Firms delay investment amid uncertainty

MORE than half of South African firms are withholding investment because of uncertainty about the economic outlook.

The latest Grant Thornton International Business Report’s quarterly tracker for the third quarter, out yesterday, found 52 percent of businesses confirmed that uncertainty about future political direction was affecting business decisions.

Of these, nearly two-thirds of the business executives surveyed were putting off investment decisions as they waited for more stability, said Andrew Hannington, the chief executive of Grant Thornton Johannesburg.

“This could mean many companies are sitting on large amounts of cash, looking for more stable times.

“It would be better for South Africa if businesses started investing in the country again, though, because this would stimulate growth and increase jobs – but political stability would need to prompt it first.”

The research was based on 100 business executives’ responses on how optimistic they were about the economy’s outlook for the next 12 months.

It reveals a “net statistic” for the third quarter this year that is negative (minus 40 percent).

Grant Thornton’s “net statistic” is the proportion of respondents with a positive response less those with 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,” Hannington said.

Efficient Group director and chief economist Dawie Roodt said yesterday that business could invest between R600 billion and R700bn in South Africa, and it had not stopped investing, but was investing less.

“Business is investing less for reasons including government policies that are contradictory, an uncertain macro-economic environment, and politics.

“The government has to be clear on policies. Does it respect the rule of law or not? The state was in contempt of court with al-Bashir,” Roodt said.

As an International Criminal Court signatory, South Africa is obliged to implement warrants from the court.

But when Sudan’s Hassan al-Bashir visited the country for an AU summit in June, the government refused to arrest him, and allowed him to leave the country in violation of a domestic court order.

Gina Schoeman, a Citi economist, agreed, saying South Africa was seeing less investment, less capex, and bricks and mortar, a trend that had been echoed by the Bureau for Economic Research. This indicated a pessimistic view in the business community.

“The Grant Thornton report shows that though government has made progress in electricity supply at Eskom, it is not enough to improve business confidence,” Schoeman said.

“Labour has been problematic for a long time. The government can help make regulation friendlier.”

The research revealed the same constrained growth prospects while poor government service delivery was again highlighted as having a direct impact on private 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 2015/16 released on October 1. South Africa improved its ranking by seven places to 49th out of 140 economies worldwide.

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

The greatest concern for business owners is basic utility services (water and electricity supply) with 88 percent of businesses affected by this.