South Africa
The country was first captured by the British in1775 and they gave it to the Dutch in 1803. However, they took it back in 1806, and in 1814, the British had a treaty showing that they owned the region (Educationpubs, 2022). In 1899, there was a war between the British and the Boers. The Boers were able to win the war, but in 1900, the British brought in more armies and took ownership of the region. The country was under British rule until 1994, when it was able to gain independence, with Nelson Mandel being elected as its first president. Currently, South Africa has a population of 60 million people.
Form of Government, Democratic Process, and Factors Impacting Firms
South Africa is a democratic country where the government operates using a three-tier system. The judiciary is independent, and the national, provincial, and local government levels have the executive and the legislative sections. In South Africa, various factors impact foreign firms’ operations. First, the language spoken makes the business environment to be partly informal. Second, social factors such as safety, education level, and sex distribution hugely determine firms’ success in the South African market (Educationpubs, 2022). Third, the region is recognized as a rainbow nation because of various cultures such as Xhosa, Hindu, Ndebele Afrikaner, Zulu, Muslim, Tswana, and Khoisan. Fourth, various political policies affect the business operation, such as taxation. Lastly, environmental issues such as human resources and rising costs impact businesses in South Africa.
Legal Framework, Infrastructure, and Education System
South Africa follows its constitution and bill of rights where the laws are consistent with the constitution. It has a mixed legal system because of the region’s diversity. These include English common law, religious personal law, Roman-Dutch civilian law, and customary law (Educationpubs, 2022). The country has a good network of economic infrastructure, including roads, rails, and the airport. The main challenge it is experiencing is the expansion of communication, water, electricity, and transport infrastructure to enable it to meet the developmental goals and economic growth requirements. They have the largest air and rail networks that are in good condition. The port has been significantly improved and equipped with container handling equipment. The education system operates in three levels: elementary, secondary, and tertiary. The department of basic education (DBE) manages elementary and secondary education. The department of higher education and training (DHET) manages the post-secondary education plus the post-secondary technical colleges and academic institutions.
Economic Outlook, Positive and Negative Sides for Investing
The economic outlook of South Africa is that the consumer price fluctuation is currently at 5.9%, which is the highest level since 2017. The producer price fluctuation has increased to 10.8% during this period. The country’s economy is at risk of expanded consumer and producer price inflation as the current inflation rate is 5.3% (Sunde, 2017). There are various pros for international business in South Africa. Firstly, the value for money is high because the country is growing in both the industrial sector and travel destination. Secondly, the excellent infrastructure is a significant factor when selecting a business location. The country is connected with various world-class roads, rails, and airports, making it easy to grow. Thirdly, it is a tactical location as it is a gateway to Africa because its GDP is approximately 18% of the GDP of Africa, with 50% of Africa’s purchasing power (Sunde, 2017). The cons include, first, the country has a significant electricity generation and transmission problem. It takes more than 226 days to get an electricity connection. Secondly, property registration is time-consuming as one has to complete up to six steps. Lastly, cultural barriers such as the multiple languages spoken to make it necessary to identify the region.
Nigeria
Nigeria got its independence in 1960 and became a member of the Commonwealth group. The military coup in Nigeria has been a common factor since 1966 when the military leaders took over the government and handed it to Col. Furthermore, civil war has also been a factor in Nigeria even after gaining independence (Tunc et al., 2018). In May 1967, the country experienced a civil war that lasted for 31 months. In April 2007, the country shifted from military power control to democracy. Despite moving to democracy, the country has been experiencing security threats, especially from Boko Haram. Currently, Nigeria has a population of approximately 215 million people.
Form of Government, Democratic Process, and Factors Impacting Firms
Nigeria’s current form of government is democratic, which utilizes democracy at both the federal and local levels. From the 1999 Nigeria constitution law, the power to run the country is vested to the president, the head of state, and the chief executive. The elections are done every four years, and the voted president nominates the vice president and the cabinet members. The constitution supports the bicameral national assembly composed of the senate and the House of Representatives (Tunc et al., 2018). Every state elects ten members who serve for four years terms. The senate members are categorized as three from the state and one from the Federal who are elected for a year.
Various factors influence the performance of foreign firms in Nigeria. These forces include cultural, social, language, political, and environmental forces. Firstly, cultural factors are a significant factor to consider when setting up business in Nigeria, and they include religion and looting. Nigeria has a high percentage of Muslims as well as Christians. Therefore, it is necessary to consider the venture region before setting up a venture to prevent culture clashing with the business. Looting has become a culture in Nigeria as many people engage in these activities. Setting up affirm in a secure location with organized management is necessary (Tunc et al., 2018). Secondly, social factors such as beliefs, education level, and safety are significant factors to consider when setting up the firm. Thirdly, language is not a significant problem in Nigeria because their official language is English. Fourthly, the political factors include unstable government policies, resulting in losses. Fifthly, environmental forces such as price fluctuation are significant factors affecting the firms’ profitability.
Legal Framework, Infrastructure, and Education System
The legal framework in Nigeria has four distinct systems: colonial law, sharia law, customary law, and English law. These laws are enacted based on the constitution and without prejudices. Nigeria has a good infrastructure connection when compared to other African countries. Its rail, road, and ICT network covers the country well, making it among the best African countries with good infrastructures (Okolo et al., 2018). Its education system uses the 6-3-3-4, distributed as one year preprimary, six years primary, three years junior secondary, three years senior secondary, and four years tertiary education
Economic Outlook, Positive and Negative Sides for Investing
The economic outlook of Nigeria is that the country’s GDP will decrease by 3% in 2022. Various measures were implemented to prevent the further worsening of the economy (Panshak et al., 2020). The inflation rate has increased from 11.4% in 2019 to 12.8% in 2020, aided by increased food prices. The fiscal deficit financed debt increased from 4.3% in 2019 to 5.2% in 2020. The total public debt has increased by 2.4%, and with the fall of oil prices, the current account is a deficit of 3.7% of the GDP. Pros for international business in Nigeria include their positive attitudes towards foreigners as they are respectful and nice. It is a license-free zone as the country is trying to curb the rising levels of unemployment. The cons include the currency risk as the devaluation of its currency has resulted in a wide gap between the official exchange rate and the black market exchange rate. The changing laws make it hard for investors to forecast market changes as the government implements new policies.
Major Risks of International Trade
Various risks are associated with international trade, including foreign exchange rate risk, interest rate risk, credit risk, legal risk, and liquidity risk. Firstly, foreign exchange rate risk occurs when the value of liabilities and assets change with exchange rates. Secondly, interest rate risk occurs when there is a fluctuation of the interest rate over time (Tunc et al., 2018). The rate might rise, making the company pay more than it anticipates. Thirdly, credit risk occurs when one party cannot meet transaction obligations. Fourthly, legal risk occurs when the political or legal frameworks change, forcing firms to fulfill certain new obligations such as tax. Fifthly, liquidity risk occurs when losses are incurred because of failure to meet the payment requirement at a specified time.
Recommendation
The firm should invest in South Africa because of the country’s business environment. Despite the country having several languages, the political environment is stable compared to Nigeria, and its economy is growing compared to Nigeria. Also, the value of money in South Africa and its tactic location are significant factors that will ensure the firm’s success. The country’s legal system is stable hence not prone to sudden changes.
References
Educationpubs. (2022). How our democracy works.
Okolo, C., Edeme, R., & Emmanuel, C. (2018). Economic Analysis of Capital Expenditure and Infrastructural Development in Nigeria. Journal of Infrastructure Development, 10(1-2), 52-62.
Panshak, Y., Civcir, I., & Ozdeser, H. (2020). Towards determining Nigeria’s economic growth path: A balance-of-payments constrained growth approach. Economia, 21(1), 104-119.
Sunde, T. (2017). Foreign direct investment, exports and economic growth: ADRL and causality analysis for South Africa. Research in International Business and Finance, 41, 434-444.
Tunc, C., Solakoglu, M., Babuscu, S., & Hazar, A. (2018). Exchange rate risk and international trade: The role of third country effect. Economics Letters, 167, 152-155.