Sixty-seven per cent of South African privately held businesses are delaying investment decisions until after the national election in 2014, owing to uncertainty about the future political direction of the country, the Grant Thornton International Business Report (IBR) revealed on Monday.

The report, which took into consideration the responses of over 3 000 global senior role-players in business, pointed out that, in response to this political ambiguity, a further 48% were investigating the possibility of investing offshore rather than in South Africa, while 27% were contemplating selling their businesses.

“There is no doubt that businesses are waiting for next year’s elections to bring stability and clarity on the future direction of our country,” Grant Thornton South Africa national chairperson Deepak Nagar said in a statement.

“This is possibly one of the core reasons for the delays in private business investment decisions that have been observed in our IBR results each quarter.”

The survey further revealed that 57% of business executives were negatively impacted by poor government service delivery, with a hefty 81% of respondents indicating poor delivery around utilities, such as water and electricity supply.

Some 69% cited road concerns, such as potholes and traffic light issues, as constraints to doing business, while the percentage of executives concerned about billing issues increased to 58% from 23% in the first quarter.

An additional 36% of respondents indicated that they were being negatively affected by a combination of red tape, transport inefficiencies, labour strikes, unreliable payment behaviour by government and tender fraud.

“The economic slowdown is still extremely burdensome on the South African economy and additional local pressures are not helping at all. The embattled Brazil, Russia, India, China and South Africa (Brics) region continues to directly impact on local business expansion, while service delivery concerns and political uncertainty persistently lash organisational growth,” Nagar commented.

CRIME AND SECURITY

The impact of crime on local businesses continued to negatively impact investor sentiment in the second quarter, with 61% of business executives, their staff or family of staff, having been directly affected by a contact crime incident in the past 12 months. 

Contact crime is defined as housebreaking, violent crime, road rage or hijacking.

This figure had increased by 15 basis points since 2011, with KwaZulu-Natal and the Western Cape regions recording their highest impact at 65% and 62% respectively.

“It is a serious concern to see these figures rising so rapidly. We can no longer ignore this blight – something just has to be done,” said Nagar.

Examining the financial impact of crime on local business in the second quarter, the IBR indicated that a “startling” 72% of business leaders that had identified crime as a concern in the last year had experienced increased security costs.

“It’s hard to understand how security costs for businesses never seem to stabilise.  Investing in securing your premises and protecting your staff is a massive cost outlay for South African companies,” Nagar commented.

Of the senior executives polled, 19% stated that they were considering emigrating, with 84% of this group citing the high crime rate as the driver of this decision.


EUPHORIC OUTLOOK

Despite shorter-term investment uncertainty, owing to political unease, the IBR reported that local business owners had retained a “euphoric” future outlook and continued to express positivity about the next 12 months.

Some 45% of executives stated that they were optimistic about business prospects in South Africa over the next 12 months.

This came as data on optimism levels revealed a dramatic reversal of fortune for business leaders in two of the world’s largest economies – the US and the UK.

The IBR revealed that US business optimism climbed to 55% in the second quarter from 31% in the first quarter – its highest level since 2005. 

Similarly, optimism in the UK improved dramatically from -1% in the first quarter to 34% in the quarter under review, revealing a sizeable improvement in overall sentiment in terms of future business growth prospects.

However, Grant Thornton noted that, while US business confidence had improved, optimism among peers in China had dropped to 4% from 25% in the first quarter –China’s lowest level since 2006.

The Brics region of economies also saw a dramatic decline in business optimism, recording 23% in the second quarter, from 48% in the first three months.

“There’s no doubt that the data out of China had a massive impact here,” Nagar said in reference to that country’s recently slowed growth rate.