This is Part 1 of the ‘Import Business series’. See Part 2 for legal and regulatory compliance requirements for import businesses.
For international travelers with a knack for identifying product with a potential market to sell locally, the import business presents a good business opportunity.
A consideration that entrepreneurs looking to get into the import business is to “import unique products that are not currently available in the country, or products that you can obtain and sell for significantly less than what is currently offered,” according to Bizconnect.
Some of the many goods that entrepreneurs can import include: food, raw materials, clothes and manufactured goods.
To find out what it takes to start an import business in South Africa, we speak to Dr Greg Cline, head of corporate accounts at Investec Import Solutions, they help businesses with every aspect of an import transaction including hedging of foreign exchange risk and the management of import logistics.
Cline offers a brief of outline of the sector, its risks and challenges and advises on opportunities that exist for entrepreneurs.
Q: How big is the import business in South Africa?
Currently the value of Imports and Exports per quarter equates to roughly 60% of South Africa’s Gross Domestic Product (GDP). Given that South Africa operates on an open economy, trade is an essential stimulus and drives job creation.
One of the biggest challenges however for the industry is economic volatility. As markets become more connected, various challenges, in countries across the world, can have an impact on domestic markets; just look at the Rand for example. As the dollar strengthens and the Rand weakens, the implications are wide-spread. While the weak Rand has some benefits for many exporters, it can still skew volume figures; it impacts negatively on importers and exporters who have a large imported component in their products.
Africa is also increasingly dependent on imported goods and even when products are manufactured locally, they often use imported components.
Importers are also rarely able to pass on price increases directly to consumers. With high operational costs including electricity – and the uncertainty around power – and more recently water supply, margins are being affected. This becomes inflationary for SA as a whole, all of which has a negative impact on the country’s ability to drive industrial growth. Having said that however, the South African market is ripe with opportunity, investment and innovation for the import sector.
Q: Which countries are South African entrepreneurs importing from and why?
A: In 2018, South Africa’s most important import partners were China with 19.6% of total imports, Germany with 9.5%, the US with 6.4%, Saudi Arabia with 4.8% and Nigeria with 3.9%. While intercontinental trade continues to flourish, South Africa’s diplomatic relations with China has grown – making it a go-to-market for a number of products for South African entrepreneurs. China is a reliable, productive and cost-effective option. South Africa is also now China’s largest investment destination among African countries.
For those looking at importing however, it is critical that you look at products that are in demand and you have the right lines of credit or sufficient capital to fund your working capital requirements
Q: How is the market segmented?
There are a number ways to consider this. The most common understanding is aligned with industry sector such as Petroleum and Oil based products, automotive, mining, telecoms, manufacturing etc.
Q: What opportunities exist for South African entrepreneurs who want to go into the importing business?
The South African and African market is ripe with opportunity, investment and innovation. What’s more, there has been a revitalisation of trade which brings about new opportunities and South African entrepreneurs are taking advantage of these. For those looking at importing however, it is critical that you look at products that are in demand and you have the right lines of credit or sufficient capital to fund your working capital requirements. From there it becomes about finding the right supplier, understanding the logistics and legislation and of course, building from there.
This is where finding the right partner becomes a critical step. The import process is not an easy one to undertake. From not having sight of products throughout the supply chain to being concerned about landed costs, import tariffs, and the impact it all can have on cash flow, businesses often feel intimidated. Yet, this does not have to be the case.
Importing goods often requires upfront deposits and balance payments to suppliers weeks before these goods are converted into cash
Q: What impact do currency fluctuations have on the industry and profitability of businesses?
With global business and everything being interconnected, importers are constantly exposed to currency risks because of changes in interest and inflation rates. Combining fresh insights, a better understanding of costs and the option of alternative funding that can release working capital that would normally be tied up in the import transaction, is a game-changer for the industry.
This is not to say that ‘traditional’ offerings from banking institutions will become unnecessary. In fact, it’s just the opposite as it has shown us that companies need to examine viable ways in which they can quickly access lines of funding, which requires bespoke and collaborative services – something that the banking industry is actively exploring.
Uncertainty around global and local economic conditions, coupled with the upcoming South African elections this year, contribute to a volatile environment that is pressurising importers to do more with less.
Planning rather than reacting is key to achieving your strategic goals. Every business decision involves some level of risk especially when working with international suppliers and risk is unavoidable but can be carefully managed.
So, it is essential to plan ahead and partner with the right partner to be with you every step of the way who understands the financial implications that currency fluctuations can bring.
Q: What kind of support do import businesses typically need?
Regardless of economic indicators, the challenge remains for companies that import goods to still be able to bring in their wares at an acceptable level of cost and match working capital to make their margins. This is all while maintaining or growing margins and ensuring they commit to the right levels of gearing for their respective businesses.
As a result, we are seeing an increase in the automation process, with fintech solutions coming to the fore. This, coupled with a growth in imports from the East, means we have companies examining viable ways in which they can access funding to service working capital needs. Importing goods often requires upfront deposits and balance payments to suppliers weeks before these goods are converted into cash. Companies would do well to obtain lines of credit that are priced fairly, have low or no admin fees, and don’t carry penalties for non-utilisation or termination of facility.
New technologies are being applied to the supply chain to better understand cost inputs and timing of payments, with the objective of reducing working capital needs.
Further to managing the financial aspects of the supply chain, companies should be leveraging technology to not only physically track order placement, production times and sailings to understand when goods are going to arrive, but importers should have an app on their phones that notifies them of unexpected delays such as custom stops.
Businesses also need to be cognisant of the fact that logistics do not exist in isolation of funding. As such, it is probable that import businesses will partner with companies that understand the commerciality of their business and the technicalities of the inbound supply chain, and that leverage technology and innovation to maximise time and cost savings to effectively increase profitability.