The Grant Thornton International Business Report (IBR) quarterly research data for the first quarter of 2013 confirms current global economic reports and analyst concerns that a continued international slowdown, coupled with additional issues locally constraining business growth, are all having a major impact on South African businesses.

The Grant Thornton data also revealed that 57% of business executives are being negatively impacted by poor government service delivery with 41% stating the issue as utilities (water and electricity supply), 23% billing issues and 21% of businesses citing roads (potholes, traffic lights).

An additional 14% of respondents stated being impacted by a combination of labour strikes, poor payment from government and tender fraud, quoted as core issues in the “other” category.

Grant Thornton’s quarterly International Business Report (IBR) research data for the first quarter of 2013 provides tracker insights into the views and expectations of over 12 000 privately held businesses surveyed in total per year across 44 economies. The Q1 data for IBR to March 2013 also highlights regional and national perceptions of privately held businesses regarding crime, service delivery and political climate for South African business owners.

“Our latest research is in line with many media reports currently being published in the press,” says Deepak Nagar, national chairman of Grant Thornton South Africa. “The weight of the global economic downturn is becoming unbearable and additional local pressures are not helping at all.”

Just two weeks ago, the Global Entrepreneurship Monitor revealed that onerous labour laws, crime and continued corruption were directly hindering the entrepreneurial spirit in South Africa.

“If South Africa wants to promote entrepreneurship and successfully meet the National Development Plan’s objectives for job creation, bringing additional regulations and restrictions to small and medium businesses is certainly not going to help matters,” continues Nagar. “Furthermore, failing to properly address issues of corruption and crime is a critical concern for our country, particularly in the lead up to the national elections in 2014.”

Political uncertainty continues to impact business decisions
When business executives were asked whether uncertainty about the future political direction of South Africa is impacting current business decisions, 36% said yes. Of the executives who concurred that political uncertainty is a concern, 32% stated that present conditions were causing them to put off important investment decisions, with 19% placing investments offshore rather than within South Africa and 7% of these executives are seriously considering emigration or selling their businesses.

“On a positive note, political uncertainty has spurred business executives in South Africa to review their B-BBEE status, with our Q1 research revealing that 29% are currently working hard to improve their B-BBEE status,” adds Nagar. “Ensuring that companies are doing more than just ticking the boxes for B-BBEE compliance is promising – it means that the legislation is beginning to have a direct and measurable impact on a company’s bottom line.”

Crime & security
Sadly, the impact of crime on SA businesses seems to be gaining momentum again, with 57% of business executives, their staff or family of staff directly affected through a contact crime incident in the past 12 months. Contact crime is defined in the research as housebreaking, violent crime, road rage or hijacking.

This figure has increased 11 basis points since 2011(46%) KwaZulu-Natal and Eastern Cape regions recorded the highest impact, both at 60%.

“While the figure of 57% has dramatically declined since our initial data which was recorded in 2007 (84%), it is devastatingly concerning to see this statistic climbing again,” says Nagar.

In terms of the financial burden that crime has on SA businesses, the IBR data for Q1 2013 highlighted that a startling 66% of business leaders who stated crime as a real concern in the past year reported that they had experienced increased costs for security systems in their organisations.

When asked if any executives had given serious consideration to emigrating, only 16% stated that they were considering it (2009: 30%).

Glimmer of hope on the horizon
Business owners in South Africa continue to be positive about the next 12 months with 48% of executives surveyed stating that they are optimistic about business prospects for 2013. This figure is also marginally higher than the executives in the BRIC region and twice as optimistic as the global statistic (SA – 48%; BRIC – 47%; Global 20%). However, SA business confidence is significantly down from 2010 (60%).

For the BRIC region, the results reveal that China is the country which is pulling the economic region’s optimism down, with Chinese business executives recording 21% optimism figure overall.

Grant Thornton and PKF in Johannesburg have announced today that they will merge the two significant mid-tier assurance and business advisory offices to create a formidable professional services firm in the city of gold.

The merger, which was formally signed this morning at Grant Thornton’s offices in Sandton, is effective 1 July 2013, when PKF Johannesburg will officially become part of Grant Thornton Johannesburg and Grant Thornton South Africa .

This is hot on the heels of another recent two-way merger when TIS/Fintis and Rebahale, two black-owned professional services firms, merged with Grant Thornton South Africa in March 2013 to enhance its position in the public sector, underlining the firm’s commitment to continuing transformation.

Both Grant Thornton and PKF have their roots in South Africa with over 169 years of combined experience providing assurance, tax and advisory services to dynamic organisations, namely listed companies, privately held businesses and private equity backed organisations. They also have a thriving presence in the public sector throughout South Africa.

The new CEO of Grant Thornton Johannesburg will be Andrew Hannington, who is currently a board member of PKF International and chairman of PKF in South Africa. Jeanette Hern who plays a significant leadership role in Grant Thornton – as well as being the driving force behind the firm’s gender equality initiatives – will assume the role of deputy CEO in Johannesburg. Current CEO of Grant Thornton Johannesburg, David Campbell, recently tendered his resignation to return home to his family in the UK and to explore new business opportunities.

“This is an incredibly exciting opportunity to work with a firm with similar goals and truly well aligned cultures, coupled with a global force to be reckoned with,” says Andrew Hannington, CEO elect of Grant Thornton Johannesburg. “This is a merger of equals – combining PKF Johannesburg’s strong market position with Grant Thornton’s established brand and intellectual property. It unifies the strengths and specialised expertise of each entity resulting in a formidable firm which will be unparalleled in the mid-tier market.”

Grant Thornton South Africa (formerly Kessel Feinstein) was established in 1920 and PKF Johannesburg was founded in 1943 as Fisher Hoffman. Together they provide high quality assurance services to over 11% (45) entities listed on the Johannesburg Stock Exchange, helping them unlock their potential for growth.

The merger will entrench Grant Thornton’s position as 5th in South Africa (ranked by fee income) according to the November 2012 International Accounting Bulletin (IAB) South Africa survey. Grant Thornton is the fastest growing global network and was recognised as the 2013 ‘Network of the year’* by the IAB. This achievement is one of the most significant accolades within the accounting profession.

Jeanette Hern, deputy CEO elect, says, “For our businesses, today’s merger of equals forms the next step in our national strategic growth plans. The new combined Johannesburg staff complement of over 500 enhances our capacity and will be beneficial to our clients. The merger is not expected to have any impact on staff numbers and will bolster the South African firm with a national staff complement of over 900.”
Andrew Hannington continues, “Our new Johannesburg office will create a more richly resourced firm, a superior client offering and will significantly strengthen our position relative to the big four, especially in terms of audit choice – a heated topic currently being debated between the auditing profession, global regulators, and the boards of listed companies. Clients are the clear winners here. We are now in an unparalleled position to service dynamic businesses, particularly as companies emerge from the global economic downturn.”

Both firms have ‘growth’ as a key strategy and the merger will see the Grant Thornton tagline – An instinct for growth – continue to inform the way in which we deliver our client service – a commitment to which we passionately adhere.

The merged offices will operate as Grant Thornton Johannesburg within the national network. Other PKF offices in South Africa will continue to trade under the PKF name and will not be part of the merger at this stage.

“Mergers are a vital step in achieving our strategic ambitions and Grant Thornton is committed to fast and strategic growth with like-minded organisations and individuals. This merger is a truly significant step for Grant Thornton in South Africa and I am pleased to welcome the new partners and staff to our global organisation. I look forward to applying the enhanced capacity and expertise that will come about as a result of this exciting merger, to our clients in South Africa and around the world,” concludes Ed Nusbaum, global CEO of Grant Thornton.

Ends

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Notes to editors
*About the International Accounting Bulletin 2013 Network of the Year Award
The International Accounting Bulletin Awards are designed to celebrate accounting achievements over the past year by emphasising the individuals and businesses that have moved the industry forward. To win the ‘Network of the Year’ award, firms had to demonstrate strength across a number of key areas which included evidence of top-level network-wide audit quality, a strengthened position in strategically important markets and a strong industry leadership.

Fast facts
Johannesburg fast facts

*Source: International Accounting Bulletin – November 2012

South Africa fast facts

*Source: International Accounting Bulletin – November 2012

About the merged Johannesburg offices
PKF Johannesburg has 24 partners and directors with a staff complement of 260 and total revenues of R130m.

Grant Thornton Johannesburg has 36* partners, principals and directors with a staff complement of 261 and revenues of R210m. *Includes newly appointed partners and principals – 5 partners & 4 principals.

The firms are well aligned strategically and the merger in Johannesburg makes good cultural and business sense. The merged offices are now in an unparalleled position to offer an enhanced and competitive service to the mid-tier, dynamic businesses market. PKF Johannesburg’s merger with Grant Thornton substantially strengthens Grant Thornton’s ranking as the fifth largest International Network firm in South Africa according to the November 2012 International Accounting Bulletin survey.

About PKF Johannesburg
Situated in the hub of Sandton’s business district, PKF Johannesburg established in 1943 as Fisher Hoffman, has a longstanding history of excellence and growth. We provide expertise in multi-disciplinary auditing, accounting and business advisory services.

Our client base includes over 30 entities listed on the Johannesburg Stock Exchange, as well as mid-market and growing businesses, privately owned companies, medical aid schemes, government agencies and not-for-profit organisations.

While we pride ourselves on our ability to take on large, complex, transactions, we stay accessible, keep things simple and never stray from our commitment to straightforward advice. It means delivering solutions in a personalised, pragmatic and cost-effective manner.

For many years PKF has trained and graduated the fifth highest number of chartered accountants in South Africa and the training programmes will be continued with new vigour.

Grant Thornton’s 2013 International Business Report (IBR) on mergers and acquisitions, released this morning indicates that South African organisations, just like their global counterparts, are currently sitting on large cash piles.

“South African businesses are waiting to see when the economy will turn, when the Eurozone crisis will be abated and – on a local level – companies are also waiting for stability once the 2014 South African national elections are complete,” says Steven Kilfoil, corporate finance director at Grant Thornton Johannesburg.

This sentiment was reinforced during Finance Minister Pravin Gordhan’s 2013 National Budget Speech in which he stated that “in recent times, the world has become a more uncertain place for businesses, causing some to build cash reserves rather than invest in new or expanding operations.”

Minister Gordhan also urged businesses to keep investing in the SA economy, in order to “seize the opportunities around us”.

Kilfoil adds that plans to finance growth through public listings or even via private equity (PE) transactions are becoming less lucrative options. Only 4% of SA businesses would consider financing growth in the next three years through a public listing, with just 22% stating they would consider a private equity route.

The lack lustre interest in public listings seems to be a global phenomenon, with just 7% of global businesses considering this option, although 15% of businesses in the BRIC economies might consider a public listing in order to finance growth.

“In tough times, capital markets are naturally depressed and companies in general are just not cash generative enough to appeal to PE investors,” states Kilfoil.

The results from the 2013 report also show that, of the 32% South African companies seeking to expand through acquisition in the next three years, 42% expect to do so through a cross-border transaction, a marginal decline from 46% in 2012, but a notable increase from 31% in 2011.

In terms of key drivers behind company plans to expand through acquisition, 75% of respondents said that accessing new geographic markets was priority, with 52% stating a wish to build scale.

“As a firm, we expect cross border activity to continue to rise worldwide in the years ahead,” says Kilfoil. “This, combined with SA company findings in this year’s M&A survey highlighting a need to access new geographic markets and to build scale, speaks very well to our cross border expectations for the years ahead.

“I wouldn’t be surprised to see South African businesses expanding more actively into African markets in the future,” he continues.

In contrast, just 65% of global businesses want to access new geographic markets and, in the BRIC economies, this figure was even lower, at 58%.

Other key drivers stated by SA business owners behind plans to grow through acquisition were access to lower cost operations (47%) and the acquiring of new technology or established brands (49%).

“Wanting to acquire new technology either via acquisition or by internal development further reinforces how companies are investing primarily in their own businesses, in order to strengthen current operations and improve efficiencies,” says Kilfoil. “When the global economy eventually starts to improve, businesses will certainly benefit from strong, cash-flush balance sheets which will ultimately maximise their value on exit in the future.”

Download a copy of Grant Thornton’s International Business Report 2013 – Mergers & Acquisitions: The rise of the cross-border transaction.

Results of the TBCSA FNB Tourism Business Index (TBI) for the first quarter of 2013 are the surest indicator yet that the tourism industry is back on track and playing its part in South Africa’s economic landscape.

The index compiled by Grant Thornton shows that during Q1 of this year, the industry performed at 110,8 against a norm of 100, ahead of the expected 102,5 and only just behind the performance level of 111,1 achieved during the 2010 World Cup. This marks three consecutive quarters of performance topping normal, with this latest quarter being the most positive.

An expectation of 103,8 for the second quarter indicates a continued positive outlook and shows the extent to which the industry is recovering from the recessionary impacts and excess of supply it suffered post-2010.

Gillian Saunders, Head: Advisory Services at Grant Thornton said that generally the industry felt conditions were better. “In some segments the weak rand is helping, but there is still concern about overseas market strength given the ongoing recessionary conditions, particularly in Europe. We see a dichotomy where 30% of our respondents cite demand as being strong, whilst exactly the same number see it as weak. Playing in different geographic markets may impact this; for instance in 2012, Asian markets saw a huge growth in tourist arrivals and businesses targeting those markets have no doubt benefited.”

These numbers are another indication of the shifting global economic landscape in favour of developing markets. However the job remains to maintain South Africa’s destination marketing initiatives in both the traditional and emerging markets.

On balance for the next 12 months the outlook is positive (+13%) for the accommodation sector and very positive (+30%) for the rest of the tourism industry, and both have said that they will be increasing capacity and employment during 2013. Almost one in five Other Businesses are expecting to up employment and/or add capacity.

Wiza Nyondo, FNB Head of Tourism, pointed out the positive impact of investment. “Tsogo Sun’s R220 million investment in the Elangeni Maharani mega hotel complex on Durban’s Golden Mile is a case in point. The Protea and City Lodge groups have also announced plans for new projects. These show major confidence in the industry.”

The tourism industry is particularly affected by negative factors which also impact the rest of South Africa. Mmatšatši Ramawela, CEO of Tourism Business Council of South Africa explained: “The industry is concerned about input costs: the petrol price, high electricity costs and high municipal tariffs, all of which negatively impact on business performance. Petrol price hikes result in diminished domestic demand too. Fewer people go away over long weekends when the petrol price goes up,” she said.

Inevitably labour is an issue, with ongoing higher-than-inflation wage settlements affecting employment. The cost of labour is a negative factor for 40% of accommodation businesses and 29% of other businesses in the tourism industry.

That’s according to Grant Thornton’s 2013 International Business Report (IBR), which surveyed 3450 businesses across 44 economies regarding the proposed new lease accounting standard set to come into effect in 2014.

“Amendments to this leasing standard will have far reaching consequences for a large proportion of SA businesses particularly companies in the airlines, manufacturing, mining or retail sectors – industries where many equipment and property leases are held,” said David Reuben, partner and head of Assurance at Grant Thornton Johannesburg.

The new Lease Accounting Standard, which is currently in its draft format, is expected to require that companies reporting under International Financial Reporting Standards (IFRS) will now need to record billions of rand of new assets and liabilities.

“This new standard from the International Accounting Standards Board (IASB) and the Financial Accounting Services Board (FASB) will require that all leases other than short-term leases will have to be reported on the balance sheet,” said Reuben. “It has the effect of broadening the definition and perceptions of what an asset and liability is.”

Towards the end of 2012 the US Securities and Exchange Commission estimated the “undiscounted value of future lease payments among US-listed companies alone were more than $1.35 trillion (R11.3 trillion)”. At this stage, Reuben said it would be difficult to estimate a similar value for SA companies and the impact on their balance sheets would still need to be calculated.

According to the IBR report, the average business globally holds 20 leases. The average was highest in Sweden (68 leases per business), followed by Japan (49 leases per business), Finland (39 leases per business) and Australia (25 leases per business).

In South Africa, Grant Thornton’s research indicated that nearly 85% of SA businesses surveyed currently hold leases, with 51% holding less than five leases, while 15% reported holding more than 10 leases in their businesses.

Reuben expressed concern about the lack of awareness amongst SA businessmen surveyed (52% are unaware of the upcoming changes), regarding these amendments.

“It is encouraging to note though that SA executives seem to be marginally more aware of the pending lease accounting amendments than their global and BRIC counterparts,” said Reuben.

The IBR survey revealed that 47% of SA executives were aware of the upcoming changes, compared to 42% globally, and just 21% in the BRIC region.

Awareness of the change was greatest in the US (75%), India (70%), Chile (60%) and the UK (56%), and it was lowest in Lithuania (8%), France (13%), Brazil (13%) and mainland China (13%).

In terms of what impact these changes would have on businesses, 34% of SA executives believe that the amendments would increase transparency for investors, while 28% are expecting the new standard to increase the cost and complexity of reporting.

Ed Nusbaum, Grant Thornton International CEO says that the current lack of transparency around operating leases certainly needs to be addressed, and in light of this he welcomed the pending lease accounting amendments.

“The information in the financial statements currently does not provide complete, readily understandable information about the obligations associated with operating leases,” said Mr Nusbaum. “But change for the sake of change is not the goal. A new standard that is not based on clear, consistent principles could actually make things worse. A major change to lease accounting is a once in a generation event and the Boards need to be patient to get things right.”

The leasing project began with an exposure draft published in 2010 and a great deal of discussion has followed it. When the draft finally is issued as expected by May / June 2013, it will be put out for public comment for a period of 120 days which would presumably end in September, according to a FASB spokesperson. If this timeline is followed, the revised standard would be issued in 2014.

That’s according to Grant Thornton’s International Business Report (IBR), a survey of more than 3,400 businesses regarding corporation tax issues, across 44 economies.

“Headline rates are not the only deciding factor for relocation of global headquarters,” said AJ Jansen van Nieuwenhuizen, Director and head of tax at Grant Thornton Johannesburg. “Of priority to most companies that operate internationally is how they can effectively manage their tax rates worldwide – a single improvement in one area isn’t always enough of a draw card. However, a combination of factors does result in change, such as reduced corporation tax rates and other tax break incentives.”

While the survey found that globally, a sizeable two thirds (67%) of business owners would not relocate to another country for a reduced corporate tax rate, executives in the BRIC economies collectively seemed the most favourable towards relocation for a lower corporate tax rate. Over 40% of businesses in the BRIC region were in favour of moving to another country for improved corporate taxes (59% of BRIC businesses opposed relocation).

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Looking at the BRIC countries individually, however, there is a discrepancy in views: in Brazil, 93% of business owners surveyed would not relocate, compared to Russia and India with only 23% and 29% respectively responding that they wouldn’t consider relocation for a lower corporate tax rate. In China, 67% of businesses would not relocate.

It is also interesting to note that business executives in Botswana were among the top five countries in the world that would consider relocating their headquarters to another country if a lower corporate tax rate was on offer, with 62% of executives stating they would relocate, and a surprising 20% saying they would do so for just a 1% reduction in the current tax rate.

“South Africa would not be considered, though, as a relocation destination for Botswana executives because Botswana’s current corporate tax rate is 25% compared to our 28% current corporate tax rate,” adds Jansen van Nieuwenhuizen.

The survey revealed that while 80% of South African businessmen would not relocate to another country for any level of reduction in the corporate tax rate, these same executives did express a wish for South Africa’s corporate tax rates to be lowered. In South Africa, 73% of business owners surveyed would favour lowering the country’s corporate tax rate, even if it meant eliminating other tax deductions currently in place.

“Obviously businesses always like more income,” said Jansen van Nieuwenhuizen. “Nobody wants to pay taxes – it’s a grudge payment in its simplest form. Any reductions would always, naturally be welcomed.”

The survey showed a similar trend with corporations worldwide wanting reductions in corporate tax rates. In the BRIC economies, an average of 77% were in favour of lowering corporate taxes, and globally, 68% of business leaders were also in favour of lower corporate tax rates at the price of sacrificing tax deductions.

“A trade-off between tax breaks and headline rates of tax, leading to an uncomplicated low tax rate with only a few deductions, has the advantage of simplicity. Tax breaks, however, are hard to remove once in place, especially in economies that are struggling to find growth and that use tax breaks to stimulate certain sectors or industries,” said Jansen van Nieuwenhuizen.

Jansen van Nieuwenhuizen added that business likes certainty so any change needs a long lead time and clear communication.

Most of the South African business owners surveyed (76%) did not feel government was doing enough with tax measures to help ease economic pressures. This differed markedly from the views of business leaders in the BRIC economies with less than half – just 37% – stating they were dissatisfied with government’s attention to easing pressures through tax breaks.

Globally, two in five business leaders surveyed (61%) did not think their governments were doing enough. The countries with the highest dissatisfaction were Argentina (92%), Japan (86%), and Poland and Spain (both 82%).

“Given the current environment where tax is headline news, it would be ideal if governments co-operated more on tax issues and providing clarity on a global basis,” concluded Jansen van Nieuwenhuizen.

Grant Thornton’s overall national pass rate in the ITC was 80%, compared to the overall pass rate of 73%. Our Cape Town office scored 100%.

The Initial Test of Competence (ITC) – Part I of the Qualifying Examination
This is the standard setting exam which is written after the completion of the CTA and is an assessment of core competence. To be eligible to write this exam a candidate must hold a CTA that has been accredited by SAICA.

Tweets:

Congratulations to Shaun Croock, @grantthorntonza candidate and @ujaccountancy student who topped the national #ITC @saica_ca_saresults

— Grant Thornton (@GrantThorntonZA) March 27, 2013

Congratulations to the Grant Thornton South Africa candidates who passed their #ITC board 1 exams. #notjust #instinctforgrowth

— Grant Thornton (@GrantThorntonZA) March 27, 2013

Judged by an independent panel of accounting experts, the accolade was presented at the IAB’s gala dinner on 14 March 2013 held in London. The IAB is a leading global accounting industry organisation which regularly analyses performance and best practices in assurance and accounting services.

“I am proud of this award, but all credit goes to over 35,000 Grant Thornton people in more than 120 countries for their commitment and hard work in providing high quality services to our clients and in helping to unlock their potential for growth,” said Ed Nusbaum, Grant Thornton International global CEO. “Having achieved a double-digit growth rate, led the six largest accounting organisations in annual growth and embarked on a new global advertising campaign – our ambitions are clear and the results speak for themselves.”

2012 saw Grant Thornton grow faster (10.4%) than the other largest global accounting networks as the firm provided leading counsel on critical global accounting issues such as lease accounting, revenue recognition, EU auditor reform, corporate governance and improving the auditor’s report.

“Grant Thornton has a strong reputation in South Africa for helping dynamic businesses and this award demonstrates our consistent and high level of expertise across key areas such as evidence of client satisfaction and strategic positioning,” says Deepak Nagar, national chairman at Grant Thornton South Africa. “The South African firm is committed to fast and strategic growth with like-minded organisations and individuals and we look forward to continued success aligned to meet our ambitious targets by 2015.”

The International Accounting Bulletin Awards are designed to celebrate accounting achievements over the past year by emphasising the individuals and businesses that have moved the industry forward. To win the ‘Network of the Year’ award, firms had to demonstrate strength across a number of key areas which included evidence of top-level network-wide audit quality, a strengthened position in strategically important markets and a strong industry leadership.

Deepak Nagar added that the award would serve to increase awareness among larger corporations that superior audit quality is available from a wider range of professional services firms.

“Now that we’ve achieved this ‘Network of the Year’ accolade, I would hope our assurance skills, broad reach, experience and reputation will see companies considering our firm when next appointing or rotating from their current audit firms,” Nagar adds.

The independent judging panel for 2013 included Sir David Tweedie, Sue Almond of ACCA, Jane Howard of Wragge & Co, as well as the editorial team of the International Accounting Bulletin.

IAB group editor for asset finance and accounting, Fred Crawley said “This year’s awards attracted more than 100 nominations from all parts of the world and we are delighted at the strength of applicants and the support these industry awards have received globally.”

Read more about the International Accounting Bulletin’s 2013 awards

Three proud partners

The three companies all have an exceptional track record and established client bases.

• FINTIS: a subsidiary of TIS Holdings Pty (Ltd) – a 100% black owned investment company founded by Terry Ramabulane in 1993 brings on board a wide range of financial and related services
• Rebahale: a 100% black owned professional services firm of chartered accountants and business advisory professionals headed by Seth Radebe
• Grant Thornton: a national firm that provides a comprehensive range of professional services, including assurance, tax and specialist business advice with a local track record dating back to 1920.

One strong future

Together, we have the capability, capacity and BEE credentials to provide a wide range of services to the public sector and enhance our private sector capacity. Some new services that the merger brings to our portfolio include public sector assurance, clean audit consulting, expanded IT advisory, human capital consulting and a training academy with a range of accredited and non-accredited training programmes.

This is according to Grant Thornton’s International Business Report survey, which assesses business owner perceptions in terms of a variety of factors that affect organisational growth and expansion.

The survey revealed that a surprising 68% of South African businesses will increase salaries in line with inflation, while more than a quarter (26%) will increase salaries by more than that over the next year. It is important to remember, though, that SA’s inflation is higher than in other countries and one must take this into account when assessing real increases.

Less than 5% of South African businesses will not increase pay.

A core theme in Finance Minister Pravin Gordhan’s recent Budget Speech was that of government’s intense focus for the year ahead on issues of poverty, unemployment and inequality.

“We applaud government for raising this concern so vocally in the Budget Speech 2013,” says Ian Scott, managing partner at Grant Thornton Cape. “However, while pay rises are certainly a necessity to help eradicate poverty concerns, unrealistic wage hikes will only bring added pressure to an ailing economy.”

By stark contrast to SA’s high wage increase expectations, a total of 18% of BRIC businesses and 21% of global businesses do not plan to offer any pay rises in the next 12 months. Only 15% of BRIC and 14% of global businesses will offer increases higher than inflation in the year ahead, while approximately half the businesses in each of these geographical areas will offer increases in line with inflation.

“SA’s labour unions and collective bargaining councils ensure that employees get salary increases every year, which sets the tone for the private sector,” says Ian Scott, managing partner for Grant Thornton Cape. “But, continuing to increase salaries every year in a struggling economy, however, places SA firmly in the danger zone for rising inflation over the next 12 months – and this could have a negative impact on this county’s growth expectations for the year ahead.”

Skills shortage epidemic threatens business growth prospects
Businesses around the world are reporting a skills shortage epidemic that is weighing on growth prospects.

In South Africa this issue is equally challenging, with a lack of qualifications and work experience exacerbating this concern even further.

A staggering 83% of local businesses reported a lack of technical skills when it came to recruitment. Only 61% of BRIC economies and 64% of global businesses reported this challenge.

“When the data is split according to sector, we note that SA’s mining industry is finding the shortage of technical skills the most challenging,” Scott continues.

The survey revealed that 58% of SA businesses report difficulties in recruiting skilled workers.

“SA urgently needs to address the enormous dichotomy between the skills shortage and unemployment,” says Scott. “There is much talk in both the private sector and government about initiatives that could improve this situation, but the time for talking is over.”

President Jacob Zuma confirmed during his State of the Nation address in February that the youth wage subsidy would be signed and that this would be just one of several interventions to alleviate youth unemployment. This was further clarified and confirmed in the Budget Speech, when Finance Minister indicated that a revised youth employment incentive will be tabled in the House.

“Hopefully these will go some way towards helping to solve the crisis,” says Scott. “However, government also needs to address a variety of other issues. These include apprenticeship schemes for skills development, which practically disappeared when our technikons and teachers’ colleges were disbanded, as well as SA’s complex labour laws which act as a deterrent to employment, especially for smaller businesses.”

Scott says it’s imperative for business and government to work more closely to find solutions to SA’s employment crisis.

“We need to find innovative solutions, for example, initiatives that allow a percentage of the total workforce to be treated more flexibly,” he suggests.

“SA also needs to urgently increase productivity, which is far behind many other countries globally, if we are to see business growth and economic success.”

It’s not all bad news, though.
According to Grant Thornton’s report, 43% of SA businesses increased the number of employees which were hired over the past year, compared to 15% of South African businesses that reported decreasing their staff complement during 2012. This is in line with BRIC countries for which the percentages were 45% and 14% respectively. Of these, the Gauteng region saw the highest employment increases (48%), followed by Durban and Pietermaritzburg (47%) and Cape Town and surrounds (41%). The Eastern Cape experienced the least employment increases (39%).

When questioned about staff retention, more than a third of SA businesses (37%) experienced no staff retention problems, while only 7% of BRIC businesses claimed the same. Of those 37% of SA companies, 46% reported ‘increased operating costs’ as one of the main problems that staff retention issues caused to their business. This was followed by ‘increased workload for the remaining staff’ (45%) and ‘fall in customer service standards’ (30%).

“A business is nothing without its people just as a strategy is nothing without the people to drive it forward. The best people boost productivity save a business time and money and ultimately grow the organisation,” Scott concludes.

In addition, only 15% of junior miners throughout South Africa believe that the Mining Charter has been successful in transforming the industry, with specific reference to BEE participation elements in the Charter. Just 41% of respondents believe the Charter has been successful “to some extent”.

This is according to Grant Thornton International Mining Report 2013 , entitled ‘Turning high risk into high potential’ which surveyed junior miners in four countries where mining is a priority – namely South Africa, Australia, Canada and the UK (specifically for its large amount of mining companies listed on AIM) .

The report highlights the difficulties facing mining companies today and illustrates how various issues will impact mining operations in the coming year. More importantly, the report underscores that there are opportunities for mining executives to leverage creative solutions to these challenges.

The nationalisation concerns which were raised in the research were with specific reference to challenges which junior mining organisations are facing in terms of accessibility to finance.

Half (49%) of the respondents in the report indicated they would need finance for their businesses within the next two years, 26% of which need funds within the next six months.

“It is vital that companies are in a position to raise finance, and this is becoming increasingly difficult,” says Steven Kilfoil, mining advisory and corporate finance director at Grant Thornton Johannesburg.

“Uncertainty arising from the nationalisation debate harmed the industry’s ability to raise finance and any instability going forward will have the same negative impact.

“Thankfully the nationalisation issue has now been settled and this stability will assist miners to access funding. Investors need predictability for resource exploration and development projects.

The lesson for government is that there must be certainty on all the issues over which it has control, including land claims.”

In terms of transformation of the local mining sector and BEE participation, Kilfoil says that the Mining Charter’s biggest problem is that specific measurable targets have now been set,  to the detriment of the essence of the Mining Charter.

“The Mining Charter was set to engender a spirit of transformation and inclusion; one that will give local communities access to SA’s underground wealth.  With the introduction of targets which need to be met by mining companies, however, the emphasis has shifted from the real spirit of the Charter to one of simply meeting the targets and checking the boxes,” he says.

“Miners may now be more focused on achieving 26% ownership participation by historically disadvantaged South Africans by the end of April 2014 than on real transformation.

Once they have ticked the compliance box, they may become complacent.”   Another negative highlighted by the survey is the issue of bribery and corruption with 40% of SA miners stating that bribery and corruption is a significant concern, nearly double the global figure which was 23%.

SA junior miners are bullish about future growth prospects
The findings were not all doom and gloom. After two tough years for mining in South Africa, junior miners are optimistic about the next 12 months.

SA mining executives are in fact more positive than their counterparts in Canada, Australia and the UK, despite expectations of significant cost increases this year, and their responses suggest the sector can look forward to positive growth.

“Being positive about the future is good news for our economy,” says Steven Kilfoil.

“The report shows that mining executives are beginning to see light at the end of the tunnel following a period of mine violence, strikes, uncertainty surrounding the mineral regulatory regime and ambiguity around government’s plans on nationalisation.”

The mining report revealed that SA junior miners will spend more on capital equipment and, despite knowing that labour and energy costs will increase significantly, they also expect to be profitable, with half (49%) of the respondents in SA also anticipating increased revenues this year.  This is significantly higher than in Australia (36%), Canada (31%) or the UK (21%).

In terms of future investments, nearly half (49%) of SA’s junior miners expect to increase their investment in plant and machinery over the next 12 months, compared to a global average of 42%, while two thirds of respondents (62%) are looking forward to higher commodity prices (compared to 54% globally).

The survey also highlighted that 44% of SA junior miners will employ more people with a positive outlook also expected for the year ahead in terms of salary increases across the junior mining sector.

A total of 44% of local respondents in South Africa have responded saying they would increase salaries by more than inflation, while 46% will offer pay rises in line with inflation.

Kilfoil believes this optimism across South Africa is probably warranted, although he highlights the fact that miners in general tend to be hopeful.   “Perhaps part of the reason is the innate optimism of those who choose mining for a career, scouring the earth for chances at outsized returns on investment despite long odds,” he says.   SA was not hit as badly by the economic recession as many other mining countries.

Kilfoil recently attended the Prospectors and Developers Association of Canada (PDAC) annual conference in Toronto, where he says the mood on the floor was generally pessimistic.

“Canada has approximately 1200 listed junior miners of which only about 800 are expected to survive the next 12 months,” he says.  “A third of them will disappear or be absorbed by major players.

The country therefore has a number of economically unviable listed resource companies that were able to raise initial funding and start drilling.

Now, however, they cannot access any further funds.” One way to raise finance is to go to market, and thankfully the SA market is more robust.

Johannesburg Stock Exchange requirements are far stricter than those of other major mining countries.

“While this has to some extent stifled exploration, it has also been very positive as investors are better protected and our exchange ensures that assets that come to market are good assets,” says Kilfoil.

“I have always been a huge proponent of exploration.  It’s vital – but it needs to be done carefully.  We don’t want to end up with a situation similar to that of Canada where there is a proliferation of smaller companies that have raised money for exploration but are now cash-strapped.”

Issues of over-regulation were also raised in the survey, by SA junior miners. “Too much red tape causes needless project delays, discourages investment in the sector and dampens enthusiasm for exploration,” says Kilfoil.  “In South Africa, it takes on average nine months to process an exploration license application while in Australia project approval times have increased from months to years.”

Access to a skilled workforce was not much of a concern to the SA junior miners, however, and was in line with the rest of the world.

This is in contrast to the findings of the recent Grant Thornton International Business Report which showed that 58% of SA businesses had difficulties in recruiting skilled workers.

“This talks to the fact that our mining industry is mature and strong, with a significant group of people that really knows the business – and understand how to mine,” concludes Kilfoil.

Notes to editors:
* Junior Miner – definition according to Grant Thornton’s International Mining Report 2013   Miners grouped by the primary stage of flagship asset of “greenfield exploration,” “brownfield exploration,” or “pre-feasibility.”     However, in terms of South Africa’s sample of companies surveyed, the above “junior miner” definition also included some companies which are involved in low-level production.

The 2013 Grant Thornton International Business Report (IBR) on women in business reveals that just over one quarter of top decision-making roles in SA businesses are filled by women. This is a long way off government’s ambition to ensure that 50% of senior management positions are filled by women.

As has been the case since 2009, only 28% of SA senior management positions are filled by women and the statistic has disappointingly flat-lined for five years. This stagnant five-year trend is the same when global averages are reviewed, with international businesses also showing no improvement since 2009, at 24%.

Grant Thornton International business report 2013: Women in business – Percentage of women in senior positions in South Africa vs BRIC and Global

Even more concerning is the statistic that 21% of SA businesses surveyed for 2013 have no women at all in senior management positions.

The Grant Thornton IBR surveys the views and expectations of over 12 000 large privately-held businesses and mid-sized listed organisations per year across 44 economies, providing insights into SA and international perceptions.

“President Jacob Zuma’s commitment to gender equality in this year’s State of the Nation address, and his reiteration of the importance of upcoming legislation to uplift more women into decision-making roles, are to be welcomed,” says Jeanette Hern, partner and head of Corporate Finance at Grant Thornton Johannesburg. “It is pleasing to note that improving the status of women remains a critical priority for this government.”

The Bill on Gender Equality and Women Empowerment, which seeks to ensure a 50/50 representation of women in decision-making structures in both the private and public sectors, has been approved by Cabinet for public comment.

“These stats indicate an urgent need for change,” says Hern. “However when SA businesses were asked whether they would support the introduction of quotas to legislate for more women on executive boards of large listed companies, it is pleasing to note that 60% of SA businesses surveyed said they would support the quota system,” says Hern.

In comparison, only 37% of businesses surveyed globally support government-enforced quotas, despite the same static position prevailing internationally.

The IBR survey revealed that only 15% of board members in SA are women, compared to 19% globally and 26% in the BRIC economies.

It is encouraging to note that the data revealed a significant improvement in terms of women in CFO positions in South Africa. Women Chief Financial Officers in SA more than doubled this year compared to 2012, up 128% from 14% to 32%. The number of CEOs continues to be low although slightly up from 2012 (from 8% last year to 10% for 2013). However, this is a big jump since 2011 when this number was only 3%.

“This steady improvement – although still small at this stage – may fair well for us in the long term – the number of accomplished women in CFO positions could just be the launch pad for women achieving a greater presence at a corporate board level,” Hern continues.

Grant Thornton International business report 2013: Women in business – Top six roles for women in senior management level

The good news for SA women is that local businesses are among the leaders who plan to hire more women this year. 32% of SA organisations indicated intentions in this direction, compared to BRIC (17%) and global (15%) businesses.

How to get more women into senior roles?

“The upcoming legislation and a willingness among business to support change in SA, however, are not enough to significantly increase numbers of women in senior roles,” says Hern. “There needs to be a shift in the approach to hiring women and this could include additional programmes and incentives designed specifically to attract women into these decision-making roles.

“Most women often have numerous life roles and business must become more innovative.”

A critical way in which SA business could make itself more appealing to women is to provide more flexible working hours.

Just over half (53%) of SA businesses surveyed offer flexible working options for their employees. By contrast, 67% of global businesses offer organisational flexibility. BRIC businesses, on the other hand, are significantly less flexible than SA organisations with only 40% offering flexible working conditions such as flexi-time or the ability to work remotely.

“There are many innovative solutions which businesses could introduce,” adds Hern. “Offerings such as flexible working hours, compressed work weeks, flexi time, part year work and flexi leave arrangements are just a few incentives available to businesses. Alternative work locations and the introduction of child care facilities in the workplace are also women-friendly options for consideration.”

A “compressed work week” allows staff to complete their allotted work week hours in fewer days than a full five day week, while “part-year work” means reducing work hours on an annual basis rather than a daily or weekly basis.

“A large portion of SA’s workforce lives far from central office locations and with the high level of single parent families in our country, flexible working hours would go a long way to solving some of the challenges women face,” says Hern.

Leaders in terms of offering flexibility for women are Denmark( 93%), Finland (90%) and Norway (89%), followed by Germany (87%) and Sweden (86%).

“South Africa has a fine tradition of strong women in business as well as women political leaders but there still is much room for improvement – we look forward to seeing the government’s Bill on Gender Equality and Women Empowerment coming to fruition soon,” Hern concludes.

Additional global findings:

• Mainland China (51%), Poland (48%), Latvia (43%), Estonia, Baltics and Lithuania (40% each) lead in terms of businesses having women in senior management. Those with the lowest numbers of women are Japan ( 7%), UAB (11%), Netherlands (11%), Switzerland (14%) and Argentina (18%)
• Globally, women make up (35%) of the workforce. Leaders are Latvia (46%), Hong Kong (45%), Botswana (44%), Mainland China and Estonia (42% each), while countries with the lowest number of women in business are the UAB (14%), India (15%), Argentina (24%), Chile and Turkey (25% each)
• 19% of those on company boards globally are women. Leaders are Russia (37%), Thailand (35%), Philippines (34%), Vietnam (30%) and Latvia (30%) while at the other end of the spectrum lie Japan (7%), Switzerland (7%), UAB (12%), Malaysia (13%) and Brazil (13%).

Routes to the top – the best and worst places for women to get top jobs
The IBR data also reveals the routes most and least likely to see women make it into the boardroom and to the top of the professional ladder.

Best

• According to the IBR, the most likely route to the top for women is the Chief Finance Officer of a healthcare company in China.
• Of businesses with women in senior management positions, the boardroom position most filled by women is Chief Finance Officer (31%).
• The sector with the highest proportion of senior management roles occupied by women is healthcare (45%).
• The country with the highest proportion of senior management roles filled by women China (51%).

Worst

• In contrast, the research reveals that the route to the top least likely to be taken by women is the Chief Information Officer of a mining or construction company in Japan.
• Of businesses with women in senior management positions, the boardroom position least filled by women is Chief Information Officer (6%).
• The sectors with the lowest proportion of senior management roles occupied by women are construction and mining (each 19%).
• The country with the lowest proportion of senior management roles occupied by women is Japan (7%).

Below are this year’s the income tax changes in a nutshell.

Tax tables
In terms of the tax tables, as usual and thankfully the Minister has increased the tax brackets to allow for inflation.

One of the possible Budget expectations was an increase of the marginal tax rate to above 40%, and this has not materialised. In stating that the rate has remained the same though, if one uses a CPI rate of 6%, even after the “inflationary” adjustment to the tax tables, unfortunately year-on-year tax payers will in fact be worse off, if you earn R120 000.00 or more per year.

Sin taxes
In terms of Sin taxes announced for 2013 – just like the sun rises in the morning – people will need to pay more for sins – the rates have gone up yet again.

Non-retirement savings
This year, the Minister announced that there is a proposal for contributions to tax preferred savings accounts with an annual contribution limit of R30 000 and lifetime limit of R500 000. Such investment payouts will be tax free but this is only from April 2015. This should provide an incentive to invest, although at the same time the interest-free exemptions will be increased from 1 March 2013 and then no further. Initially, at least this would seem beneficial but further details would be required to be ascertain any long term benefits. A simple interest deduction would probably have been easier to administer!

Retirement savings
Increased contributions to provident funds will be allowed from the current 20% (SARS practice) up to 27.5% of taxable income. However, this will be capped at R350 000 for equity reasons. If one is promoting retirement savings, it seems more appropriate for government to incentivise this with no cap but it is understandable to see where Treasury is coming from.

Employment tax incentives
To help youth enter the workforce, an incentive will be provided, but this benefit will fall away when the person reaches the personal income tax threshold level. It will be interesting to see whether this will have any benefit at all in terms of “big picture” tax income and employment in general.

Employer housing
Assistance announced by the Minister to low income earners in regard to acquiring houses from employers is welcomed.

Exempt income from off-shore
Currently employees working overseas are not taxed if they are off-shore for more than 183 days and 60 continuous days. It would seem that this will be looked at again especially if there is a South African employer involved. In view of numerous Double Tax Agreements which provide for the 183 day rule, such changes may create more complexities than achieving any real revenue for government.

Special economic zones
Similar to other foreign jurisdictions, the Minister is proposing to provide incentives for investment in certain special economic zones. In this regard the corporate tax rate will be 15%, an employment incentive for workers earning less than R60 000, plus an accelerated depreciation allowance for buildings. This is pleasing – at least in theory.

Donations
For the philanthropic tax payer, donations in excess of 10% of your taxable income to certain Public Benefit Organisations (PBO’s) will now be allowed as a deduction in a subsequent year (currently the deduction is limited to 10% of taxable income, and the excess is lost). For the few providing such donations this would only really assist if the donations are less than 10% in the following year.

Old age grants
This is currently based on a complex “means test”, but by 2016 this is proposed to be phased out, and all South Africa citizens will be eligible, although there will be other off-sets for the wealthy. This may then shift the tax complexity to the old age taxpayer which would be unfortunate wouldn’t it?

Trusts
These have been a long-time concern for SARS. Effectively discretionary trusts are being killed as they will be taxed at 40%, although they have allowed distributions as tax deductible expenses, to the extent that the trust has taxable income. The beneficiary will then receive income if there is a deduction; alternatively if there is no deduction for the trust, the amount will be received tax free.

Off-shore trusts
The Minister announced during his Budget Speech that distributions from off-shore foundations will be treated as ordinary revenue – ouch!

Share schemes
Last year we were promised reform to this complex legislation, but no changes have been made. Again changes are being promised – and we wait in hope.

Acquisition debt
Various deals over the years have caused this to be a large concern for SARS. The current rules should adequately deal with this. However the proposal is to take this one step further and only allow the deduction for up to five years. This may kill numerous acquisitions – sadly, like a shotgun, this will take out both the good and the bad.

Withholding Tax (WHT) on interest and royalties
Last year’s budget saw the announcement that this would come into effect on 1 January 2013 and then this was moved to 1 July 2013. Now, in terms of the Ministers 2013 speech the effective date has been pushed out again to 1 March 2014. In addition this will also apply to cross border service fees – strictly speaking this is probably already covered by current law, nevertheless people should be looking at the Double Taxation Agreement more closely to ensure the relevant relief.

NHI
Once again we await the funding proposal (to be released in 2013) of this leviathan.

No submission of tax returns
Currently if you earn employment taxable income of less than R120 000 you do not have to submit a tax return – this is to take a large leap forward to a taxable income of R250 000, which will be a welcome relief for many.

Review of various innovative financial instruments
This area will be researched in more detail by SARS. This is the constantly moving field of the planner versus the taxman – and the taxpayer whenever looking at such instruments should be aware that this is on SARS’ radar screen.

Leasehold improvements
Problems exist with tenants improving leasehold property. It’s proposed that the person using the asset as opposed to the person owning the asset be entitled to a tax deduction. But the main issue here is that someone should get the allowance, and if this proposal allows for this, it will be welcomed.

SARS, as an international policeman
Currently the taxpayer is entitled to a deduction when an expense has been incurred. This can create uneven tax treatment when one is dealing with foreign parties. It is proposed that the deduction will only be allowed when the expense has been paid. This type of amendment is welcomed from a tax consulting perspective as the law is simply being made more complex which means help is needed to understand difficult legislation and this inadvertent helps with advisory fees – not a great planning tool on the whole.

Treasury operations
Large groups usually have a company which act as a treasury company. It is proposed that listed companies can elect one such company to act as such and it will be treated as a non-resident company for Reserve Bank purposes. They can then use their foreign currency as a starting point for tax calculations. This is most welcomed as an incentive to keep such operations within SA. It would be preferred to see such dispensation to be allowed to all companies meeting certain requirements as opposed to only the listed entities. Unfortunately the impact of this proposal will be somewhat diluted as such treasury operations are often physically conducted from more tax-friendly jurisdictions – with which we currently cannot compete.

Controlled foreign companies
The Minister’s speech provides that certain anomalies have crept into controlled foreign company legislation over the years, and these will require clarification. Certain legislation in this regard does indeed provide what one can only assume are unintended consequences and we certainly hope that these will be rectified.

Winnings
To close, a gambling tax was proposed in 2011 and we are told this will be implemented in 2013. With any luck we can only hope this “lotto winning number” will be missed again.

Willem Oberholzer, Grant Thornton Pretoria Tax Partner
“Tax payers can breathe a sigh of relief because overall the status quo remains. Government seems to be consolidating. We’ve seen tax reforms for at least three years that were very big and this year is different.”

Willem Oberholzer, Grant Thornton Pretoria Tax Partner
“This year’s Budget Speech seemed to be very forward looking at future changes, in that deadlines announced are for changes to come in the future. Focus for this Budget Speech seemed to be on consolidating and collections – a more compliance-themed Budget for 2013. The effect of the proposed changes is that they will seek to collect 11% more from individuals compared to only 8.6% more from corporates.”

AJ Jansen van Nieuwenhuizen, Director and Head: Tax, Grant Thornton Johannesburg
“There are a lot of minor changes to pay attention to, but in general nothing major has been updated and the tax payer should be relieved.”

Willem Oberholzer, Grant Thornton Pretoria Tax Partner
“The Minister advised that discretionary trusts will no longer act as a flow-through vehicle and all income will be fully taxed at a trust level. We view this as a big concern for all beneficiaries of trusts and for estate planning in general. We would like to caution beneficiaries to take a close look at the cash flow implications as a result of this proposed change.”

Barry Visser, Associate Director: Tax, Grant Thornton Johannesburg
“We welcome the Minister’s announcement regarding the automation of tax clearance certificates because there are definite frustrations currently with obtaining these certificates.”

Neville Sweidan, Head: Forensic Services, Grant Thornton Johannesburg
“The Minister gave a long discourse on the government’s determination to fight corruption with particular reference to procurement. Particularly through the mechanism of the receiver of revenue SARS has started to target businesses that have supply contracts with the payment of taxes in respect of their receipts for such contracts. As a result a substantial tax had already been assessed. They were intending to broaden the process. However, this is closing the stable door after the horse has bolted because there is a lack of seriousness in the enforcement through the mechanisms that already exist such as the whistleblower act and the public protector. There appears to be up to now a lack of political will to utilise these mechanisms to their best advantage.”

e-Tolls, SANRAL and graduate Tax

Warren Martin, Director: Corporate Tax, Grant Thornton Pretoria
“E-tolls and graduate tax was not mentioned at all, which was very surprising after all that excitement and hype.”

Warren Martin, Director: Corporate Tax, Grant Thornton Pretoria
“The amount of R1.4bn which was allocated to SANRAL is certainly not enough to cover national projects, Western Cape expansions and e-Toll plans, to name a few. It appears to be for future expansion projects.”

VAT

Cliff Watson, Associate director: Indirect Tax, Grant Thornton Johannesburg
“The streamlining of VAT Registration processes is especially welcomed – it will facilitate VAT processing significantly.”

Cliff Watson, Associate director: Indirect Tax, Grant Thornton Johannesburg
“The Minister advised that foreign companies that provide e-Books, music and other digital goods and services are liable now to register for VAT in SA. While the consumer will pick up the increased cost, this VAT change will increase the national income quite significantly. In addition, it’s in line with the EU VAT legislation. However, it is going to be quite difficult for SARS to police this and track the VAT payments here because downloading digital goods is from a multitude of channels. It was previously mentioned that SARS would be allowed to go to actual download sites (e.g. Amazon) to request downloaded information and track it there – it is questionable if this will be legally possible.”

Cliff Watson, Associate director: Indirect Tax, Grant Thornton Johannesburg
“It is encouraging that SARS will be researching the VAT treatment of financial services and the apportionment of input taxes within the financial services sector, during 2013. This has been an ambiguous area for quite some time. There is a specific VAT ruling in the Banking Services sector and there was talk it would be withdrawn in April this year. We wonder if this research will form part of this. In addition the apportionment method of input taxes relating to non-financial sectors will be re-evaluated looking ahead. This is perhaps as a result of consistent pressure from tax payers and their advisors. This move is most certainly welcomed.”

NHI

AJ Jansen van Nieuwenhuizen, Director and Head: Tax, Grant Thornton Johannesburg
“The Minister’s mention that the proposed funding for the NHI will be published this year, i.e. during 2013, at least provides a deadline to advise as to how this Health Insurance will indeed be funded. We were hoping for more clarity, though, during this Budget and yet another delay is frustrating.”

International tax

Barry Visser, Associate Director: Tax, Grant Thornton Johannesburg says:
“While there are currently withholding taxes on royalties of 12%, it looks like cross-border service fees will be included in the withholding tax framework. This is a new inclusion – in a way it’s a bit of a surprise which we weren’t expecting. This is something which people will consider when international companies are looking to invest in SA. Normally the double tax agreements provide for relief but still this is another withholding tax which foreign companies will need to consider when investing.

“Although there is currently a withholding tax of 12% for royalties this would have increased to 15% on 1 July 2013. However, the Minister has delayed this increase until 1 March 2014. Effectively royalties carries on at 10% and withholding tax on interest as well as the new cross border service fees will also only come into effect on next year on 1 March 2014. This brings some relief but foreign companies should prepare themselves for the added cross-border service fees, which is onerous.”

Property sector

Lee-Anne Bac, Director: Grant Thornton advisory services
“The Minister’s mention in terms of housing was beneficial. The fact that there is pressure on banks to increase the levels of mortgage loans provided is a positive aspect and it is certainly welcomed in terms of expanding property ownership.”

Lee-Anne Bac, Director: Grant Thornton advisory services
“The Minister spoke specifically about creating simpler rules in terms of reducing the time and cost for investing and operating in Africa. Many SA property companies are looking to expand into Africa and this announcement is particularly positive for these organisations.

AJ Jansen van Nieuwenhuizen, Director and Head: Tax, Grant Thornton Johannesburg
“Real Estate Investment Trusts (REIT) tax benefits will be extended to unlisted REITs and this is certainly welcomed although it is not likely to come into effect in the near future.”

Public sector

Christelle Grohmann, Director: Grant Thornton Advisory Services
“The NDP’s plans are based on achieving a growth rate of 5% per year. Yet actual growth is less than half – according to the Minister (2.3%) over the next three years. Also the Minister mentions revenue shortfall. The question is why don’t we see more involvement of the private sector in infrastructure projects as we would assume that, with a decrease in revenue and a decrease in growth there will naturally be a revenue gap to fund the NDP. We are still concerned that we see very little activity called for from the Private Sector to take part and actually fund this gap that is obviously increasing and which is expected to increase even further. We note no new Public-Private-Partnerships in recent months – and this is one method of creating Private Sector involvement.”

Christelle Grohmann, Director: Grant Thornton Advisory Services
“It is encouraging to see renewed activity in respect of the Special Economic Zones and the specific tax incentive which was mentioned by the Minister is certainly encouraging. However, profits need to be earned before tax incentives can come into play and there are concerns that many of these industrial parks are developing far too slowly due to service delivery issues at local government level and problems in electricity capacity.”

Terry Ramabulana, Director: Group leader, Public sector advisory, Grant Thornton Johannesburg
“In terms of the National Development Plan, the real focus from the Minister was on growth and development. These are issues which we have raised long time ago. Our question is that we haven’t seen enough change in the Government’s stance on this matter. In terms of the Presidential Infrastructure Co-ordinating Commission and its purpose, again we see this as a unit that would drive growth and development as well, especially from an infrastructure point of view. Going back to the NDP – what are the real differences here? Having said all this – there doesn’t seem to be a focused way of moving from equitable share to a point where revenue is distributed to where it is really needed – i.e. provincial and local government. In this instance, equitable share is ‘as per formula’ and not ‘as per real need’.”

Terry Ramabulana, Director: Group leader, Public sector advisory, Grant Thornton Johannesburg
“In terms of the allocation to the Provinces – R23.9 billion is available to provincial education departments for infrastructure over the next three years. The Minister has not mentioned how these funds will be managed and as in the past, we fear that there is no real mechanism is in place to ensure this money is spent for the purpose for which it was intended.”

Terry Ramabulana, Director: Group leader, Public sector advisory, Grant Thornton Johannesburg
“R4.3 billion has been allocated to a new grant to be administered by the Department of Water Affairs, providing water treatment, distribution, demand management and support for rural municipalities. The question here is what would the role be of the current utilities services which are entrusted with managing water services under the Municipalities? There is no indication as to how revenue collected by agents to the municipalities would be monitored. For instance taking into account ring-fencing revenue to monitor and track revenue collection and growth.”

Tweets

Hylton Cameron, Associate Director: Tax, Grant Thornton Johannesburg

Hylton Cameron, Associate Director: Tax – A budget of consolidation for 2013 #Budget2013 #SABudgetgt.co.za/publications/b…

— Grant Thornton (@GrantThorntonZA) February 28, 2013

AJ Jansen van Nieuwenhuizen, Director and Head: Tax, Grant Thornton Johannesburg

Video: Overall impact of the #Budget2013 on the taxpayer: youtu.be/XRi1pSt3rcM

— Grant Thornton (@GrantThorntonZA) February 28, 2013

Terry Ramabulana, Director: Group leader, Public sector advisory, Grant Thornton Johannesburg

Video: Keeping an eye on how #budget2013 provincial allocations will be spent : youtu.be/6kUOter0CI8

— Grant Thornton (@GrantThorntonZA) February 28, 2013

Gillian Saunders, Head: Advisory services, Grant Thornton Johannesburg

Video: @gillbat highlights the impact of #Budget2013 on the tourism industry: youtu.be/x18gZ-uxnC8

— Grant Thornton (@GrantThorntonZA) February 28, 2013

Cliff Watson, Associate director: Indirect Tax, Grant Thornton Johannesburg

Video @cliffordewatson – VAT registration for foreign co’s providing digital goods & services in SA #Budget2013 youtu.be/PoVAFMc3dQg

— Grant Thornton (@GrantThorntonZA) February 28, 2013

Christelle Grohmann, Director: Grant Thornton Advisory Services

Video: @christellegrohm discusses tax incentives for special economic zones from the #Budget2013: youtu.be/mxpbD3HEMxU

— Grant Thornton (@GrantThorntonZA) February 28, 2013

Lee-Anne Bac, Director: Grant Thornton advisory services

Video: @leeannebac talks about the impact of the #budget2013 on the property sector youtu.be/5KGRpsy6ylk

— Grant Thornton (@GrantThorntonZA) February 28, 2013

David Campbell, CEO: Grant Thornton Johannesburg

1,1% of SA tax payers contribute 24% of personal tax to government.Astonishing stat re SA tax base from GT expert “AJ” @grantthorntonza

— David Campbell (@campbers1) February 27, 2013

Claire Du Bourg, Associate Director: Corporate Finance, Grant Thornton Johannesburg

@grantthorntonza #2013budget event is well attended. Thanks to our JV partners JSE and UBS

— Claire Du Bourg (@Cdubourg) February 27, 2013

Lee-Anne Bac, Director: Grant Thornton advisory services

.@leeannebac proposed simplification of rules to reduce time & cost for imvesting in Africa positive for SA co’s expanding beyond borders

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Barry Visser, Associate Director: Tax, Grant Thornton Johannesburg

Video #Budget2013 Impact on cross-border service fees: youtu.be/tZRtxyVB9Sk

— Grant Thornton (@GrantThorntonZA) February 27, 2013

We’ll be keeping an eye on upcoming provincial budgets for better insight into how today’s provincial allocations will be spent #Budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Steven Kilfoil, Director: Corporate Finance, Grant Thornton Johannesburg

Video: Impact on the mining industry @skilfoilgt1 youtu.be/O-6imBqhSzE #Budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Christelle Grohmann, Director: Grant Thornton Advisory Services

We’re encouraged by renewed activity in IDZs, but they’re developing too slowly due to infrastructure constrants bit.ly/GTBudget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Our tax teams hard at work analysing the budget so you don’t have to. Visit bit.ly/GTBudget2013 #Budget2013 twitter.com/GrantThorntonZ…

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Willem Oberholzer, Grant Thornton Pretoria Tax Partner

Tax payers can breathe a sigh of relief because overall the status quo remains. Visit bit.ly/GTBudget2013 for more info #budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

AJ Jansen van Nieuwenhuizen, Director and Head: Tax, Grant Thornton Johannesburg

Lots of minor changes to pay attention to, but in general nothing major has been updated & the tax payer largely unaffected #Budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

.@skilfoilgt1 discussing impact of #budget2013 on the mining industry with @richsimmondsza twitter.com/GrantThorntonZ…

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Willem Oberholzer, Grant Thornton Pretoria Tax Partner

Discretionary trust will no longer act as a flow-through vehicle, all income to be fully taxed. Very bad for all beneficiaries #Budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Steven Kilfoil, Director: Corporate Finance, Grant Thornton Johannesburg

@grantthorntonza #budget2013 Surprised the Minister never used the last budget before election year to make Real changes. Bland budget

— Steven Kilfoil (@skilfoilgt1) February 27, 2013

AJ Jansen van Nieuwenhuizen, Director and Head: Tax, Grant Thornton Johannesburg

Real Estate Investment Trusts tax benefits will be extended to unlisted REITs in the future and this is welcomed #Budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Warren Martin, Director: Corporate Tax, Grant Thornton Pretoria

e-tolls and graduate tax was not mentioned at all – after all that excitement and hype. #Budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Steven Kilfoil, Director: Corporate Finance, Grant Thornton Johannesburg

@grantthorntonza Reason says e-tolling should have been mentioned in the budget… Instinct says Pravin felt it safer to avoid it!!!

— Steven Kilfoil (@skilfoilgt1) February 27, 2013

Barry Visser, Associate Director: Tax, Grant Thornton Johannesburg

We welcome the Minister’s announcement to automate tax clearance certificates because there are definite frustrations currently. #SABudget

— Grant Thornton (@GrantThorntonZA) February 27, 2013

AJ Jansen van Nieuwenhuizen, Director and Head: Tax, Grant Thornton Johannesburg

We’re pleased SARS has given a deadline as to how NHI will be funded but we did hope for more clarity. The delay is frustrating. #Budget2013

— Grant Thornton (@GrantThorntonZA) February 27, 2013

Neville Sweidan, Head: Forensic Services, Grant Thornton Johannesburg
“The Minister gave a long discourse on the government’s determination to fight corruption with particular reference to procurement. Particularly through the mechanism of the receiver of revenue SARS has started to target businesses that have supply contracts with the payment of taxes in respect of their receipts for such contracts. As a result a substantial tax had already been assessed. They were intending to broaden the process. However, this is closing the stable door after the horse has bolted because there is a lack of seriousness in the enforcement through the mechanisms that already exist such as the whistleblower act and the public protector. There appears to be up to now a lack of political will to utilise these mechanisms to their best advantage.”

Reason says: Your taxes are due.
Instinct says: Don’t pay more than you need to.

New tax regulation is never simple. By using both reason and instinct, you can find a way to reduce your tax exposure and maximise growth. We are Grant Thornton and it’s what we do for our clients every day. Our specialist tax teams can help you optimise your tax strategy, saving you both time and costs.

How will Minister Gordhan’s Budget support a growing economy?
How will your tax obligations impact on your growth?

Visit our mobile-friendly Budget 2013 website for:

• 2013 Grant Thornton Budget tax data card
• user-friendly tax calculator – see what your potential tax savings are and how government is spending your tax rands
• interest rate comparisons
• Finance Minister Pravin Gordhan’s Budget speech

At Grant Thornton, we don’t treat trainees as working capital. For us, you are investment capital. Congratulations to the 56 candidates who passed the 2012 Public Practice Examination (PPE) – the final assessment of professional competence for candidates wishing to register as a Registered Auditor (RA) or Chartered Accountant (CA)(SA).

Visit our dedicated graduate careers website to apply for a bursary, vacation work or a training contract.

Although speculation abounds as to what surprises Finance Minister Pravin Gordhan may spring on the economy in his annual National Budget Speech taking place on 27 February 2013, the real focus for tax payers this year should be on compliance with the new Tax Administration Act (TAA) that came into effect on 1 October 2012, because penalties for non-compliance are onerous to say the least.

“Corporate tax levels are expected to be unchanged this year, dividend tax amendments are already well underway following last year’s announcements and we may see slight bracket creep in some of the changes from this year’s Budget Speech, but overall we’re not expecting any huge surprises,” says Willem Oberholzer, tax partner at Grant Thornton Pretoria. “However, SA’s ‘golden goose’ will be expected to take on more of an administrative tax burden when new legislation forces individuals to be extra vigilant and responsible in order to avoid new burdensome penalties for non-compliance.”

The ‘golden goose’ refers to the small minority of taxpayers (roughly 2.2%) who earn more than R1 million annually, and who contribute in excess of R71 Billion (over 25%) of personal tax income to sustain the rest of the country and keep the wheels of the state turning.

With the introduction of TAA, effective 1 October 2012, mandatory penalties will now be levied on individuals who may be knowingly declaring below expected revenues or perhaps mistakenly claiming for invalid expenses.

Oberholzer warns that these penalties will vary from between 5% and 200% depending on a number of important factors.

“The TAA states that if there are any penalties and interests accruing for an individual as a result of late filing, non-submission, or incorrect claiming, a compulsory penalty has been declared,” adds Oberholzer.

He advises that voluntary disclosure by tax payers will be given amnesty at this stage, but if the admission of guilt is accompanied by a written audit letter, evaders could expect to pay anything between 5% and 75% of their taxable income as a penalty, depending on the degree of avoidance in question. Worst case scenarios will see penalties of up to 200% of an individual’s taxable income being imposed on serious offenders who choose not to declare appropriately and who are deemed to be negligible on all accounts.

“What’s important is for the flock of golden geese to ensure that due care is taken in a preventative effort to reduce the penalty risk exposure,” continues Oberholzer. “When the tax burden on this group of individuals is already so onerous, extra care should be taken to ensure that no additional funds are lost due to carelessness.”

In order to avoid penalties on under declaration of income when completing provisional tax returns, Oberholzer recommends that individuals keep an up to date record of income and expenses incurred, at all times – not just at year end.

“Regular discussions with your tax advisors will also help to ensure that personal accounting records are accurate and well maintained at all times,” says Oberholzer. “Overall it’s about taking greater care to complete your income tax returns so that any variances, omitted information or errors which are identified can be declared voluntarily to SARS, thereby ensuring that penalties of any kind are reduced to the absolute minimum.

“The above could go a long way to ensure that our flock of golden geese can in fact still afford their well-deserved breaks to the coastal regions of our fine country, as opposed to seeing the SARS getting hold the goose’s last remaining savings due to errors which could have been avoided, on our income tax returns,” Oberholzer concludes.

Download the Grant Thornton International business report: Focus on South Africa.

Over and above post-recessional blows, nationwide strikes and instability in our mining sector, recent Grant Thornton research has revealed that additional issues – particularly political insecurity, regulatory concerns and public policy issues – are adding further unnecessary pressure to the stability of South Africa’s business environment.

Grant Thornton’s quarterly tracker data for the fourth quarter of 2012 reveals that just under half of South African business leaders (48%) cite that uncertainty about the future political direction of the country is impacting on their future business decisions. Business owners have admitted they are delaying making important business judgements about the upcoming prospects for their organisations, with 26% seriously considering investing offshore in an alternative economy that’s more stable.

Other core constraints noted which directly impact SA business expansion plans include socio-economic factors such as crime and corruption, the lack of available skills in the current workforce and poor government service delivery.

Deepak Nagar, national chairman of Grant Thornton SA said: “Next year – 2014 – is a national election year for South Africa. Those who successfully formulate feasible solutions to these concerns would certainly take the lead on next year’s electoral battle ground.”

The Grant Thornton International Business Report (IBR) provides quarterly tracker insights into the views and expectations of over 12 000 businesses surveyed in total per year across 44 economies. The Q4 data for IBR to December 2012 also highlights regional and national business owner perceptions regarding crime, service delivery and political climate for SA business owners.

Business constraints in South Africa
Nagar noted that the constraints highlighted by South African business executives each quarter are consistently the same. “The fact that these results indicate such similar business concerns each and every quarter emphasises just how critical these issues are for South African business owners.”

When SA business owners were asked what barriers or constraints were affecting business growth and expansion for the future, a lack of skilled workers (47%) continues to be cited as the key growth constraint, well above the BRIC average (36%).

“In line with BRIC business leaders, 42% of executives in South Africa agree that overregulation and complex red tape also constricts business growth and this highlights how stifling regulatory systems and processes affect the day-to-day functions within a company,” Nagar continued.

Government and public policy
The Q4 Grant Thornton IBR 2012 survey revealed that a massive 58% of medium sized businesses throughout South Africa researched during 2012 have been affected by poor government service delivery with 43% of those affected indicating that utilities (electricity supply) are the direct cause for their complaint, followed by billing issues (28%) and roads (20%).

Crime & security
Crime is still a massive concern for SA businesses and three out of every five South African business leaders report that either their immediate families or staff had their personal security directly threatened through a contact crime incident in the past 12 months. Contact crime is defined in the research as housebreaking, violent crime, road rage or hijacking.

Nagar states however that this crime statistic continues on a downward trend, with the national data for 2012 at 52%, a decline of more than 30% than what was recorded in 2007 (84%). Regionally KwaZulu-Natal tops the charts at (59%), Western Cape (53%), Eastern Cape (49%) and Gauteng (49%).

“The impact that crime has on SA as a whole is unacceptable and, while we continue to express relief that this trend line is steadily declining each year, much more focus needs to be given to this scourge once and for all, to ensure that crime does not continue to impact on our daily lives,” said Nagar.

The IBR data highlighted that a startling 63% of business leaders who stated crime as a real concern in the past year reported that they had experienced increased costs for security systems in their organisations. But when asked if any executives had given serious consideration to emigrating as a result of the dire crime situation, only 22% stated that they were considering it.

Glimmer of hope on the horizon
But the results are not all doom and gloom.

“Some of the legislation, systems and processes are certainly working to improve business trading conditions nationwide,” added Nagar.

Q4 Grant Thornton IBR research for 2012 indicates that the SA economy is forecast to have expanded by 2.6% in 2012, with the international exposure of key sectors such as mining and manufacturing weighing positively on growth.

Furthermore, growth is expected to accelerate to 3.1% in 2013 and 3.8% in 2014 in line with a modest global recovery, although further strikes represent a major downside risk.

“Expected growth improvements are anticipated to pick up even further in SA from 2015-17 as the ranks of the black middle class swell, boosting consumer spending on durable goods and services such as telecommunications and banking,” said Nagar.

The data also highlights that SA business expectations for growing revenues look healthy at 76%, up from 71% in Q3. Nagar noted that this is the highest level recorded in two years, but expectations here are lagging the BRIC average (81%), although both SA and BRIC economies are well above the global figure (45%).

Businesses in South Africa are recorded to be equally as optimistic as their peers in the BRIC economies about business prospects for 2013 (SA – 38%; BRIC – 39%), but SA business confidence is significantly down from 2010 (60%).

The results reveal that global business optimism levels are considerably lower than the emerging economies in the BRIC region, with confidence about business prospects at a low 4% in Q4 2012. This figure fell 50%, from 8% just three months earlier.

Nagar urges South Africa’s business leaders to join forces with public sector and government, industry-wide, to develop mutually beneficial solutions.

“Corporations have an obligation to meet shareholder objectives and to stimulate economic growth. If they are unable to do this, the domino effect is insufficient employment opportunities which ultimately results in an increase in crime,” he says.

“If private business owners would work together with government better to address poor performance on service delivery concerns such as utilities, billing issues and road issues, only then would we be able to achieve the country’s goals to eliminate poverty and reduce inequality.”

Click here to listen (link opens in a new window).

In terms of the results for 2012, South Africa is also the only African country to be ranked in the Top 15 emerging economies worldwide.

• IBR 2012 report: Emerging markets opportunity index: high growth economies
• Emerging markets opportunity index infographic
• Grant Thornton International business report data visualisation tool

“Although recent events in the mining sector have hurt our country’s reputation as a destination of choice for foreign direct investment (FDI) there are significant benefits that continue to attract investors,” says Deepak Nagar, national chairman, Grant Thornton South Africa.

The Grant Thornton emerging markets opportunity index brings together a number of key indicators incorporating the firm’s International Business Report (IBR) data with the emerging markets research from the World Bank, the International Monetary Fund (IMF) and the United Nations Human Development Report. Indicators incorporated include factors such as economic size, population, wealth, involvement in world trade, growth prospects and levels of development in order to rank the 27 largest emerging economies in terms of their potential for business investment.

SA has climbed one place to 14th in terms of global rankings in the Emerging Economies survey, maintaining its position as the highest ranked African economy, ahead of Nigeria which climbed nine places to 17th.

“With Nigeria improving its ranking by nine places since the previous survey, South Africa will need to improve its competitive edge in order to maintain its leading ranking in the years to come,” says Nagar.

The only other two African countries to be ranked in the Emerging Markets Opportunity Index were Egypt (22nd) and Algeria (26th).

Figure 1: Grant Thornton Emerging Markets Opportunities Index – Ranking

Click to zoom.

Investing in South Africa
The survey highlighted that inflows of FDI into SA’s local economy have been volatile over the past decade. They peaked at US$9bn in 2008 before the financial crisis struck, recovering to US$6bn in 2011. Inflows over the first half of 2012 were down 44% compared with the same period in 2011.

SA’s banking sector has long been rated among the top 10 globally and its financial system, one of the most developed in Africa, continues to grow. The Johannesburg Stock Exchange (JSE) is the largest securities exchange on the continent and ranks among the top 20 exchanges in the world in terms of market capitalisation. South Africa’s exchange control landscape is virtually non-existent so the ease of funds introduced and remitted is extremely comforting for foreign investors.

“It is a well-known fact internationally that SA’s financial systems are sophisticated, robust and well-regulated while its economy boasts a world-class securities exchange,” adds Nagar. “The government has identified massive infrastructure projects as key to boosting the economic growth rate, as well as creating employment, and it is spending billions of rand on getting the investment ball rolling.”

Another key attraction for international investors is the country’s strategic geographic location. It acts as the gateway to Africa, a continent boasting many of the fastest growing emerging economies in the world. The country also offers world-class ICT and transport infrastructure, boosted by investment ahead of the 2010 FIFA World Cup.

But Nagar urges international investors to get to grips with the regulatory complexities in SA because the country has a host of rules and compliance requirements.

“Foreign companies looking to take advantage of what South Africa offers need to be aware that there are some negative administrative barriers as well as processes which lack consistency, efficiency and transparency – and which generally interfere with the operation of free markets,” he says.

This situation, however, is not unique to SA alone.

When business leaders were asked what they saw as the major challenges to the international growth prospects of their operations, executives stated over-regulation and legislation (red-tape) as the biggest constraint in terms of growth and expansion – nearly one in every two (45%) said it was a barrier. This was ahead of finding the right workers (35%), cultural and linguistic barriers (31%), logistics (28%) and access to finance (20%).

Like businesses in other emerging markets, SA businesses are bullish about business for the year ahead, according to the recent emerging markets opportunity index.

2013 outlook
Looking ahead to 2013 the report revealed that 71 % of local businesses expect an increase in revenues in their businesses over the next 12 months and forecast growth for 2013 to 2017 is 4.1% (compared to 2.5% for 2012).

In terms of international expansion by SA business owners, 80% of South African businesses are looking at other parts of Africa for investment. In addition, 12% are looking to expand internationally, with 47% of these businesses looking specifically at countries around the world with better access to skilled labour when choosing an economy in which to invest.

Grant Thornton’s IBR results indicate businesses in emerging markets are far more confident than their peers in mature markets about the outlook for both their economies and their own operations over the next 12 months.

Ranking the emerging economies globally
When looking at other countries ranked in the survey mainland China remains way out in front at the head of the emerging economies index, by virtue of its strong economic growth rates and large consumer market. India, ranked in second place, also has a large population and is forecast to grow robustly over the medium term.

Russia is once again in third place, owing to high GDP per capita and strong exports, especially of natural resources. Brazil has moved above Mexico (5th position) in this year’s survey, to fourth position, thanks to strong GDP growth rates in 2010-11. Turkey, 6th, and Indonesia in seventh position complete a top seven which, taken together, are expected to account for 45% of global growth over the next five years.

In response to the following statement by the Minister:“As we encourage the mining sector to invest in this country and on the African continent, it is imperative that we work together by creating, amongst others, a competitive tax regime to ensure that our mining jurisdiction becomes a sector of choice for the investment in our economy and the rest of our continent.” 

Steven Kilfoil agrees with this statement. “As I said yesterday in the Grant Thornton media statement released on mine exploration, the focus on tax relief should not be on current production and current capacity. Instead the relief provided should incentivise exploration and perhaps also beneficiation. There are first world examples of how this has helped in building a pipeline in places like Canada. We need to take the best of breed examples and incorporate them into a workable solution for South Africa,” says Kilfoil.

“If the Minister also feels that the rest of the continent must be a focus in terms of the mining itself, then we must become the beneficiator of choice for other countries.” “We need to partner with other African governments to ensure that the off-take comes here for processing and not elsewhere in the world. Perhaps this has to be a ‘skills for off-take’ type arrangement. We help with the skills transfer of workers in other countries in terms of important mining aspects, and in return they agree to give South Africa the opportunity to beneficiate the materials.”
 In response to the following statement by the Minister: “We observe with concern the focus on short term gains which disregard the long term prospects of sustainability. These practices are not in the interests of any stakeholder, including the shareholders as these are based on the principle of “downsize and distribute” rather than “retain and invest”. Once again, Kilfoil concurs with Minister Shabangu’s statement here. “But we need to acknowledge that the problem lies in the implementation and execution of this notion,” he says. “Knee-jerk reactions to announcements by business (Shabangu’s accusation of arrogance on the part of the mining companies when they announce retrenchment plans etc), score quick points, but they don’t address the long term needs of the industry,” says Kilfoil. “Similarly, the mining houses themselves need to stop making decisions due to short term drops in commodity prices or labour disputes or similar.” 

“In order to have a sustainable industry, it is vital for both government and, more importantly, for organised labour to bring greater flexibility to what is an incredibly volatile sector. C

Currently it appears that only the business sector is showing flexibility by making alternative concessions to difficult market conditions, such as a drop in Platinum prices.” “We need pro-active intervention from both Government and labour looking at the long term sustainability of theindustry.