South African companies took strain last year, with PwC’s 27th Annual Global CEO Survey pointing out that company profits and dividends declined by 18% and 33% year on year respectively in the third quarter. 

The report warns that this is likely to continue in the year ahead. 

Data from Statistics South Africa (Stats SA) shows that while total company income across industries increased 4.8% y-o-y in the third quarter of 2023 to R3.6-trillion, net profit before taxation declined 17.8% to R253.5-billion, while dividends payable dropped 33.2% y-o-y to R55.6-billion.

South African CEOs are grappling with structural challenges (including rolling blackouts, high levels of unemployment and crime); macroeconomic volatility; conflict-hit international supply chains; access to scarce resources; access to healthcare and struggling public institutions.

“These country-specific challenges are expected to dissipate somewhat over the medium to long term,” says Lullu Krugel, chief economist at PwC South Africa.

“In the meantime, there is scope for South African organisations to turn these crises into opportunities during 2024 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.” 

Structural challenges: Momentum Investments says while load shedding is expected to detract from SA’s economic growth, improvements in Eskom’s generation plan and increased private sector investment in renewable energy suggest a potential easing of the energy crisis. The South African Reserve Bank estimates that lower anticipated levels of load shedding could translate into a 0.8 percentage point detraction from GDP in 2024. Businesses, both large and small, have invested billions in independent or alternative power supply solutions to address the productivity issues this has raised.

Supply-chain disruptions: South African companies are facing domestic challenges to rail and port services, with logistics under duress from shipment delays. The S&P Global South Africa Purchasing Managers Index November 2023 noted that supplier deliveries had slowed during the month and that supply chains were “under duress” due to severe disruption at domestic ports. At the time, vessels carrying more than 100,000 containers –an estimated R7-billion worth of goods – were stuck outside the ports at Durban, Ngqura and Gqeberha, with expectations that it would take several months to clear the backlog. While this is a challenge, it does open the door for companies to be proactive by localising their supply chain – relying instead on local sources of labour, goods and services, innovation, technology and capital.

Scarce resources: The supply chain bottlenecks have, in turn, exacerbated social inequality gaps. The report points out that South African companies are regularly struggling with resource shortages and factory capacity under-utilisation due to raw material shortages. The report says a circular economy is an alternative model that could address this problem.

Charlotte Maxeke Johannesburg Academic Hospital. (Photo: Gallo Images / Sharon Seretlo)

Access to healthcare: 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. Some 56% of South African respondents to the Edelman Trust Barometer 2023 survey 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.

Struggling public institutions: 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. The latest Governance, Public Safety and Justice Survey published by Stats SA found that, for example, the share of adults making use of public hospitals declined by 6.3 percentage points from 19.9% in 2019/2020 to 13.6% in 2022/2023. 

Chief executive officer of PwC South Africa, Shirley Machaba, notes that PwC has been involved in the development of an alternative model to the traditional public-private partnership. This is premised on an equal partnership basis, with the government and private sector providing shared funding and having shared control over the assets. 

Machaba points out that crises create environments that can help kickstart profound and sustained change, whether at a company level or for society as a whole. 

“In order to respond effectively to such an 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, planet.” DM