SA businesses optimistic about 2010 prospects

Johannesburg – South Africa’s unlisted businesses are more optimistic about this year than many firms elsewhere, as the World Cup raises prospects for swifter business, according to a global optimism survey. According to Grant Thornton’s International Business Report (IBR) survey, which polled 7 400 medium to large companies in 36 countries, including 300 in South Africa, local firms indicate that the worst of the recession may be behind us. The 2010 Grant Thornton optimism/balance index for local firms rose to +60 percent, compared with +35 percent this time last year. It remains well above the global average of +24 percent, which compared with minus 16 percent last year. An optimism/balance is the proportion of businesses reporting they are optimistic less those that are pessimistic. Leonard Brehm, the national chairman of Grant Thornton South Africa, told The Star newspaper local unlisted firms were experiencing renewed optimism in light of the World Cup. He added that such an upbeat view from this sector was important, as privately held business contributed 81 percent to global gross domestic product. This comes against expectations of a stronger recovery on the production side, driven by a turnaround in the inventory cycle and exports — culminating in an anticipated 3,5 percent growth rate of the SA economy. The Soccer World Cup, government spending and global demand for local exports are also expected to help fuel the rebound. In South Africa, firms expect the turnaround to occur much earlier than in other countries, with 26 percent of businesses polled expecting an upturn during the first half of this year and 33 percent seeing a recovery in the second half of the year. Globally, a turnaround is only expected in the second half of this year or next year. The upbeat view is supported by the Kagiso purchasing managers’ index, which shows that manufacturing activity has picked up. But other recent data present a mixed picture. The SA Chamber of Commerce and Industry’s business confidence index dipped last month, but there are signs of a bottoming out in several sectors; while the chamber’s Trade Conditions Survey showed weak activity last month, but a buoyant outlook. Colen Garrow, an economist at Brait, said there was need to start creating jobs before getting more optimistic. An estimated one million jobs were lost last year and there is no indication yet of nascent job creation. Garrow said technically South Africa was out of recession, which, together with the World Cup, had boosted confidence. “Aggressive cuts in interest rates must also filter through at some time,” he said. But he cautioned that 2011 could be another tough year, as interest rates could rise in line with expected international trends and fiscal policy could tighten owing to lower revenue collection. There is talk of an increase in VAT, Garrow said. The IBR survey polled firms in the food and bev erage, construction, hospitality, transport, manufacturing, retail, financial services, health care and technology sectors. In South Africa, tourism companies were also included. Since the survey’s inception eight years ago, South African companies have been optimistic to varying degrees. In 2005 they ranked third among all countries polled. This year local businesses believe profitability and spending on plant and machinery will increase, with +44 percent and +37 percent readings, respectively. This compares favourably with global figures of +29 percent on profitability and +31 percent on investment.

January 2010
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