Grant Thornton International business report: Focus on South Africa.
Over and above post-recessional blows, nationwide strikes and instability in our mining sector, recent Grant Thornton research has revealed that additional issues – particularly political insecurity, regulatory concerns and public policy issues – are adding further unnecessary pressure to the stability of South Africa’s business environment.
Grant Thornton’s quarterly tracker data for the fourth quarter of 2012 reveals that just under half of South African business leaders (48%) cite that uncertainty about the future political direction of the country is impacting on their future business decisions. Business owners have admitted they are delaying making important business judgements about the upcoming prospects for their organisations, with 26% seriously considering investing offshore in an alternative economy that’s more stable.
Other core constraints noted which directly impact SA business expansion plans include socio-economic factors such as crime and corruption, the lack of available skills in the current workforce and poor government service delivery.
Deepak Nagar, national chairman of Grant Thornton SA said: “Next year – 2014 – is a national election year for South Africa. Those who successfully formulate feasible solutions to these concerns would certainly take the lead on next year’s electoral battle ground.”
The Grant Thornton International Business Report (IBR) provides quarterly tracker insights into the views and expectations of over 12 000 businesses surveyed in total per year across 44 economies. The Q4 data for IBR to December 2012 also highlights regional and national business owner perceptions regarding crime, service delivery and political climate for SA business owners.
Business constraints in South Africa
Nagar noted that the constraints highlighted by South African business executives each quarter are consistently the same. “The fact that these results indicate such similar business concerns each and every quarter emphasises just how critical these issues are for South African business owners.”
When SA business owners were asked what barriers or constraints were affecting business growth and expansion for the future, a lack of skilled workers (47%) continues to be cited as the key growth constraint, well above the BRIC average (36%).
“In line with BRIC business leaders, 42% of executives in South Africa agree that overregulation and complex red tape also constricts business growth and this highlights how stifling regulatory systems and processes affect the day-to-day functions within a company,” Nagar continued.
Government and public policy
The Q4 Grant Thornton IBR 2012 survey revealed that a massive 58% of medium sized businesses throughout South Africa researched during 2012 have been affected by poor government service delivery with 43% of those affected indicating that utilities (electricity supply) are the direct cause for their complaint, followed by billing issues (28%) and roads (20%).
Crime & security
Crime is still a massive concern for SA businesses and three out of every five South African business leaders report that either their immediate families or staff had their personal security directly threatened through a contact crime incident in the past 12 months. Contact crime is defined in the research as housebreaking, violent crime, road rage or hijacking.
Nagar states however that this crime statistic continues on a downward trend, with the national data for 2012 at 52%, a decline of more than 30% than what was recorded in 2007 (84%). Regionally KwaZulu-Natal tops the charts at (59%), Western Cape (53%), Eastern Cape (49%) and Gauteng (49%).
“The impact that crime has on SA as a whole is unacceptable and, while we continue to express relief that this trend line is steadily declining each year, much more focus needs to be given to this scourge once and for all, to ensure that crime does not continue to impact on our daily lives,” said Nagar.
The IBR data highlighted that a startling 63% of business leaders who stated crime as a real concern in the past year reported that they had experienced increased costs for security systems in their organisations. But when asked if any executives had given serious consideration to emigrating as a result of the dire crime situation, only 22% stated that they were considering it.
Glimmer of hope on the horizon
But the results are not all doom and gloom.
“Some of the legislation, systems and processes are certainly working to improve business trading conditions nationwide,” added Nagar.
Q4 Grant Thornton IBR research for 2012 indicates that the SA economy is forecast to have expanded by 2.6% in 2012, with the international exposure of key sectors such as mining and manufacturing weighing positively on growth.
Furthermore, growth is expected to accelerate to 3.1% in 2013 and 3.8% in 2014 in line with a modest global recovery, although further strikes represent a major downside risk.
“Expected growth improvements are anticipated to pick up even further in SA from 2015-17 as the ranks of the black middle class swell, boosting consumer spending on durable goods and services such as telecommunications and banking,” said Nagar.
The data also highlights that SA business expectations for growing revenues look healthy at 76%, up from 71% in Q3. Nagar noted that this is the highest level recorded in two years, but expectations here are lagging the BRIC average (81%), although both SA and BRIC economies are well above the global figure (45%).
Businesses in South Africa are recorded to be equally as optimistic as their peers in the BRIC economies about business prospects for 2013 (SA – 38%; BRIC – 39%), but SA business confidence is significantly down from 2010 (60%).
The results reveal that global business optimism levels are considerably lower than the emerging economies in the BRIC region, with confidence about business prospects at a low 4% in Q4 2012. This figure fell 50%, from 8% just three months earlier.
Nagar urges South Africa’s business leaders to join forces with public sector and government, industry-wide, to develop mutually beneficial solutions.
“Corporations have an obligation to meet shareholder objectives and to stimulate economic growth. If they are unable to do this, the domino effect is insufficient employment opportunities which ultimately results in an increase in crime,” he says.
“If private business owners would work together with government better to address poor performance on service delivery concerns such as utilities, billing issues and road issues, only then would we be able to achieve the country’s goals to eliminate poverty and reduce inequality.”