Just more than a third of SA's top 120 companies are likely to retrench staff in the next six months as the economic downturn deepens, according to a snap survey this week by business advisory services firm KPMG.

The worst-affected sectors would be construction, mining, industrials, financial services, forestry, paper and pulp, vehicles and logistics.

The survey also found that about 65 percent of companies were likely to offer staff voluntary packages instead of forcing them out of work.

About 90 percent of companies across all sectors had dramatically cut costs, but KPMG said this related not to the subprime crisis, but to local economic factors such as high interest rates, inflation and the volatile exchange rate.

Short-term solution

"At first glance this may seem to be a negative outlook to the survey results, however, on further examination as to the rationale of this feedback, we found that many businesses view this strategy as merely a short- to medium-term answer and are therefore examining what other interventions can be undertaken to correct this imbalance to ensure long-term prosperity of commerce and growth in our economy," Carol Read, a director and policy board member at KPMG, said.

"The last two to three months have seen greater changes in economic conditions than in any period in the last decade and economists have warned that more changes are yet to come," Read said.

"As a result, KPMG chose to undertake this snap-shot survey to gain insight and prognosis into influential drivers that affect all businesses, no matter what size."

The study was carried out in a week. It took the form of a questionnaire, with 14 questions that ranged from big business's views on interest rates and what infrastructure spend by the government would have the most advantageous effect, to what businesses were planning to undertake in the next year to mitigate the economic crisis.

"Our intention with this survey was to gain an immediate view from leading CEOs, chief operating officers and chief financial officers on the South African economy and the outlook for business in 2009," Read said.

She said although the country has had the government's and many leading economists' views on the state of the economy, it was equally important to gain insight from leading companies.

Diversify and expand

The perceived damaging effect of the re-rating of SA's risk profile and high interest rates were some of the factors that might be attributable to companies' planned reductions in capital expenditure and human resources. Only a minority of companies (40 percent) reported they intended to reduce staff working hours in the next 12 months. Encouragingly, most of the companies said they would acquire new business operations, while others reported that they would diversify their operations.

There was further agreement on the need to reduce interest rates and direct taxes, combined with increased government expenditure in the energy sector to stimulate the economy. Companies thought there would be an advantageous affect on the economy if the government focused its infrastructure spend on energy next year.

However, the foreign exchange market was an area where intervention from the government was strongly discouraged by companies, the survey found.

Business Day


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