SA business execs continue to put off investment decisions, consider investing offshore as confidence declines

Johan Blignaut, managing partner at Grant Thornton in Pretoria.

Quarterly Grant Thornton research reveals confidence crisis as global optimism hits three year low.

First quarter research from Grant Thornton for 2016 reveals that nearly two-thirds of South African business executives (60%) are delaying their investment decisions while almost half are considering investing offshore (49%), due to uncertainty regarding the future political direction of the country.

Grant Thornton Pretoria’s managing partner, Johan Blignaut, believes that the shaky end to 2015, as Finance Ministers were reshuffled coupled with early January “Nkandla issues” were probably core contributors to this statistic.

“Following a settling of South Africa’s currency since the National Budget Speech by Minister Pravin Gordhan in February, and with Parliament issues gradually stabilising, we hope that the political climate will settle during Q2 this year as this certainly would go a long way to making our country stronger and more competitive overall,” Blignaut says.

In terms of optimism for the outlook of South Africa’s economy in the coming 12 months, South African privately held businesses are very pessimistic expressing negative 41% (-41%) in Grant Thornton’s optimism survey (Q4: 2015 = -24%).

How optimistic are you for the outlook of your country’s economy over the next 12 months?

[Source: Grant Thornton International Business Report (Q1 2016)]

Grant Thornton calculates business optimism by measuring the percentage of respondents who reported a positive outlook, less the percentage who reported a negative figure for the year ahead. In the case of Q1 2016 there were 41% more negative outlooks expressed than positive, hence the negative percentage figure reported.

“Amid fears of a credit rating downgrade for South Africa to junk status and currency declines since December last year, South African businesses are battling to keep their heads above water,” continues Blignaut.

For the first time since Q4 2012, global business optimism fell to a three-year low, at 26%, in the first quarter of 2016. A potent combination of fragile financial markets, volatility in oil prices, concerns over terrorist attacks and regional issues including the prospect of a Brexit and the US Presidential race resulted in the majority of regions uncertainty in their economic outlook. The trend is evident across the globe, including the G7 (down 7 percentage points in Q1), EU (down 4pp), North America (down 6pp), Latin America (down 16pp) and Asia Pacific (down 10pp).

The Q1 2016 International Business Report (IBR) from Grant Thornton provides tracker insights from around the world on a quarterly basis. These findings are from the IBR’s first quarter tracker data for 2016 to end March, revealing findings from business executive interviews held during January and February 2016. The survey presents perceptions into the views and expectations of over 10 000 C-Suite executives in privately-held and listed businesses, across more than 36 economies (2500 interviews per quarter). Regional and national perceptions are also researched every quarter for South Africa, from 400 SA privately held business executives annually (100 executive interviews per quarter) regarding crime, service delivery and political climate.

South African business growth is constrained

The increasing cost of energy is the biggest constraint to growth and expansion for South African business executives (Q1 2016: 57%). Fifty-four percent of businesses stated that economic uncertainty was limiting growth for business, while 53% stated exchange rate fluctuations as a key constraint. Overregulation and red-tape is the nation’s fourth greatest constraint to business expansion with 44% of SA businesses stating this factor while a lack of a skilled workforce is constraining 35% of business executives’ growth plans.

“At a time when businesses are focused so much on containing excessive costs, rising energy prices are a massive burden and its effect on business growth will definitely be felt,” says Blignaut.

Impact of poor government service delivery on SA businesses continues to grow

When business executives were asked if their companies had been negatively impacted by poor government service delivery, 69% of respondents said yes.

Eighty six percent (86%) of South Africans stated utilities (water, electricity) as the key government service delivery issue affecting their businesses (Q1 2015: 83%). The second biggest issue for organisations in the Q1 IBR survey was strikes by government employees with 65% of respondents lamenting this issue (Q1 2015: 20%).

“The availability of reliable utilities such as water and electricity is crucial to ensuring normal working conditions,” says Blignaut. “And striking workers continue to impact businesses in South Africa because they have a direct effect on day-to-day business operations.”

The two issues of roads (potholes and non-functioning traffic lights) and billing concerns seem to be declining in terms of factors which are negatively affecting businesses. During the first quarter of 2016, 56% of executives stated roads as a concern, down from 61% in the 2015 year. Only 45% of business executives confirmed that billing issues were affecting their businesses, also down from 54% in Q1 of 2015.

“This year South Africans will vote in the 2016 local municipal elections on 3 August,” says Blignaut. “The road and billing improvements we are seeing in our IBR data are very encouraging but I sincerely wish that local government service issues will become a thing of the past. Clearly local government issues are a real problem for everybody – not only business executives – and we do hope that these will be addressed soon - especially post-elections. It’s important to create a better environment for both business and general consumers, to really make a change for the better.

“At present South Africa’s business landscape is uncertain and our economy is struggling along. A common feature in the stories of the most dynamic and successful firms is that they don’t let the noise from these external factors out of their control distract them from looking at their own operations, and they continue to invest in the pursuit of growth years down the line. That may appear easier said than done at the moment, but without investment now, businesses will find themselves behind the curve when conditions overhead improve,” Blignaut concludes.