South African companies are facing domestic challenges to rail and port services. Picture: Ana Benet/Pexels
Load shedding, high levels of unemployment, and crime will be among South Africa’s biggest structural challenges this year, but if local businesses partner with the government, they can use these crises to their advantage.
PwC South Africa’s first Economic Outlook Report for 2024 states that, compared to a year ago, global business leaders are more positive about economic growth in their countries over the next 12 months.
However, many countries appear to be seeing worsening sets of societal challenges at the moment.
Alongside country-specific structural challenges, the world is also facing short-term crises; these challenges are more transient and less enduring than the long-term ‘megatrends’ shaping society.
While the short-term challenges are not the same everywhere, they can be grouped into five categories – economics; conflict; resources; health; and institutions. Based on these categories, PwC has identified crises across these five areas of South African society:
– Macroeconomic volatility
– Conflict-hit international supply chains
– Access to scarce resources
– Access to healthcare
– Struggling public institutions
Although these country-specific challenges are expected to dissipate to some extent over the medium to long term, Lullu Krugel, PwC South Africa chief economist, says there is scope for South African organisations to turn these crises into opportunities in the meantime. This will allow them to create value for their stakeholders and society in general.
“Periods of predicament can create a window of opportunity for impactful change, and leaders – both in the public and private sectors – should not miss the chance to seize it.”
Still, for companies surrounded by economic uncertainty, creating financial value for their broad set of stakeholders is “a real challenge”, the report says.
South African businesses are under strain from international macroeconomic volatility and domestic headwinds, including load shedding, and this is hitting their bottom lines. The report says local company profits and dividends declined 17.8 percent year-on-year and 33.2 percent year-on-year respectively in Q3 2023.
As this negative trend could continue this year, business leaders need to act.
“Global geopolitical tensions are disrupting international supply chains and PwC’s Global Risk Survey 2023 identified supply chain disruption as the main external factor seen contributing towards company risk. South African companies are also facing domestic challenges to rail and port services, with logistics under duress from shipment delays.
“Supply chain localisation – relying on closer-top-home sources of labour, goods and services, innovation, technology, and capital – could reduce dependency on foreign sources and enhance business resilience.”
However, PwC says localisation is about more than just goods. It includes workforce, research and development, technology, and capital considerations.
“Resource scarcity, caused in part by supply chain disruption, is exacerbating socio-inequality gaps. South African companies are regularly struggling with resource shortages and factory capacity under-utilisation due to raw material shortages has been elevated over the past several years.”
Basically, to save costs, remain profitable, and create value for stakeholders, companies need to do more with less. As a possible solution, a business model based on circular economy principles can help companies use resources more efficiently through recycling, re-manufacturing, reuse, maintenance, and redesign.
While technology can be used for good in the circular economy, the report states that technological change is amongst the factors (alongside geopolitical and political power shifts, climate change, and corruption) that are threatening to overwhelm public institutions in many countries. And in South Africa, the public sector is unable to deliver the quantity and quality of services that it previously could.
As a result, the use of public services declined across the board between 2019 and 2023.
Local companies can, however, make meaningful impacts on their communities by partnering with the government to help address socio-economic challenges; the suggested public-private collaboration model is an equal partnership with shared funding and control over the assets.
“With fiscal resources constrained, healthcare systems globally are facing significant hurdles and access to healthcare is under pressure. The number of South Africans without access to universal health coverage is estimated to have increased by more than a million between 2017 and 2023.”
Citing the Edelman Trust Barometer 2023, PwC says approximately 56 percent of South African respondents believe that employers are not doing enough to support access to healthcare. Options for employers to support workers’ access to health services include employee wellness initiatives, support programmes, and relevant training.”
Whether at a company level or for society as a whole, Shirley Machaba, chief executive of PwC South Africa, says crises create environments that can help kick-start profound and sustained change.
“PwC believes that, in order to respond effectively to such opportunity for change, organisations need to put purpose at the heart of their risk and overall strategy. Being purpose-led means a company is guided by a clear and meaningful mission beyond just financial success. Rather, the organisation is driven by a commitment to making a positive impact on the so-called triple bottom line: profit, people, and the planet.”
IOL Business
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