Government service costs crippling SA businesses

Cape Town - More than half of South African businesses have been hampered by government service costs in the past six months.  

This was revealed on Monday according to data from the second quarter Grant Thornton’s International Business Report (IBR) for 2016.

Sixty-one percent 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 Eskom, water, e-tolls and rising rates and taxes have had the greatest negative impact on their businesses.

Fifty-six percent stated disruption to the supply of utilities (gas, electricity or water), 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.

The IBR 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 (2 500 interviews per quarter).  

“It is clear that our cities need improvements and most importantly, business executives need to see a positive change in delivery of services,” said 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 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.  

Putting off business expansion plans

Furthermore, 62% of these 68% business executives 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 is of the view that the poor business environment during the first half of 2016, coupled with the local municipal elections which are taking place on Wednesday are the main contributors to the shaky economy and uncertain business sentiment.

“South Africa has had a rocky ride since December last year,” he said. “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, said Badrick, with uncertainty about the upcoming elections, business executives are bound to be anxious.

Outlook gradually improving

However, 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% recorded during Q1 of 2016, the second quarter outlook has recovered moderately, to -13% (Q2: 2016).

“Local conditions steadied somewhat during Q2, once the Finance Minister dramas had stabilised and South Africa managed to narrowly avoid a credit rating downgrade,” said 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 cautioned, 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 added.

Impact of crime on businesses
The IBR survey also asked business executives if, in the last 12 months, they have directly been affected, or whether their staff or family 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 percentage points 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,” said 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.”

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