South Africa – A brief PESTLE analysis

The final board exam for CA(SA) students will take place on 22 November.  It will consist of a case study based in South Africa.  Many of those writing have been working hard during their articles this year and so I have collected my thoughts on the current South African business environment.

Political

SA is experiencing a large amount of uncertainty ahead of the ANC elective conference in December.  Whilst of course you are entitled to your own political views, when answering a case study exam, the focus should remain on the business consequences of the political environment.  Political uncertainty has a big impact on business confidence, which brings us to the current economic situation.

Economic

A lack of business confidence has resulted in low investment and GDP growth of only 0.6%.  This is not helping the 27% unemployment rate at all.  Inflation is within the 3-6% target range at 5.3% but this is now under pressure due to the Rand weakening rapidly as well as the 20% increase that Eskom has requested.  The mini-budget speech gave little practical detail on how the SA government intends to boost economic growth and that has made a ratings downgrade to junk status much more likely.  That downgrade will increase the cost of borrowing for the government, as well as the large SA companies.  The SA government has a tough job allocating resources in a country with such high inequality.

Social

That economic inequality is the major social issue that affects SA in numerous ways.  Marikana, hostile labour relationships, service delivery protests and youth protesting for greater access to quality education – all of these have at their root an uneasiness over the allocation of resources in the country.  A business could now be impacted through customers, employees and community pressures if it does not understand the social dynamics at play in SA.

Technological

The past two decades have seen the rapid adoption of game changer technology.  What used to take several inefficient steps can now be automated with a rapid reduction in costs but also at the expense of many jobs.  Digitisation is disrupting the travel, banking, auditing, retail and many other industries.  It does not matter what case study SAICA produces, the chances are that technology needs to be on the mind of the management team.

Legislative

SA has some important legislation that is currently under revision, the mining act as well as many BEE charters for instance.  You would need a strong trigger from SAICA in order to get into the nitty gritty details of these laws, but at the high level, you need to understand that government can change the business environment with the stroke of a pen.  Just think of the massive fines handed to MTN in Nigeria as well as Barrick Gold more recently in Tanzania.  The competition commission in SA is also very active at the moment – with the investigation into high data costs being a high profile case.

Environmental

The APC professional programme has already introduced Integrated Thinking and the importance of the six capitals.  The impact of the business on natural capital is of course very important.  In the Western Cape, drought conditions have a huge knock-on effect, and need to be carefully managed by companies.

Danger or Opportunity?

This PESTLE analysis is a brief snapshot of the key factors at play currently in SA.  Does it make you nervous or excited?  It depends.  If your business is poised to help reduce inequality, is a low cost alternative or if it helps to save water, the current situation presents massive opportunity.  Whatever comes your way on 22 November, I hope that this helps you perform excellently!

Paul Maughan

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