Escaping junk status within South Africa

The junk investment status accorded to South Africa by Fitch and Standard & Poor will not disappear by a mere leadership change: the downgrades were the outcome of doggedly pursuing a double deficit.  But below national level, there still exist areas that are enterprise friendly.  EOSA launched an index to measure this: The Enterprise friendly index

Double deficit

The downgrades slashed international investment confidence, but at the home front corporate South Africa had long ago bestowed junk status as is evident from the Bureau for Economic Research, University of Stellenbosch.

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How to get back to investment status?  The latest 14-point (urgent) plan announced by Finance Minister Malusi Gigaba in July 2017 does not address the fundamental policy changes that are required.  But local businesses (and financial institutions extending loans to local businesses) do not need to wait for S&P or Fitch to restore SA’s investment grading.

Despite the national malaise, there are localities that still are enterprise friendly.  One cannot detect that from the BER general index. EOSA is therefore developing an Enterprise Friendly Index that will rank areas according to municipal boundaries by:

  • Existing investment by the private sector (the value of commercial and industrial buildings as a % of the overall municipal valuation roll);
  • Crimes against business: the incidence of five crime categories that directly target business as victims expressed as an average crime incident per formal enterprise.  These crimes are truck-jacking, robberies at businesses, burglaries at businesses, shop-lifting and stock theft;
  • Business friendliness of the municipality: Municipal efficiency or lack thereof is well recorded by Blue Drop and Green Drop reports as well as by service protests.  These record general services whether for households or firms.  EOSA decided to measure some specific actions that would indicate how business-friendly a municipality is:  will it pay its service providers (predominantly enterprises) within the 30-day rule or not? Are they issuing rates clearance certificates required for registration of title timeously?  Also, are they accessible?  Do they answer their telephones promptly or not?

Based on these three categories, areas can be assessed and indexed on how business friendly they are.  This ranking can be done at both national and provincial levels.  In the Free State Province the municipal area of Dihlabeng (Bethlehem, Clarens, Fouriesburg & Paul Roux) ranks as the most enterprise friendly area:  

  • The municipality answered their phones quicker (not promptly) than most other municipalities and rates clearance certificates were also issued with fair efficiency:  substantially quicker than in the case of the Mangaung metro;
  • There was on average 0.75 crimes against business per enterprise in the Dihlabeng area.  In four municipal areas in the Free State there was on average more than 2 crimes against business per formal enterprise in those municipalities;
  • In the Dihlabeng area business and industrial properties comprise 15.03% of the total municipal valuation roll, higher than the 12.35% for the Free State province as a whole.

Should one consider investment in the Free State Province, the Dihlabeng area stands out as the one to consider.  (For more information, contact EOSA).