Johannesburg - Decision makers in the South African private sector – company executives and graduate professionals – remain at odds over the country’s prospects and this has put the brakes on growth expectations and initiatives.
A survey of companies’ chief financial officers (CFOs) conducted by auditing firm Deloitte in May found that local businesses had adopted more defensive strategies in that they had deferred investing in initiatives needed to sustain their businesses in future.
Although the CFOs were more optimistic about economic growth than official forecasts, predicting gross domestic product growth of 3 percent this year and rising to 3.7 percent by 2015, they were leaning towards defensive strategies in their priorities for spending cash, such as retaining cash for liquidity and improving existing operations.
They did report better financial results from their operations this year and only 11 percent reported that performance was below expectations.
But when it came to allocating cash in their businesses, investing in expansion and in new products remained near the bottom of their priorities.
Deloitte warned that the defensiveness was too drastic and could do harm in the long run.
“Their priorities are all internal-looking. Research and development is low on the agenda. It is necessary in a growing economy and if southern African companies seek to be competitive globally. Not investing in research and development will affect competitiveness three to four years down the line,” said Rodger George, a Deloitte director.
Although South African CFOs were more pessimistic than their peers in Botswana, Malawi, Namibia, and Zambia in their sentiments around growth, 85 percent believed their companies’ performance would improve next year.
George said the mining and construction sectors were more defensive than others while the banking sector was investing heavily in innovation.
The confidence index for chief executive officers (CEOs) released by Merchantec Capital yesterday showed a significant 23.2 percent improvement in confidence levels in the basic materials sector. The only other sector where confidence increased was technology, which rose by 5.3 percent.
Among other major productive sectors, confidence decreased by 2.9 percent in the industrial sector and by 5.8 percent in consumer goods.
Overall, the confidence of CEOs remained flat in the third quarter and they expressed concerns about how the economy would perform after the 2014 election. Only 51.7 percent expected the economy to perform better after the polls.
South Africa’s slow economic growth also concerned graduate professions polled by PPS, a financial services group. The PPS graduate professionals confidence index, which tracks the confidence levels of more than 3 000 graduate professionals, showed their confidence increased by 2 percentage points to 79 percent in the second quarter as graduate employment increased.
However, there was a 3 percentage point drop when they were asked about their confidence in the local economy over the next 12 months.
Deloitte found that South African businesses were more pessimistic than their peers in other countries in the region, not only in terms of economic growth but also in their sentiments on risks.
They were more concerned about the credit and political situations in the country and were the only ones who expected their domestic currency to depreciate. - Business Report