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SA could lose top WEF audit and reporting ranking while urgent turnaround plans needed to mend the nation’s battling health, labour, education system – Grant Thornton

02 October 2015 Andrew Hannington, Grant Thornton
Andrew Hannington, CEO of Grant Thornton Johannesburg.

Andrew Hannington, CEO of Grant Thornton Johannesburg.

WEF Global Competitiveness Index points to persistent inefficiencies which require urgent attention.

South Africa has successfully managed to reverse its four-year downward trend, going up an impressive seven places to 49th place overall out of 140 economies, according to the latest World Economic Forum’s (WEF) Global Competitiveness Report (GCR) 2015-6. In addition, South Africa has maintained its number one position for its strength of auditing and reporting standards for the sixth consecutive year. 

But dismal performance from continued inefficiencies in the country’s labour market as well as unsatisfactory health and education outcomes have been highlighted as major challenges in the 2015-6 survey.

“Our improvement this year to 49th position is laudable and it certainly is a well-known fact that South Africa’s legal, financial reporting and corporate governance standards are of a superior standard,” says Andrew Hannington, CEO of Grant Thornton Johannesburg. “But the dichotomy that exists between our First World associations with the likes of the eurozone and our problematic labour, health and education in a struggling emerging market environment, are continued causes for worry. An urgent turnaround strategy is now well overdue.”

The 2015 – 2016 World Economic Forum’s Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), which was introduced by the World Economic Forum in 2004. Defining competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country, GCI scores are calculated by drawing together country-level data covering 12 categories – the pillars of competitiveness – that collectively make up a comprehensive picture of a country’s competitiveness.

The WEF Report states that South Africa is ranked 49th in this year’s survey, largely due to an increased uptake of ICTs and improvements in innovation. It adds that the country boasts the African continent’s most efficient financial market (12th) and an efficient transport infrastructure (29th).

Auditing profession in for a bumpy ride in the years ahead

But Hannington cautions that South Africa could be on the brink of a large corporate failure unless systemic constraints in the auditing profession are addressed urgently.

“Despite the country topping the WEF’s Auditing and Reporting Standards table for the past six years as, longer term threats loom on the horizon for the profession,” he warns.

These threats stem largely from the decline in the number of registered auditors in the country. According to the Independent Regulatory Board for Auditors (IRBA) annual report for 2014, these figures have declined over the past five years from 4 398 to 4 281 at the end of last year. The profession’s declining appeal is most strikingly evident in the number of trainee accountants falling from more than 4 100 in 2010 to below 2 800 in 2014 (IRBA 2014 Annual Report: 2010 – 4124; 2011 – 3574; 2012 – 2672; 2013 – 3128 and 2014 – 2722 trainee accountants registered).

“At this alarming rate of decline, we need to be very careful we don’t lose our number one WEF ranking in the years ahead.”

SA Education now stone last on the 140-economy rankings

The WEF Report ranks the quality of South Africa’s higher educational system as extremely poor (138th) – second last in this year’s survey - with the quality of its math and science education ranked completely bottom of the list at 140th out of 140 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 education levels are lifted to international standards in order to continue superior financial reporting. But, is this really sustainable in future years?

Grant Thornton’s quarterly International Business Report (IBR), which provides tracker insights from around the world regarding perceptions and expectations of privately held business executives, revealed for the second quarter of 2015, that 36% of South African businesses are constrained by the lack of a skilled workforce.

“More than one third of our country is already unable to source effective skills to fulfil crucial business roles,” says Hannington. “There is a huge demand for an educated and skilled workforce in our country and we have to start fixing this immediately.”

SA labour challenges now dire

The challenges around SA’s labour force also need to be addressed urgently if they are to sustain the future stability and growth of South Africa.

Overall, for the pillar of Labour Market Efficiency, South Africa ranked 107th out of 140 economies. The worst performing elements were Cooperation in labour-employer relations (140th), Hiring and firing practices (138th) and Flexibility of wage determination (137th).

“Overwhelming labour issues are seriously crippling the country while the never-ending strikes and workforce disputes are a perfect example of this,” says Hannington.

“The biggest challenges for 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 nation’s failings according to the WEF GCR discourage foreign direct investment (FDI) and hinder SA’s long term economic growth and stability. Foreign investors have no interest in countries with uneducated, unproductive workforces and unreliable labour relations, other than to extract minerals for beneficiation in other countries” says Hannington.

“Unfortunately these negatives are much more damaging to the country than the advantages of our superior auditing and reporting standards,” he concludes.

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