SA Business optimism plummets to a record low

New Grant Thornton research highlights that South African businesses grew more pessimistic about the future outlook of the nation’s economy, with local business optimism levels plummeting by 30% since 2013 to reach record lows.

 When SA business executives were asked how optimistic they were about the outlook of the country’s economy over the next 12 months, Grant Thornton’s International Business Report (IBR), reveals a dismal 9% total optimism, compared to the more buoyant 39% recorded by South African businesses in 2013. The IBR survey specifically presents perceptions, views and expectations of over 10000 C-Suite interviews in total per year across 36 economies on an annual basis (2500 interviews per quarter of which 100 business executives per quarter are from South Africa).

 The Q1 IBR survey also highlighted that a torrent of factors are constraining business growth with a massive 55% of South African businesses lamenting rising energy costs, 42% frustrated by exchange rate fluctuations, 39% expressing concern regarding economic uncertainty, 37% struggling with a lack of availability of a skilled workforce, and 36% stating that over-regulation and red tape are restricting business expansion.

Poor Government service delivery negatively impacting SA businesses

 A startling 68% of all business owners surveyed are affected by poor government service delivery. This has increased from 60% during the first quarter of 2014, from 57% in Q1:2013 and from 53% during Q1:2012.

 The greatest service delivery issue for local businesses is that of basic utility services (water and electricity supply). During Q1: 2013, 41% of privately held business owners stated that utilities had negatively affected their businesses. Just two years later, this figure has more than doubled, to 83% for Q1, 2015.

Road infrastructure concerns (such as potholes and traffic light issues) and the negative impact this has on SA business executives has nearly tripled to 61% for the first quarter of 2015 from just 21% during Q1:2013. Fifty four per cent (23% in 2013) of businesses flag billing issues a key issue which is negatively impacting businesses.

 New legislation awaiting enactment will have negative ramifications for local / foreign investment

 A new question in this quarter’s IBR survey looked at various pieces of legislation currently before Parliament or awaiting signature by the President.

The Expropriation Bill, Promotion and Protection of Investment Bill, Private Security Industry Regulatory Amendment Bill, Land Act Amendment Bill and the MPRDA all feature legislation in one form or another which will force both local and foreign owned companies to relinquish a significant part of their shareholding either to the State, or to a designated group.

The Q1 IBR research for 2015 highlighted that 72% of SA businesses are aware of this legislation.

 When businesses were asked what the impact of these Bills would be if implemented, a resounding 93% stated that the economy would be negatively impacted, while 90% cited slowed investment by foreign-owned companies, followed by 86% stating slowed investment by local companies too.

85% of business executives said that the implementation of these Bills would result in disinvestment by foreign-owned companies while 82% agreed that the legislation would result in a direct threat to property rights.

 The good news from this first quarter’s IBR findings is that business executives continue to be highly compliant. The Q1 findings highlight that 91% of those surveyed are aware of the new Protection of Personal Information Act (POPI) that was tabled in Parliament during November 2013 and which is currently awaiting enactment. In addition, 63% of the businesses surveyed have already made provisions within their business to comply with the new legislation while a further 21% hasn’t done so yet but admit that they are actively planning to make provisions shortly.

The POPI Act provides strict guidelines, among other things, on what data can be obtained, how that data can be used, and the requirement that it should be kept up-to-date.

 So What?

  1. Rising crime, increased energy costs, exchange rate fluctuations, lack of skills, over- regulation, economic uncertainty and poor government delivery currently threaten stability and day-to-day business functions of South African businesses.
  2. At a time when our nation needs to have high levels of optimism and be attracting foreign investment, Bills (which force ownership to be relinquished and those which may cause the dilution of property rights in South Africa) will only cause the investment decreases. The necessary parties within Government must review and revise these in order to create a more attractive business environment which secures future business prospects.
  3. Business has to collaborate with local and national government as well as the unions and other labour associations so that together, steps towards an improved business environment can be achieved.

Source : Source: Andrew Hannington CEO  Grant Thornton Johannesburg     8/5/2015

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