South Africa Economic Outlook - April 2023

Building business resilience against South Africa’s long-term socio-economic headwinds

Johannesburg, 24 April 2023 — PwC South Africa is pleased to share its fourth South Africa Economic Outlook report for 2023.

This edition focuses on the need for South African businesses to transform in an effort to build their resilience against the country’s long-term socio-economic headwinds. According to PwC’s 26th Annual Global CEO Survey, two out of five South African respondents believe their company will no longer be economically viable a decade from now. Therefore, building business resilience is a critical undertaking at this juncture.

In today’s business operating environment, five key global Megatrends are influencing the operations, economic viability and longevity of local businesses. These Megatrends are structural: they are deep and profound trends that will have long-term effects, and touch everyone on the planet by shaping our world for many years to come.

South Africa is facing the negative impacts of: 1) climate change on food production, 2) technological disruption that is pressuring job creation, 3) a growing youth population as part of its demographic shift, 4) disruptions to supply chains due to a fracturing world, and 5) domestic social instability. All of these require investment in building business resilience.

Lullu Krugel, PwC South Africa Chief Economist, says:

“The Megatrends and other challenges — including load-shedding and deteriorating transport infrastructure — are reducing South Africa’s long-term economic growth potential and could result in the unemployment rate rising above 37% by 2030. Going forward, countries like ours are likely to increasingly struggle with chronically high youth unemployment and underemployment. Furthermore, if such economies are unsuccessful in addressing these issues, they will face increasing social instability. These are the key challenges being faced by South African companies as they build resilience against future risks.”

What we are seeing is that most business leaders are confident in their organisations’ ability to respond to various risks, i.e. be resilient against unexpected disruptions. Despite this, our Global Crisis and Resilience Survey 2023 indicates that too many companies are lacking the foundational elements of business resilience they need to be successful.

The good news is that fixing this unpreparedness is possible provided that business leaders are committed to revamping their approach to risk. The key is to put aside the notion that it is possible to understand or address every threat. Leaders need to focus on the risks that might possibly disrupt the most important aspects of the operations; the ones that are most crucial to customers — and thus, the company.

Our recent report Building resilience in a polycrisis world provides several practical steps for South African business leaders to make sure their companies are resilient against disruption. For example, they need to work out what is necessary to deliver key services and how long it will take to get them up and running.

Where a new direction is taken on risk and disruption, stakeholders need to understand why the C-suite has changed the way it views existential risk and buy into this new approach. There is also a strong human resources aspect to this endeavour, and business leaders need to bring together the right people for the risk conversation, invest in developing their crisis-management skills, and focus on empowering them to make key choices.

A crucial part of building resilience is also the ability to respond positively to legislative and regulatory changes. One of the key issues that South African companies need to react to today is the country’s greylisting that happened in February 2023 by the international Financial Action Task Force (FATF). Globally, we have seen diverse impacts on businesses from instances of greylisting, including, among others:

• Planned foreign investments suspended or deferred.
• Foreign financial institutions impose tougher checks on transactions to/from the country.
• Transactional, administration, compliance, and auditing costs associated with enhanced levels of monitoring.
• Negative impact on the stock market.

Christie Viljoen, PwC South Africa Senior Economist, says:

“For private companies in South Africa, responding to the greylisting will require context-specific solutions and resilience-building activities. This will depend on the broader impact of the greylisting on their plans around aspects such as strategic expansions, capital raising, and any general increased cost of doing business. Research by the International Monetary Fund (IMF) shows that countries that have been greylisted experienced a drop in capital flows equal to 7.6% of GDP over a period of nine months. This includes foreign direct investment (FDI) inflows declining by an average of 3.0% of GDP, while portfolio inflows declined by 2.9% of GDP.”

The more prepared a business is to manage disruption, the less destructive and long-lived the crisis will be for the enterprise. By incorporating lessons learned and leading global practices and standards, proper resilience planning can help a business withstand disruption and reduce the overall impacts of a crisis. In the long term, building resilience will strengthen a company’s ability to respond and adapt across key organisational pillars like operations, technology, workforce, data and finances.

Key content in this report includes:

• Socio-economic headwinds: Megatrends add pressure to South Africa’s societal challenges.
• Focussing on today: Building business resilience and staying operational in a polycrisis world.
• Human resource planning: Developing a resilient workforce by using people analytics.
• FATF greylisting: South African companies need to take action with context-specific solutions.
• Environmental, social and governance (ESG) focus: Tax transparency as a tool for rebuilding trust and social cohesion in South Africa.