South African businesses are growing more pessimistic about the outlook of the domestic economy, with local business optimism levels having plummeted by 30% since 2013 to a record low, international advisory firm Grant Thornton revealed in its latest International Business Report (IBR).

The survey, which gathered the input of 100 business executives in medium to large privately held and listed businesses in the first quarter of this year, found that only 9% of executives were optimistic about the outlook for South Africa over the next year.

This was significantly lower than the 39% of executives, who expressed optimism about the domestic economy in 2013.

Rising levels of crime, exchange rate fluctuations, poor government service delivery, pending legislation, lack of skills and economic uncertainty, contributed to the lower level of optimism.

Speaking to the media on Wednesday, Grant Thornton Johannesburg CEO Andrew Hannington said the greatest constraint to economic growth in the country was the energy crisis, with 55% of businesses citing rising energy costs as a hindrance to business growth.

ECONOMIC UNCERTAINTY
Globally, the biggest constraint to business expansions was anxiety regarding economic uncertainty, with 38% of businesses worldwide ranking this factor as a core inhibitor. In South Africa, it ranked at 39%.

Hannington warned that, paired with legal uncertainty, with five “big” Amendment Bills currently before Parliament, the outlook was also impacted on. “This is a very South African specific question, asked for the very first time,” he said.

While 72% of business executives were aware of the impending Bills, which included the Expropriation Bill, the Land Act Amendment Bill, the Private Security Industry Regulatory Amendment Bill, the Minerals and Petroleum Development Amendment Bill and the Promotion and Protection of Investments Bill, the implementation of these Bills would have a far greater reach.

“All of these bills touch on property rights,” Hannington said, adding that it led to uncertainty in one form or another, which would force both local and foreign-owned companies to relinquish a significant part of their shareholding either to the State, or to a designated group.

When businesses were asked what the impact of these Bills would be if implemented, a resounding 93% stated that the economy would be negatively impacted, while 90% expected this to impact investment by foreign-owned companies, followed by 86% expecting less investment by local companies. “This makes us sit up and think,” Hannington noted, adding that these figures were the public’s way of saying: “Government, you have a problem.”

Eighty-five per cent of business executives said the implementation of these Bills would result in disinvestment by foreign-owned companies, while 82% agreed that the legislation would result in a direct threat to property rights.

“At a time when our nation needs to be attracting foreign investment of the greatest kind, Bills which force ownership to be relinquished and those which may cause the dilution of property rights in South Africa will only cause resistance.

“We can only hope that the necessary parties within government will hear international and local business’s pleas for key sections in these Bills to be reviewed and revised in order to create a more attractive business environment which secures our future business prospects,” he said.

As an example, Hannington cited the recent decisions around the country’s Unemployment Insurance Fund – where Finance Minister Nhlanhla Nene proposed a temporary cut to the payments made and then retracted his decision to allow for further consultation – as a form of uncertainty that influenced citizens.

POOR SERVICE DELIVERY
Meanwhile, the IBR survey uncovered that a startling 68% of all business owners surveyed were affected by poor government service delivery. This increased from 60% in the first quarter of 2014, from 57% in 2013 and from 53% during 2012.

The greatest service delivery issue for local businesses was that of basic utility services (water and electricity supply). During the first quarter of 2013, 41% of privately held business owners stated that utilities had negatively affected their businesses. Just two years later, this figure had more than doubled, to 83%.

Road infrastructure concerns, including potholes and traffic light issues, and the negative impact this has on South African business executives nearly tripled to 61% for the first quarter from just 21% during the comparative period of 2013.  Fifty-four per cent (23% in 2013) of businesses flagged billing issues as a key issue, which negatively impacted businesses.

CRIME DOES NOT PAY
Crime and its direct impact on business and on individuals continued to severely affect South Africa, according to this quarter’s IBR research.

When South African business owners were asked if, in the last 12 months, they had directly been affected, or whether their staff or family of staff had been affected by the threat to personal security such as house breaking, hijacking, violent crime and road rage, 63.5% stated yes.

“This is still a very bad trend. South Africa’s terrible crime statistics are a major inhibitor to foreign investment, never mind local economic stability and business satisfaction.

“During 2011, we were so pleased to see this figure drop to its record low of 46%, but the slow increase again to today’s levels is devastating,” Hannington said.

When South Africans were asked to list the ways in which their businesses were affected by crime, 80% stated that the increased costs for security were a serious financial burden.

The survey also found that the highest numbers for the impact of crime emerged from KwaZulu-Natal, followed closely by Gauteng.

THERE IS HOPE
Despite the falling optimism, Hannington clung to a glimmer of hope, stating that not all was doom and gloom for the country.

“Grant Thornton is going nowhere. We have confidence in the country, despite the lack of confidence [from other parties],” he said.

Good news from this first quarter’s IBR findings was that business executives continued to be highly compliant. The first-quarter findings highlighted that 91% of those surveyed were aware of the new Protection of Personal Information Act (POPI) that was tabled in Parliament during November 2013 and was currently awaiting enactment.

In addition, 63% of the businesses surveyed had already made provisions within their business to comply with the new legislation, while a further 21% had not done so yet, but admitted that they were actively planning to make provisions shortly.

“As a nation, South Africans are renowned for being very compliant. Whether it’s in terms of adhering to the South Africa Revenue Services requirements, conforming to the new Companies Act or – in this case – preparing for POPI. It’s encouraging to see active business participation in new procedures which will dramatically affect IT strategy and business processes going forward,” Hannington pointed out.

GLOBAL PERSPECTIVE
Global data from the IBR revealed positive expectations overall, as business confidence in the Eurozone jumped to 20% in the first quarter of this year. In 2013, it was at a lowly 1%.

“Many of the economies hardest hit by the financial crisis, such as Ireland and Spain, are increasingly optimistic about their growth prospects although our local picture here in South Africa is downtrodden, with business prospects falling to an all-time low,” Hannington said.