Research Note. International perceptions of South Africa in a complex emerging market environment

Transcription

1 Research Note International perceptions of South Africa in a complex emerging market environment Dr Petrus de Kock Brand SA Research Manager 2 April

2 Contents Introduction What is perception - and what reality? What does this mean for Brand SA? Research findings on perceptions of SA How do the BRICS perceive SA? The African Environment What are the lessons that can be drawn from all of this? Project objectives, methodology and sample 2

3 Introduction Brand South Africa s work as official marketing and reputation management agency of South Africa has to deal in the realm of perception. Both in the domestic and international environments simple questions like, what do people think of South Africa, what is the state of our country s reputation, and how are we perceived by international audiences, do in most instances have rather complex answers. In order to get closer to the proverbial perceptual action, Brand SA conducts an extensive international investor perception research study every year. This year s results serve up a whole host of insights regarding the manner in which the country is perceived by international investors. From a strategic point of view this research assists Brand SA and its stakeholders to identify key trends, specific issues, and perceptions of the country. This research report presents key findings from this year s research with a particular focus on how South Africa is perceived among peer African, BRICS, and related markets where the research is conducted. Space does not permit for a comprehensive overview of all the results here, however, this report aims to show that perceptions of South Africa, among peer BRICS and African developing economies, should be awarded more attention than what it receives from local analysts, media, and Brand SA stakeholders. The report opens with a brief section on the complex confluence between the so-called information & communications revolution and the opportunities and challenges this presents an organisation such as Brand SA with, when it communicates on South Africa internationally. 3

4 This is followed by a brief overview of recent debate on trends in the emerging markets, essentially to identify future trends that will call for a sharper focus on positioning and raising awareness of South Africa in an increasingly complex global economic and emerging market context. From there the report focuses on some key findings from the research that will illustrate the point made above being that perceptions of SA differ quite substantially between markets, and that there is a high level of awareness of South Africa as a country with which to do business and invest in. What is perception and what reality? An age old philosophical question has suddenly become much more pertinent in the 21 st century than some of us may realise. In simple terms the question concerns the extent to which one s perception actively shapes reality. This means that what we perceive, or think about something or someone ultimately impacts on the experience of reality. This, in turn, impacts on our decisions, and a whole host of strange behaviours humans embark on from time to time. In the past two decades the evolution of global realtime communication platforms (satellite television, the Internet and it s implied multiverse of often contradicting information flows) has made the world not only more interconnected, but simultaneously also more like a proverbial tower of Babel: the real-time 24/7 world where the virtual has become one of the key platforms that facilitate not only the exchange of information, but also hosts a dizzying traffic of global finance, trade, social and political flows. 4

5 Gideon Rose and Jonathan Tepperman argues in a recent article in Foreign Affairs 1, The idea that we live in an increasingly interconnected world is something of a cliché yet true and important nevertheless. Decisions made by the U.S. Federal Reserve affect the purchasing power of villagers in southern Thailand; consumer demand in Europe and North America affects the output of factory workers in eastern China, which affects the jobs of workers in Brazil, Russia, and elsewhere. South Africa s experience since the 2008 financial crisis illustrates the above clearly being that we live in a global economy that is interconnected to such an extent that decisions, or crises in one country could have devastating consequences on a system-wide scale. This means that on the one hand these virtual platforms that open opportunities for social exchange and trade have enabled interactivity, and opens opportunities that would otherwise not have existed. However, at the same time, the information multiverse has proven itself to be a treacherous terrain if the trials and tribulations of the world economy since the 2008 financial crisis, and Wikileaks is anything to go by. Such cases illustrate the fact that the information and communications revolution of the past two decades have as many dangers, ghosts in the machine, and pitfalls, as the opportunities it may open. But why raise these issues in the context of findings on research into international perceptions of South Africa as an investment destination? 1 Rose, G., Tepperman J The shape of things to come: hot markets to watch. Foreign Affairs, Jan./Feb. 2014, pp

6 Perceptions of South Africa can, in an information multiverse, be shaped by several competing sources. An unverified report, decontextualized image, or the economic spill-over from a crisis in an economy on the other side of the planet, may have devastating consequences at home. What does this mean for Brand SA? To contextualise the research findings on perceptions of SA further, it is necessary to be reminded of some of the comments Minister Pravin Gordhan made in the 2014 Budget Vote speech. In terms of the global situation he remarked, The global economy, with which SA is connected, is not yet on a path of sustained recovery. In the words of the G20 communique, the global economy remains far from achieving strong, sustained and balanced growth. 2 Since 2013 signs of slow recovery in the US economy prompted decisions to taper its quantitative easing programme. This lead Minster Gordhan to indicate that, We have already seen considerable swings in capital flows in South Africa and other emerging markets. Interest rates are likely to rise. Currencies will be weaker and volatile. Growth in Europe, which is a major trading partner, remains subdued. Doubts about its banking system remain. These indicators shape a broad context in which South Africa does not only have to achieve internal development objectives, but have to actively work to position the country to cope with complex patterns of 2 Minister Pravin Gordhan Budget Speech. 26 February speech/speech.pdf 6

7 change in the global and emerging market environments. But we should answer another question - why is this important? While some analysts may have been harsh in their criticism of emerging markets, and the BRICS in particular in the past year, China is still growing at 7.5 per cent, India is expected to grow 5.4 per cent this year, and Brazil s growth is at more or less similar levels to that of South Africa at 2.3 per cent. All is not lost for the BRICS and emerging markets, however. The growth potential in the world economy still resides in emerging market environments. Business Monitor International (BMI), in a recent analysis of the global economic outlook, indicates that in the next decade emerging markets (EM) are set to increase their share of global consumption significantly from around 29% currently, to approximately 41%. BMI indicates that this is a significant movement in global markets if one considers the fact that at the turn of the century EM accounted for a mere 7% of global consumption. There are some short to medium term challenges to the economic outlook of EM, but, the over-all long term projections of growth tell a story of the increasing importance of these markets for the global economy. BMI furthermore indicates that during the next decade consumption in the EM will grow by an average of 5.6% annually, compared to the rather meagre 1.3% in the socalled developed world. BMI concludes that EM will move from 29% of global consumption in 2014, to a whopping 41% by the end of China s share of global consumption will grow from 9.0% to 13% in 2023, while the Middle East and Africa s share will leap from 6.5% to 10.3%. 7

8 Both North America and the EU s share of global consumption will decline from 33% to 27%, and from 24% to 19% respectively. So, now the question is what does this mean in the context of a study of international investor perceptions of South Africa? During 2013, as speculation regarding the tapering off of quantitative easing in the US escalated, the birds of international finance started migrating from emerging markets back to post-crisis developed/northern economies. This fed much negative press on emerging markets, as well as the relatively slow, or slightly suppressed growth in the BRICS. However, seasonal birds of the global finance industry cannot dispute the fact that while trends may push finance capital from emerging markets (back to constrained northern markets still battling with the fall-out from the 2008 financial crisis) for now, indicators such as those by BMI quoted earlier show that the future economic growth of the world economy will still by and large be driven by internal market dynamism and expansion in developing economies and emerging markets. It is for this reason important for South Africa to come to grips with the way the country is perceived not only in our so-called traditional markets/trading partners, but also in the markets that are bound to continue driving global growth in coming decades. 8

9 Research findings acquaintance and awareness of SA Some high-level findings from this year s investor perceptions research indicate that: 87% of respondents have heard of South Africa recently from any source; The research finds that there is a 61% overall familiarity with South Africa among the sample; and 32% of the respondents are currently investing, or doing business with South Africa. While the overall findings show a relatively high level of awareness of South Africa as a whole, the research also aims to identify the specific economic sectors associated with South Africa. The research also asks of respondents to indicate which three countries are the best to do business in or with. South Africa comes 4 th in this category with the top three being China, India, and Brazil. This means that from the sample, BRICS nations lead the pack. From the over-all findings of the research the following economic sectors are associated with South Africa: Mining & Quarrying 64% Agriculture 46% Hospitality, hotels, restaurants & tourism 44% Manufacturing 36% Construction - 29% Wholesale & retail 28% Transport 23% Electricity, gas & water supply 20% Finance, insurance & real estate 17% Post & telecommunications 14% 9

10 From the overall findings, the top three sectors associated with SA are Mining & Quarrying 64% (up with ten percent on 2012); Agriculture, hunting, forestry & fishing 46%; Hospitality, hotels, restaurants, and tourism 44%. A marked increase in manufacturing should be noted, with 36% of respondents associating this sector with South Africa. The latter is an important element of the larger SA value proposition, and much more work can be done to profile and communicate on South African manufacturing globally. What do the respondents indicate as being the main attractiveness features of SA? Infrastructure; A growing economy; and Low cost of doing business. On the opposite side of the scale, the main concerns international business have about doing business in SA include: Crime; Corruption; and General security/safety concerns. While international investors are clearly relatively familiar with SA (in general terms), comparisons between specific countries and their investor perceptions of South Africa show that perceptions from specific environments differ substantially. This will be explored in the sections below. 10

11 How do the BRICS perceive SA? Respondents from China, India, Brazil and Russia, for example, when asked about what activities their companies have been involved in with regard to South Africa show the following: The top three activities Chinese business engages with in SA include: o Selling goods & services abroad (53%); o Sourcing goods & service abroad (25%); o Manufacturing (22%); A different picture emerges from India where respondents indicate that the main activities their company is involved in are: o Franchising abroad (50%); o International mergers & acquisitions (50%); and o Selling goods & services (25%); From Russia, the main activities are: o Selling goods & services (50%); o Building factories or setting up offices in other countries (25%); and o Outsourcing departments internationally (25%); Brazilian investors have been engaged in: o Selling goods & services (50%); o Sourcing goods and services abroad (27%); and o Manufacturing (23%). The above implies from an investor perception point of view that South Africa cannot take a one size fits all approach to marketing itself in these environments. For example, the level of acquaintance with South Africa is an important indicator Brand SA gets from the research. A question in the survey asks respondents to indicate their level of acquaintance in three categories (I know very little about SA; I know enough about SA; and I know a lot about SA). 11

12 62% of respondents from China indicate that they know little about SA, while 37% indicate that they know enough about SA; Only 2% of Brazilian respondents know enough about SA, with 98% indicating they know very little; 10% of Russian respondents claim they know enough about the country, with 90% indicating they know very little; A staggering 78% of respondents from India make the claim that they know enough about South Africa, and 12% indicating they know a lot about SA. The above means that Indian investors have a high level of awareness and acquaintance with SA. South Africa also does not fare badly in China, while clearly a lot of work remains to be done in the Russian and Brazilian environments to raise awareness and improve acquaintance with the country. With the BRICS nations accounting for 42% of the world population, and emerging markets in general bound to account for 41% of world consumption by 2023, it is important to sharpen efforts to entrench awareness of SA in those markets. The research also asks respondents to indicate which key South African policies or initiatives they are aware of. From China 43% of respondents have heard of the National Development Plan (34% positive, 9% negative); 50% of Indian investors have heard of the NDP (8% negative, 42% positive); 12

13 22% of Russian investors have heard of the NDP (18% negative, 4% positive); and 26% of Brazilian respondents are aware of the NDP (42% positive). In terms of Black Economic Empowerment policies: 60% of Russian investors are aware of it; 66% of Indian investors; 42% of Brazilian investors; 47% of Chinese investors are familiar with this South African policy. When asked to indicate which economic sectors respondents associate with South Africa it emerges that: Chinese business top associations with SA include o Mining & Quarrying; o Hospitality, hotels, restaurants and tourism; and importantly o Manufacturing; Russian business associate SA with o Mining & Quarrying; o Hospitality, hotels, restaurants and tourism; and o Agriculture; From India the key sector associations are o Manufacturing; o Agriculture; and only in third place o Mining & Quarrying; From Brazil a set of different sector associations emerge, being o Construction; o Hospitality, hotels, restaurants and tourism; and o Post & Telecommunications. 13

14 From the above snapshots of some BRICS current activities in SA, as well as levels of awareness of the country, and the sectors they associate with the local economy, a case can be made for the development of a nuanced nation brand marketing strategy tailored to specific markets and environments. The African Environment In the case of Africa it should be noted that the continent was the world s second fastest growing region in For more than a decade the continent s growth averaged more than 5%, while the demographic profile of the continent positions it as a robust growth market for the foreseeable future. In terms of acquaintance with South Africa, respondents from three key African markets indicate, in response to the question on their level of acquaintance in three categories (I know very little about SA; I know enough about SA; and I know a lot about SA) that: Nigeria - 36% know enough, 18% know a lot, and 46% know very little about SA; Kenya 72% know enough, 11% know a lot about SA; Ghana only 2% know a lot, 22% know enough, and 76% know very little about SA. With the above in mind it is, for example, interesting to note a marked difference between Kenya, Nigeria and Ghana in terms of the economic sectors associated with SA. Manufacturing constitutes a big percentage of SA s trade with peer African countries. 14

15 Ghana 28%; Nigeria 50%; and 36% in Kenya. The top three sector associations by country are: Ghana o Mining & Quarrying; o Hospitality, hotels, restaurants and tourism; and o Agriculture; Kenya o Manufacturing; o Hospitality, hotels, restaurants and tourism; and o Mining and Quarrying; Nigeria o Mining & Quarrying; o Manufacturing; and o Hospitality, hotels, restaurants and tourism. To illustrate the point of divergent associations with the SA economy further it can be observed that only 16% of respondents in Ghana associate the SA economy with wholesale and retail, while in Nigeria and Kenya this number is somewhat higher at 26%, and 22% respectively. This is important due to the ever expanding and well established retail footprint SA business has developed in African markets since

16 What are the lessons that can be drawn from all of this? Findings from Brand SA s research into perceptions of South Africa are extensive and cover several other countries and issues not captured in this report. For additional information please refer to the power point presentation showing findings from this research on the Brand SA Research & Analysis page at One lesson to take from this year s research is that, contrary to popular belief, a country s reputation and perceptions thereof are not static, and neither based on one factor. Investor perceptions and hence reputation are made up of a whole host of elements. Conditions in the global economy are still less than ideal, but, South Africa s growing trade and political relations with developing economies and emerging markets necessitate closer interrogation of the way in which the country is perceived in those markets. From the investor perceptions research it is also possible to conclude that South Africa is well known for mining, and less known for its retail, finance, and manufacturing sectors. Mining constitutes a significant portion of SA s foreign exchange earnings. However, the country has a diversified economy with the implication that both government and business can do much more to profile the country as an investment destination that offers a vast range of opportunities. As emerging markets grow and expand their domestic economies it impacts directly on the global economic outlook. It is for this reason important for the South African government and business communities to understand the trends that re-shape the global economy, with the goal of positioning the nation brand 16

17 more effectively as business & investment destination, as well as trade partner in these markets. Project objectives, methodology & sample As the official marketing and reputation management agency of South Africa, Brand SA has to monitor and understand general global and regional, as well as specific trends within target markets. To this end the international investor perceptions research focuses on the following research objectives: Key objective: understand and track international perceptions of South Africa as a country with which to do business relative to a specified competitive set*; Additional specified research objectives: o Understand the existing perceptions about South Africa as a country to invest in amongst the business elite; o Determine drivers for investment decisions and what barriers could prevent investment into SA; o Benchmark South Africa s Brand Health against countries in the competitive set; o Commitment of current investors; o Availability of non-investors; o Understand what the most important attributes are for global business investment and how South Africa fairs on these attributes versus other countries in the competitive set; o Determine which industry sectors are associated with South Africa; o Use results found in the study to improve the marketing and communications strategies used to promote South Africa as an investment destination. 17

18 *Competitive set: Africa: Nigeria South America: Brazil Europe: Russia, Turkey Asia: India, China, Indonesia, South Korea Methodology & sampling 2013/14 sample: 835 interviews Target markets: USA; UK; Germany; Netherlands; France; India; Brazil; China; Russia; UAE; Spain; Japan; Egypt; Kenya; Nigeria; Angola; Zimbabwe Profile of respondents: Work for companies currently doing business or investing internationally, or those planning to in the next 5 years. Are decision-makers and have authority within their company regarding international business opportunities Turnover brackets for identifying companies and respondents: o Low: 20 million 50 million ($30 million - $80 million) o Medium: 50 million 100 million ($80 million - $160 million) o High: More than 100 million (More than $160 million) Brand South Africa s Research Notes communicate findings from Brand South Africa research and related panel discussions. The Research Notes are intended to elicit comments, contribute to debate, and inform stakeholders about trends and issues that impact on South Africa s reputation and overall competitiveness. Views expressed in Research Notes are those of the author(s) and do not necessarily represent those of Brand South Africa, or the Government of the Republic of South Africa. Every precaution is taken to ensure the accuracy of information. However, Brand South Africa shall not be liable to any person for inaccurate information or opinions contained herein. Research Notes compiled by Dr. Petrus de Kock, Brand South Africa, Research Manager petrusd@brandsouthafrica.com 18