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SA’s biggest constraint to business growth

Aug 01 2016 16:29
Adiel Ismail

Cape Town - Exchange rate fluctuations are the biggest constraint to business expansion, according to the Grant Thornton International Business Report (IBR) for the second quarter of 2016.

IBR research, which highlights business executive views and the expectations of over 10 000 C-suite executives in privately-held and listed businesses, showed that for the first time ever exchange rate fluctuations have been recorded as SA’s biggest limitation to business expansion, with 57% of business executives lamenting this factor.  

READ: Let's get Africa moving

The rand has weakened nearly 20% against the dollar in past 12 months, according to Reuters.

The news agency said looming rate hikes in the United States, the threat of a downgrade to junk status and diminished business and consumer activity locally weighed on the value of the rand.

Meanwhile, Overberg Asset Management (OAM) noted that the rand rallied sharply following the Brexit vote and the ensuing likelihood that the US Federal Reserve will refrain from hiking interest rates until 2017.

It said in its weekly overview of the economic and political landscape in South Africa that the rand has strengthened below key resistance at R14.50/$ opening targets of R14.15/$ and R13.75/$. The rand is now comfortably below the 50-, 100- and 200-day moving averages.

The second-quarter IBR data, released on Monday, highlighted the issue of economic uncertainty as the second-biggest constraint to business growth and expansion in South Africa, with 56% of executives saying this limits growth for business.  

Rising energy costs, which have dominated as the leading business constraint for South Africa for over two-and-a-half years, dropped to third place, with 54% of business executives concerned about this matter. 

Overregulation and red tape is the nation’s fourth greatest constraint to business expansion, 42% of SA businesses stated, while the lack of a skilled workforce is constraining 35% of business executives’ growth plans.

The IBR also reveals that economic uncertainty (Q2: 2016 rolling average – 37%) and a lack of skilled workers are the two biggest growth constraints for businesses worldwide (Q2: 2016 rolling average - 29%).

“These global business constraint findings for Q2 are very telling because they reveal a renewed bout of uncertainty which was felt even before the UK’s Brexit vote was concluded at the end of June,” said Grant Thornton Johannesburg’s new CEO Paul Badrick.   

He added that the ultimate impact of the Brexit vote on the global business community is still unknown.  

"While there is short-term uncertainty and market volatility, central banks are taking steps to support monetary and fiscal stability. Not enough is yet known to inform many of the biggest decisions facing businesses with European operations.”

On a positive note, South African business executives are hopeful about future opportunities.

Asked if they believe South Africa still presents good business opportunities, a resounding 91% of respondents said yes.

“At a time when the world is stuck in a period of uncertainty, we need to focus specifically on being open-minded, fleet footed and agile in our responses to complexity and turbulence when approaching future business planning,” emphasised Badrick.

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