The South African government says an investment climate survey — a joint Department of Trade and Industry and World Bank initiative — has provided encouraging information as well as challenges as the country prepares to embark on accelerated growth.
Rand volatility, crime and labour over-regulation were seen as challenges by surveyed firms. On the positive side, tax rates were seen to be low and bribery was not seen to be part of the culture for business to obtain government contracts and services.
In a statement — released at a press conference in Pretoria on Tuesday — government official Ravi Naidoo noted, however, that on the challenging side close to one-third of enterprise managers said that labour regulations were a problem. The high price of skilled workers was also identified in the survey.
The survey, carried out in 2004, also found that the rand had been “one of the most unstable of the world’s currencies”.
The survey of 800 enterprises undertaken by Cape Town-based Citizen Surveys examined the location specific factors that shaped opportunities and incentives for firms to invest productively, create jobs and grow.
The survey found that most firms believe that the courts are able to protect their property rights and court cases are resolved quickly. It found also that the cost of power is low by international standards. Tax rates are low and have been declining over time.
Despite South Africa’s relatively strong macro-economic performance — described as modest GDP growth and moderate inflation — about one-third of enterprise managers said that macroeconomic instability is “a serious problem”.
This is owing to exchange-rate instability — in real terms the rand has been one of the most unstable of the world’s major currencies. This is problematic for exporters who have to receive payments in dollars or euros but pay their workers and suppliers in the rand currency.
“Close to three-quarters of enterprises that export to the United States, the currency of which has been most unstable against the rand, rated macro-economic instability as a serious obstacle.”
Labour productivity is far higher in South Africa than in most low-income countries in sub-Saharan Africa such as Senegal and Kenya, and it compared favourably with such countries as Lithuania, Brazil, Poland and Malaysia.
In contrast, labour costs per worker are “very high” in South Africa — three-and-a-half times higher than in the most productive areas of China, more than two-and-a-half times higher than in Brazil and Lithuania and more than 75% higher than in Malaysia or Poland. This undermines South Africa’s competitiveness.
Cost of workers are “particularly high” for highly skilled workers and managers. An additional year of education is associated with an 11% to 12% increase in wages in South Africa — compared with about 5% to 7% in developed economies.
Most of the large formal firms in the survey did not see access to finance as a serious concern and few reported that they were credit constrained. In summary, on many dimensions, South Africa has “a good investment climate”.
About 30% of enterprises in South Africa rated crime as a major or very severe problem. Direct losses due to crime and the cost of security are higher in South Africa than in some middle-income countries such as China, Poland, Brazil and Russia. Although this suggests that crime is a serious concern, it is less problematic than in some middle-income countries such as Honduras, Guatemala, Nicaragua or Ecuador. The report suggests that crime “is an important, though not critical, problem”.
Close to one-third of enterprise managers said that labour regulations are a serious problem.
The South African government noted that these issues are being addressed within the Accelerated and Shared Growth Initiative for South Africa — driven by Deputy President Phumzile Mlambo-Ngcuka.
World Bank country director for South Africa Ritva Reinikka said in a statement that although the climate for large formal firms in South Africa appears favourable “in many ways”, challenges remain.
Reinikka said wages for managers, professionals and skilled workers are high by international standards, “eroding South Africa’s competitiveness”.
“Exchange-rate volatility makes exporting difficult — and yet for a high growth rate, exports are critical.”
Addressing these issues — together with crime — will help achieve South Africa’s target growth of 6% a year, Reinikka emphasised. — I-Net Bridge