Grant Thornton’s IBR for the third quarter of 2017 makes for sombre reading
The International Business Report shows SA is ‘a nation experiencing total uncertainty with no sign of any stability on the horizon’ — and far too much crime
Economic instability seems to be the "new normal" in SA as 72% of business executives confirm that turbulence in the economy over the past six months has affected business operations and decisions.
When asked in Grant Thornton’s International Business Report (IBR) for the third quarter of 2017 to explain how this turbulence had affected privately held businesses and listed companies‚ 68% of the SA’s business executives stated 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 for the third quarter to the end of September 2017 shows a nation experiencing total uncertainty with no sign of any stability on the horizon‚" says Gillian Saunders‚ head of advisory services at Grant Thornton SA. "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."
The IBR provides tracker insights from around the world on a quarterly basis. Regional and national perceptions are also researched every quarter for SA‚ from 400 business executives, regarding the business environment‚ and other issues such as crime‚ service delivery and the political climate.
Coupled with uncertainty affecting investment decisions and expansion plans‚ when asked how optimistic South African business executives are regarding the outlook for the country’s economy over the next 12 months‚ businesses confirmed a negative outlook for the second consecutive quarter — at, on balance, minus-6% (6% pessimistic). There is some improvement‚ though‚ compared to the previous quarter when the figure was minus-28% and we were the most pessimistic of the 36 countries surveyed. This quarter, SA recorded the second lowest figure‚ with Japan at the lowest with a minus-14% outlook.
"For SA‚ most of 2017 has been marred by political upsets and these were followed by subsequent downgrades of the nation’s sovereign credit rating by key ratings agencies‚" says Saunders. "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."
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
Conversely, global business optimism was fairly stable at 49% for the third quarter‚ just two percentage points below the 51% recorded during the second quarter of this year. Optimism among firms in the US is well above the global average at 70% in the third quarter‚ while Chinese business optimism has hit a three-year high of 52%.
"SA’s instability‚ uncertainty and pessimistic outlook has no doubt influenced the World Economic Forum’s Global Competitiveness Report for 2017-18 in which SA’s overall ranking declined 14 places to 61st position from 47th. 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," says Saunders. "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."
According to the IBR data, the top four constraints to business growth for South African executives are economic uncertainty (59%); exchange rate fluctuation (48%); rising energy costs (34%); and over-regulation/red tape (33%).
"These four constraints just keep re-affirming the same concerns‚" says Saunders. "Naturally, a nation will struggle with exchange rate volatility when economic uncertainty is rife. Regulation and red tape is also weighing down on South African businesses’ ability to function effectively as a result of excessive administrative and legal requirements which need constant attention."
The greatest constraint to growth globally recorded for the third quarter of this year is the lack of availability of a skilled workforce‚ with 38% of the executives surveyed worldwide lamenting this issue. Economic uncertainty is recorded as the second biggest constraint to expansion by 32% of executives. Over-regulation is the world’s third greatest restraint to business growth at 27%, and this is tied with the issue of a lack of orders (low demand for goods) also at 27%.
SA therefore shares two of the top four constraints with the general global environment‚ but experiences them far more acutely.
Despite this‚ the South African businessperson remains an eternal optimist.
[We] 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?
Every quarter‚ Grant Thornton’s IBR asks respondents if they believe that SA still presents good business opportunities and every quarter‚ the responses are "surprisingly positive"‚ it states. For the third quarter of 2017‚ 89% of SA’s business executives confirmed they believe the opportunities in the country are good.
"SA has always been a country of opportunity. We’re a resourceful‚ entrepreneurial and resilient group of people who work smartly to ensure 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," says Saunders. "After all‚ if we didn’t have our positive attitudes‚ what would we have left?"
However‚ the burden of crime on business is worsening. 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 was recorded during the third quarter of 2016 [at 45%]‚" Saunders says. "It is truly alarming to see that the impact of crime is increasing once more."
SA’s national crime stats, which were released last month‚ corroborate this increased impact‚ with the period of 1 April 2016 to 31 March 2017 showing that hijacking‚ aggravated robbery and house robberies have increased by 7% to nearly 180‚000 incidents reported‚ compared to the previous 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 emergency
"The figure reported is completely unacceptable; 180,000 such crime incidents in a year is a shocking figure‚" says Saunders. "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 emergency."
Saunders concludes: "Despite SA being caught in a vortex of despair‚ we urgently need to re-direct our focus and concentrate on stability. We can only hope that some of the political developments‚ such as the ANC’s elections‚ taking place in December this year‚ will work towards stabilising our nation‚ following which the rebuilding can hopefully begin in earnest."
• While SA has a positive outlook in terms of expectations to employ people in the coming 12 months‚ the country is placed in the bottom five for this metric (20% of executives expect to employ more people in the year ahead; global, 35%).
• SA ranked in the bottom 10 countries in terms of how the lack of a skilled workforce constrains business expansion (SA, 27%; global: 38%).
• SA ranked in the top 10 countries worldwide and above the global average in terms of expectations for investment in technology (SA, 54%; global, 47%).
• SA ranked in the top 10 countries worldwide and above the global average in terms of expectations to increase selling prices in the year ahead. This is most likely as a result of the countries high inflation compared to other countries (SA, 41%; global, 29%).