Seventy-two per cent of business executives confirmed that turbulence in the local economy over the past six months has affected business operations and decisions, Grant Thornton’s International Business Report (IBR) for the third quarter shows.
Referring to economic instability as the “new normal”, the audit, tax and advisory services provider further noted that when asked to explain how this turbulence had affected privately held businesses and listed companies, 68% of executives stated that they were delaying business expansion plans, 61% were putting off investment decisions, 38% were considering investing offshore and 28% were contemplating selling their businesses.
“Our IBR data to the end of September shows a nation that is experiencing total uncertainty with no sign of any stability on the horizon. The fact that businesses are delaying important investment decisions or expansion plans, coupled with a challenging economic environment, indicates they are just managing to keep their heads above water, with operations stagnant ‘in a holding pattern’ of sorts. It’s very concerning,” said Grant Thornton South Africa advisory services head Gillian Saunders.
When asked how optimistic local executives were about the outlook for the country’s economy over the next year, businesses confirmed a negative outlook for the second consecutive quarter – at -6% pessimistic.
This balance statistic is determined by calculating the percentage of respondents who report a positive outlook, less the percentage who report a negative outlook for the year ahead. In the case of the third quarter, the outlook was negative with net 6% more negative responses expressed than positive.
There is some improvement, though, compared with the previous quarter when the figure was -28% pessimistic and South African executives were the most pessimistic of the 36 surveyed countries.
In the third quarter, South Africa recorded the second-lowest figure, with Japan at the lowest with a negative -14% pessimistic outlook.
“For South Africa, most of the year was marred by political upsets, followed by subsequent downgrades of the nation’s sovereign credit rating by key ratings agencies.
“Then, towards the end of the third quarter, massive ructions occurred with further developments which drew the nation deeper into the ‘State capture’ debacle, and more concerning revelations were uncovered regarding high profile private companies with suspicious Gupta ties. The year is going from bad to worse,” said Saunders.
Conversely, global business optimism was fairly stable at 49% optimistic, just two percentage points below the 51% recorded during the second quarter of this year. Optimism among firms in the US was well above the global average at 70%, while Chinese business optimism hit a three-year high of 52%.
“South Africa’s instability, uncertainty and pessimistic outlook has no doubt influenced the World Economic Forum’s Global Competitiveness Report for 2017/18 in which South Africa’s overall ranking declined 14 places to 61 from 47.
“The survey cited political instability, poor work ethic, restrictive labour regulations and an inadequately educated workforce as some of the key reasons for the decline. All signs are pointing to a disturbingly rocky situation – it is crucial for everyone in every corner of the country, and across private business, government and the public sector, to start working collaboratively to try and re-establish some stability for our nation,” said Saunders.
BUSINESS EXPANSION CONSTRAINTS
According to Grant Thornton’s IBR data, the top four constraints to business growth for South African executives were economic uncertainty (59%); exchange rate fluctuation (48%); rising energy costs (34%); and over-regulation or red tape (33%).
Every quarter, Grant Thornton’s IBR asks respondents if they believe South Africa still presents good business opportunities and every quarter, the responses are surprisingly positive. For the third quarter, 89% of executives confirmed that they believe the opportunities were still good.
“South Africa has always been a country of opportunity. We’re a resourceful, entrepreneurial and resilient group of people who work smart to ensure that business operations continue as best as they can, and can see beyond the current turmoil to a country that does present great opportunity if the political and economic environment were stable and stimulatory. After all, if we didn’t have our positive attitudes, what would we have left?” asked Saunders.
CRIME LEVELS 'ABOMINABLE'
When executives were asked if they had been affected by the threat to personal security as a result of contact crime events, 64% said yes. Contact crime is defined in the IBR research as housebreaking, violent crime, road rage or hijacking.
“When analysing our crime data for the past few quarters, it is even more concerning to note that this figure is 44% higher than what was recorded during the third quarter of 2016. It is truly alarming to see that the impact of crime is increasing once more,” she noted.
South Africa’s national crime stats, which were released last month, corroborate this increased impact, showing for the period of April 1, 2016, to March 31 this year, that hijacking, aggravated robbery and house robberies have increased by 7% to nearly 180 000 incidents reported, compared with the previous year.
“The figure reported is completely unacceptable though – 180 000 such crime incidents in a year is a shocking figure. That equates to nearly 500 of these events every single day of the year.
“As a nation, our crime situation is abominable, and it directly affects business operations, foreign direct investment and tourism. We have to get a handle on this situation – it’s a matter of national [urgency],” Saunders lamented.