Optimism is high within the agricultural sector in South Africa

18 December 2017 Authored by Consultancy.co.za

Amid mixed sentiments about the near future of the struggling economy in South Africa, businesses in the agricultural sector of the country appear to be on the optimistic-side, as more than 20% of them expect growth of more than 20% in the next five years. The figures are detailed in a new report from global professional services firm PwC. 

The South African economy has been navigating a turbulent period in recent times. A dip in oil prices in 2014 from $115 per barrel to less than $70, combined with a further dip to less than $35 per barrel, sent the entire economy into a period of slowdown. In addition, a fall in the price of precious metals such as gold and platinum dealt a major blow to the mining industry – the backbone of the country.

Nevertheless, an increase in digitalisation, a wave of anticipated foreign investment, and favourable demographic trends indicate that promising times lie ahead for the economy. As a result, sentiments amongst the key sectors in the economy have been mixed. A report from Grant Thornton earlier this year revealed that executives in South Africa were the most pessimistic in the world, behind only those in Japan.

On the other hand, a country-wide survey conducted by Big Four professional services firm PwC earlier this year showed that there was a broad tone of optimism across the country about the future. Moreover, individual sectors also appear to be displaying optimism. A recent study from Big Four firm EY revealed that the middle-market segment of South Africa was particularly optimistic about the future.

Now, PwC has conducted another study, this time amongst businesses in the agricultural sector of the country. The study revealed that, contrary to the current economic situation, the sector expects strong growth over the next year, and further growth to come in the next five years.

Expected revenue growth in the next 12 months

The study was conducted across Africa, but the majority of participants in the survey hailed from South Africa. As per the report, more than 20% of the businesses in the country expect growth of between 20% and 30% over the next five years, and growth of more than 10% over the next year itself. 16-20% of the executives expect growth of just under 10% over the next year, and further growth of just under 15% over the next five years. 

11-15% of the respondents expect growth of nearly 20% over the next five years, and just over 10% in the next year. The most optimistic group comprised 6-10% of the respondents, expecting growth of nearly 40% over the next year, and a comparatively more modest rate of 30% over the next five years. Meanwhile, the fewest number (0-5%) of respondents expected growth of more than 30% over the next year, and around 15% over the five-year period.

Diversification

In order to drive this growth, the most popular method emerged as diversification.  The report divides diversification of an agricultural business into two types: moving into entirely new commodity value chains to exploit other consumer markets, or the offering of other agricultural products or services in the current commodity value chain.
Options for Diversification as growth strategy
Most businesses (58%) were taking diversification of their current commodity value chains under strong consideration. Around 25% said that such diversification ‘may be’ a part of their strategy in the future, while less than 20% said that it was not a part of their strategy at all.

On the other hand, around 40% of the businesses were considering moving into new value chains altogether. More than 25% said that such diversification ‘may be’ a part of their strategy, while more than 35% said that it would not be a part of their strategy at all.

Challenges to Growth

The report also examines the biggest anticipated challenges to growth in the future. Of the various challenges plaguing the economy as a whole, ‘access to technology’ emerged as the biggest challenge for the agricultural sector in particular. This was followed by access to finance and labour unrest.
Biggest challenges to business growth
Other significant challenges that emerged in the report are: the inadequacy of basic infrastructure, supply-side uncertainties, energy costs, availability of key skills, scarcity of natural resources, climate change, land tenure uncertainties, regulatory restrictions, and finally, volatile market conditions.

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