Given the recent uptick in political uncertainty and subsequent downgrades of South Africa’s long-term foreign currency sovereign debt rating by S&P Global Ratings and Fitch Ratings, South Africa now faces the possibility of a deteriorating economic environment over the medium term.
Professional services firm Deloitte surveyed a cross-section of restructuring specialists in South Africa to to gauge their expectations for the next 12 months.
And while they expect an improved economic environment in 2017, they have pinpointed a number of reasons for concern in the local economy.
Deloitte’s Restructuring Outlook 2017 survey questioned a mix of commercial banks (24%), development finance institutions (11%), lawyers (31%), business rescue practitioners (17%), and academia and other key professionals (17%).
In terms of the outlook for 2017, 57.1% of respondents believe that the local economy will return to growth in the coming year. However, the respondents sited a number of reasons for concern over the coming year.
Political uncertainty, cited as a key area of concern in last year’s survey, has increased over the last 12 months.
Reasons for concern over the next 12 months
Factors such as the findings of the Public Protector’s State of Capture Report, increasingly frequent motions of no confidence in the South African President being tabled in Parliament, this year’s State of the Nation Address, policy uncertainty (including further cabinet reshuffles) and the ongoing corruption charges and legal allegations faced by the President, all lead to decreased foreign and local investor confidence, Deloitte said.
The Development Finance Institution has warned that low growth is likely “until the overall political noise is sorted out”.
A key factor in respondents’ concerns about South Africa’s economy is the level of FDI (39.3%; 2016: 3.0%) – itself affected by political uncertainty.
One in four (39.3%) respondents also raise concerns about the appetite of local corporates to invest (2016: 12.1%). Similar to FDI, local investment too is impacted by an uncertain political environment.
Deloitte noted that this sentiment is consistent with the RMB/Bureau for Economic Research Business Confidence Index which has shown that confidence has been below the neutral 50-point mark for more than two years; hitting a low point in the second quarter of 2016 at 32, before recovering to 40 in the first quarter of 2017.
“The high level of cash held on the balance sheets of the top companies listed on the JSE supports this view,” it said.
The report noted the rand’s continued volatility, as seen by its sharp decline after the political upheaval on 30 March 2017. However, there has been a reduction in concerns around its volatility by respondents from 39.4% in 2016 to 21.4% in 2017.