The 3 biggest things holding business back in South Africa
South Africa’s political turbulence has knocked business executives into a pessimistic outlook for the nation’s economy over the next 12 months.
Grant Thornton’s International Business Report (IBR) for the second quarter of 2017 reveals that SA’s business executives views are pessimistic in terms of their perceptions of their outlook for the country’s economy in the year ahead.
The audit, tax and advisory services calculates business optimism as a balance statistic. This is produced 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 Q2 2017, the outlook has slumped back into a negative outlook for the first time in a year, with net 28% more negative responses expressed than positive, it said.
While South African business sentiment was not hugely positive over the last year, Q2 2017 has seen a sharp decline in sentiment.
Gillian Saunders, head: advisory services at Grant Thornton South Africa, said: “At the end of March and just as the first quarter of 2017 came to an end, South Africa experienced a number of political upsets, such as the President’s announcement to change the leadership at 10 important Government institutions including the sacking of Pravin Gordhan as minister of finance.”
“This was followed by subsequent downgrades of the nation’s sovereign credit rating by key ratings agencies.”
“The collapse in business optimism recorded in our IBR for Q2 is a very clear outcome of these dramatic changes,” Saunders said.
Linked to the pessimistic outlook, the IBR indicated that more than two-thirds (67%) of South African business executives’ operations and business decisions were impacted by a turbulent SA economy and uncertainty about the country’s future direction in the last six months.
When asked to outline the ways in which economic uncertainty affects their business decisions, 37% of total respondents state they were delaying business expansion plans, 32% are putting off investment decisions, while 26% of these executives are considering investing offshore, and 17% are weighing up decisions to sell their business.
“Delaying business decisions, stalling company expansion and considerations to invest offshore will all negatively impact South Africa’s GDP growth,” said Saunders.
The IBR data also noted the top three constraints to business growth for South African executives are:
- Economic uncertainty (66%);
- Exchange rate fluctuation (50%); and
- Over-regulation/red tape (30%).
“These three constraints which prevent business expansion are a continuous theme throughout this quarter’s findings,” said Saunders.
“Naturally a nation will struggle with exchange rate volatility when political uncertainty is rife and agencies are downgrading the country and its key institutions. But it is concerning to note that too much regulation and red tape is also weighing down on South African businesses’ ability to grow.”
Globally, economic uncertainty is also recorded as the greatest constraint to expansion by 34% of executives. The second greatest constraint to growth worldwide recorded for the second quarter of this year is the lack of availability of a skilled workforce, with 35% of the executives surveyed worldwide lamenting this issue.
Over-regulation is the world’s third greatest restraint to business growth, the report said.
Read: 7 things keeping South Africans back from starting their own business
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