The talk over the past number of weeks that finally led to Greece defaulting on its financial commitments to the IMF and thereafter adopting some vital economic reforms, are indicative of both the importance and uncertainty that surrounds the European Union. The relevance of the economic bloc and its travails to South Africa, however, is not as clear as it once used to be.
Whereas the EU had been a major trading partner for the country in years gone by, it has been overtaken by trade conducted with China and other African nations.
The results of the latest Grant Thornton International Business Report, entitled “The Future of Europe 2015”, is therefore of interest to South African executives, but more in passing than pointing to a major opportunity, or threat.
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 10,000 businesses per year across 36 economies. This unique survey draws upon 22 years of trend data for most European participants and 11 years for many non-European economies. The data for the 2015 Future of Europe report are drawn from interviews with more than 1,100 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors worldwide, and the research was conducted in February 2015.
“The landscape for South African companies operating in international markets has certainly shifted over the past decade, and not necessarily in favour of the EU,” says Edward Dreyer, Partner at Grant Thornton Johannesburg. “The Future of Europe study is of interest in that sentiment is more upbeat as the effects of the 2008 crisis have largely worn off but, as has been shown in the case of Greece, conditions are far from buoyant.”
The 2015 IBR Future of Europe study found that 38% of European executives are more optimistic compared to the global average of 33% – the first time in four years that the EU’s positive sentiment has surpassed that of the global average. Importantly, countries such as Ireland (92%) and Spain (52%) that had been of the hardest hit by the financial crisis are of the most optimistic about business prospects.
Despite this improved optimism, the very foundations of the Eurozone remain on shaky ground. This was shown in 64% of respondents indicating that the exit of the United Kingdom from the EU would be bad for the Eurozone. Not surprisingly concern over a Greek exit was considerably lower at 45%. The prospects of a UK exit have diminished after its recent national election, but still points to undercurrents of uncertainty.
“Despite these tremors of uncertainty, there is no immediate threat to South African exporters or businesses. Financial markets in the days around the Greek default were thrown into turmoil, but as we have seen, this is more a blip than a wholesale collapse,” says Dreyer.
“With China still one of South Africa’s dominant trading partners, followed by the US and Germany, we don’t expect any seismic shocks to our trade potential.”
The emergence of Botswana and Namibia as the fourth and fifth largest export markets is of far greater significance as intra-African trade has risen in importance for South Africa. Market access and the proximity of these countries present a very strong case for companies involved in the export of goods and produce.
“We have found that our clients looking to Africa find it a far more attractive alternative, despite challenges relating to logistics and settlements. We expect this to grow into the future, especially in light of South Africa participating in the recently constituted Tripartite Free Trade Area and the proposed Continental Free Trade Area,” Dreyer concludes.