According to the results of Grant Thornton’s International Business Report (IBR) for the third quarter of 2016, optimism among South African business executives regarding the outlook for the country’s economy in the coming 12 months is currently at 10%.
 
The consulting firm acknowledges that, while this outlook may seem poor, there is a definite improvement in sentiment when compared with local business executives’ extremely pessimistic outlook of –41% recorded in the first quarter of this year. Thus, the +51% improvement in business optimism since then is certainly promising, says Grant Thornton.
 
The firm calculates business optimism by measuring the percentage of respondents who reported a positive outlook, less the percentage who reported a negative outlook for the year ahead. 

In the case of the third quarter, the outlook has returned to a positive outlook for the first time in five quarters, with 10% more optimistic responses expressed than negative.

“The South African political landscape is very rocky at the moment with many highly contentious issues currently being debated in the public domain and within national Parliament,” says Grant Thornton South Africa chairperson Deepak Nagar.

In South Africa, exchange-rate fluctuations topped the list as the country’s biggest constraint to business expansion, with 55% of business executives highlighting this as a challenge. 
 
“Our rand has been affected by a series of ‘mood swings’ that have impacted the currency all year long,” says Nagar adding that the fluctuating exchange rate has resulted in business executives being more cautious about expansion plans this year, which is why this factor was ranked as the biggest constraint to business growth, according to the IBR.

Meanwhile, local business executives highlighted economic uncertainty as the second-biggest constraint to business growth and expansion in South Africa, with 54% highlighting this challenge as hindering growth opportunities for business. 

Rising energy costs is the third-biggest challenge facing business expansion in South Africa, with 46% of business executives concerned about this matter. 
 
Nagar further highlights overregulation and red tape as the fourth-greatest constraint, with 40% of local businesses highlighting this as an issue. A lack of skilled labourers is further constraining the growth plans of 33% of South Africa’s business executives.
 
“Earlier this year, the Companies and Intellectual Property Commission announced a new online system, in partnership with major banks, whereby new company registrations, new company bank accounts and the required tax numbers could all be applied for and obtained seamlessly. Initiatives such as these help to ensure that regulation and red tape issues are less of a burden to business growth, which is laudable,” Nagar says.

INTERNATIONAL INFLUENCE
The low levels of business optimism highlighted in Grant Thornton’s third-quarter IBR were reflected globally, owing to major international political events in 2016.

Nagar points out that, in South Africa, international occurrences such as the UK’s decision to leave the European Union (EU), also known as Brexit, and the dramatic campaign leading up to the US elections, impacted on rand volatility this year.

However, companies in the UK and EU most exposed to Brexit experienced the greatest knock in confidence, with US companies feeling shaky in the lead-up to the Presidential election in November. Grant Thornton explains that the third-quarter report considers data to September 30, thus the information excludes any reaction following the elections.

“Political events like Brexit and the US Presidential election understandably rattle the global economy and test the resilience and elasticity of businesses worldwide. In general, businesses do not like uncertainty, and that is what is happening,” says Grant Thornton global CEO Ed Nusbaum.
 
A downturn in confidence in the UK, observed in Grant Thornton’s IBR survey, closely mirrors the unfolding of Brexit.

Nusbaum notes that, before the turn of the year, optimism was riding high at 74%. However, in the lead-up to the UK referendum, it fell away sharply to 40%, reaching its lowest levels since the start of 2013, with news of the result.

“This is consistent with declining expectations across seven out of eight business indicators. Confidence has been hit across parts of Europe, too, where economies are waking up to a post-Brexit reality,” he says.
  
When businesses were asked what they believed to be the biggest constraint to business growth and expansion, economic uncertainty was recorded as the greatest constraint for businesses worldwide during the third quarter, with 38% of businesses globally lamenting this issue.