How government weighs on businesses

Grant Thornton’s latest survey shows 61 percent of South African businesses have been negatively affected by government service delivery issues.

Johannesburg - Grant Thornton’s latest International Business Report, for the second quarter of the year, shows that 61 percent of South African businesses have been negatively affected by government service delivery issues or regulatory requirements in the past six months.

Of these, 60 percent said increased service costs such as price hikes linked to Eskom and water, the cost of e-tolls and rising rates and taxes had the greatest negative impact on their businesses. Some 56 percent said disruption to utility - water, gas, electricity - was their biggest concern. Other companies also cited strikes by government employees and the cost of red tape.

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“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 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. Locally, 400 privately-held business executives each year are surveyed on issues such as crime, service delivery and political climate.

Turbulence

The second quarter data also reveals more than two-thirds of South African business executives believe the turbulence of the SA economy in the past six months and uncertainty about the nation’s future direction are affecting business operations and decisions.

As a result, many of these executive are delaying business plans, put off investment decisions and almost a third are pondering investing offshore.

The volatile rand has, for the first time, been recorded as the biggest constraint to doing business. This is followed by a turbulent economy and then rising energy costs.

Badrick says the poor business environment during the first half of 2016, coupled with the local municipal elections, taking place on Wednesday, 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 gross domestic product contracted to 1.2 percent during the first quarter of 2016, which is a sure sign that recession is looming, and GDP growth outlook is now at 0 percent for South Africa. If we combine this current economic situation with uncertainty about the upcoming elections, business executives are bound to be anxious.”

Crime effect

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 percent stated yes, down seven percentage points on 2015’s rolling average for the second quarter.

Outlook improving

In terms of business sentiment for the outlook for South Africa’s economy in the next 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 percent in the first three months of the year, the second quarter has moderated to negative 13 percent.

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.

“Local conditions steadied somewhat during the second quarter, 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 minus 13 percent 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 percent, up from 26 percent, although this does not include sentiment after the UK’s decision to leave Europe.

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