South Africa – an international investment hotspot?
A recent Grant Thornton survey has revealed that South Africa urgently needs to become more attractive to foreign investors if it wants to be a viable contender as a global investment hotspot.
That’s according to the latest Grant Thornton International Business Report (IBR) entitled “Global Economy 2013: Uncertainty weighing on growth”, a survey of more than 12000 business leaders annually across more than 40 economies.
“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,” says Jeanette Hern partner and head of Corporate Finance at Grant Thornton Johannesburg.
But Hern warned that SA is just not keeping pace with other emerging markets as an attractive destination for foreign investment.
Overall 57% of international business leaders considering global expansion are 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, privately held businesses ranked the African continent at 13% with South Africa achieving a 12% response as a potential investment hotspot for 2013.
Figure 1: International investment hotspots
The South African businessman – an eternal optimist
When assessing business optimism for future business prospects, IBR results indicate that businesses in emerging economies generally remain more confident about the prospects for their economies over the next 12 months than their peers in developed countries where growth prospects for the year ahead are considerably lower.
Of the 41 countries included in Grant Thornton’s annual optimism survey, South African business owners were the 11th most positive for 2012 overall, about business prospects for the next 12 months.
According to Hern South African business owners are recorded as being the most optimistic executives in the emerging economies sector when trends for the past ten years are assessed.
* “Our optimism trend line between 2003 and 2012 indicates that South Africa’s average optimism balance is 59% followed closely by China at 52%,” says Hern. “The overall BRIC economies optimism trend for 2007 to 2012 is 55%, which clearly defines the South African business executive as the eternal optimist.”
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 degree of pessimism in terms of prospects for their economies for the coming 12 months.
Growth prospects for 2013
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 appear well placed for growth moving into 2013 with strong order books and higher revenue expectations recorded in the survey.
In contrast Ed Nusbaum, Grant Thornton International’s global CEO added that growth rates in and around Europe look set to disappoint for the next 12 months.
“Across the Atlantic, economic growth in the United States remains weak and unemployment is high,” he said.
In terms of expected growth rates most emerging economies feature healthy improvements for 2013.
China’s growth rate is expected to pick up to 8.2% in 2013, from 7.8% in 2012, even as the new leadership tries to move economic drivers away from exports and investment towards consumption. The Brazilian economy has endured a difficult past 24 months of little growth, but it is forecast to expand from 1.5% to 4.0% in 2013.
South Africa’s forecast growth expansion rates are stronger than those of Brazil with a rate of 5.7% (up from 5%) expected for 2013.
But Hern cautioned that new fears regarding rising prices and wage bills will 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 on-going labour instability, which is adding further unease to the South African economy.
Is the national shortage of skills still keeping SA business leaders awake at night?
The Grant Thornton IBR Economic Outlook 2013 research indicated that SA businesses will 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, specifically Brazil, India and China- remain unsure that the talent available matches their requirements.
Figure 2: Expectations for hiring staff against availability of skilled workers
“The survey also highlighted that South African business executives are among the most stressed people in the world,” said Hern. “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”.
Globally, the core cause of for stress cited by business owners is the need to meet performance targets. Internationally 30% of business leaders stated that this issue is the major cause of workplace stress, with a resounding 37 of the 40 economies agreeing with them.
“South Africans in privately held businesses also tend to take fewer holidays than their European and Asia Pacific counterparts, despite the clear awareness that business leaders who take vacations are likely to be less stressed in the workplace, which is concerning,” Hern added.
Figure 3: Holidays taken vs. levels of stress
Workforce expansion plans and salary increases
“Looking ahead, global economic uncertainty continues to depress business hiring plans,” says Grant Thornton International’s CEO Ed Nusbaum.
The survey revealed that 27% of businesses globally expect to increase employment in 2013, down one percentage point from 2011 and below the pre-crisis 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 (excl. Japan) not far behind (38%),” continued Nusbaum.
Employees in South Africa – as well as those in Sweden, Brazil and Norway - look 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,” said Jeanette Hern.
But employees in Greece, Ireland and Japan are unlikely to be as fortunate. In fact, 31% of businesses in Greece and 10% in Spain plan to reduce salaries over the next 12 months.
“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 says. “This could have a negative impact on each of these countries’ growth expectations for the year ahead.”
Hern concludes that conditions are tough, but by applying both ‘reason and instinct’ to decision making, dynamic businesses can navigate through the strong economic headwinds in 2013.
This report was prepared by Grant Thornton South Africa. A full copy of this report can be downloaded here