Businesses hold off on expansion plans amid uncertainty - report

Johannesburg – South African businesses are holding off on further investment and expansion plans as they await more certainty and economic stability, a report revealed.

The Grant Thornton International Business Report for the third quarter of 2017, released on Wednesday, showed that the majority of surveyed business executives were delaying business expansion plans due to the turbulent economy.

The quarterly report, provides information on the views and expectations of 9 600 business executives worldwide. Grant Thornton surveys 400 business executives of private companies in South Africa.

Of the South African business executives surveyed, 72% said that business operations and decisions were impacted by the volatile economy.  

About 68% were delaying business expansion plans, 61% were delaying investment decisions while 38% were considering investing offshore. Just over a quarter (28%) are considering selling their businesses.

“The fact that businesses are delaying important investment decisions or expansion plans, coupled with a challenging economic environment, indicates they are just managing to keep their heads above water,” said Gillian Saunders, head of advisory services at Grant Thornton South Africa. 

The survey also showed that respondents are 6% pessimistic about the outlook for the economy for the next 12 months. This is an improvement from the previous quarter’s results where pessimism was at a level of 28%.

South Africa comes second to Japan out of 36 countries, where the figure is 14%. Globally, optimism is at 49%.

“For South Africa, most of 2017 has been marred by political upsets and these were followed by subsequent downgrades of the nation’s sovereign credit rating by key ratings agencies,” said Saunders. 

Further revelations about state capture, implicating private companies with Gupta ties have worsened the situation.

Saunders added that the instability, uncertainty and pessimistic outlook had influenced the World Economic Forum’s Global Competitiveness Report for 2017 to 2018. South Africa’s ranking dropped 14 places to 61 out of 137 countries.

Besides economic uncertainty, other factors constraining business expansion include exchange rate volatility, rising energy costs and over-regulation.

But respondents are still optimistic about the business opportunities in South Africa. Of the respondents, 89% believe business opportunities are good.

The BankservAfrica's Economic Transaction Index (Beti) for September and October, released recently, showed that economic transactional activity had declined during the period.

Mike Schüssler, chief economist at Economists dotcoza expects this to continue given weakening levels of confidence in the economy, Fin24 previously reported.

Deputy President Cyril Ramaphosa previously told Bloomberg that a recovery plan for the economy is needed to encourage investment, as the country is almost facing an investment strike. 

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