2010 World Cup: Mixed Business Expectations
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Over one third (35%) of companies surveyed recently believe that the 2010 FIFA World Cup will have a disruptive effect on their business, with 45% of respondents of the opinion that the tournament will create new business opportunities. A small part of the sample was of the opinion that it would be business as usual in South Africa throughout the event.
These were some of the findings to emerge from a KPMG survey of the impact of current economic conditions on businesses released today. The sample was drawn from key KPMG clients across business sectors and targeted CEOs, CFOs and COOs.
Initially conducted in 2008 following the advent of the economic downturn, the 2009 study showed that the majority of respondents (74%) had not expected the downturn to impact on their businesses in the way that it did, while 3% reported the creation of business opportunities in the recessionary environment.
The controversial Eskom tariff hikes being proposed were seen by 65% of respondents as having a negative effect on business with consequent increases in inflation and interest rates. Ten percent of the sample indicated that they might have to resort to actions such as retrenchments to absorb the cost increases.
Interpreting this finding, Carol Read, Director at KPMG, said that the figure might be a lot higher in some parts of the economy. “Clearly there are some sectors that are more energy-dependent than others. In those sectors there is likely to be higher levels of retrenchment and other measures to reduce exposure.” While not in favour of electricity price hikes as a means to fund infrastructure expansion plans at Eskom, 61% of respondents favoured public private partnerships as a mechanism to raise funds.
“There are many areas of convergence and divergence between the 2008 and 2009 surveys,” says Lullu Krugel, senior economist at the KPMG Quantitative and Economic Analysis unit, who conducted the survey. “Although over 65% of business indicated that they would defer investment in capital expenditure in 2008, in fact a much smaller number of businesses did so in 2009. On the other hand, 35% of businesses surveyed in 2008 said they would retrench staff as a cost cutting measure and in 2009 that same percentage actually did retrench people.”
A significant proportion of respondents (35%) said that they had improved their governance measures in an attempt to counteract the impact of the downturn. This could be interpreted as a response to the expected increase in fraud in tough economic times, said Krugel. The survey found that over half the number of respondents (52%) felt that white collar crime and fraud will increase through 2010.
There have been some encouraging findings of the survey as well, with all respondents of the view that future growth opportunities do exist in the business environment and 41% indicating that they were considering African continent presented opportunities for future expansion. The broad trend to emerge was that South African businesses are looking to developing markets to expand rather than developed markets.
“Perhaps our most exciting finding was that companies appear to have recognised the importance of developing and implementing an environmental strategy,” said Read. “Of the 67% of respondents who said they had an environmental strategy, only 6% indicated that they had a strategy but are not implementing it.”
Key drivers for future economic growth were identified as:
· increased foreign tourism;
· recovering global growth conducive to export activity;
· firmer consumer and business confidence;
· increased foreign investment;
· lower interest rates which will stimulate consumer spending;
· gains made through infrastructure projects.
Economic recovery is expected to be felt by the third quarter of 2010, the survey found.
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