South Africa climbs to 23rd in PwC’s EMEA Private Business Attractiveness Index

1st February 2024 By: Darren Parker - Creamer Media Contributing Editor Online

Within the Europe, Middle East and Africa (EMEA) region, South Africa is being looked at in a more favourable light as a location for private business, according to PwC’s latest 'EMEA Private Business Attractiveness Index', which shows that South Africa ranks twenty-third out of 33 countries. This is an improvement from 2021 and 2022 when the country ranked thirty-first and twenty-fifth, respectively.

“The two-year improvement reflects positively on South Africa’s Economic Reconstruction and Recovery Plan (ERRP) which, as part of structural reforms aimed at helping the economy recover from Covid-19, pledged in 2020 to make it easier for private businesses to operate in the country. We can see this in, for example, the regulatory reforms and incentives implemented that allow businesses to invest in renewable energy installations.

“As a result, rooftop solar capacity in the country increased from less than 1 000 MW in 2021 to 5 200 MW at present, as reforms and incentives allowed businesses and households to invest in their energy security,” PwC Africa private leader Duncan Adriaans says.

The index, which PwC compiles every year, assesses and ranks 33 countries across the EMEA region as to whether they are conducive locations for private businesses, based on an objective analysis of a range of attributes. To determine the overall rankings, PwC looks at 64 metrics across nine categories.

PwC’s latest benchmarking of this data shows that, when countries have the key attributes in place to support entrepreneurial and private businesses' activity, they remain attractive irrespective of short-term economic or social challenges. This is reflected in South Africa’s ranking for the number of investors located in the country improving from twenty-fourth in 2001 to twentieth in 2023, despite a long list of operational challenges for businesses.

“While every private business is unique, they all share some common needs that are consistent wherever they are based. PwC’s latest research shows that South Africa, despite its many operational challenges, is becoming a more attractive location for private business compared to countries in the EMEA region. In fact, South Africa ranks as a more attractive operating environment for private business compared to several members of the European Union (EU),” Adriaans says.

Entrepreneurial and private companies are generally less able than large corporations to move easily between different jurisdictions. This strengthens their tendency to look at a location’s fundamental attributes and long-term future potential when making investment choices based on geographic location.

This is where benchmarking research plays an important role, PwC says. The company’s latest report provides an “outside-in” view to outline economic, social, environmental, technological and regulatory environments across key private business jurisdictions in EMEA and will enable private business leaders to understand the region better and operate more successfully in these countries.

South Africa’s best sub-index performance in the 2023 report is for social responsibility and governance, where it ranked nineteenth out of 33 countries. This places South Africa in the middle third of countries in the report, and reflects positively on factors such as the proportion of seats held by women in Parliament, where it ranked first out of 33 countries, trust in government, where it ranked twelfth, and press freedom, where it ranked seventeenth.

While South Africa certainly has challenges in several governance-related areas, the social responsibility and governance pillar does reflect a level of trust within society that many would often assume is much better in comparative countries.

“In fact, South Africa’s performance in this pillar provides a beacon of hope for the country in an uncertain 2024,” Adriaans says.

However, despite South Africa’s improving rankings in the index, the country’s twenty-third overall position out of 33 shows that it still faces many challenges that make it difficult to operate a business in the country.

These include electricity loadshedding, skills shortages and high levels of unemployment, the scourge of crime and corruption, deteriorating transport and logistics services, and challenges to accessing capital and finance for entrepreneurs and private businesses, among many others.

Access to capital and finance is a key component of “The Owner’s Agenda”, which is PwC’s framework designed to assist private businesses in developing business strategies in a consistent and integrated way.

As part of overall business strategy, effective management of capital and finances is key for sustaining a business. This is especially the case during times of disruption, uncertainty and crises. As PwC noted in its 'South Africa Economic Outlook January 2024' report, the world will continue to experience more frequent, more severe and more impactful short-term crises going forward.

There are numerous facets to capital and finance management. In "The Owner’s Agenda", PwC look at capital and financing structure; financing of innovation and growth; initial public offering and other third-party investing; bank reporting; treasury operations; and working capital.

PwC says that understanding and strengthening the balance sheet is another essential endeavour for businesses to navigate turbulent times and ensure long-term sustainability. For private businesses, building balance sheet resilience includes proactive refinancing, establishing financial buffers, re-examining of treasury management practices to protect liquidity, and conducting stress testing exercises, among others.

Effective communication with stakeholders is also seen by PwC as playing a vital role in building balance sheet resilience, as regular interactions can foster trust and understanding among stakeholders. It also creates a strong support network during times of economic and financial uncertainty.

“Prioritising balance sheet resilience is crucial for businesses to navigate uncertain times successfully. By proactively managing the capital structure, allocating resources effectively, thoroughly assessing balance sheet health, and establishing open lines of communication with stakeholders, businesses can strengthen their resilience and ensure sustainable growth in the face of adversity,” PwC South Africa capital advisory and restructuring services associate director Andrew King says.