South Africa Inc.; the quest for gold; the rush is on for business ventures and investment opportunities in Mandela's new democracy - South African Pres Nelson Mandela

Black Enterprise, August, 1994 by Gracian Mack, Mark Lowery

Most analysts agree that the dismantling of apartheid has created numerous opportunities for investors and entrepreneurs looking to set foot in South Africa, where there are more than 40 million potential consumers. But analysts caution potential investors to temper their enthusiasm for South Africa's newfound democracy under President Nelson Mandela long enough to carefully study any moves they might make.

Potential risks - which include layers of South African bureaucracy and financial markets yet to adopt standardized fair trading practices - haven't kept some U.S. businesses from seeking South African gold. About 154 U.S. companies now have offices in South Africa. In June, PepsiCo Inc. International announced it was returning to South Africa with a group of investors that included BE publisher Earl G. Graves. African-American entrepreneurs have also joined the investment rush, with nearly 300 relocating to South Africa last year in hopes of starting businesses there, according to the African National Congress.

"With a small amount of capital from an American investor, I believe the South Africans can hustle their way to a profit, and a good one at that. They're just undercapitalized," Jim Moorehouse from the U.S. Department of Commerce office in Johannesburg recently told BE, pointing out the tremendous business potential in places like Soweto. "Can you imagine the amount of economic activity you could generate in a city of 4 million with some capital?"

Dennis Fulton of the South African Industrial Development Investment Center says international firms can use the country as a "gateway" to the entire continent. By establishing themselves in South Africa, business enterprises "will enjoy the benefit of the most advanced economy and infrastructures on the continent," Fulton says.

The U.S. government has pledged $160 million in economic aid, but the Clinton administration has yet to figure out a way to funnel this aid to South Africa.

According to the World Bank, the per capita gross national product in South Africa is $2.67 billion - that's seven times the GNP of its African neighbors. Even so, a division of the World Bank has changed South Africa's classification from developed nation to emerging nation. The reclassification allows South Africa to qualify for inclusion in lending programs from institutions such as the World Bank, the International Monetary Fund and the African Development Bank.

The Clinton administration has also signed an agreement making South Africa eligible for assistance from the Overseas Private Investment Corp. (OPIC), which provides political risk insurance and finances loans and loan guarantees from U.S. firms operating in developing countries. OPIC has reportedly signed agreements that are estimated to infuse $100 million in investment capital into the South African economy.

Even with renewed international interest, South Africa's economy is a deformed one at best, having suffered from years of isolation. The country has been starved of access to important international markets. Domestically, money had been allocated to maintain segregation and white supremacy, which experts say resulted in the duplication of facilities, a bloated bureaucracy, rafts of regulations and corruption. That imbalance nurtured a private sector with investment concentrated on First World consumption. The business sector, experts say, has been afflicted with the "greenhouse" effect - business owners unable to diversify from the core businesses they were good at, like mining, used profits to buy industries in which they had no particular expertise.

Still, there are opportunities for smart investors and entrepreneurs. Professional Carpet Systems, an Atlanta-based firm, last year sold a master franchising license to black South African brothers Kgosi and Mandla Letlape, allowing the brothers to establish franchises throughout the country. "They [Professional Carpet Systems] understood it's a whole new ballgame out here," Kgosi Letlape told BE. "[With a franchise] you're buying into a system that works ... You don't have to start from scratch."

Those interested in business opportunities in South Africa should contact the South African consulate at 202-232-4400, which will provide market information; or the U.S. Department of Commerce at 202-482-2000.