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Jul 17, 2012

Poor service delivery crippling SA businesses

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Poor government service delivery, including by utilities such as electricity; political uncertainty and crime were hindering business growth in South Africa, advisory services provider Grant Thornton said on Tuesday.

In its 'International Business Report' (IBR), the firm found that 59% of all South African business owners surveyed were negatively affected by poor government service delivery. This figure is up from 53% recorded in the first quarter of 2012.

Grant Thornton South Africa national chairperson Deepak Nagar urged businesses to work together with government to resolve service delivery concerns. “Corporations have an obligation to meet shareholder aims 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 said.

Nagar added that only by addressing poor performance on service delivery concerns such as utilities, billing issues and roads directly with government, could business help to achieve the country’s goals of eliminating poverty and creating and reducing inequality.

Businesses in the Eastern Cape were battling the most with poor government, with 65% of business executives surveyed confirming that poor delivery is a concern, while Gauteng’s number was at 54%; KwaZulu-Natal at 52% and the Western Cape at 50%.

Thirty-two per cent of private business owners identified poor service delivery relating to utilities (electricity and water) as having the greatest negative impact on their businesses, while 25% stated that billing issues (rates and taxes) were affecting operations.

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

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 owing to public sector strike action.

POLITICAL UNCERTAINTY

Another macroeconomic factor impacting on South Africa’s privately held businesses is the issue of political uncertainly, Grant Thornton stated.

Its second-quarter data revealed that sentiment was improving marginally in this regard, with 29% of respondents indicating that uncertainty about the political direction of the country was impacting business decisions (down from 32% in 2011 – rolling average).

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

“On a positive note, we see that 21% of businesses have made a conscious decision to take action against the political uncertainty currently being experienced in the country, by improving their organisation's black economic-empowerment status,” said Nagar.

“This is probably in the hope of securing new business contracts by presenting improved empowerment credentials to prospective clientele.”

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, such as housebreaking, violent crime, road rage and hijacking.

The IBR tracker revealed that 46% of privately held businesses have been negatively affected by crime over the past 12 months. This figure has dramatically declined from a reported 86% in 2007 when Grant Thornton first began to research this concern.

However, the survey highlights an increase of 7%, with 42% of business owners having been affected by crime in the first quarter of 2012, compared with 49% of business owners in the second quarter.

“We cannot accept such a high incidence of crime on our people. We need to do everything we can to eliminate this threat once and for all,” Nagar warned.

Crime also brings an additional financial burden to privately held businesses. When executives were asked in what ways 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.

The impact of crime is linked directly to emigration in Grant Thornton’s IBR survey with 72% of executives surveyed stating that the high crime rate is the number-one factor prompting them to consider leaving South Africa (2011 rolling average: 62%). Other factors prompting business owners to consider emigrating include the political climate (61%) and poor quality of education (40%).

Reviewing the second-quarter data regionally reveals that business owners in Gauteng are most likely to emigrate (25%), followed by executives in KwaZulu-Natal (22%) and the Eastern Cape (20%), with Western Cape privately held business owners least likely to consider emigrating (10%).

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%) were regarded as the biggest factors impeding growth for South African businesses. Countries in the Brazil, Russia, India and China (Bric) region concur with business owners ranking both of these factors at 36%.

“It seems, however, that organisations in the Bric economies have a wider range of constraints which are seriously affecting business expansion. Factors such as a shortage of orders and reduced demand (35%) and the crippling cost of finance (34%) are also highly ranked as constraints to growth. No doubt the global recession is continuing to dampen these economies,” Nagar said.

“Optimism is down worldwide compared to the first quarter of 2012 and also in comparison to prior years. It is clear that the economic crisis is still far from over. But business owners in South Africa and in the Bric economies seem, on the whole, to be a lot more optimistic about the economic conditions for the year ahead, when compared to the global average,” Nagar concluded.
 

Edited by: Mariaan Webb
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