South Africa and Indonesia are well placed to potentially become the next powerhouse economies following in the footsteps of India and China. Both countries have massive low-cost workforces, improving economies, and have been successful in attracting inward foreign investment over the last few years.
But what is it really like doing business in these countries? What precautions should foreign investors and exporters take when trading in South Africa and Indonesia?
These questions and more are answered by global credit insurer, Atradius, in a new series of free country reports, designed to help firms trade safely around the world and reduce their exposure to bad debt.
Will Clark, Atradius’ Regional Director for UK & Ireland, NAFTA and Australasia, explains: “Business analysts and entrepreneurs are constantly looking for the next global economies that are ready to boom, and both South Africa and Indonesia have the makings of major growth, which is appealing to investors and exporters.
“But before companies get too carried away with what they see as the untapped potential of these and other similar nations, they must remember that doing business in developing countries can be tough. The Atradius country reports provide a reality check and offer vital, common sense information for all businesses.”
As well as providing an economic and political overview of the two countries, the reports also highlight credit safeguards when trading with local companies, advice on dealing with legal systems, as well as useful resources for further information.
South Africa has seen good growth in recent years – up to 5.3% in 2005 – boosted by exports and strong domestic demand driven by low interest rates. However, the strong Rand has made the country less competitive and internally the government is still struggling with high unemployment, poverty, soaring HIV infection rates and political uncertainty, all issues that could impact on continued growth and sound a note of caution for companies doing business in the country.
In general the legal framework and banking system are good, so commerce with reputable firms should be straightforward. However, it is important to credit check all potential customers and partners as it is becoming commonplace for directors to set up businesses and then liquidate a year later, repeating the same trick over again.
There is a culture of late payment in South Africa, often up to 120 days, with the chances of collecting debts older than 180 days decreasing by 50%. As a result, although safeguards such as retention of title and letters of credit are used, exporters should also consider credit insurance and using a UK collection agency with South African experience, particularly as legal proceedings can be slow and expensive.
After political upheaval in the early 2000s, and despite its ongoing struggle with terrorism and the impact of the Asian Tsunami in 2004, Indonesia’s economy has strengthened with a 5% of GDP growth in 2005, estimated to reach 6% this year. However, the country needs a major improvement of its legal system and for widespread corruption to be tackled before foreign investment really picks up.
A check of creditworthiness is essential for new customers as well as regular updates on existing partners. Access to reliable information in Indonesia can be difficult, particularly as accounting principles are not as robust as here in the West, so a UK-based credit agency with a local presence in Indonesia is recommended.
The Indonesian court system is particularly slow and ineffective, with foreigners often discriminated against on political grounds. If a debt goes to court it can take an average of 570 days to settle, more than twice the 225 days it takes in the OECD. Worse still are Indonesia’s bankruptcy figures, with proceedings taking on average 5.5 years compared with the 1.5 years average in the OECD. Therefore credit insurance and a UK-based collection agency with a regional presence is a sensible precaution.
The Atradius Country Reports for South Africa and Indonesia are available to download free of charge, along with newly published reports on India and China, plus updated versions for Poland and the Czech Republic. They can be downloaded from the Atradius website at www.atradius.co.uk under the On-line Services tab, where you will also find reports on a whole host of other economies.
Atradius credit insurance not only covers customers for up to 95 per cent of any bad debt, it also carries out initial credit checks on new customers and provides market intelligence on over 45 million individual businesses, industry sectors and markets around the world, with offices in 40 countries providing direct local experience and knowledge.
Credit insurance is ideal for any size of business, from multi-nationals through to SMEs and start-up businesses, and policies are available to cover trading risks in the UK and internationally. Atradius also provides debt collection services in the UK and overseas, securing repayment in the most efficient and effective way possible.
For more information on any of Atradius’ products or services, contact Atradius on 0800 21 21 31 or visit the website www.atradius.co.uk
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