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ECONOMY: Over-Regulation: SAÂ’s Biggest Obstacle to Business Expansion


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Grant ThorntonÂ’s latest quarterly survey on privately held business ownerÂ’s perceptions highlights that 37% of South African executives rate over-regulation and red tape as the biggest constraint to business expansion.

Deepak Nagar, managing partner at Grant Thornton Durban and the new national chairman for Grant Thornton South Africa effective 1 March 2012, this morning released the fourth quarter data for the 2011 Grant Thornton International Business Report. The Grant Thornton International Business Report (IBR) provides quarterly insight into the views and expectations of over 11,000 businesses surveyed in total per year across 39 economies.

Nagar revealed regional, national and global business owner perceptions regarding crime, service delivery, political climate and the Companies Act, for SA business owners.

“For the first time in five years, over-regulation as a business constraint now surpasses SA business owner frustrations relating to the lack of availability of a skilled workforce with 36% of business owners noting this as a challenge,” says Nagar. “But both concerns are ranked high by SA business owners in terms of constraints to expanding business operations.”

The BRIC countries have stated the same concerns as South Africa in terms of factors which constrain business performance but the lack of availability of a skilled workforce still tops the list at 39%. BRIC averages recorded during Q4 for IBR 2011 indicate that over-regulation is also a significant constraint for the region with 35% of business owners lamenting this concern.

It is interesting to note that South Africa now tracks on a par with global trends with an average of 32% of business owners most constrained by over-regulation and red tape. The second biggest constraint globally, however, is a shortage of orders and reduced demand for products (31%).

“This is clearly a global concern right now as the world battles with what’s left of the worldwide recession and the ongoing Euro-Zone crisis,” Nagar adds.

Business Expansion and the Threat of Crime

When business owners were asked if they or any of their staff and immediate families had been directly affected by a threat to personal security (incl. road rage, hijackings, housebreakings and violent contact crime) in the past 12 months, 46% of South African businesses affirmed that they had been affected.

Nagar states however that this crime statistic continues on a downward trend, with the national data for 2011 being nearly 40% lower than what was recorded in 2007 (84%).

“The impact that crime has on SA business owners is still unacceptably high,” states Nagar. “While it is certainly pleasing to see this figure declining steadily over the past five years, we have a long way to go to see crime being properly eradicated from our daily lives.”

Gauteng topped KZN business owners marginally, with 52% of Gauteng businesses directly affected by crime during the past year, while 51% of KZN businesses affirmed this concern. Only 39% of both Western and Eastern Cape business owners responded that crime had affected them in the past 12 months.

As in previous years, the increased cost of security is ranked as the biggest financial impact that crime has on a business, with 45% of SA business owners affirming this. Business owners also cited decreased motivation (16%), declining productivity (16%) and decreased creativity (11%) as factors which crime directly affects in the workplace.

Grant ThorntonÂ’s IBR data for the fourth quarter of 2011 has revealed that 20% of SA business owners have given serious consideration to leaving the country with 62% of these respondents stating their core reasons for emigrating as the nationÂ’s high crime rate (62%) and the political climate (47%).

The Effect of Government Service Delivery on Business Expansion

Grant ThorntonÂ’s IBR data for 2011 highlights that 53% of South AfricaÂ’s business owners are affected by poor Government service delivery, with the Eastern Cape region being affected the most (63%), followed by Gauteng (50%) and KZN (44%). Western Cape business owners are least impacted by poor Government Service Delivery (47%).

When asked which elements of government service delivery impacted businesses the most, utilities such as gas, electricity and water were rated as having the biggest impact on business function nationwide.

A startling 41% of businesses in South Africa rate utilities as the greatest negative impact on businesses. KZN business owners also rated the impact of roads (e.g. potholes and traffic lights) as having an effect on business function (20%) with 16% of Gauteng business owners, 12% of Western Cape and 10% of business owners being affected by roads in the Eastern Cape.

“Business owners are extremely frustrated that the taxes they pay as law abiding corporations, are not being used to improve Government Service Delivery but instead impede business function,” continues Nagar.

Political Uncertainty
Despite the poor government service delivery concerns and startling crime statistics, most of SA business owners in South Africa (68%) do not feel that the political uncertainty in the country is having an impact on their business decisions. However, of the 32% who do believe that political uncertainty is having a negative impact on business decisions, 25% say that it is causing them to delay making important business investment decisions, 24% consider investing offshore rather than in SA and 17% of SA business owners are seriously considering selling their businesses.
“As the developed world starts to consider the emerging markets for future investments, South Africa cannot afford to show any form of indecision regarding investment in business,” says Nagar.

The Problem for the New Companies Act for Business Expansion

Decision making as to how to respond to the New Companies Act still seems a confusing issue for most businesses. During the fourth quarter of 2011, 47% of business owners in South Africa consider themselves well informed about the Act, which came into effect on 1 May 2011.
When asked if business owners believe they should be audited or reviewed under the new Act, 53% of businesses owners believed they require an audit and 11% believe they need a review. A total of 36% of SA business owners surveyed during Q4 believe that neither form of financial reporting is required.

“This is an indication of uncertainty and confusion in the business environment in terms of understanding the new Companies Act requirements relating specifically to an individual’s own business needs,” said Nagar.

Global tracker elements – Q4 economic update
Global perceptions from over 11 000 business owners are tracked quarterly.
The Q4 rolling average economic data relating to Grant Thornton InternationalÂ’s Optimism / Pessimism Index, shows that South AfricaÂ’s optimism balance for the fourth quarter of 2011 is +58% compared to +60% recorded for the same period in 2010. This is against a global optimism balance of just +16% and BRIC optimism of +40%.

An “optimism balance” is the proportion of business owners in South Africa reporting they are optimistic less those reporting they are pessimistic.

“Business owners in South Africa seem, on the whole, to be extremely optimistic about the economic conditions for the year ahead, especially compared to their global counterparts,” said Nagar. “We can only hope that a post-recession upturn will help to ensure sustainable business expansion for organisations nationwide.”

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