Resources, financial services and healthcare companies faced significant threats arising from changing legislation and political policy, a recent study by professional services firm Deloitte of the JSE’s top 100 companies has shown.
To produce its Dissecting Disclosures report, Deloitte used the disclosures in the companies’ yearly and integrated reports to understand the profile, concerns and strategic focus areas of these listed companies.
“The uncertainty around these [legislative and political] changes make South Africa less competitive in a world in which many developed economies are focused on reducing red tape to improve their own competitiveness,” Deloitte senior audit manager John Kruger said.
Deloitte added that, while South Africa’s government had committed to reducing red tape for business, it was difficult to see the effect as so many corporates listed on the JSE still saw legislative and regulatory change as a major risk.
Further, domestic social and labour stability issues were also identified by numerous companies, which highlighted social unrest and labour unrest as key risks in their reports.
In addition, several companies identified concerns around the security of the supply of electricity and water – again highlighting the structural challenges that the South African government had and the resultant burden on doing business, Deloitte said, adding that these risks also articulated the increasing cost of these utilities.
Meanwhile, Deloitte found that the annual reports of the JSE top 100 were about 61% longer than those of their UK counterparts on the FTSE 100, which could be attributed to South Africa’s take-up of integrated reporting, ahead of the UK and the fact that several companies combined their integrated reporting with their full yearly financial statements.
In comparison, UK regulators had published a report entitled 'Cutting Clutter' to provide corporates with guidance on how they could reduce the length of their reports.
“We believe South African companies could benefit from similar guidance from regulators, as striking a balance between meeting the requirements of reporting standards and regulatory guidelines and cutting clutter in an annual report remains a challenge to preparers of accounts,” Deloitte said.
“With South Africa’s economic growth forecast at 2% for 2014, according to the World Bank, the move into Africa in pursuit of higher growth, while challenged at home by regulation and various external risks appears to be a theme on the JSE,” Kruger concluded.