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.

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).

Click to Zoom

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.

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.

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%).

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.”

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.

That’s according to the latest Grant Thornton International Business Report (IBR) entitled “Global Economy 2013: Uncertainty weighing on growth”, a survey of more than 12000 business leaders annually across more than economies.

“Potential investors from developed economies have highlighted South Africa as one of the top investment hotspots on the African continent, when considering boosting their growth prospects through international expansion plans,” says Jeanette Hern partner and head of Corporate Finance at Grant Thornton Johannesburg.

But Hern warned that SA is just not keeping pace with other emerging markets as attractive destinations for foreign investment.

Overall 57% of international business leaders considering global expansion are looking at the five biggest emerging economies – China, India, Russia, Brazil and Mexico – compared with 38% looking at Western Europe and 33% at North America. In contrast, privately held businesses ranked the African continent at 13% with South Africa achieving a 12% response as a potential investment hotspot for 2013.

Figure 1: International investment hotspots

The South African businessman – an eternal optimist
When assessing business optimism for future business prospects, IBR results indicate that businesses in emerging economies generally remain more confident about the prospects for their economies over the next 12 months than their peers in developed countries where growth prospects for the year ahead are considerably lower.

Of the 41 countries included in Grant Thornton’s annual optimism survey, South African business owners were the 11th most positive for 2012 overall, about business prospects for the next 12 months.

According to Hern South African business owners are recorded as being the most optimistic executives in the emerging economies sector when trends for the past ten years are assessed.

“Our optimism trend line between 2003 and 2012 indicates that South Africa’s average optimism balance* is 59% followed closely by China at 52%,” says Hern. “The overall BRIC economies optimism trend for 2007 to 2012 is 55%, which clearly defines the South African business executive as the eternal optimist.”

In comparison, the global optimism trend for the same decade under review was more than 65% lower than the BRIC economies at +20%, with Japan (-56%) and Spain (-33%) recording the greatest degree of pessimism in terms of prospects for their economies for the coming 12 months.

Growth prospects for 2013
On the back of strong optimism data recorded across the emerging markets, businesses in the Latin American economies of Brazil, Peru and Mexico as well as in South Africa appear well placed for growth moving into 2013 with strong order books and higher revenue expectations recorded in the survey.

In contrast Ed Nusbaum, Grant Thornton International’s global CEO added that growth rates in and around Europe look set to disappoint for the next 12 months.

“Across the Atlantic, economic growth in the United States remains weak and unemployment is high,” he said.

In terms of expected growth rates most emerging economies feature healthy improvements for 2013.

China’s growth rate is expected to pick up to 8.2% in 2013, from 7.8% in 2012, even as the new leadership tries to move economic drivers away from exports and investment towards consumption. The Brazilian economy has endured a difficult past 24 months of little growth, but it is forecast to expand from 1.5% to 4.0% in 2013.

South Africa’s forecast growth expansion rates are stronger than those of Brazil with a rate of 5.7% (up from 5%) expected for 2013.

But Hern cautioned that new fears regarding rising prices and wage bills will directly fuel inflation in South Africa.

“Business sentiment at the start of 2013 has dwindled with anecdotal evidence of weaker order books. This is coupled with the on-going labour instability, which is adding further unease in the South African economy.

Is the national shortage of skills still keeping SA business leaders awake at night?
The Grant Thornton IBR Economic Outlook 2013 research indicated that SA businesses will continue to be constrained by the perennial shortage of skilled workers.

The survey found that despite planning to hire more skilled workers in 2013, South African business leaders – like their counterparts in the BRIC economies, specifically Brazil, India and China- remain unsure that the talent available matches their requirements.

Figure 2: Expectations for hiring staff against availability of skilled workers

“The survey also highlighted that South African business executives are among the most stressed people in the world,” said Hern. “Nearly half of senior executives cited that they are taking on too much responsibility due to the current shortage of skilled workers, which is also causing increased operating costs”.

Globally, the core cause of for stress cited by business owners is the need to meet performance targets. Internationally 30% of business leaders stated that this issue is the major cause of workplace stress, with a resounding 37 of the 40 economies agreeing with them.

“South Africans in privately held businesses also tend to take fewer holidays than their European and Asia Pacific counterparts, despite the clear awareness that business leaders who take vacations are likely to be less stressed in the workplace, which is concerning,” Hern added.

Figure 3: Holidays taken vs. levels of stress

Workforce expansion plans and salary increases
“Looking ahead, global economic uncertainty continues to depress business hiring plans,” says Grant Thornton International’s CEO Ed Nusbaum.

The survey revealed that 27% of businesses globally expect to increase employment in 2013, down one percentage point from 2011 and below the pre-crisis level of 33%.

“But, higher growth rates in emerging economies are allowing businesses to consider expanding their workforces to a much greater extent than their peers in mature economies: 41% of BRIC businesses are planning to hire more workers over the next 12 months, with the Latin American average even higher at net 45%, and Asia Pacific (excl. Japan) not far behind (38%),” continued Nusbaum.

Employees in South Africa – as well as those in Sweden, Brazil and Norway – look set to benefit from higher wages over the next 12 months.

“South Africa’s labour unions ensure that employees get salary increases every year, which sets the tone for the private sector. It is very rare for the local workforce to experience a 0% wage hike annually,” said Jeanette Hern.

But employees in Greece, Ireland and Japan are unlikely to be as fortunate. In fact, 31% of businesses in Greece and 10% in Spain plan to reduce salaries over the next 12 months.

“Continuing to increase salaries every year in a struggling economy places South Africa firmly in the danger zone for rising inflation over the next 12 months along with India, Brazil, Peru, Chile, Mexico and Botswana,” Hern says. “This could have a negative impact on each of these countries’ growth expectations for the year ahead.”

Hern concludes that conditions are tough, but by applying both ‘reason and instinct’ to decision making, dynamic businesses can navigate through the strong economic headwinds in 2013.

Crime and the political climate continue to pose a serious threat to businesses in South Africa, placing executives under financial pressure, impacting on their business decisions and, in some cases, causing business owners to leave the country.

This is according to the latest results from Grant Thornton’s International Business Review (IBR) – a quarterly tracker providing insights into the views and expectations of over 12000 businesses surveyed in total per year across 40 economies.

The IBR data also highlights regional and national business owner perceptions about crime, service delivery and political climate for SA business owners in the third quarter of 2012 (rolling average data).

Highlights from IBR Tracker for Q3 2012
49% of SA businesses affected by crime in Q3, KZN worst affected, Western Cape least affected
Crime remains biggest driver behind emigration (74%), but political uncertainty a growing contributor – 70%, up 23% from 2011
Political uncertainty driving improved BEE statuses, 8% growth from 2011, but also delaying business decisions
Poor service delivery affects 57% of SA businesses, gas & electricity the greatest concern
Red tape and lack of skilled workforce remain greatest business constraints in SA
SA more optimistic (51%) than Bric counterparts, global averages

Crime and emigration
Every quarter, business owners are asked whether they or their immediate family or staff have been directly affected by a threat to personal security (housebreaking, violent crime, road rage, hijacking).

Grant Thornton’s IBR tracker for the third quarter of 2012 reveals that 49% of privately held businesses have been negatively affected by crime over the past 12 months compared to 46% in 2011. Business owners in KZN were the worst affected (55%) while those in the Western Cape were the least impacted (45%).

Since 2007, when Grant Thornton first began to research this concern, the national figure of those affected by contact crime has declined by 37%. Despite this, the increase reflected in the most recent data suggests that crime remains a real and lasting threat to businesses in South Africa.

Again, despite observing an improvement in KZN, the Eastern Cape and the Western Cape between 2010 and 2011, the threat of crime has started to rise again according to the Q3 2012 data.

Increased cost of security was identified as the greatest financial burden of crime, affecting the majority of business owners across all four provinces surveyed. According to the Q3 2012 data, 65% of executives in the Eastern Cape, 63% in KZN, 53% in Gauteng and 52% in the Western Cape feel the financial pressure of crime on their businesses.

Decreased motivation and productivity, loss of staff and customers and decreased creativity, ingenuity and resourcefulness were the other negative financial impacts of crime identified.

“Crime remains a critical issue, as apart from the negative impact on business and families, this has been a significant driver behind people’s decision to emigrate,” says Nagar.

Crime was identified by 74% of those surveyed in Q3 2012 as the biggest driver behind emigration – up 12% since 2011. Only slightly less worrying to business owners in South Africa was political uncertainty which at 70% was showing a 23% increase on 2011. The data for Q3 also identified poor health care and poor education standards as increasingly compelling reasons for leaving the country permanently.

The Q3 2012 rolling average data showed that a whopping 70% of those surveyed considered South Africa’s uncertain political climate as motivation for emigration – a 23% increase from 2011. Those citing poor quality of public health care as a reason to leave the country rose by 26% in the third quarter of 2012 from 22% last year, while 21% more executives were prompted by poor quality of education than in 2011 (27%).

Other factors prompting emigration were racial discrimination and better business opportunities elsewhere.

Despite these factors becoming more compelling reasons to leave the country in the last quarter, regionally, the number of respondents considering emigration declined in three of the four provinces surveyed, with only a marginal increase in the Western Cape. Those most likely to leave are executives in Gauteng (Q3 2012: 22%).

Political uncertainty
Uncertainty about the future political direction of the country was, ironically, identified as a major driver of BEE amongst the owners of private businesses in South Africa. This uncertainty was also increasingly likely to see businesses putting off major business decisions for the time being.

“Despite the negative impact of politics on these businesses, an increasing number of respondents are choosing to position themselves as best they can in light of these challenges by taking steps to improve their BEE status,” commented Nagar on the 8% increase from 2011 (2012 Q3 : 25%).

Some executives said that the political climate had caused them to consider selling their businesses, while a minority said they were seriously considering emigration.

Poor service delivery
The IBR tracker data for Q3 2012 revealed that 57% of business owners surveyed are negatively affected by poor government service delivery. Although this figure is down 2% from the second quarter rolling average (59%), it remains higher than in 2011 (53%).

On a regional level, all four provinces surveyed noted a growing negative impact of poor service delivery on their businesses. While the Eastern Cape remained the province most affected in the third quarter (Q3 2012: 66%; 2011: 63%), business owners in Gauteng experienced the largest increase since 2011, with 56% feeling the impact of poor service delivery (2011: 50%). In Q3 2012, 2% more executives in KZN and the Western Cape were affected than in 2011.

When executives were asked what aspect of government service delivery had most negatively affected their businesses in Q3 2012, respondents in all four provinces identified utilities (gas and electricity) as the greatest constraint.

Looking at the regional data, business owners in Gauteng were most severely affected by utilities issues (49%) with those in the Western Cape the least affected (35%).

Other issues identified included billing issues (rates and taxes), poor road conditions (potholes and traffic lights) and other, which included bribery, corruption and mismanagement, industrial strike action impacting on people getting to work, amongst others.

Business constraints
With the exception of regulations, the lack of availability of a skilled workforce and transport infrastructure, the Q3 data for 2012 revealed that South African executives face fewer constraints than their BRIC counterparts and in many instances are below the global averages as well.

Regulations/red tape remains the biggest constraint for South African businesses at 40% while the lack of availability of a skilled workforce follows closely behind with 38% of respondents citing this as a problem

Encouragingly, far fewer businesses in South Africa are constrained by a shortage of working capital, reduced demand, cost of finance, shortage of long term finance and ICT infrastructure when compared to their BRIC nation counterparts.

While 37% of BRIC respondents experienced order shortages in the third quarter of 2012, this figure was only 19% in South Africa (global 34%).

Similarly, only 13% of South African executives find access to long term finance restrictive (Bric: 29%; global: 22%) and just 18% find the cost of finance to be prohibitive compared to 34% in the Bric countries.

“Although South Africa is clearly protected from many factors impeding business expansion, red tape and an endemic skills shortage continues to pose a challenge to many executives,” says Nagar, “this is something that needs to be addressed urgently and hopefully, government’s large-scale infrastructure development plans will create a solid platform for skills development.”

Global tracker elements – Q3 economic update Business optimism (SA global and BRIC comparison)
The feeling of optimism amongst South African privately-owned businesses about doing business in South Africa and across the globe, continued to decline in the third quarter of 2012, according to the latest results of Grant Thornton’s International Business Review (IBR) survey. That said, South African business owners remain slightly more optimistic than their BRIC counterparts, and significantly more optimistic than owners of private businesses on average.

Global perceptions from over 11 500 business owners in 40 economies are also tracked quarterly.

Business owners are asked each quarter to state how optimistic or pessimistic they are about their countries’ economy for the next 12 months. The Q3 rolling average economic data relating to Grant Thornton International’s Optimism/Pessimism Index, shows that South Africa’s optimism balance for the third quarter of 2012 is 51% compared to 58% in 2011 and 60% recorded for the same period in 2010. This is against a global optimism balance of just 13% (2011: 16%) and BRIC optimism of 34% (2011: 40%).

An “optimism balance” is the proportion of business owners reporting they are optimistic less those executives reporting they are pessimistic.

“Despite a notable downward trend in optimism across the globe from 2010, South Africa and the Bric nations remain far more upbeat when compared to the global average,” says Nagar, “and although local optimism has fallen 9% since 2011, we have noticed a much flatter decline than in the Bric countries.”

Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 12,000 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and 10 years for many non-European economies. For more information, please visit: http://www.internationalbusinessreport.com

Data collection
Data collection is managed by Grant Thornton International’s core research partner -Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.

Sample
IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,000 businesses from all industry sectors across the globe conducted in May/June 2012. The target respondents are chief executive officers, managing directors, chairmen or other senior executives.

Four in ten businesses globally say the eurozone crisis has had a negative impact on their business, according to the latest Grant Thornton International Business Report (IBR). This is estimated to have wiped US$2 trillion off revenues globally. Businesses in South Africa estimate that revenues have declined by US$15bn as a result of the eurozone crisis.


With the crisis still rumbling on, the research also highlights the long-term damage to the prospects of the EU as businesses consider doing less trade in the region in the future.

According to the IBR, the impact of the eurozone crisis on business revenues has been severe: more than half of those negatively affected (54%) say their revenues have dropped by more than 3% as a result of the crisis, and one in three (32%) say they have taken at least a 6% hit. In the United States, the world’s largest economy, 11% of businesses say the crisis has caused their revenue to fall by 10% or more.

“It’s tricky to pin an exact figure on the total revenue lost as a result of the eurozone crisis. But our calculations, based on the IBR results and the proportion of global GDP accounted for by corporate revenues, suggest that businesses have lost close to US$2trillion as a result of the crisis,” says David Campbell, CEO of Grant Thornton Johannesburg.

“Clearly the crisis is doing far more than stifling sentiment in the region. Businesses are also losing money and their growth prospects are suffering, not just in Europe but across the globe.”

Although businesses in Europe have suffered the most acute effects of the eurozone crisis, the IBR reveals that the impact has spread widely and had considerable effect in other regions. Around one in three business leaders in the BRIC economies (36%), Asia-Pacific (34%), North America (31%) and Latin America (30%) cite a negative impact.

Perhaps more worryingly, 17% of businesses globally now say they are less likely to do business in Europe as a result of the crisis. This compares with just 10% when businesses were asked the same question about the Middle East & North Africa in 2011 following the Arab Spring.[1] Some of those most likely to stay away from Europe are businesses from Turkey (30%), China (25%), South East Asia (24%) and Latin America (18%).

Interestingly, many businesses in Europe are thinking the same thing; 27% of businesses within the eurozone are now less likely to do business with other members of the currency union.

Campbell added, “The concern is that the longer the crisis drags on, the greater the long-term damage to the reputation of Europe as a trading partner. If businesses in some of the fastest growing economies of the world begin to look elsewhere for the technology and skills to help them grow, then Europe will find it even harder to move past its current problems.

“The impact of the eurozone crisis on South Africa is exacerbated by the internal problems and issues that have recently beset the local economy. Unrest in the important sectors in mining and agriculture, together with the uncertainty regarding the political picture in the country, continue to hamper progress with economic development in the region. The key to a more optimistic outlook for 2013 lies in addressing the domestic issues, whilst maintaining a cautious stance to our eurozone dependency”.

Ends

Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 12,000 businesses per year across 41 economies. This unique survey draws upon 20 years of trend data for most European participants and 10 years for many non-European economies.

Data collection
Data collection is managed by Grant Thornton International’s core research partner – Experian. Questionnaires are translated into local languages with each participating country

having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.

Sample
IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,050 businesses from all industry sectors across the globe conducted in August/September 2012. The target respondents are chief executive officers, managing directors, chairmen or other senior executives.

The new index – developed by the Economist Intelligence Unit (EIU) for Grant Thornton, ranks 50 economies on 22 indicators of dynamism.

“The ratings go well beyond basic GDP data,” says Deepak Nagar, national chairman at Grant Thornton South Africa. “The dynamism indicators highlight key economic changes which have enabled recovery from the 2008-09 economic recession, thereby signifying nations more likely to experience a faster rate of future growth.”

In the survey, five areas were defined as key drivers to an economy’s dynamism, namely business operating environment, science & technology, labour & human capital, economics & growth, and the financing environment. Within these groups, there were 22 key data points that were analysed.

More than 400 senior executives from a broad range of countries and industries were interviewed to determine which aspects of these five attributes they deemed most important for business growth. This allowed for the weighting of each aspect according to its perceived relevance.

South Africa’s highest ranking of these attributes in the survey was in the economics & growth area, with an 18th position achievement overall, while the nation scored 21st position joint with Hungary, for its financing environment.

SA was 36th for science & technology, 39th for its business operating environment and it was ranked second last, at 49th position for labour & human capital.

“Our GDI rankings mirror the recent World Economic Forum’s (WEF) 2012-13 Global Competitive Index in which South Africa was ranked third overall for the country’s financial market development, an equally impressive ranking to that of economics & growth and its financing environment aspects highlighted in this Global Dynamism Index report,” says Nagar.

“In addition, South Africa’s poor labour & hiring capital score compares equally with the WEF’s rankings of SA at 113th for labour market efficiency (a drop of 18 places from last year), at 143rd for rigid hiring and firing practices, 140th for a lack of flexibility in wage determination by companies, and significant tensions in labour-employer relations where SA was ranked 144th out of 144 economies.”

Nagar adds that the GDI ranking of each economy across the five areas identified as drivers to an economy’s dynamism also provides some interesting comparisons between the relative strengths of mature and developing economies. The Nordic region is the most dynamic in the world according to the GDI, with Finland second overall scoring 70.5 and Sweden ranked 3rd globally (69.6).

“It is not surprising to see Singapore, and two Nordic nations – Finland and Sweden – occupy the top three places in the overall ranking,” continues Nagar. “All are open and trade-orientated – these nations also have well developed legal frameworks in place and invest heavily in R&D. All things dynamic businesses want to see.”

“These results clearly show above all that there are many different paths to, and aspects of, dynamism. Different economies offer different environments that can help, or hinder, business growth,” concludes Nagar.

Tweets

SA’s highest ranking – 18th out of 50 for economics & growth.Lowest – 49th for labour & human capital #GTGDI bit.ly/GT_gdi

— Grant Thornton (@GrantThorntonZA) October 1, 2012

Global Dynamism Index full report and infographics – #GTGDI bit.ly/GT_gdi

— Grant Thornton (@GrantThorntonZA) October 1, 2012

Global Dynamism Index reveals South African business still struggling to recover from recession #GTGDI bit.ly/GT_gdi

— Grant Thornton (@GrantThorntonZA) October 1, 2012

The Grant Thornton IBR is a quarterly survey of the views of senior executives in privately held businesses all over the world. The report surveys over 12,000 listed and privately held businesses in 40 economies annually.

The survey revealed that while 35% of BRIC businesses experienced shortages in terms of the quantities of orders being placed, this was only the case for 18% of those surveyed in South Africa.

Similarly, 34% of BRIC respondents felt constrained by the prohibitive cost of finance, compared to 17% in South Africa. 29% of businesses in the BRIC nations cited the shortage of access to long-term finance as a barrier to growth compared to 13% in South Africa.

Globally, 22% of business executives experienced difficulty in accessing long-term financing and high costs of finance.

“The South African economy has been insulated from much of the global market turbulence due, in part, to the country’s top ranked audit and accounting standards, a sound banking system, and well-regulated stock exchange,” says David Campbell, CEO of Grant Thornton Johannesburg (2011 World Economic Forum Global Competitiveness Index).

Campbell adds that South African businesses should view this local strength as an opportunity to make progress through long-term investments in research and development (R&D) and equipment that will place companies at an advantage once the developed world moves out of this recessionary period.

The IBR research reveals that businesses in the emerging markets lead the way in investing for long-term growth. 45% of businesses in the BRIC countries plan to increase investment in research and development over the next year, compared to just 18% of businesses in the G7. Similarly, 47% of BRIC businesses plan to increase investment in plant & machinery over the next 12 months, compared to 37% in the G7.

He says that regardless of this opportunity, South Africa’s growth will continue to lag behind BRIC nations unless the endemic skills shortage is properly addressed.

Despite South Africa’s relative advantage in some areas, the survey once again identified the lack of a skilled workforce and overregulation and red tape as the two biggest blockages for economic growth in Q2 of 2012.

38% of South African executives said that the skills shortage affected their business (36% BRIC), while 37% believe that overregulation and red tape were hindering growth (36% BRIC). The survey revealed that both South Africa and the BRIC nations are more exposed to these constraints than the rest of the world (Global: 27%).

“With 25% unemployment and a modest 3% projection for growth, there is no ambiguity around the severity of our skills shortage,” says Campbell, “Unless we address how to appropriately up-skill and educate the population, South Africa will not be able to take advantage of the accessibility and affordability of finance to drive long-term growth.”

Data table: Business constraints

Source: Grant Thornton International Business Report (Q2 2012 rolling average)

Tweets

Businesses in the emerging markets lead the way in investing for long-term growth. #GTIBR gt.co.za/news/2012/08/s…

— Grant Thornton (@GrantThorntonZA) August 30, 2012

25% unemployment & modest 3% projection for growth, there is no ambiguity around the severity of SA skills shortage – @campbers1 #GTIBR

— Grant Thornton (@GrantThorntonZA) August 30, 2012

This is according to a global survey of 2,800 public and private businesses in 40 countries in May and June 2012 as part of the Grant Thornton International Business Report survey.

“Consensus from business leaders around the globe is that executive compensation is too high, which pinpoints an important issue amidst challenging global economic circumstances,” says Jeanette Hern, partner and head of corporate finance at Grant Thornton South Africa.

The survey revealed business leaders’ need for greater oversight, transparency and accountability in public companies from both a local and global standpoint.

Separation of roles was also of considerable concern globally, with 90% of South African respondents saying that the roles of CEO and Chairman should be held by different people to ensure greater oversight, compared to 80% globally and 88% in BRIC countries.

For each question in the survey, South Africa scored higher than its global and BRIC counterparts, highlighting local business leaders’ significant concern over insufficient oversight measures and issues related to executive remuneration.

85% of South African business leaders agreed that shareholders should have greater involvement in establishing remuneration policies for senior executives at public companies, well ahead of the global response of 67%.

Again, most South Africans responded “yes” when asked whether large public companies should disclose the remuneration policy and individual remuneration of directors (87%), ten percent higher than the global average.

“Investors have been hurt by the crises and tough global economic conditions characterising the past five years,” says Hern, “They want to know how their money is being spent and whether executives’ remuneration is in line with performance.”

This is especially true in Greece, where 100% of business leaders surveyed said that remuneration should be closely linked to performance, unsurprising in light of the country’s economic collapse and ongoing sovereign debt crisis.

South Africa was not far behind with 96% of respondents agreeing with Greek counterparts that executive pay should be directly linked to performance, compared to almost 90% globally and 92% in BRIC nations.

“In South Africa and abroad, public companies will face growing scrutiny from the community, investors and industry. These businesses need to ensure that their policies are known, understood and transparent, and that reward can be justified by performance,” she concludes.

Tweets

Video: Jeanette Hern discusses #GTIBR research on executive pay on bit.ly/PlCl9V @abndigital @cnbcafrica

— Grant Thornton (@GrantThorntonZA) August 15, 2012

Public company policies should be known, understood & transparent, reward based on performance – Jeanette Hern #GTIBR bit.ly/GTexecpay

— Grant Thornton (@GrantThorntonZA) August 13, 2012

“Until now, local consumers have been relatively shielded from price increases and buyers have been in a strong position thanks to strong wage increases and relatively benign price core inflation. We are, however, seeing that producers are under more and more pressure to pass these increases on to consumers as inflation is no longer just contained to increases in fuel and administered prices,” says Ian Scott, Managing Partner of Grant Thornton Cape.

According to Grant Thornton’s International Business Report (IBR) on the F&B industry, privately held businesses in the sector have until fairly recently absorbed a large chunk of price rises themselves, but they are running out of capacity to do this.

The Grant Thornton IBR provides insight into the views and expectations of 12,000 businesses per year across 40 economies. In South Africa a total of 150 interviews are conducted per quarter and this equates to 600 perceptions from privately held businesses in SA per annum. This unique survey draws upon 20 years of trend data for most European participants and nine years for many non-European economies.

“F&B retailers in South Africa have not been as badly affected by the recession as some of their counterparts in developed economies where consumption spending was very weak and basic food prices high. Producers in South Africa benefited from low prices of basic food items thanks to strong agricultural supply and could afford to keep prices intact and the consumer relatively happy,” says Scott.

This situation is changing due to food prices increasing at producer level and simultaneously, consumption spending being eroded in an environment of stronger inflation. The report shows that 41% of F&B businesses expect to increase their prices over the next 12 months, compared to 12% in 2010.

Another factor that contributes to higher costs for producers is the higher duties charged on imported commodity items such as olive oil. “This is perhaps a sign of increased protectionism in the global economy, but producers are not in the position to absorb these costs and there are indications they will have to pass these increases on to consumers,” says Scott.

However, these increases prices will not necessarily result in bigger profits – while 62% of those surveyed expect revenue to increase over the next 12 months, only 43% also see a rise in profits.

Scott warns that South Africa is facing a very real threat to the nation’s food security with significant pressure currently being imposed on the poultry industry. Kevin Lovell, CEO of the SA Poultry Association stated in the media recently that urgent government intervention is required in South Africa to protect the industry from the “dumping” of cheap imports on the local market. In addition, subsidies are urgently required to support emerging farmers in the Poultry Sector, in order to stimulate local production and development of the rural economy.

However, Grant Thornton’s IBR survey highlighted one area for growth and this is consumers’ increased demand for healthier and organic food. Approximately 44% of those surveyed see the trend for more home-cooking as an opportunity for growth.

“This trend is also emerging in South Africa, but there is a large disparity between those opting for organic food at the higher end of the price scale and those with a need for cheaper food. Locally, about 35 million consumers would opt for more basic food at a cheaper price, while only about 5 million at the upper end of the salary bracket opts for healthier and organic food.”

Scott believes this ties in with the trend seen by several F&B retailers where their ‘housebrands’ has seen more appeal recently as consumers are feeling the bite from price increases.

“South African F&B producers have proved themselves to be fairly resilient through turbulent economic times and I believe their innovative solutions and strategies will position them well to cope with any coming headwinds,” he concludes.

The IBR reveals the extent to which businesses in developing countries see the importance of major sporting events in attracting investment into their economy. In South Africa a convincing 78% of business leaders believe that big sporting events are key to attracting investment. Two years following our hosting of the FIFA Football World Cup, this positive sentiment is higher that it was just following the event when 73% of local businesses felt that the overall economic impact was a positive one.

“These new figures really indicate how important a major sporting event can be for an economy. For South African businesses to still recognise this economic knock-on from 2010 is testament to this fact,” says Gillian Saunders, head: advisory services at Grant Thornton South Africa which is actively involved in evaluating the economic impact of sporting events locally.

In Latin America, almost three quarters (74%) of business leaders believe major sporting events are important in attracting investment to their economy – in Brazil particularly 83% of businesses are expecting a positive impact on the economy as a result of the FIFA World Cup in 2014 and Olympic Games in 2016. Across the BRIC nations, over half (54%) hold this view. By contrast, far fewer businesses in the EU (42%) and North America (44%) believe in the ability of big sporting events to attract investment, dropping to just over one in three (36%) in the G7.

Saunders continues: “Holding a major sporting event gives an emerging country – often a less well known market with perceived challenges – a global shop window, allowing it to market what it has to offer to a massive worldwide audience. For more established economies, international sporting competitions are still a great opportunity, but are just one element of a much bigger ongoing offensive to attract investment.”

“The message is clear: if international sporting bodies want to make a positive impact on host countries’ economies, they should choose developing nations as hosts more often.”

It’s also more often the case that developed economies will have the venues, transport and technology infrastructure already in place for any major event. Capital investment to build new infrastructure is therefore much more limited in these economies, compared with the level of investment required in emerging markets such as was seen in SA in the build up to the FIFA World Cup.

With the UK currently in the spotlight, two thirds (61%) of business leaders believe that big sporting events will have a positive impact on the economy. In a similar vein, the UK government anticipates that the London Olympics will bring £13bn of economic benefits over the next four years – £6bn in the form of foreign direct investment.

Saunders added: “A big part of winning the race to host big international sporting events is convincing the public and businesses that the benefits will outweigh the obvious costs. Our research suggests that developed economies have to work a lot harder than emerging economies to make a convincing case.”

The research also indicates that business leaders in those economies which have recently held, or are soon to hold, major sporting events are more bullish about the investment they bring (the exception is China, where the legacy of the 2008 Olympic Games in Beijing remains unclear, probably because it occurred during a massive economic boom in a large economy so its impact was less, in relative terms).

For more information
Gillian Saunders, Head: Advisory services, Grant Thornton Johannesburg
T +27 11 322 4500 | C +27 83 258 5325 | gsaunders@gt.co.za

For media enquiries
Jennifer Kann, Marketing Consultant
C +27 83 455 3289 | jkann@gt.co.za

According to Grant Thornton’s International Business Report (IBR) on the F&B sector, local producers are hoping to vertically integrate their supply chains from grower to final consumer in order to overcome the projected scarcity concerns projected for the future and remain competitive. The report reveals that producers are optimistic about potential M&A opportunities in the year ahead.

“Much like global giant Walmart showing interest in South Africa’s Massmart, we’re expecting more activity of this nature in the next few years.” says Steven Kilfoil, Corporate finance director at Grant Thornton Johannesburg. “The F&B sector provides great opportunity for consolidation and the African continent is brimming with possibilities for those looking at new growth avenues.”

The Grant Thornton International Business Report on M&A activity which was released in May 2012 supports this view. “According to this report, 46% of South African businesses looking to expand through acquisitions over the next three years expect to do so through cross-border transactions.”

Kilfoil adds that the F&B sector has seen strong growth in the past few years. “It has proved itself to be very resilient and defensive in the recent turbulent economic period, as consumers continued to support this sector, both in the value and upmarket categories.”

According to the IBR on F&B, 20% of businesses in this sector globally are investigating M&A opportunities as this will help deliver scale for greater efficiencies and more muscle when negotiating prices with retailers.

Kilfoil says it is evident from the report that South African F&B producers are already gaining market share. “A number of them are already making use of the opportunities on the rest of the continent and gaining market share in other African countries.”

One reason why the African continent is so attractive for F&B activity is the fact that its agricultural sector provides plenty of opportunities for investment.

“We are positive about increased M&A activity in the F&B sector as the conditions seem ripe for investors looking to expand,” he concludes.

Grant Thornton’s tracker data for the second quarter of the assurance and advisory firm’s International Business Report (IBR) in 2012 continues to emphasise that poor government service delivery, especially utilities such as electricity concerns, is a real and continuous impediment to business growth in South Africa.

In light of this, Deepak Nagar, Grant Thornton South Africa’s national chairman, urges businesses to work together and with Government, to resolve service delivery concerns.

“Corporations have an obligation to meet shareholder objectives and 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. “Only by addressing poor performance on service delivery concerns such as utilities, billing issues and road concerns directly with government, can business help to achieve the country’s goals to eliminate poverty and create and reduce inequality.”

The Grant Thornton International Business Report (IBR) provides quarterly tracker insights into the views and expectations of over 12000 businesses surveyed in total per year across 40 economies. The Q2 data for IBR 2012 also highlights regional and national business owner perceptions regarding crime, service delivery and political climate for SA business owners.

Second quarter IBR data for 2012 reveals that a startling 59% of all SA business owners surveyed are negatively affected by poor government service delivery. This figure is up from 53% recorded in the first quarter of 2012. Data by region highlights that businesses in the Eastern Cape are battling the most with this issue with 65% of business executives surveyed confirming that poor government service delivery is a concern (Gauteng – 54%; KZN – 52% and Western Cape – 50%).

“It is interesting to note that sentiment surrounding poor service delivery of utilities has improved by 16% since Q4 2011, from 48% to 32%,” adds Nagar, “On the contrary, issues relating to billing concerns is increasing dramatically from 10% in Q4 2011 to the 25% of responses recorded in this second quarter of 2012.”

Other items highlighted in relation to poor service delivery issues in Government include roads (potholes and traffic lights), lack of policing (linked to a high crime rate) and absenteeism due to public sector strike action.

Political uncertainty
Another macro-economic factor currently impacting SA privately held businesses is the issue of political uncertainly. Grant Thornton’s Q2 tracker data for 2012 reveals that sentiment is improving marginally in this regard, with 29% of respondents indicating that uncertainty about the political direction of the country is impacting business decisions (down from 32% in 2011 – rolling average).

Of the 29% affected by political uncertainly, 26% are putting off investment decisions and 24% are considering investing offshore rather than in SA.

Crime and emigration
Every quarter, business owners are asked whether they or their immediate family or staff have been directly affected by a threat to personal security (housebreaking, violent crime, road rage, hijacking). Grant Thornton’s IBR tracker for the second quarter of 2012 reveals that 46% of privately held businesses have been negatively affected by crime over the past 12 months (2011 rolling average: 46%).

Crime also brings an additional financial burden to privately held businesses. When executives were asked in what ways had a threat to personal security affected business operations 52% stated increased costs of security as the biggest burden, with decreased motivation (21%) and decreased productivity (19%) also highly ranked.

Business constraints
When business owners were asked what they see as the biggest constraint to business expansion, a lack of availability of a skilled workforce (38%) and overregulation and red tape (37%) are by far the biggest factors impeding growth for SA businesses. Countries in the BRIC region concur with both of these factors ranked at 36% by BRIC business owners.

Global tracker elements – Q4 economic update
Global perceptions from over 12 000 business owners in 40 economies are also tracked quarterly.

Business owners are asked each quarter to state how optimistic or pessimistic they are about their country’s economic for the next 12 months. The Q2 rolling average economic data relating to Grant Thornton International’s Optimism / Pessimism Index, shows that South Africa’s optimism balance for the second quarter of 2012 is +53% compared to +58% in 2011 and +60% recorded for the same period in 2010. This is against a global optimism balance of just +12% (2011: +16%) and BRIC optimism of +35% (2011: +40%).

An “optimism balance” is the proportion of business owners reporting they are optimistic less those executives reporting they are pessimistic.

South Africa ranks 7th in terms of global optimism, behind Peru (96%), Chile (90%), Philippines (90%), Georgia (83%), Canada (70%) and India (67%).

 
Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 12,000 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and 10 years for many non-European economies.

Data collection
Data collection is managed by Grant Thornton International’s core research partner -Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.

Sample
IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,000 businesses from all industry sectors across the globe conducted in May/June 2012. The target respondents are chief executive officers, managing directors, chairmen or other senior executives.

This is lower than the average for all local businesses who reported a +54% optimism balance in the same survey, highlighting the stress under which the local property and construction sectors are currently operating.

“These low levels of optimism are a reflection of the tough trading conditions faced by both the property and construction industries,” says Lee-Anne Bac, head of Property advisory at Grant Thornton. 

“A reduction in orders due to the generally sluggish economy has impacted on these sectors and while we know that government’s infrastructure upgrade is in the pipeline there is no clear indication of when projects will be launched compounding concerns about the future.”

Grant Thornton’s International Business Report tracks quarterly insights into the views and expectations of over 11 500 owners of privately held business in 40 economies. These figures refer to the optimism balance for the one year period from the second quarter of 2011 to the first quarter of 2012. 

The report also highlights that the most significant constraints to doing business in the South African property and construction sectors are regulations and red tape (49%), the lack of availability of a skilled workforce (40%) and a shortage of demand (36%). 

“Although these are the top constraints identified for all South African businesses, they are particularly pertinent to the property and construction sectors; especially a shortage of demand/ orders which is a clear indication of a stagnant industry. Over regulation also has a real strangle-hold on this sector which could lead to further stagnation if not addressed,” says Bac.

However, because most privately held South African companies in these sectors focus predominantly on the local market and have limited international exposure relative to their total assets/ investments, they have been shielded from the poor performance of the global sector. International peers reported an optimism balance of a mere +8%.

The top constraints to doing business in the property and construction sectors internationally are regulation/red tape (29%), lack of long term finance (27%), cost of finance (26%) and lack of working capital (23%), making  three out of four finance related.

The findings show that local property and construction businesses are focussing on business fundamentals – looking to increase turnover and profitability – to improve performance. While this is no different to the strategies employed by business owners in general, it is clear that property and construction businesses see limited opportunity in increasing pricing. 

“This is typical of a stressed and highly competitive sector.  Business owners clearly feel that they have limited room to manoeuvre in increasing prices and the sector is still demand driven or a “buyers market,” says Bac.

So while times remain tough, property and construction businesses are focussing on existing assets and investing in building renovations and machinery.  “Typically not many are investing in new buildings but rather consolidating and improving their current assets in order to be more attractive to potential tenants or clients as the economy turns,” concludes Bac.

Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of 12,000 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and nine years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com.

Optimism balance
An optimism balance is the proportion of business owners reporting they are optimistic less those reporting they are pessimistic.

Data collection
The research is carried out primarily by telephone interview lasting approximately 15 minutes with the exception of Japan (postal), Philippines and Armenia (face to face), mainland China and India (mixture of face-to-face and telephone) where cultural differences dictate a tailored approach.

Data collection is managed by Grant Thornton International’s core research partner – Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis.

Sample
IBR is a survey of both listed and privately held businesses.  The target respondents are chief executive officers, managing directors, chairmen or other senior executives (title dependent on what is most appropriate for the individual country) from 40 economies across the real-estate and construction sector.

“Investors are still cautious and they want to secure their future earnings by investing in companies that offer more solid growth potential,” says Steven Kilfoil, director, Corporate finance at Grant Thornton Johannesburg.  “Established brands and innovative technology are most likely to yield sustainable returns.”

The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of 12,000 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and nine years for many non-European economies.

The results from the 2012 report also show that of those South African companies seeking to expand through acquisition in the next three years, 46% expect to do so through a cross-border transaction, a rise from 31% in 2011 and 41% in 2010.

When it comes to financing of acquisitive growth, 70% of South African respondents indicated that they would fund such activity through retained earnings. This supports Finance Minister Pravin Gordhan’s observation during his 2012 National Budget Speech in February, that many firms have accumulated large cash balances instead of investing them or distributing to shareholders.

Kilfoil states that SA investors are more cautious these days as a result of global economic concerns and local political uncertainty. He adds that private equity transactions are becoming less lucrative as in tough times, fewer companies are truly cash generative enough to appeal to PE investors, or these companies are becoming increasingly averse to financial gearing which also renders them unattractive to traditional PE investors.

“Companies should be taking a less traditional approach to private equity transactions,” advises Kilfoil. “Instead of simply adding debt to the balance sheet to leverage return on investment, private equity investors will need to  look at how they can control  other variables within target businesses to lower the targets business risk, thereby increasing future risk weighted returns.”

In South Africa however, the proportion of businesses seeking to grow through acquisition has declined from 41% in 2011 to 32% in 2012. The BRIC economies also revealed a decline in respondents seeking to grow through acquisitions from 44% in 2011, down to just 35% in 2012.

The BRIC economies consider – like their South African counterparts – opportunities in new technology and established brands as key drivers for M&A expansion. The global statistics indicate, though, that the core factors which drive growth by acquisition are access to new geographical markets (58%) and a need to build scale (55%).

Globally 33% of companies seeking to expand through acquisition expect to do so through a cross-border transaction, a rise from 28% in 2010.  In contrast, across the BRIC economies, international acquisition expectations have declined with just 22% of businesses in the region expecting to undergo a cross-border acquisition, compared to 2011 figures of 26%.

The IBR reveals that the proportion of global businesses seeking to grow through M&A, be it overseas or within their own market, has risen over the past two years from 26% in 2010 to 34% in 2012.

The IBR data also reveals lacklustre interest in key regions around the world in terms of appetite for making an acquisition. Only 28% of companies in mainland Europe indicated an interest in M&A activity in the coming three years, 25% in Asia Pacific and companies in the troubled economies of Greece, Ireland and Spain responded with only a 16% interest.

“Despite the worldwide economic challenges, the results show that overall global business appetite for M&A has improved markedly over the past year,” says Kilfoil. “One would imagine that SA and the BRIC regions are lagging global trends, possibly still catching up, and we’ll hopefully see renewed interest in these regions in the year ahead.”

Downloads:

• IBR 2012 report – Cross-border mergers and acquisitions: building momentum
• IBR 2012 infographic – Percentage of businesses planning M&A activity over next three years

Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 11,500 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and nine years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com.

Data collection
The research is carried out primarily by telephone interview lasting approximately 15 minutes with the exception of Japan (postal), Philippines and Armenia (face to face), mainland China and India (mixture of face-to-face and telephone) where cultural differences dictate a tailored approach. Telephone interviews enable Grant Thornton International to conduct the exact number of recommended interviews and to be certain that the most appropriate individuals are interviewed in an organisation which meets the profile criteria.

Data collection is managed by Grant Thornton International’s core research partner – Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire.

Sample
IBR is a survey of dynamic organisations (both listed and privately held businesses). The data for this release are drawn from interviews with 3,000 businesses globally conducted in January and February 2012.

The target respondents are chief executive officers, managing directors, chairmen or other senior executives (title dependent on what is most appropriate for the individual country) from 40 economies primarily across five sectors: manufacturing (25 per cent), services (25 per cent), retail (15 per cent) and construction (10 per cent) with the remaining 25 per cent spread across all sectors.

Locally, 150 interviews are conducted per quarter, and 600 interviews per annum. The South African sample tends to cover the sectors mentioned previously.

Grant Thornton’s latest quarterly survey on privately held business owner’s perceptions highlights that utilities such as gas and electricity, is having the greatest negative impact on businesses in terms of government service delivery. The survey also reveals that poor government services relating to billing issues (rates and taxes) and roads concerns (potholes and traffic lights) are adding undue pressures to businesses.

The Grant Thornton International Business Report (IBR) provides quarterly tracker insights into the views and expectations of over 11,500 businesses surveyed in total per year across 40 economies. The Q1 data for IBR 2012 also highlights regional and national business owner perceptions regarding crime, service delivery and political climate for SA business owners.

“Poor government service delivery and uncertainty regarding the political direction has been high on the agenda for South African business owners in every quarterly survey we’ve ever conducted,” says Deepak Nagar, the national chairman for Grant Thornton South Africa. “It’s concerning that the nation’s government doesn’t add valuable input into the success of business, and instead causes undue pressures to business operations.”

Figure 1: Greatest negative impact on business in terms of government service delivery

The Q1 Tracker for 2012 highlights that the entire nation is battling with poor service delivery of utilities such as gas and electricity, but it also indicates that businesses in the Western Cape are most affected by billing concerns (Western Cape: 19%; Gauteng: 17%; Eastern Cape 14% and KZN 10%). Conversely, KZN and Gauteng seem to struggle with road issues, particularly potholes and traffic lights negatively impacting business performance (KZN: 21%; Gauteng: 18%; Eastern Cape: 15% and Western Cape: 10%).

In addition to poor Government service delivery issues, businesses have consciously admitted that political uncertainty is causing executives to delay the making of important business decisions. The Q1 2012 Tracker records that 28% of South African executives are putting off making important investment decisions because of political uncertainty across the country (2011: 24%) and 24% of business owners have admitted they’d rather invest offshore than in South Africa (2011: 24%).

Figure 2: Impact on business decisions regarding uncertainty of the future political direction of the country

“It is encouraging that the data highlights fewer business owners stating political uncertainty as a concern causing them to consider selling their business, compared to responses recorded in 2011,” says Nagar (SA 2011: 17% vs SA 2012: 15%). “Our economy does need to provide a more stable investment environment though, to encourage more businesses to speed up investment decisions and to start investing domestically again.”

Business constraints
As in Q4 2011, Grant Thornton’s latest quarterly survey on privately held business owners’ perceptions highlights that 37% of South African executives rate over-regulation and red tape as the biggest constraint to business expansion.

This is the second time in six years that over-regulation as a business constraint surpasses SA business owner frustrations relating to the lack of availability of a skilled workforce with 35% (Q4 2011: 36%) of business owners noting this as a challenge.

“It’s clear that the plethora of regulation and red tape in SA as well as a poorly skilled workforce are continually ranked high by business owners in terms of constraints to expanding business operations,” continues Nagar. “The problem persists on impeding business growth and the matter needs to be addressed as a matter of urgency.”

Business owner perceptions in South Africa, compared to the issues raised by BRIC countries differ slightly by order of importance, with the following rankings of business constraints recorded in Q1 2012 for BRIC economies:
1. A lack of availability of a skilled workforce (BRIC: 36% )
2. Regulations/ Red tape (BRIC: 35%)
3. Shortage of orders/ Reduced demand AND Cost of Finance (BRIC: both 32%)
4. Shortage of working capital AND Shortage of long term finance (BRIC: both 29%)
5. Transport infrastructure (BRIC: 21%)
6. ICT infrastructure (BRIC: 19%)

Crime and emigration
When business owners were asked if they or any of their staff and immediate families had been directly affected by a threat to personal security (incl. road rage, hijackings, housebreakings and violent contact crime) in the past 12 months, the Q1 2012 data reveals that this figure continues its downward trend, which is encouraging. The first quarter data for 2012 indicates that 45% of respondents confirmed they had been affected by crime (2011: 46%).

Nagar states that the national data for Q1 2012 is almost 40% lower than what was recorded in the first survey taken in 2007 (84%). “While it is certainly pleasing to see this figure declining steadily over six years, 45% is still surprisingly high and we have a long way to go to see crime being properly eradicated from our daily lives,” he says.

When asked in what ways crime had financially impacted business, the increased cost of security is a South African executive’s greatest expense, with 51% affirming this.

“One wonders if the effect of crime on business is declining as a direct result of SA businesses’ continued and significant investment in personal security systems, armed response and perimeter guarding systems,” says Nagar.

Other financial impacts that crime has on business include a decline in staff motivation (19%), productivity (12%) and creativity (17%), a loss of staff (11%) and even a loss of customers (12%).

Figure 3: Regional breakdown – In what way has the threat to personal security affected your business?

When asked whether business owners had considered emigrating from South Africa, Q1 2012 reveals that 20% have indicated that they have given serious consideration to leaving South Africa permanently. This is figure is unchanged from 2011, and it is marginally up from 18% in 2010 but significantly down from 30% recorded in 2009.

However, the reasons cited by respondents considering emigration are concerning – see figure 4 for details.

“The data affirms our other IBR results in that crime, political uncertainty and government service concerns are the greatest impacts affecting South African private business owners,” adds Nagar. “These same factors are prompting emigration considerations.” Nagar notes that all factors are ranked higher by business owners for Q1 2012, compared to 2011 with poor quality of healthcare (2011: 22%; 2012: 34%) and education (2011: 27%; 2012: 38%) growing as a concern prompting business owners to consider emigrating.

Global tracker elements – Q4 economic update
Global perceptions from over 11 500 business owners in 40 economies are tracked quarterly.

The Q1 rolling average economic data relating to Grant Thornton International’s Optimism / Pessimism Index, shows that South Africa’s optimism balance for the first quarter of 2012 is +54% compared to +58% in 2011 and +60% recorded for the same period in 2010. This is against a global optimism balance of just +14% (2011: +16%) and BRIC optimism of +36% (2011: +40%).

An “optimism balance” is the proportion of business owners reporting they are optimistic less those reporting they are pessimistic.

“It is clear that the world has been hit hard by the economic crisis and subsequent credit crashes of prior years, with all economies recording a continued decline in optimism balances for three successive years,” continues Nagar. “But business owners in South Africa seem, on the whole, to be extremely optimistic about the economic conditions for the year ahead, especially compared to their global counterparts.”

Macro economic factors impacting business in South Africa

Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 11,500 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and nine years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com.

Data collection
The research is carried out primarily by telephone interview lasting approximately 15 minutes with the exception of Japan (postal), Philippines and Armenia (face to face), mainland China and India (mixture of face-to-face and telephone) where cultural differences dictate a tailored approach. Telephone interviews enable Grant Thornton International to conduct the exact number of recommended interviews and to be certain that the most appropriate individuals are interviewed in an organisation which meets the profile criteria.

Data collection is managed by Grant Thornton International’s core research partner – Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire.

Sample
IBR is a survey of dynamic organisations (both listed and privately held businesses). The data for this release are drawn from interviews with 3,000 businesses globally conducted in January and February 2012.

The target respondents are chief executive officers, managing directors, chairmen or other senior executives (title dependent on what is most appropriate for the individual country) from 40 economies primarily across five sectors: manufacturing (25 per cent), services (25 per cent), retail (15 per cent) and construction (10 per cent) with the remaining 25 per cent spread across all sectors.

Locally, 150 interviews are conducted per quarter, and 600 interviews per annum.  The South African sample tends to cover the sectors mentioned previously.