Assurance

South Africa achieves top marks for Auditing and Reporting Standards in WEF Competitiven.....

While South Africa’s ranking as the number one nation in the world for Auditing and Reporting Standards is commendable, the country’s dismal performance in other sections of the report are far more concerning (World Economic Forum Global Competitiveness Report 2013-2014).

That’s according to Andrew Hannington, newly appointed CEO of Grant Thornton Johannesburg, who believes that the country’s bleak performance in many other areas, such as Education, Labour and Health, will discourage foreign investment and significantly hinder long term economic growth and stability.

The World Economic Forum’s (WEF) Global Competitiveness Report 2013-2014 assesses the competitiveness landscape of 148 economies, providing insight into the drivers of their productivity and prosperity. It examines the various factors that enable economies to achieve sustained economic growth. The Report series remains the most comprehensive assessment of national competitiveness worldwide.

The WEF Report has ranked South Africa number one for 2010/11, 2011/12, 2012/13 and now for 2013/14 in the strength of Auditing and reporting standards out of 148 countries. South Africa also achieved number one rankings for Efficacy of Corporate boards, Protection of minority shareholder’s interests, Regulation of securities exchanges and Legal rights index.

However, in stark contrast to the country’s top rankings achieved this year, the report reveals that South Africa’s performance in the macroeconomic environment has dropped 26 positions (from 69th to 95th) which the WEF attributes to the nation’s “strong ties to advanced economies, notably the euro area, [which] make it more vulnerable to [the] economic slowdown and [more] likely have contributed to the deterioration of fiscal indicators.”

Hannington believes the biggest challenges which will constrain the future stability and growth of South Africa relate to the need to build, educate and cultivate a skilled and sustainable labour force while simultaneously creating sufficient long-term growth and employment opportunities.

The WEF Report ranks the quality of South Africa’s educational system as very poor (146th), with the quality of its math and science education ranked 138th out of 148 economies.

“We all know that to qualify as a registered auditor, you need to have an excellent understanding of mathematics and science,” says Hannington. “How have we managed to achieve a number one ranking for auditing for so many years, when our education and – in particular – our performance in maths and science are so dreadful?”

He adds that absolute credit must be given to the universities and to the country’s professional services firms which have spent countless hours ensuring that poor basic education levels are lifted to international standards in order to continue superior financial reporting.

Hannington’s own calculations reveal that the percentage of the South African population that started Grade One in 1994 and subsequently qualified as Chartered Accountants at the end of 2012 is a meagre 0.0014%. This estimate assumes that 1.2 million children started Grade One seventeen years ago, and of those students who took higher grade mathematics to matric, less than 2000 passed the CA qualifying exams.

“This cannot continue. Government and the private sector need to join hands once and for all to properly address the education issues and specifically to deal with the issue of poor maths and science in South Africa. Only then will we start to see true benefits flowing through in order for us to truly grow our economy,” says Hannington.

This year’s WEF Report ranks the health of the South African workforce at 133rd out of 148 economies while the country’s labour market efficiency is poor (116th), hiring and firing practices are extremely rigid (147th), companies cannot set wages flexibly (144th), and significant tensions in labour-employer relations exist (148th).

“Overwhelming labour issues will eventually cripple the country and the endless strikes and workforce disputes currently taking place throughout South Africa are a perfect example of this,” says Hannington. “Foreign investors have no interest in countries with unstable economies and unreliable labour relations – they would much rather look elsewhere to invest their funds. Poor labour relations are much more damaging to South Africa than the points we could earn for superior auditing and reporting standards.”

The WEF Report states that “raising educational standards and making the labour market more efficient will be critical in view of the high unemployment rate.”
Hannington concurs.

“It is a well known fact that South Africa’s legal, financial reporting and corporate governance standards are of a superior standard and it is encouraging that the WEF Report acknowledges our leading position each year,” says Hannington. “However the dichotomy that exists between our First World associations with the likes of the eurozone and our problematic labour, health, education and security in a struggling Emerging Market environment, are certainly cause for worry and a turnaround strategy is now well overdue.

“South Africa overall ranked 53rd in this year’s report and successfully overtook Brazil to become the country that is in second place among the BRICS – attentive focus on our specific areas of concern will no doubt lift our nation even further in the years ahead, which would then be a very promising result,” Hannington concludes.