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ECONOMY: SA Business Owners Remain Upbeat Despite Strong Rand


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While businesses were expecting a slump in South Africa following a buoyant 2010 FIFA World Cup year, Grant Thornton’s 2011 International Business Report’s (IBR) optimism / pessimism index indicates business sentiment across the nation remains positive.

The 2011 index reveals an optimism balance by SA business owners of +64%, which is up four percent on last year’s index. This is against a global optimism balance of +23% for 2011, compared to +24% for 2010. An “optimism balance” is the proportion of business owners in South Africa reporting they are optimistic less those reporting they are pessimistic.

“While the strong rand will no doubt make business conditions tough for some this year -particularly those with an export focus - it seems South African business owners continue to be optimistic about the nation’s economic landscape for the year ahead,” said Leonard Brehm, National Chairman of Grant Thornton South Africa.

South African business owners – while optimistic overall for business sentiment – were less hopeful for investment in buildings in the year ahead. “The construction sector also experienced significant retrenchments over the past two years,” added Brehm.

The IBR survey, which is now undertaken on a quarterly basis, focuses on mid-cap listed and medium- to large privately held businesses. The Optimism / Pessimism survey is in its ninth year of research in South Africa.

SA optimism factors defined

If South Africa’s +64% optimism balance for 2011 is assessed at a regional level, Western Cape business owners are the most optimistic with a +72% balance, while Eastern Cape recorded the lowest optimism balance of +52% (KZN: +69% and Gauteng: +62%).

SA business owners are expecting continued growth in turnover in 2011 with a +65% optimism balance (2010: +62%) compared to the global mean of +56% (2010: +40%).

“South African organisations share positive sentiment for both improved turnover and a growth in profits for 2011,” said Brehm (Report data for profits in 2011: +57%; 2010: +44%).

Another positive trend expected in South Africa during 2011 is a significant increase in selling prices with SA business owners recording +56% optimism balance for the year ahead (2010 – +46%). The global optimism balance for selling prices in 2011 is +28%, up from +11% in 2010. “Considering the current strength of the Rand and low inflation, this optimism seems unusual,” added Brehm.

SA business owners were less hopeful about investments in buildings for 2011. This trend recorded a decline since 2010 with investment in buildings at +17% for 2011 (2010 - +25%) for the year ahead. “The decline for investment in buildings could indicate tough times ahead for the construction industry. No doubt the World Cup infrastructure and construction boom experienced during 2009 and 2010 may also have something to do with the pessimistic outlook in terms of construction projects for 2011,” Brehm continued.

Expectations for investment in new staff for 2011 highlighted very different degrees of optimism on a regional level. South Africa’s overall +30% optimism balance features a very optimistic Western Cape with +42% while the Eastern Cape region is far less optimistic about employment investments in 2011, recording just +16% (Gauteng: +33% and KZN +26%).

Global trends

Globally, confidence levels regarding economic performance are higher in Latin America than any other part of the world as the region leads the way on business optimism into the New Year, according to the 2011 report. This is the first year Latin America has led the world on optimism with a balance of +75% of privately held business owners expressing optimism about their region’s economic performance in 2011. Elsewhere, optimism in the Asia Pacific region (excluding Japan) is at +50%, whilst in North America it is just +26%, with Europe the least optimistic region at +22%.

“Latin America as a whole is expected to see GDP growth of around 4% in 2011 and if the current business confidence translates to widespread, sustained growth, the next decade could see Latin America truly realise its potential,” said Ed Nusbaum, CEO of Grant Thornton International.

“The Latin American region has been booming for a number of years particularly in Brazil and this has been recognised by them being awarded the right to host the 2014 World Cup and the 2016 Olympics," added Leonard Brehm. “South Africa’s aspirations for inclusion in the BRIC economies is ambitious when one measures the SA economy in relation to those in the BRIC countries. Only through a rapid acceleration in the nation’s economic growth strategy, could we consider this opportunity seriously.”

Optimism swings

The 2011 IBR reveals some big swings in optimism levels for key economies. Asia Pacific, last year’s leading region for business optimism, has seen a significant fall from +64% to +50% as economies such as mainland China (down from +60% in 2010 to +42%), Australia (down from +79% in 2010 to +37%) and New Zealand (down from +66% to +35%) showed large negative swings in optimism.

"The global recession has caught up with the optimism levels recorded in Australia and New Zealand – it appears they have both been through something of a ‘reality check’ over the last 12 months," said Brehm.

“Business owners in South Africa seem, on the whole, extremely optimistic about the economic conditions for the year ahead. We can only hope that the post-recession upturn results in sustainable business growth for dynamic organisations nationwide,” Brehm concluded.

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