South Africa’s attractiveness for private business has improved in the past year, although corruption is worsening while access to capital has remained a drawback, in addition to logistics and energy bottlenecks, notes PwC in a new report.
Despite recording a reduction in foreign direct investment inflows from R26 billion in the third quarter to September 2023 compared with R53.8bn in the second quarter, South Africa is outperforming other peers in the Europe, Middle East and Africa region (EMEA).
According to the EMEA Private Business Attractiveness Index released by PwC yesterday, South Africa ranks 23rd out of 33 countries surveyed, an improvement from 2021 and 2022 when the country was ranked 31st and 25th, respectively, under the same index.
“Within the EMEA region, South Africa is being looked at in a more favourable light as a location for private business,” notes the report.
Duncan Adriaans, PwC Africa Private leader, explained that the two-year improvement notched up by South Africa reflects positively on its Economic Reconstruction and Recovery Plan (ERRP). The plan was part of structural reforms aimed at helping the economy recover from Covid-19 under pledges made by the government in 2020 “to make it easier for private businesses to operate” in the country.
“We can see this in, for example, the regulatory reforms and incentives implemented that allow businesses to invest in renewable energy installations,” said Adriaans.
Incentives and reforms to the energy sector, plagued by load shedding under Eskom, have resulted in an increase in rooftop solar capacity for South Africa from less than 1 000 megawatt in 2021 to the current 5 200MW. Reforms and incentives had “allowed businesses and households to invest” in their energy security.
The PwC index, conducted on an annual basis, assesses and ranks 33 countries across the EMEA region to determine whether they are conducive locations for private businesses. Nigeria and Kenya are the other African countries that are ranked, while international destinations include Switzerland, the UK, Sweden and Germany.
“When countries have the key attributes in place to support entrepreneurial and private businesses activity, they remain attractive irrespective of short-term economic or social challenges. This is reflected in South Africa’s ranking for the number of investors such as venture capital and private equity firms located in the country improving from 24th in 2001 to 20th in 2023, despite a long list of operational challenges for businesses,” notes the report.
Research for the index, however, shows that South Africa, in spite of the economic and governance challenges it currently faces, ranks as a more attractive operating environment for private business compared with several members of the EU.
The challenges South Africa is facing are highlighted in the PwC report, with governance-related issues worrisome for investors. Access to capital and finance was also a key problematic component, especially during times of disruption, uncertainty and crises.
“Despite South Africa’s improving rankings in the Index, the country’s 23rd overall position out of 33 shows that it still faces many challenges that make it difficult to operate a business in the country. These include electricity load shedding, skills shortages and high levels of unemployment, a scourge of crime and corruption, deteriorating transport and logistics services, and challenges to access capital and finance for entrepreneurs and private business, among many others,” PwC analysts said in the report.
Meanwhile, in its latest Africa Attractiveness Report, EY points out that South Africa remained one of the slowest-growing economies in Africa in 2023, registering a mere 0.2% real gross domestic product (GDP) growth, compared with regional competitors such as Nigeria and Egypt.
Power outages, tighter financial conditions, commodity price volatility and policy confusion were cited as some of the contributory factors. With GDP “expected to average only 1.4% per annum, well below its 5% target”, this is deemed “insufficient to raise business and consumer sentiment and tackle high unemployment” for South Africa.
“According to the South African Reserve Bank, the rolling blackouts cost the economy $50 million (R946m) a day in shuttered factories, closed shops and malfunctioning infrastructure,” noted EY.
Further affirming how corruption is also worsening, Transparency International (TI) yesterday showed South Africa’s global ranking for corruption plummeting to the worst levels. South Africa’s corruption perception ranking fell two positions to 83 out of 180 countries in 2023.
“SA’s global ranking for corruption dropped sharply in 2023 to its worst level. SA is now ranked 83 out of 180 countries, which means that 82 countries are less corrupt than SA. The least corrupt are Denmark, Finland, New Zealand. The most corrupt are Syria, Venezuela and Somalia,” economist Kevin Lings said after release of the corruption rankings.