Second quarter research from Grant Thornton’s International Business Report for 2016 reveals that 61% of South African businesses have been negatively affected by government service delivery issues or regulatory requirements in the past six months.

Of these 61%, 60% stated that increased service costs such as electricity, water, eTolls and rising rates and taxes have had the greatest negative impact on their businesses. 56% stated disruption to the supply of utilities, 46% lamented strikes by government employees and 45% complained about the cost of red tape legislative compliance as key concerns which are negatively affecting their businesses.

“It is clear that our cities need improvements and most importantly, business executives need to see a positive change in delivery of services,” says Grant Thornton Johannesburg’s new CEO Paul Badrick.  “We cannot drive successful business operations effectively if basic government services are lacking. We hope that the municipal elections this week draw attention to the need for improved service delivery.”

The 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 second quarter tracker data for 2016 to end June, revealing findings from business executive interviews held during May and June 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.

 

Economic turbulence and future uncertainty affecting business operations, decisions

The second quarter data also reveals that over two-thirds of South African business executives (68%) believe that the turbulence of the SA economy over the past six months and uncertainty about the nation’s future direction are affecting business operations and decisions.

Furthermore 62% of these 68% business executives mentioned above continue to delay business expansion plans, while 49% have put off their investment decisions and 28% are considering investing offshore, due to the turbulent economy.

Badrick, believes that the poor business environment during the first half of 2016, coupled with the local municipal elections which are taking place later this week are most certainly the main contributors to the shaky economy and uncertain business sentiment.

“South Africa has had a rocky ride since December last year,” notes Badrick.  “The country’s growth in GDP contracted to 1.2% during the first quarter of 2016 which is a sure sign that recession is looming, and GDP growth outlook is now at 0% for South Africa.  If we combine this current economic situation with uncertainty about the upcoming elections, business executives are bound to be anxious.”

 

Outlook for SA’s economy is gradually improving

In terms of business sentiment for the outlook for South Africa’s economy in the coming 12 months, South African business executives seem to be more upbeat than they were following South Africa’s dramatic first quarter of 2016.  Compared to executives’ extremely pessimistic outlook of negative 41% (-41%) recorded during Q1 of 2016, the second quarter outlook has recovered moderately, to -13% (Q2: 2016)

 

Grant Thornton calculates business optimism by measuring the percentage of respondents who reported a positive outlook, less the percentage who reported a negative outlook for the year ahead.  In the case of Q2 2016 the outlook was more negative with 13% more negative responses expressed than positive, hence the negative percentage figure reported (-13%).

“Local conditions steadied somewhat during Q2, once the Finance Minister dramas had stabilised and South Africa managed to narrowly avoid a credit rating downgrade,” says Badrick. “But a pessimistic response of -13% means we have a long way to go before optimism shines for businesses again.”

Globally, optimism about the future outlook in the next 12 months was stable at 32%, up slightly from Q1’s 26%.  Badrick cautions, though, that findings globally for the second quarter tracker data within the IBR include insights from business executives gleaned during May and June.  The survey only highlights sentiment leading up to the EU Referendum and not any findings after the Brexit vote.

“The Brexit outcome in the EU Referendum at the end of June is bound to shake up responses expected from IBR for Q3,” Badrick adds.

 

Exchange rate fluctuations take the lead as SA’s biggest constraint to business growth

For the first time ever, exchange rate fluctuations have been recorded as SA’s biggest constraint to business expansion, according to the second quarter IBR research, with 57% of business executives lamenting this factor.  The second biggest constraint to business growth and expansion in South Africa is the issue of economic uncertainty with 56% of executives saying this limits growth for business.  Rising energy costs, which have dominated as the leading business constraint for South Africa for over two and a half years (since Q4: 2013), drop to third place as a key limitation to business expansion, with 54% of business executives concerned about this matter.

Overregulation and red-tape is the nation’s fourth greatest constraint to business expansion with 42% of SA businesses stating this, while a lack of a skilled workforce is constraining 35% of business executives’ growth plans.

 

The IBR also reveals that economic uncertainty (Q2: 2016 rolling average – 37%) and a lack of skilled workers are the two biggest growth constraints for businesses worldwide (Q2: 2016 rolling average – 29%).

“These global business constraint findings for Q2 are very telling because they reveal a renewed bout of uncertainty which was felt even before the UK’s Brexit vote was concluded at the end of June,” says Badrick. “The ultimate impact of the ‘Brexit’ vote on the global business community is still unknown.  While there is short term uncertainty and market volatility, central banks are taking steps to support monetary and fiscal stability. Not enough is yet known to inform many of the biggest decisions facing businesses with European operations.”

 

Impact of crime on businesses reveals a marginal improvement

Grant Thornton South Africa has been tracking the direct impact which crime has on businesses, since 2007.  The IBR survey asks business executives if, in the last 12 months, they have directly been affected, or whether their staff or family of staff had been affected by a threat to personal security such as house breaking, hijacking, violent crime or road rage.  For the second quarter of 2016, 58% stated yes.

“This figure is 7% down on the Q2 rolling average recorded during 2015 (Q2: 2015 – 65%) which is encouraging, because any downward trend shows a decrease in the impact that crime is having on South Africans and this is good news,” says Badrick.  “However, we are acutely aware of the massive effect that crime has on businesses and individuals and a crime statistic which is as high as 58% is completely unacceptable.”

(Q2: 2015 – 65%; Q2: 2014 – 65%; Q2: 2013 – 61%; Q2: 2012 – 52%; Q2: 2011: 46%)

 

The SA businessman – eternally positive about future opportunities

Despite government service delivery challenges, a turbulent economy, global turmoil and heavy constraints to business growth, the South African business executive continues to see a silver lining for business opportunities in the future.

When respondents were asked if they believe that South Africa still presents good business opportunities, a resounding 91% said yes.

 

Conclusion

“At a time when the world is stuck in a period of uncertainty, we need to focus specifically on being open-minded, fleet footed and agile in our responses to complexity and turbulence when approaching future business planning,” Badrick concludes.