Deloitte has released the second edition of Dissecting Disclosures: Benchmarking the JSE top 100, which analyses the Johannesburg Stock Exchange’s (“JSE”) top 100 companies. On embarking on this research, we wanted to use disclosures in annual reports and integrated reports to understand the profile, concerns and strategic focus areas of these listed companies. Interestingly, this research has uncovered key insights relating to three areas, namely, transformation, Africa expansion and the risks of operating in South Africa.
The Risks of Operating in South Africa
The external risks disclosed in annual reports by the JSE top 100 talk to the issues plaguing South Africa’s economic expansion and global competitiveness. The JSE top 100 has very clearly spelt out the challenges faced in operating in South Africa.
A large number of risks were disclosed by the JSE top 100 relating to the significant uncertainty, changes and complexities in our regulation across several industries. Financial services, resources and healthcare are inundated by a significant amount of change. This correlates with the World Economic Forum’s (WEF) competitiveness survey in which South Africa was ranked 120th out of 144 countries for the perceived heavy burden of legislation. The uncertainty around these changes makes South Africa less competitive in a world in which many developed economies are focused on reducing red tape to improve their own competitiveness.
Is our government’s commitment to reducing red tape limited to bureaucracy, or could the legislative burden also be addressed?
Transformation in the JSE
Transformation was identified by several companies as a key strategic risk. Thirty-two percent (32%) of boards are black, and 18% are female. In terms of race, the JSE top 100 appears to be meeting the minimum requirements of the various transformation charters established, but there are few examples where companies exceed those targets.
Boards remain dominated by white males and gender transformation remains a challenge. With increasing focus abroad and in South Africa on gender, the JSE top 100 has some way to go in attracting and retaining top female talent.
South Africa’s Africa strategy
Africa is high on the agenda of several companies. With South Africa’s economic growth forecast at 2% for 2014 (World Bank), the move into Africa in pursuit of higher growth, while challenged at home by regulation and various other external risks appears to be a theme in the JSE top 100. Nearly half the JSE top 100 identified Africa explicitly as a strategic focus area. However, when measuring its contribution to revenues, only 1% was derived from operations in Africa outside of South Africa.
When analysing the expansion focus by South African companies into the rest of Africa, sub-Saharan Africa is clearly favoured, with Nigeria and Zambia being the most commonly referred to countries for expansion, followed by Ghana, Mozambique and Namibia.
The outgoing Governor of the South African Reserve Bank, Ms Gill Marcus, noted last year that South Africa’s growth could be strengthened if South Africa became more closely entwined with Africa’s growth trajectory. This can only be achieved with increased exposure to the rest of our continent and it is comforting to see the focus in strategy, but disappointing to see the actual exposure.
For more insights, or to read the full report, click here.