Grant Thornton Warns of Drop in Business Sentiment

Grant Thornton warned this week that systemic constraints are holding back South Africa’s economy and playing havoc with efforts to jumpstart growth and employment. It says concerns over labour relations, combined with sluggish economic growth, have contributed to a general sense of business unease that is reflected in the Grant Thornton International Business Report (IBR) research data for the second quarter of 2013. Business optimism as measured by this study has declined steadily from 74 points in 2007 down to 44 points according to these latest results. ZA Confidential put some questions to Ian Scott, Managing Partner, Grant Thornton Cape Town:

Q: You speak of a significant negative shift in business sentiment in SA in the last quarter. What happened, and why do you think this was?
A: Our business index shows a drop in business confidence. This probably arises from subdued economic data including: lower than expected GDP growth, a drop in the Rand, labour strikes and unrest.

Q: You suggest the economy is being held back by skills constraints. Where are these both in terms of sectors and of skills?
A. The Grant Thornton International Business Report research shows that companies in the healthcare and technology sector require skilled labour whilst engineering qualifications are needed in manufacturing and construction. The necessary skills are lacking in the utilities sector.

Q: You say business has a surprising propensity to create jobs – what is needed to trigger this job creation?
A. Companies need to be able to access the necessary skills in the market to meet demands. Nearly half the businesses surveyed increased their headcount in the past year despite problems with finding the right skills.

Q: What is wrong with the labour market, and is there any prospect of government sorting out?
A. There are structural issues which need a long term solution. We have chronic unemployment, at the same time that companies are requiring higher levels of skills. In sectors such as in healthcare, technology, manufacturing and construction, businesses are struggling to find the necessary skills. Government had a recent lekgotla on the economy and has the National Development Plan as well – but stakeholders i.e. government, businesses, trade unions, educational institutions and SETAS all need to engage.

Q: Mining played an important role in affecting business sentiment. But how widespread is it? Now the gold sector strike appears to be ending, might sentiment lift? (This questions was answered by Steven Kilfoil, Director: Corporate Finance and head of mining advisory services at Grant Thornton Johannesburg)
A Unfortunately the problem is very widespread at the moment and every time we turn around there’s another mining company striking. Mining and particularly gold mining has always been our flagship industry (even though our numbers in this sector have dropped – other countries still see mining as the flagship industry). People still look at this gold mining industry as a litmus test in terms of what is happening in the economy. The fact that negotiations which have taken place last week and this week have brought most of the unrest to an end is certainly positive. The problem is that people don’t see it as a long term solution and in 1 or 2 years time we’re in the same situation. Labour unrest seems to be ongoing.

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