South Africa urgently needed to become more attractive to foreign investors if it wanted to be a viable contender as a global investment hotspot, Grant Thornton’s latest International Business Report (IBR) survey revealed.

“Potential investors from developed economies have highlighted South Africa as one of the top investment hotspots on the African continent, when considering boosting their growth prospects through international expansion plans,” Grant Thornton Johannesburg partner and head of corporate finance, Jeanette Hern, commented on Thursday.

However, she warned that South Africa was just not keeping pace with other emerging markets as an attractive destination for foreign investment. 

According to the IBR survey, entitled ‘Global Economy 2013: Uncertainty weighing on growth’, 57% of international business leaders considering global expansion were looking at the five biggest emerging economies – China, India, Russia, Brazil and Mexico – compared with 38% looking at Western Europe and 33% at North America. 

In contrast, 13% of privately held businesses ranked the African continent and 12% South Africa as a potential investment hotspot for 2013.

Meanwhile, of the 41 countries included in Grant Thornton’s yearly optimism survey, South African business owners were the eleventh most positive about business prospects for the next 12 months.

Hern said South African business owners were recorded as being the most optimistic executives in the emerging economies sector when trends for the past ten years were assessed.

“Our optimism trend line between 2003 and 2012 indicates that South Africa’s average optimism balance is 59%. This is followed closely by China at 52%. The overall Brazil, Russia, India and China (Bric) economies’ optimism trend for 2007 to 2012 is 55%, which clearly defines the South African business executive as the eternal optimist,” she noted.

In comparison, the global optimism trend for the same decade under review was more than 65% lower than the Bric economies at +20%, with Japan (-56%) and Spain (-33%) recording the greatest degrees of pessimism in terms of prospects for their economies for the coming 12 months.

Growth Prospects
The IBR survey further highlighted that, on the back of strong optimism data recorded across the emerging markets, businesses in the Latin American economies of Brazil, Peru and Mexico, as well as in South Africa, appeared well placed for growth moving into 2013, with strong order books and higher revenue expectations.

In contrast, growth rates in and around Europe looked set to disappoint for the next 12 months, Grant Thornton International global CEO Ed Nusbaum pointed out.

“Across the Atlantic, economic growth in the US remains weak and unemployment high,” he added.

Most emerging economies featured healthy economic growth rate improvements for 2013.

China’s growth rate was expected to pick up to 8.2% in 2013, from 7.8% in 2012, even as the new leadership tried to move economic drivers away from exports and investment towards consumption.

The Brazilian economy had endured a difficult past 24 months of little growth, but was forecast to expand from 1.5% to 4% in 2013.

South Africa’s forecast growth expansion rates were stronger than those of Brazil, with a rate of 5.7% expected for 2013.

Hern, however, cautioned that new fears regarding rising prices and wage bills would directly fuel inflation in South Africa.

“Business sentiment at the start of 2013 has dwindled with anecdotal evidence of weaker order books. This is coupled with the ongoing labour instability, which is adding further unease to the South African economy,” she said.

Meanwhile, the IBR survey indicated that South African businesses would continue to be constrained by the perennial shortage of skilled workers.

The survey found that, despite planning to hire more skilled workers in 2013, South African business leaders – like their counterparts in the Bric economies, and specifically Brazil, India and China – remained unsure that the talent available matched their requirements.

“The survey also highlighted that South African business executives are among the most stressed people in the world. Nearly half of senior executives cited that they are taking on too much responsibility due to the current shortage of skilled workers, which is also causing increased operating costs,” Hern pointed out.

She added that South Africans in privately held businesses also tended to take fewer holidays than their European and Asia Pacific counterparts, despite the clear awareness that business leaders who took vacations were likely to be less stressed in the workplace, she added.

Workforce Expansion
Grant Thornton stated that global economic uncertainty continued to depress business hiring plans.

The IBR survey revealed that 27% of businesses globally expected to increase employment in 2013, down one percentage point from 2011 and below the precrisis level of 33%.

“But, higher growth rates in emerging economies are allowing businesses to consider expanding their workforces to a much greater extent than their peers in mature economies: 41% of Bric businesses are planning to hire more workers over the next 12 months, with the Latin American average even higher at net 45%, and Asia Pacific, excluding Japan, not far behind (38%),” said Nusbaum.

Employees in South Africa – as well as those in Sweden, Brazil and Norway – also looked set to benefit from higher wages over the next 12 months.

“South Africa’s labour unions ensure that employees get salary increases every year, which sets the tone for the private sector. It is very rare for the local workforce to experience a 0% wage hike annually.
 
“Continuing to increase salaries every year in a struggling economy places South Africa firmly in the danger zone for rising inflation over the next 12 months along with India, Brazil, Peru, Chile, Mexico and Botswana,” Hern warned.

She added that this could have a negative impact on each of these countries’ growth expectations for the year ahead.

Hern concluded that conditions were tough, but by applying both “reason and instinct” to decision-making, dynamic businesses could navigate through the strong economic headwinds in 2013.