South Africa’s political turbulence has prompted 28% of surveyed local business executives to give the nation’s economy a pessimistic outlook for the year ahead, according to advisory firm Grant Thornton’s second-quarter International Business Report (IBR).
“At the end of March, South Africa experienced several political upsets, such as President Jacob Zuma’s announcement to change the leadership at ten important government institutions, which included the sacking of Pravin Gordhan as Finance Minister,” noted Grant Thornton advisory services head Gillian Saunders during a presentation of the report’s findings in Johannesburg last month.
The Cabinet reshuffle was soon followed by subsequent downgrades of the nation’s sovereign credit rating by key ratings agencies.
“The collapse in business optimism recorded in our IBR for the second quarter is a very clear outcome of these dramatic changes,” said Saunders.
Linked to the pessimistic outlook recorded for the second quarter of 2017, the IBR indicates that more than two-thirds (67%) of South African business executives’ operations and business decisions were impacted on by a turbulent economy and uncertainty in the last six months about the country’s future.
During the first quarter of 2017, this figure was only 58%.
“This is another sign of how the changes that took place in March and April this year have affected South Africa’s businesses. We are recording dramatic changes in sentiment when comparing the first and second quarters of the year. It’s very concerning,” she said.
When asked to outline the ways in which economic uncertainty affects their business decisions, 37% of the IBR’s respondents said they were delaying business expansion plans, while 32% were putting off investment decisions, 26% were considering investing offshore, and 17% were weighing up decisions to sell their business.
“Delaying business decisions, stalling company expansions and considerations to invest offshore will all negatively impact South Africa’s gross domestic product (GDP) growth,” said Saunders.
She highlighted the impact of political instability and economic turbulence on general business operations as “concerning” and pointed out that, even in the first quarter, any positivity was misplaced after quarterly GDP figures released in June showed a decline of –0.7% in the first quarter, which means South Africa was in a technical recession.
“The events at the end of the first quarter and, subsequently, in the second quarter, do not bode well for any improvement in economic growth.”
According to Grant Thornton’s IBR data, the top three constraints to business growth for South African executives are economic uncertainty, exchange rate fluctuation, and overregulation and red tape.
“These three constraints, which prevent business expansion, are a continuous theme throughout this quarter’s findings. Naturally, a nation will struggle with exchange rate volatility when political uncertainty is rife and agencies are downgrading the country and its key institutions,” Saunders said.