Political turmoil hits business confidence

More executives pessimistic about economy’s prospects in year ahead

POLITICAL turbulence has resulted in depressed business confidence as more executives have a pessimistic view of the nation’s economic prospects over the next 12 months. This is according to global advisory firm Grant Thornton’s second-quarter International Business Report (IBR), released yesterday.

The survey showed that, in the second quarter, 28% of the executives surveyed were pessimistic about the outlook for the country’s economy in the year ahead, a 47-percentage point decline from the first quarter.

Gillian Saunders, the head of Advisory Services at Grant Thornton South Africa, said the collapse in business optimism was clearly the result of political events.

“At the end of March, and just as the first quarter of 2017 came to an end, South Africa experienced a number of political upsets, such as the president’s announcement to change the leadership at 10 important government institutions, including the sacking of Pravin Gordhan as minister of finance. This was followed by downgrades of the nation’s sovereign credit rating by key ratings agencies,” Saunders said.

Last month, the second quarter Rand Merchant Bank/Bureau for Economic Research Business Confidence Index (BCI) plunged to levels last seen during the 2009 global financial crisis.

The BCI fell 11 points to 29 in the second quarter as confidence declined across all of the five sectors of the economy surveyed.

The IBR found that 67% of executives said their decisions had been affected by a turbulence in the economy and uncertainty about the country’s future direction in the past six months, while 37% of respondents were delaying expansion plans.

And 32% of executives said they were putting off investment decisions, while 26% were considering investing offshore.

Sixty-six percent of executives said economic uncertainty was the top constraint to business growth, while 50% said it was fluctuations in the exchange rate.

Saunders said economic growth was crucial to restoring business confidence.

Delaying business decisions, stalling company expansion and considering investing offshore will negatively affect South Africa’s GDP growth, she said.