Middle-market companies in South Africa confident about strong growth

Despite concerns in the economy as a whole, companies in South Africa, particularly those in the middle-market range, are preparing to invest in expansion strategies. An EY report reveals that more than 50% of the firms expect to grow between 6% and 15% over the next year, and 10% expecting exceptional growth of between 16% and 50%. 

The South African economy has been through a turbulent period over the last few years. A dip in the price of oil sent the entire Sub – Saharan Africa (SSA) region into a sustained economic slowdown. Moreover, a dip in the price of precious metals has dealt a blow to the backbone of the South African economy – the mining industry.

In such a scenario, the onus falls on the business environment of a country to react, and the response has been mixed. According to a survey conducted recently by professional services firm Grant Thornton, executives in South Africa are amongst the most pessimistic in the world. On the other hand, Big Four accounting and advisory firm PwC recently released a survey that revealed optimism amongst the ranks of South African Executives.

Now, their Big Four rivals EY have further substantiated this claim with their ‘Growth Barometer,’ revealing that the middle-market across Africa, and particularly in South Africa and Nigeria is displaying strong optimism about the future.

According to the report, the section of firms in the two countries that expect to grow between 0 and 5% over the next year comprise less than a third of the firms surveyed (31%). 33% of the firms expect healthy growth over the next year, predicting a growth rate of between 6% and 10%.

Those expecting even higher growth rates of 11%-15% comprise a relatively impressive 18% of the surveyed firms. Meanwhile, 10% of the firms emerged as uninhibited optimists, expecting growth of between 16% and 50%. On the other hand, 6% of the firms surveyed expected negative growth over the next year, which is incidentally the same as the global number.

In order to drive these ambitious growth-plans, most firms in South Africa and Nigeria are making plans to expand their personnel over the next year. As many as 33% of the firms have plans to hire more full-time staff over the next year. Hiring part-time staff also emerged as a popular option for firms, at 14%.

16% did not want to commit as much to growth, devising plans to hire only on a freelance or contract basis, while 24% plan to look beyond hiring for growth options, choosing to keep staff at current levels. 14% of the firms, surprisingly, revealed plans to reduce staff over the next year.

Aside from staff upgrades, 33% of the firms in the two countries hope to find growth in innovation, with 17% of these choosing to invest in startups, and 16% choosing to push innovation using customer data. According to experts, these numbers hold the key for growth in South Africa.

CEO of strategy consultancy Accenture recently wrote in detail about how innovation is the way forward for the South African economy. While a number of firms have registered this need and have made efforts towards the same, work needs to be done to translate these efforts into gains, as revealed by the consulting firm’s recently-released Innovation Index.  

Risks 

Optimism aside, it is imprudent to ignore the risks prevalent in the unstable economic scenario, and firms in both South Africa and Nigeria have noted the major issues. As per the report, most firms in the two countries, i.e. 19%, cited ‘geo-political instability’ as the biggest risk to their business.

As the international business community increasingly turns to the relatively untapped African market, firms in South Africa and Nigeria ranked ‘Increasing competition’ as the second biggest risk to their business, at 14%. Other concerns for the two countries included, cost of credit (13%), trade barriers (12%), slow growth in the global economy as a whole (12%), foreign exchange volatility (11%), rising interest rates (9%), commodity prize volatility (5%), and finally supply chain disruption (4%). 

Commenting on the report, the Leader for African Growth markets at EY, Azim Omar said, “The most ambitious projections certainly come from medium-sized, more entrepreneurial companies. While larger, more conservative companies are focusing on cutting costs rather than increasing revenues, younger and smaller companies are looking to grow through new products and new markets. South Africa remains the entry point for businesses into Africa. It's infrastructure is on a par with developed countries and its regulatory and assurance levels are highly rated. In recent times there have been many changes in the political landscape. “