South Africa

Details

  • Industry: Business Desk, Africa
  • Type: KPMG information
  • Date: 2011/12/02

Complexity of doing business in Africa increases significantly  

The world as we know it continues to change, becoming increasingly complex and even more challenging, while bringing new opportunities.

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Among the issues that senior decision makers in business and government need to deal with today, managing complexity is at the top of the business agenda. KPMG sought to gain greater insight into how complexity is impacting business around the world and how business leaders are responding. Through one of the largest surveys KPMG has ever undertaken, the outcomes – what business leaders are telling us – are now available for discussion.

 

The initial KPMG International research spanned 22 countries (including South Africa) and was later extended to include a further 18 African countries. The report Confronting Complexity: African insights on the challenges and opportunities summarises the results.

 

According to the research, more than two thirds (67%) of African business leaders surveyed agree that complexity in their business has increased over the past two years. More than half (55%) also believe that complexity will continue to increase in the next two years.

 

It is interesting to note that 36% describe the increase over the past two years as ‘very significant’, which is much higher than the global response of 28% to the same question.

 

17% of African business leaders reported a decrease in complexity over the past two years, while only 3% of their global peers suggested the same. This apparent dichotomy in African opinions can be explained by the great diversity and disparity among countries – Africa is by no means a case of ‘one size fits all‘.

 

Larger, more developed countries display results more in line with the global experience and expect an increase in complexity. However, countries ravaged by social unrest, political instability and economic uncertainty have such a low ‘base effect’ that any semblance of normality would result in much less complexity.

 

According to the research, some of the larger economies (often countries with large populations, such as Angola, South Africa and Nigeria), show some of the largest net increases in complexity. On the opposite extreme, Zimbabwean business leaders indicated a significant reduction in complexity. This follows the decision to abandon the Zimbabwe dollar in an attempt to arrest the hyper-inflation crippling the economy.

 

Regulation was clearly singled out as the greatest cause of complexity in African business, which mirrors the global report findings. 63% see regulation as a contributor to the complexity of running their businesses and 48% believe it is the greatest single cause of complexity. Tax policy features prominently, with 41% indentifying it as the greatest cause. Government oversight (29%), Information Management (28%) and increased speed of innovation (26%) follow in a tightly grouped band.

 

African business leaders agree that complexity increases the cost of doing business (82%) and creates additional risks (72%) that must be managed. Other challenges include the time taken to conclude deals and transactions, the need for new skills, and making it more difficult to compete.

 

Interestingly, 72% of business leaders view complexity as an opportunity in terms of their own strategies, efficiencies and products.

 

At the top of expected causes of complexity in future is Information Management. Another key change predicted is the significant reduction in the foreseen complexity of tax policy. These changes are supported by the views that most countries expect the cause of complexity to change in the next two years – primarily the increase in Information Management and the decrease of tax policy.

 

To respond to the increasing complexity, business leaders are addressing the way they manage information (83%), reorganising all or part of their business (78%) and changing their approach to Human Resources (for example, Malawi at 97%). Outsourcing does not seem to be a popular response to managing complexity, with 46% implementing it as a strategy and, of those who have outsourced, less than half reported it as effective.

 

66% of African business leaders say they will take additional or different steps to manage complexity. Information Management and reorganising business are set to remain the most popular actions.

 

This research clearly shows that Africa is fragmented and diverse, which provides a level of complexity that global organisations may not fully appreciate.

 

A country-by-country approach is required with local skills and expertise to help investors fully understand the specific environment and reduce the level of complexity.