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Investing in staff skills, new buildings and renewable energy will improve business confidence and a positive economic outlook.

07 Nov 2023 9 min read

With 70% of mid-market businesses in South Africa anticipating a rise in profitability in the upcoming 12 months, there is an overall increase in intentions for future business investments regarding investment in staff skills and new buildings. 

 The IBR survey is SNG Grant Thornton’s SA Business Pulse survey of about 100 South African business leaders across different industries providing insights on the views and expectations of the South African mid-market businesses. 

According to the latest IBR survey, investment in developing company staff skills picked up markedly in H2 of 2022 and H1 of 2023 (to 68% and 69%, respectively). 

SNG Grant Thornton director and head of business consulting Omar Hassan said this was not surprising considering the high levels of emigration of skilled personnel which is impacting the ability of the economy to grow and for investment in infrastructure to be undertaken. 

“There has been growing recognition in South Africa of the constraints on economic growth brought about by the lack of sufficient skills. The scarcity of skills in the domestic economy is exacerbated by the high turnover, which has become a significant impediment for South African businesses. The sectors most heavily impacted by a lack of skills include information technology, finance, medical and health, design, media, and business development.

Business concerns about the availability of skilled workers as a constraint to business growth increased in H1 2023 (to 50% from 45% in H2 2022), the IBR survey notes, reinforcing an upward trend that has been in place since 2019. 

Hassan said while this was often cited as a growing constraint on economic growth, exacerbated by the emigration of skills at an accelerated pace in recent years, surprisingly however, the perceptions of this as a constraint are slightly lower in South Africa than globally. 

“This might merely be a function of the increased technological intensity of other countries in the world relative to South Africa”.

The IBR Survey also showed that given the decline in optimism on the economic outlook and the incidence of load-shedding, there was a decline in the proportion of businesses wanting to increase employment (59% compared to 62% in H2 2022) in H1 2023. However, the decline was not material, compared to the global average. 

IBR survey results also showed there has been a marked pickup in investment optimism for new buildings to its highest level since the survey started in 2011. 

The H1 2023 outcome (59% of businesses expect to invest in new buildings in the next year) coincides with evidence from the gross fixed capital formation figures supportive of a marked pickup in investment, which has taken up the share of fixed investment to GDP to 15.5% from 13% in 2021.  

Hassan said this contradicted the relatively depressed levels of building plans passed for both residential and non-residential buildings to some extent. 

“On the other hand, the most obvious reason for optimism regarding new building activity is the potential for interest rates to peak and start coming down through 2024. In addition, one needs to bear in mind that such investment collapsed in the aftermath of COVID-19, so one might be seeing a revival off a very low base.

He said investment in plant and machinery has been the cornerstone of the improvement in overall gross fixed capital formation in recent years. 

“Such investment appears to have been taking place in the move towards establishing renewable energy facilities in the wake of the decision taken by the government to dramatically increase the threshold at which it requires companies to obtain a license before such investment is undertaken, said Hassan.  

As expected, energy costs are the top concern amongst mid-market businesses in South Africa in H1 2023

It is conceivable that the proportion of mid-market businesses identifying energy costs as a key constraint declined in H1 2023 (to 61% from 74% in H2 2022) in the wake of large-scale investment into solar panels and generators, which might have reduced the need for further such investment going forward. 

In addition, the latest electricity price increases planned by Eskom see a substantial reduction in the rate of increase of such prices in 2024 compared with 2023. 

One of the most important determinants of short-term economic growth is the success or otherwise of the government in limiting the extent of load-shedding. 

In this regard, the Ministry of Electricity recently announced its intention to bring four of the six units back into operation at the giant new Kusile power station before the end of the year. This would add almost 3000 MW to the electricity grid and assist in reducing the need for load-shedding of the intensity to which we have been accustomed.

A further boost to economic growth would be forthcoming if many of the other multibillion-rand infrastructural investment projects outlined by the government in recent years were to be forthcoming. 

For this to be achieved, an improvement in the engineering industry's skills capacity is needed, and municipalities' capacity to make decisions on and implement such projects needs to be enhanced.  

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Further enquiries, please contact:

Lebogang Kholoane

SNG Grant Thornton

T: +27 11 231 000

Lebogang.kholoane@sng.gt.com

 

About SNG Grant Thornton 

SNG Grant Thornton is the South African member firm of Grant Thornton International Ltd. We have progressed expeditiously in every aspect ever since our establishment in 1985. We are an indigenous mid-tier Assurance, Tax, and Advisory firm with offices in South Africa and Eswatini.

We Go Beyond client expectations to deliver proactive solutions. We don’t predict the future. We help you shape it. 

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