell U.S. Products and Services
One of the first steps an exporter may wish to take in locating an agent or distributor in South Africa is to contact the U.S. Commercial Service in South Africa and register for one of the services specifically designed to meet the needs of U.S. exporters. South Africa offers U.S. exporters and suppliers a wide variety of methods to distribute and sell their products, including using an agent (also known as a Commission Sales Representative, or CSR) or distributor.
In South Africa, the terms “agent” and “distributor” have a very specific meaning: agents work on a commission basis after obtaining orders from customers. Distributors buy, carry stock, and sell products directly to customers.
Agents often distribute durable and non-durable consumer goods, as well as some industrial raw materials and related commodities. This may be particularly appropriate when products are highly competitive and lack a large market. It is common to appoint a single agent capable of providing national coverage either through one office or through a network of branch offices. Recently, virtual/online distribution has been seen a significant increase in South Africa. The role as the local representatives of U.S. exporters, agents, with the help of their freight forwarder, should be able to handle the necessary customs clearances, port and rail charges, documentation, warehousing, and financing arrangements.
Local agents representing foreign exporters, manufacturers, shippers, or other principals who export goods to South Africa are fully liable, under South African import control law, for all regulations and controls that are imposed on the foreign exporters. Local agents are required to register with the Director of Import and Export Control of the Department of Trade and Industry. It is important for a U.S. exporter to maintain close contact with the local agent to track changes in importing procedures and to ensure that the agent is effectively representing the sales interest of the exporter.
Typical commission rates for agents (Commission Sales Representatives, or CSRs) in South Africa depend upon the contract concluded and upon the CSR’s responsibility. These rates can range from 3%-25% commission per concluded transaction. Companies sometimes pay a retainer fee plus costs and an incentive scale on deals.
Distributors who buy for their own account and carry a wide range of spare parts often handle capital equipment and commodities such as chemicals, pharmaceuticals, and brand-new products on an exclusive basis. Leading distributors often have branches throughout South Africa and sell to both wholesalers and retailers.
When appointing a South African distributor, U.S. exporters should take care to find out if the distributor handles a competing product. In some instances, major South African corporations whose holding companies market products competing directly with American products have approached some U.S. exporters.
In South Africa’s competitive marketplace, it is essential that the U.S. exporter provide adequate servicing, spare parts and components, as well as qualified personnel capable of handling service inquiries. In most cases, after-sales service should be available locally since potential delays often lead purchasers to seek alternative suppliers.
The U.S. Commercial Service has found that thorough market research preceded the most successful ventures entered into by U.S. companies. This is an important first step before engaging in a search for agents or distributors. Once contacts are established, U.S. companies should visit South Africa, as first-hand knowledge of the market is an advantage. Such a visit provides an opportunity for a personal appraisal of the prospective agent or distributor. U.S. exporters should carefully investigate the reputation and financial references of a potential agent or distributor and establish a clear agreement delineating the responsibilities of both the exporter and the agent.
The U.S. Commercial Service in South Africa offers a number of business facilitation services, including market research, appointment-setting, and background checks on potential business partners. For a full list of the services offered, please visit: https://www.trade.gov/south-africa
As part of the U.S. Government export promotion efforts, Commercial Service South Africa coordinates market research and business facilitation in several Sub-Saharan African countries. These include:
In addition to offices in South Africa (Johannesburg, Cape Town, and Durban) the U.S. Commercial Service also has offices in the following Sub-Saharan countries: Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, and Tanzania, as well as a dedicated representative within the African Development Bank in Cote d’Ivoire. Through its Partnership Post program with State Department posts in Sub-Saharan Africa, the Commercial Service can provide the same branded export services in almost all countries of the region, as detailed here:
For additional information, please e-mail the U.S. Commercial Service at:
Establishing a Local Office
South Africa is ranked 84 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. Ease of Doing Business in South Africa averaged 54.36 from 2008 until 2018, reaching an all-time low of 82 in 2017 and a record high of 32 in 2008. (Note: A low ranking means that regulations create an impediment for businesses).
The Companies Act of 2011 makes no distinction between locally-owned and foreign-owned companies. Companies may be either private or public. Foreign companies establishing subsidiaries in South Africa must register the subsidiary in accordance with the Act. Under the current law, all companies, whether public or private, are required to be audited. The Act allows private entities to be audited or, alternatively, they may be subject to an independent review of their financial statements. The Act introduced far-reaching changes to the South African corporate regime. A director may now be held liable for losses sustained for a breach of duty, although the new Act includes “prescribed officers” amongst the company’s employees who may be similarly responsible. The category of prescribed officers may expose persons in management positions who are not directors to new obligations and possible personal liability.
Foreign companies may establish a local branch office in South Africa by registering the branch as an “external company.” Any non-resident or foreign company must register within 21 days of establishing an office in South Africa. Government approval is not required for registration and there is no requirement that a local entity hold percentage share of capital. The branch company must file annual financial statements within six months after the end of its fiscal year. Branch profits remitted to a foreign firm’s headquarters are not subject to withholding tax. The legal liabilities of a branch are not limited to only its South African assets.
To make South Africa a more attractive location for multinational enterprises wishing to invest in Africa, (the dti) introduced a so-called headquarter company (HQC) regime. The rules create a more attractive fiscal and regulatory environment necessary for foreign holding companies seeking entry into Africa, and rules eliminate certain barriers that had previously discouraged foreign investors from using South Africa as a holding company location.
There are three forms of business enterprises in South Africa: a private company (Pty), public company (Ltd), and a legacy close corporation (CC). South Africa has an estimated 400,000 private companies, 4,000 public companies, and still 1.6 million close corporations. Each form has its own setup and reporting requirements as detailed below; the oversight authority is the Companies and International Property Commission (CIPC).
Private Companies: A locally registered private company, identified by the words “Proprietary Limited” (Pty) in its title, is a form commonly used to carry on operations as a subsidiary of a foreign company. Private companies may have up to 50 shareholders but cannot offer shares to the public or transfer them and are not required to have a minimum capital subscription. Private Directors need not lodge a written consent with the authorities and they need not be South African nationals or residents of South Africa. An entity must file the following information with CIPC to register a company: a certified copy of the Memorandum and Articles of Association; the registered address; the name and address of the company’s local auditor; and a share capital duty receipt. Private companies are not subject to the statutory meeting and reports requirements of public companies and do not have to lodge their annual financial statements with the CIPC.
Public Companies: Public companies, designated by the word “Limited” or letters “Ltd” in the title, are formed to raise funds by offering shares to the public. Therefore, there is no limit on the number of shareholders in a public company. Public companies are required to file annual financial statements and reports with the CIPC. Public companies that issue a prospectus, must be submit proof to the CIPC that each director has paid full price for the shares, and the number of shares issued equals the stated minimum subscription. For public companies with share capital, CIPC requires the following:
- A director’s statement that capital is adequate for business operation, of the directors and officers, and proof of payment of the annual duty.
- A public company may not commence operations prior to receipt of the CIPC’s certification.
Close Corporations: Close corporations, designated by the letter’s “CC” after their names, have been a form of business organization unique to South Africa. Historically, only natural citizens of South Africa could organize a CC and CCs are limited to a maximum of ten persons. Close corporations are subject to fewer registration and operating regulations than public or private companies. However, new legislation forbids the registration of new CCs, and the CIPC has established a process whereby these legacy companies are required to file annual tax returns. As many of these companies are thought to be dormant, this procedure is intended to give CIPC more up-to-date information on how many close corporations are still active.
For more information on company formation and registration, contact:
Companies and International Property Commission (CIPC)
PO Box 429, Pretoria, 0001
The DTI Campus, Block F, 77 Meintjies Street
Tel: +27 (0)12-394-9500;
Fax: +27 (0)12-394-9501
Email Address: email@example.com
Franchising provides a good market entry mode into the South African marketplace. According to the Franchise Association of South Africa, there are 865 franchised systems, over 45,000 franchise outlets, and 17 franchise business sectors. Franchising contributes around 12.5% to South Africa’s GDP and is an important driver in the country’s economy, in addition to having one of the highest business success rates. According to the latest data, total turnover for the sector was around R721 billion in 2018.
Food franchises make up about 25% of total franchises, with some segments that are considered saturated such as pizza and burgers. Several U.S. brands have made their entry in the last few years, namely Burger King, Pizza Hut, Krispy Kreme, Domino’s and, most recently, Starbucks. Other franchise concepts such as business-to-business (B2B) services, automotive, after-care, and education are also making inroads into the market.
Franchising has become more popular in recent years, as business owners perceive them to be an effective way to conduct and grow successful businesses across a range of services. Franchising also plays an important role in furthering the development of small- and medium-sized businesses. Job creation, poverty alleviation, economic growth, and black empowerment rank high on the South African Government’s agenda, and there appears to be a growing recognition by the Government that franchising can be an effective business model to address these needs.
Approximately 40% of franchises are in Gauteng Province, particularly Johannesburg and Pretoria, the economic powerhouse of the country, and the African continent. Patterns within existing franchises are changing, due to economic belt-tightening by the population and changing consumer behavior. Some franchise owners are starting to develop smaller, more cost-effective models with reduced fees, lower start-up costs, fewer employees, and reasonable rentals. Franchise owners are exploring new, less-expensive locations beyond traditional shopping and strip malls, and are developing models such as stand-alone kiosks, corporate catering, campuses, and sporting events. Other developments include incorporating a brand within a convenience store or a service station. Some franchises have found success by operating in tandem with non-competing brands. Almost 90% of franchises are locally developed and around 12% of master licenses are international. Some of the bigger South African franchisors, such as Famous Brands and Nando’s, have expanded to other regions in Africa. One notable challenge is the limited access to finance as banks tend to be more cautious in the financing of franchises. This translates into a relatively small pool of entrepreneurs and companies with the ability to absorb the costs of master licenses of popular international brands.
Several business laws apply to franchising and copyrights including the Consumer Protection Act, Copyright Law, Common Law, Contract Law, and Intellectual Property Law, which the private sector vigorously adheres to.
Additional information can be found at:
Franchise Association of Southern Africa (FASA)
Postnet Suite 256, Private Bag X4
First Floor, Block A, Eastgate Office Park
South Boulevard, Bruma 2198
Tel: +27 (0) 11 615 0359; Fax: +27 (0)11 615 3679
The Covid-19 pandemic has boosted on-line retail, and direct marketing is expected to only grow s in the future direct marketing channels in South Africa include:
- Direct e-mail selling, such as Internet viral campaigns (where one e-mail user nominates “friends” to participate in a promotional campaign and to his/her own benefit hands over the e-mail addresses of friends and colleagues).
- Direct selling channels, such as the independent agent or distributor systems and multi-level marketing (MLM) companies.
- Internet marketing, which has grown rapidly as South African consumers become more comfortable about handing over banking details and ordering from non-brick-and-mortar companies. Popular sites include Takealot.com and Yuppiechef.com. Most brick-and-mortar retailers now include an online shopping option, such as Woolworths, PicknPay, Game and DionWired as examples.
- Telemarketing, a popular avenue in promoting financial instruments and insurance. A rapidly growing trend is the outsourcing of this function to external Business Process Outsource companies which is yielding positive results.
Important pieces of legislation for this business mode are the Protection of Private Information Act (POPI) and the Consumer Protection Act (CPA).
Additional information can be found at:
Direct Marketing Association of South Africa
Building C 1st floor
372/376 Oak Avenue
Tel: +27 (0)861 362 362
Joint ventures and licensing arrangements involving foreign entities attract the attention of the South African regulatory authorities when the parties agree to, or possibly require in the future, the repatriation of funds (royalties, fees, and profits) from South Africa to a foreign recipient.
When a company is interested in entering into a foreign licensing agreement to manufacture a product in South Africa, the South African licensee must apply to the Department of Trade and Industry (DTI). DTI, in turn, will make a recommendation to the South African Reserve Bank (SARB), which must approve the payment of royalties. When a licensing agreement involves no manufacturing, the South African licensee sends the request for exchange control approval directly to SARB. The calculation of discretionary funds (royalties, fees, etc.) that can be set by the parties to a joint venture or licensing arrangements are subject to complex foreign exchange controls set by the SARB that have been made less onerous over recent years. The government prohibits contract conditions involving obligatory purchasing and pricing agreements or requiring the licensee to sole source articles from the licensor.
More detailed and up-to-date information on the foreign exchange aspects of joint ventures and licensing can be obtained from the SARB or an approved foreign exchange dealer and can be found in the SARB’s Exchange Control Manual