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SA Q3 business optimism collapses

SA Q3 business optimism collapses

The latest Grant Thornton quarterly tracker research highlights a dramatic drop in SA business optimism levels by 45 percentage points to a -40% figure for the third quarter to the end of September 2015. This follows Q2 optimism data of 5% (to end June 2015.)

The data is the result of 100 South African business executives’ responses about how optimistic they are about the economy’s outlook for the coming 12 months. It reveals a “net statistic” for Q3 in 2015 that is a negative (-40%.) Grant Thornton’s “net statistic” is the proportion of respondents indicating a positive response less those indicating a negative response for the quarter.

“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.

Grant Thornton’s International Business Report (IBR)’s third quarter research for 2015 reveals that the same disturbing factors constrain growth prospects while poor government service delivery concerns are once again highlighted in this quarter’s survey as having a direct impact on South African privately held businesses.

“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,” continues Hannington. “Perhaps we need to assess what we’re doing right to achieve significant gains on the competitiveness index against all the economic issues knocking our current business outlook, to find a solution to current conditions.”

The Q3 2015 IBR from Grant Thornton provides tracker insights from around the world on a quarterly basis. These findings are from the IBR’s third quarter tracker data for 2015 to end September, revealing findings from business executive interviews held during August and September 2015. The survey presents perceptions into the views and expectations of over 10 000 C-Suite executives 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.

Globally, the 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.

Macro-economic concerns constrain business growth

When proposing “structural reforms” for SA, the IMF states that for South Africa “solving the energy crisis is the utmost priority.” The organisation also urges that the nation’s “skills mismatch” is addressed. The report in June 2015 states that “better quality education and training and more liberal immigration policies would ease skills mismatch.” The IMF’s report also discusses over-regulation issues, economic uncertainty and exchange rate pressures as issues to be carefully monitored and addressed.

Grant Thornton’s third quarter IBR survey for 2015 highlighted identical issues to those emphasised by the IMF as key factors constraining business expansion. 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.

SA businesses putting off investment decisions due to uncertain political direction

Just over half of SA businesses (52%) confirm that uncertainty about the future political direction is impacting business decisions. Of these 52%, nearly two thirds of business executives (61%) are putting off investment decisions, as they wait for more stability to come.

“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."

The negative effect of poor Government service delivery on SA businesses still climbing

Third quarter IBR data for 2015 reveals that a massive 75% of all business owners surveyed are affected by poor government service delivery. This has increased by 24% since Q3 during 2011 (51%.)

“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.

The greatest concern in terms of poor service delivery for SA business owners is that of basic utility services (water and electricity supply) with 88% of SA businesses seriously affected by this issue.

Road infrastructure concerns (such as potholes and traffic light issues) and the negative impact this has on SA business executives is affecting 55% of those individuals surveyed. This figure is down from Q3:2014 (62%.)

A new factor of government services which is affecting businesses in South Africa is the issue of strikes by government officials. Half of SA businesses (50%) stated that strikes most certainly affect their business function.

Conclusion

“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 get things going – we need a major turnaround and we need it now,” Hannington concludes.

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