Valuing a Nation - Brand SA


Are you impressed that the South African brand is the fourth most valuable in the world after Coca Cola ($70,5 billion.), Microsoft ($65,2 billion.) and IBM ($51,8 billion)? You shouldn’t be. Even though the SA brand has now been reliably valued using a methodology more associated with conventional commercial brands, its value of $50,6 billion (R379, 5 billion) is the function of very different forces. The real comparison would be with other nation brands.

This is probably the first attempt to value a nation brand. There were no precedents and no cases to refer to. What soon became clear is that a nation brand has little in common with product and service brands. For a start what income flow does the brand generate? Who are its competitors? And what are the forces, controllable and uncontrollable, that press down on its ability to create wealth for its citizens? That after all is the only reason to promote the country as a brand.

The income stream was relatively easy to identify. One third of our country’s annual gross domestic product is earned from outside our borders. Three sources account for the bulk of R320 billion: earnings from exports, tourism and foreign investment. This money is spent discretionally by people who are our country’s customers. Brand value typically is the value of the income stream that the brand’s customers generate.

But what portion of this is attributable to the brand South Africa. How much of this vast amount is spent here on our goods and services because the spender trusts South Africa and chooses our land as a destination; our goods and services because they are the best and our markets because they are safe, secure and give risk free returns? As it turns out only about 16% of this amount is spent for these reasons.

Market research was conducted to find out the extent to which country of origin is a feature in spending and investment decisions and how powerful - or otherwise - is the South Africa brand reputation in shaping these decisions. The brand influence is high in the tourist decision, but meagre in exports. Most of our exported goods and services are bought as commodities rather than enhanced brands. They could as well be bought elsewhere; if they were available.

The security of the brand related earnings is influenced largely by the way the nation brand is judged in comparison to its competitors. Who are they? Virtually every other country in the world that sells goods and services beyond its borders; offers tourist opportunities and tries to attract foreign investment. The South African brand’s ability to compete is constrained by two sets of factors: the global competition and the regional environment.

Customers of our goods, services, hospitality and investment opportunities compare what we have to offer with every other source available to them. The extent of competition is open ended. We compete with the world. Our ability to fulfil expectations, safely and without risk, is heavily influenced by the realities and global perceptions of our country and its immediate region.

The valuation model takes account of these forces. In the conventional approach, brands are measured within their market category according to how consumers view them in relation to their competitors. The category is evaluated to assess its stability over time and vulnerability to future changes and potentially limiting events. The two measures are merged mathematically to provide a score for each brand in economic expected life in years.

For a nation brand the market is the world. A credible and consistent measure of South Africa’s global standing is the annual survey conducted by Swiss Business School IMD and published in its World Competitiveness Yearbook (WCY). In the table below we show how South Africa performs against other economies in the world using the survey only part of the WCY measures.
Criterion SA Highest score Lowest score
Economy 50 75,4 24,3
Government efficiency 52,58 86,86 21,11
Business efficiency 53,84 83,35 29,57
Infrastructure 5,23 89,19 34,32







Note: these are averages of sets of factors measured in surveys conducted in each of the economies evaluated by IMD. They are not the full data set as produced by IMD. The figures are used with the permission of IMD

The IMD study is a sophisticated measurement of developed economies and their ability to compete with each other. Just how developed is South Africa? What does development mean? This question was addressed by Nobel Prize winning economist; Armatya Sen. He suggested that development relates to the freedom of people to live the lives they would like to live.

If you compare South Africa in this context with, say, a thoroughly normal developed state such as Norway, our standing in the world rankings take the second hit of a double whammy: first the WCY derived score and then the relative freedom of our nation.

When these numbers emerge from the valuation algorithm, they have been blended and converted into an economic concept. The strongest nation brand in the Sub-Saharan category – our region – has an expected life in years of 29,7. That is out of a possible total of 40. If you can imagine that for the sake of this calculation the strongest brand as measured by the WCY survey data, within the constraints of our region, has this number of years of expected life, you will appreciate that South Africa has a smaller number of years, relative to its World competitive score.

Sen’s Five Freedoms SA Highest score (Indexed on Norway) Lowest score
Political 88 100 21
Economic 33 100 -65
Social 68 100 42
Transparency 70 100 27
Protective security 60 100 20
Average 64 100 16














Source: compiled from various sources including UNDP by the School of Economic and Business Sciences (SEBS) at Wits University.

These calculations result in a projection of the 16% of foreign generated income to a point in the future determined by the ratings in the two tables above. The discounted present value of these future economic benefits is summed to provide the value of the nation brand.

One last need is the discount rate itself. This is the risk free rate at which the 16% could be safely invested. That is easily derived from an analysis of the 2003 budget. Most of this is represented by tax income and a small amount is raised by way of loans. The average of the interest rates that each would attract is the weighted average cost of capital. Add to this a risk premium drawn from a global country risk evaluation, and a discount rate of 13,13% is the result.

How can we use the value constructively?

The value itself will mean little until South Africa’s value is compared with other nation brands. That is currently not possible because at this time ours is the first and only country – to the best of our knowledge - to be valued.

But consider this:

The valuation methodology uses variables such as our world competitiveness; the brand related portion of our earnings from overseas’ sources; and, it places our ability to build these wealth creating inflows within the context of our Sub-Saharan region.

· If the scores that reflect the poor showing of our region as measured by the Sen’s Five Freedoms were to improve so that the expected life in years rose from 3 to 6, the value would rise from $50,6 to $52,2.

· An improvement in the survey-based part of the WCY was to stimulate a 10% increase, South Africa would be worth an additional $2,7 billion.

· Making our foreign earnings just 3% more reliant on the brand, would add $6,3 billion.

· Should we achieve all three the South African nation brand would gain a full $10,8 billion in value.

At that rate we could soon overtake the world’s most valuable brands. But in setting this frivolous target we will be creating interest and excitement around what is actually something altogether more substantial. The single metric value would capture what we have done to improve our world competitiveness; how we have protected our foreign earnings by converting those based on commodity sales to brand beneficiated; and, it would speak of the extent to which we have improved the lives of the people of our region by giving them greater freedoms.

This valuation was conducted by Dr Roger Sinclair, Professor of Marketing at the Wits University School of Economic and Business Sciences (SEBS). The methodology used is a specially modified version of the model developed in the University and which is now being used by many South African companies to value their brands.