Business optimism drops ‘dramatically’
South African business optimism levels have dropped “dramatically” in the three months to September.
|||Johannesburg - South African business optimism levels have dropped “dramatically” in the three months to September, the latest Grant Thornton quarterly tracker research shows.
The research says business optimism has dropped 45 percentage points to a minus 40 percent figure, following the second quarter’s 5 percent figure.
The research is based on 100 South African business executives’ responses about how optimistic they are about the economy’s outlook for the coming year.
“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.
“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 October 1. South Africa improved its ranking by seven places to be placed 49th out of 140 economies worldwide,” notes 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.”
Globally, China’s optimism slipped 20 percentage points to net 26 percent in the third quarter. And the falls recorded in many of China’s top trading partners were equally as striking: Germany (down 46 percentage points to 46 percent), Japan (down 36 percentage points to negative 28 percent), and Australia (down 15 percentage points to 39 percent) all reported sharp dips in optimism.
The total global optimism figure dropped 7 percentage points to net 38 percent in the quarter.
“Previous quarters revealed far more optimistic perceptions from the rest of the world but this quarter’s dramatic declines globally highlight that perhaps the reaction to the Chinese slowdown could be more than a flash in the pan,” says Hannington.
“The International Monetary Fund (IMF) warned earlier this month that financial stability is far from assured over the next year, and it marked China as one to watch. Having a China business strategy remains essential but the rebalancing of China’s economies highlights that diversification is essential to prevent a damaging collapse in export activity.”
The IMF visited South Africa during June this year to discuss the risks, outlook and challenges facing the economy. It gave lacklustre growth outlook projections of just 2 percent for 2015-6.
A massive 59% of South African business executives stated rising energy costs are the greatest constraint to growth, while 50 percent were constrained by economic uncertainty and 46 percent by exchange rate fluctuations. Overregulation and red-tape is the nation’s fourth greatest constraint to business expansion with 42 percent lamenting this factor while a lack of a skilled workforce was affecting 37 percent of business executives, according to its International Business Report.
The company’s International Business Report also found that just over half of SA businesses (52 percent) confirm that uncertainty about the future political direction is impacting business decisions. Of these 52 percent, nearly two thirds of business executives (61 percent) 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, I guess!”
The company also found a “massive” 75 percent of all business owners surveyed are affected by poor government service delivery. This has increased from 51 percent in the first quarter.
“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 percent 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 percent of those individuals surveyed. This figure is down from 62 percent year-on-year.
“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 notes.
Adapted from a press statement.
IOL