Business confidence tanks in South Africa

Business confidence has fallen dramatically in the third quarter ending in September‚ business advisory firm Grant Thornton said in a statement on Tuesday.

Confidence levels have fallen by 45 percentage points to -40%‚ the latest Grant Thornton quarterly tracker research found. The figure for the second quarter ending in June was 5%.

The data is compiled from the responses of 100 South African business executives asked how optimistic they are about the economy’s outlook for the coming 12 months.

“China’s economic slowdown‚ local exchange rate currency declines‚ the energy crisis and continued labour and skills issues are just a few of the factors battering the nation’s business outlook for the year ahead‚” says Andrew Hannington‚ CEO of Grant Thornton Johannesburg.

While “the same disturbing factors constrain growth prospects … poor government service delivery concerns are once again highlighted in this quarter’s survey”‚ the report says.

“The only glimmer of hope on our nation’s dismal horizon at the moment is the World Economic Forum’s Global Competitiveness Report for 2015-6 released on 1 October. South Africa improved its ranking by seven places to be placed 49th out of 140 economies worldwide‚” Hannington says.

The report says: “Globally‚ the International Business Report (IBR) Q3 survey reveals the extent to which contagion caused by China’s economic slowdown is spreading to businesses around the world. Business confidence and expectations for revenue and exports are down‚ not just in China’s near neighbours‚ but in several major economies which rely on the world’s second biggest economy as a major trading partner.

“In China‚ optimism slipped 20 percentage points to net 26% in Q3-2015. And the falls recorded in many of China’s top trading partners were equally as striking: Germany (down 46pp to +46%)‚ Japan (down 36pp to -28%)‚ and Australia (down 15pp to 39%) all reported sharp dips in optimism. The total global optimism figure dropped 7 percentage points to net 38% for Q3 2015 (Q2:2015 – 45%).”

The report quotes the IMF as saying that “for South Africa ‘solving the energy crisis is the utmost priority’”‚ and adds that the country’s “skills mismatch” needs to be addressed.

“A massive 59% of South African business executives stated that rising energy costs is the greatest constraint to growth‚ while 50% were constrained by economic uncertainty and 46% by exchange rate fluctuations. Overregulation and red-tape is the nation’s fourth greatest constraint to business expansion with 42% lamenting this factor while a lack of a skilled workforce was affecting 37% of business executives‚” says the report.

As many as two thirds of business executives surveyed are putting off investment decisions as they wait for more stable conditions.

“This could mean many companies are sitting on large amounts of cash‚ looking for more stable times ahead before making investments‚” says Hannington. “It would be better for South Africa if businesses would start investing into the country again‚ though‚ because this would stimulate growth and increase jobs – but political stability would need to prompt that first‚ I guess!”

The report says a massive 75% of all business owners surveyed are affected by poor government service delivery.

“Our local municipalities just cannot seem to get on top of the service delivery issues in South Africa. When basic services are impacting the day-to-day activities within a business‚ it’s a sign that the real backbone of our infrastructure needs attention‚” Hannington says.

Problems in basic utility services (water and electricity supply) have seriously businesses‚ and many were concerned by a deteriorating road infrastructure. Strikes were also a cause for concern. “Half of SA businesses (50%) stated that strikes most certainly affect their business function.”

“Worldwide economic pressures combined with local issues and political instability do not create content‚ happy‚ thriving businesses. South Africa needs to buckle down with a strict action plan to get things going – we need a major turnaround and we need it now‚” Hannington concludes.

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Business confidence tanks in South Africa