PwC has warned that South African companies will continue to be under strain from international macroeconomic volatility and domestic headwinds, including load shedding.
In its Economic Outlook 2024 report released yesterday, PwC, however, said these challenges were more transient in nature and less enduring than the long-term Megatrends shaping society.
The financial services group identified crises across five areas of South African society.
It named the macroeconomic volatility, conflict-hit international supply chains, access to scarce resources, access to healthcare, and struggling public institutions, as major constraints to growth.
PwC South Africa chief economist Lullu Krugel highlighted that South Africa had its own country-specific structural challenges, including load shedding, high levels of unemployment and crime.
At 31.9%, South Africa has one of the world’s highest unemployment rates with more than 7 million people in the working age group not employed, and high levels of violent crime.
The country is also facing an enduring energy crisis where electricity is cut off to up to 10 hours a day on a rotational basis due to inadequate generation capacity by the state-owned power utility, Eskom.
Krugel said these country-specific challenges were expected to dissipate somewhat over the medium to long-term.
“In the meantime, there is scope for South African organisations to turn these crises into opportunities during 2024 to create value for their stakeholders and society in general,” Krugel said.
“Periods of predicament can create a window of opportunity for impactful change and leaders — both in the public and private sector — should not miss the chance to seize it.”
The PwC report said that for companies surrounded by economic uncertainty, creating financial value for their broad set of stakeholders was a real challenge.
It said macroeconomic volatility and domestic headwinds hit South African companies’ bottom line, with profits and dividends declining 17.8% and 33.2% year-on-year, respectively, in the third quarter of 2023, and this negative trend could continue into 2024.
Global geopolitical tensions and disruptive international supply chains were identified as among the main external factors contributing towards company risk.
PwC said South African companies were also facing domestic challenges to rail and port services, with logistics under duress from shipment delays.
Thus, PwC called for supply chain localisation saying it could reduce dependency on foreign sources, and enhance business resilience.
“The world will continue to experience more frequent, more severe and more impactful short-term crises. Addressing these challenges is no longer just the purview of governments; rather, they will require everyone – every government, business and individual – to do what they can to help mitigate the impacts of short-term crises,” Krugel said.
“At the same time, the challenges experienced in South Africa offer an opportunity for private companies to rebuild their value and make a societal impact. A purpose-led strategy must be at the core of these responses.”
PwC also called for a public-private collaboration model to address the challenges in the public sector as it was unable to deliver the quantity and quality of services that it previously could.
It also called for employers to support workers’ access to health services, including employee wellness initiatives, support programmes, and relevant training as the number of South Africans without access to universal health coverage was estimated to have increased by more than a million between 2017 and 2023.
PwC South Africa CEO Shirley Machaba, said crises created an environment that could help kickstart profound and sustained change, whether at a company level or for society as a whole.
“PwC believes that, in order to respond effectively to such an opportunity for change, organisations need to put purpose at the heart of their risk and overall strategy,” Machaba said.
“Being purpose-led means a company is guided by a clear and meaningful mission beyond just financial success. Rather, the organisation is driven by a commitment to making a positive impact on the so-called triple bottom line: profit, people, and the planet.”