As poor growth bedevils SA’s economy, pessimism has grown among the country’s CEOs about the likely fortunes of their companies, coinciding with increased gloom among global peers.
Only 14% of CEOs in SA are “very confident” about the revenue prospects of their companies in the coming 12 months, according to the latest global CEO survey from advisory firm PwC.
This is the lowest level since 2010, according to PwC data, and comes in 13 points below the global average of 27%.
Policy uncertainty came second to worry over uncertain economic growth as the main threats identified by SA CEOs. These were followed by social instability, over-regulation and rising populism.
“This is potentially an indicator that CEOs are saying there has been little progress made by the SA government in actually providing more assurance ... to investors about the direction of policy in the country, and trying to make SA an attractive investment destination,” said Dion Shango, CEO for PwC Africa.
The PwC findings coincide with business confidence levels at record lows. The most recent SA Chamber of Commerce and Industry (Sacci) business confidence index revealed that, on an annual basis, business confidence levels during 2019 averaged their worst rate since 1985.
Business confidence is an important factor for the fixed investment in the economy needed to grow businesses and create jobs. As policy uncertainty rises, business confidence levels have declined, noted PwC chief economist Lullu Krugel.
Policy uncertainty, as measured by the North West University’s policy uncertainty index, rose in the fourth quarter of 2019, with researchers warning that the government enact reforms to ensure SA moves out of its low “growth trap”.
President Cyril Ramaphosa has made it a mission of his administration to attract $100bn in direct investment by 2023, as well as promised to enact economic reforms to help stimulate growth. The most recent of these is outlined in the National Treasury’s economic strategy document, which was released ahead of last year’s medium-term budget policy statement.
The government does not need to eliminate risk entirely for investors, it just needs to provide more predictability and enable business to better assess risks when considering SA as an investment destination
The recommended reforms include overhauling SA’s network industries to reduce costs related things such as rail and road tariffs, improving the labour regime, and reducing policy uncertainty in areas such as the mining sector.
There is, nevertheless, growing frustration from local business regarding the slow pace of reform, heightened by ongoing problems such as the state of failing power utility Eskom, which instituted severe load-shedding in December and the early part of January.
Power cuts, as well as the need to move on implementing structural reforms, were a factor in the recent decisions by both the World Bank and International Monetary Fund (IMF) to cut their expectations for SA’s growth to below 1% for 2020.
Shango says that the government does not need to eliminate risk entirely for investors, it just needs to provide more predictability and enable business to better assess risks when considering SA as an investment destination.
Policymakers have to re-establish SA’s credibility by “actually doing what we say, and not changing our minds midway”, Shango said “It’s about different members of cabinet being consistent in articulating what the official policy of government is.”
According to the survey, SA CEOs saw operational efficiencies as the primary way to grow their businesses — but on a positive note, according to Krugel, the majority of CEOs do not intend to use job cuts as a means to improve efficiencies.
Though 28% of CEOs expect to make moderate reductions in their headcount, 31% expect to leave it unchanged and 42% actually expect to employ more people, she said. This came as a relief as it appears CEOs are “considering other options first”.
SA CEOs, in line with their global peers, are more pessimistic on global growth prospects for 2020. Forty-four percent of SA CEOs, compared to 35% in 2019, believe that global economic growth will decline over the next 12 months.
According to PwC the change in global CEO sentiment towards their revenue prospects, has provided a prediction of economic growth. Only 27% of CEOs globally are “very confident” in their own organisation’s growth over the next 12 months — the lowest level since 2009 and down from 35% last year.
If the analysis continues to hold, global growth could slow to 2.4% in 2020, below the 3.3% forecast by the IMF for 2020.
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