India-South Africa business ties to soar despite challenges: survey

May 27th, 2008 - 4:21 pm ICT by admin  

By Fakir Hassen
Johannesburg, May 27 (IANS) Indian and South African businesses see huge investment opportunities that could be mutually beneficial, says a survey that also highlights unique challenges in the two countries that need to be overcome. These are the findings of the PricewaterhouseCoopers’ survey, ‘Trade winds - Setting sail for investment opportunities in South Africa and India’, which was released here Tuesday.

The survey was the first of several ones planned by the new PwC India-Africa Desk, established to serve a growing need among investors considering the two countries as investment destinations.

Indian companies expanding into South Africa perceive the country to be an excellent investment destination and a “gateway” to Africa and African investment. But crime, health and safety issues and the perceived high corporate and individual tax rates are seen as business challenges.

South African companies see India as a highly rewarding investment opportunity, but point out that the social and cultural issues related to doing business there are problematic.

Troopti Naik, PwC leader (India-SA), said at the launch of the survey that India was now the world’s 12th largest economy and the third largest in terms of purchasing power parity.

“Economic reforms have transformed it into one of the fastest growing economies in the world and global superpower status will probably be achieved within the next decade. During the financial year 2006-2007, India’s GDP grew at an estimated 9.4 percent on top of growth of 9.0 percent in the previous year.

“Its economic growth can be attributed to a government policy of deregulation, which commenced in earnest in the early 1990s. Policy makers have shifted focus to factors that can drive economic output such as capital accumulation, technical progress, improvements in the quality of the labour force, freedom from regulatory interference and increases in personal incentives,” she said.

Naik said there was presently an infrastructure development boom in India that would attract companies from all over the globe, including South Africa.

“In the other direction, Indian companies are establishing themselves in South Africa because of our buoyant economic growth, low barriers to entry, the huge potential of the 2010 FIFA World Cup to be hosted here, and our appeal as another emerging market.”

For Indian companies coming here the survey indicates that the energy crisis which has seen the national supplier Eskom having to resort to load shedding; and obtaining work permits are also significant challenges.

Although many Indian businessmen felt that the personal tax rate in South Africa was too high compared to the benefits received, 57 percent of the survey respondents did not consider the tax regime as posing a real challenge to their companies and regarded the country to be in line with global tax systems.

The majority of Indian respondents used a branch structure when moving into South Africa, adding that they believed their operations to be fully compliant with all tax and regulatory aspects.

They also had well-structured internal control mechanisms and well documented tax risk control policies in place, although they found South African exchange controls to be burdensome.

Perhaps vindicating the decision to start up an India-Africa Desk, 62 percent of Indian respondents said they utilised the services of auditing firms when seeking advice on investment into South Africa.

For South Africans investing in India, the preference was for joint ventures, which presented opportunities to overcome social and cultural challenges and to perhaps benefit from lower corporate tax rates for local businesses.

Obtaining work permits and lack of infrastructure and support services posed the next greatest challenges to South African businesses.

Majority of survey participants found the corporate tax regime in India to be complex and rigid and the foreign corporate tax rate exceeded 40 percent.

Despite the taxation complexities, most South African respondents did not have a comprehensive tax risk control policy, using the services of auditing firms when seeking advice on investments into India.

Naik says that all of the participants surveyed were interested in obtaining assistance from a dedicated India-SA team with experience in advising on both inbound and outbound investment.

Indian respondents in the survey included Bank of Baroda, ICICI Bank, Mahindra and Mahindra, Ranbaxy Pharmaceuticals, Satyam Computer Services, State Bank of India, Tata Steel and ZEE TV.

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