The biggest threats to business in South Africa right now

 ·19 Nov 2022

Top CEOs say supply chain constraints, emerging technologies and regulatory risks pose the greatest threats to organisational growth in South Africa.

This is according to new data from the African division of financial services firm KPMG and Business Leadership South Africa (BLSA).

The CEO Outlook Report for South Africa surveyed 50 top CEOs from various industries between July and August of this year about their perspectives on the nation over the previous 18 months and their plans for the future.

Results from the poll of South African CEOs were compared to 1,300 global executives. All respondents, according to KPMG, are in charge of businesses with annual revenues of at least $500 million, and a third of the surveyed businesses had revenues of at least $10 billion.

Supply chain/Procurement

KPMG found that South African CEOs are concerned about supply chain and procurement risks and how they might affect business over the next three years.

Supply chain constraints globally have stalled business prospects, with goods taking far longer to make it to the other side of the globe and transport costs creeping up.

The negative impacts of the pandemic lockdowns, paired with the current Russian war on Ukraine, have exposed deep vulnerabilities in supply across the world.

Domestically, South Africa has faced some unique challenges in terms of its supply chain. In October, workers at the national freight and logistics company Transnet went on strike – costing the country billions every day while pausing import and export activity.

The transport group CEO, Portia Derby, said that backlogs caused at the ports and rail systems would require between six and nine weeks to clear. Instances of labour action have been compounded by crime syndicates that take advantage of the system and poor infrastructure.

The South African Association of Freight Forwarders (SAAFF) reported that delays in domestic supply chain logistics had cost the country between R100 million and R1 billion each day, with the true number reaching far beyond that.

An overreliance on the global supply chain for petrol goods has also left South Africa with its pants around its ankles more than once. Due to a lack of local refineries and sufficient storage, when there is a backlog in fuel imports, consumers and businesses have been warned they will feel the pinch.

Concern around procurement processes from South African CEOs comes as preferential procurement practices have come under scrutiny.

Finance minister Enoch Godongwana, on 4 November, promulgated the new Preferential Procurement Regulations, 2022 for the start of 2023. Confusion arose around it, possibly meaning the ceasing of BEE criteria for government contracting.

This was, however, false, and organs of state are still required to apply the ’80/20′ or ’90/10′ Price/Preference Points scoring method to each government tender.

South African law still requires each organ of the state sets’ specific goals’ for which points will be awarded in a preferential procurement policy and apply this to each tender. These goals include contracting with persons who have been historically disadvantaged by unfair discrimination based on race, gender and disability.

Procurement issues are present even in government. Regarding their Renewable Energy Independent Power Producer Programme (REIPPP), delays, corruption, and red tape have led South Africa to fall short on renewable energy procurement.

Disruptive technologies

Emerging/ disruptive technology has emerged as one of the top three risks and the greatest threat to organisational growth for CEOs in South Africa and globally over the next three years, says KPMG.

With constant technological changes, CEOs are now scrambling to make sure that they have people with the necessary skills to manage the strategic and operational rollout of new developments.

KPMG said: “CEOs in South Africa continue to prioritise digital investment- with 84% local executives compared to 71% globally.”

“Advancing the digitisation and connectivity of all functional areas has emerged as the top operational priority for CEOs in South Africa, followed closely by employee value proposition to attract and retain the necessary talent to achieve growth over the next three years,” said KPMG.

Regulatory risk

Changes to fundamental laws regarding how business is conducted are one of the top concerns for South African CEOs, according to KPMG.

Somewhat small amendments to key legislation can have knock-on effects, as seen in August, where proposed changes to financial regulations to stop money laundering caused major headaches for businesses in the country.

The Financial Intelligence Centre Act (FICA) was proposed to be amended, broadening the scope of ‘accountable institutions’ under its purview. Despite aiming to prevent misconduct, the change was found to force small and large companies to comply with FICA regulations, adding costs and administrative burdens.

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