Johannesburg – The relationship between government and business in South Africa has become dysfunctional, according to Saijil Singh, lead analyst of international credit insurer Coface.

“A rejuvenated private sector is the key to reversing the current conditions and achieving the required growth rates,” he urged on Wednesday.

“Currently the private sector faces serious challenges. A surplus of new regulations and government programmes, almost all of which increase the cost of doing business, makes it difficult to justify new investment.”

In the latest World Bank Ease of Doing Business data South Africa dropped six places from the previous year.

“South African companies are investing, but increasingly their focus is on expanding internationally, especially in Africa, north of the Limpopo. Private sector investment within South Africa is focused on increasing productivity to compensate for above-inflation wage increases,” said Singh.

“The cost of excessive wage demands results in reduced employment. South Africa is caught in a cycle of lacklustre growth, which does not create jobs.”

The simplest way to fix the South African economy is to promote an environment which allows the private sector to prosper by reducing regulations and removing policies that inhibit investment, in his view.

Job creation and rising tax revenues, that will allow government to achieve its ambitious social agendas, will follow.

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Business confidence

Looking into 2015, Singh said South African businesses are confident about their own growth prospects. The majority of South African businesses expect their turnover to grow by around 5% in 2015.

“It is vital that government and other stakeholders work together to arrest the decline in confidence before it gets worse,” warned Singh.

“Since companies indicated that government bureaucracy and its handling of the current economic situation are their biggest challenges, there is more the government could do to build business confidence in the short to medium term.”

Confidence in the national economy dropped, but confidence in the global economy is improving, perhaps one reason, in his view, that South African businesses are eager to grow export business.

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Business attitudes to risk changing

Business attitudes to risk also appear to be changing. Half of business decision makers describe themselves as risk-takers. Businesses have become more risk averse over the last few years.

“It is natural for companies to be cautious given the economic challenges South Africa faces. It is encouraging that many still have the appetite for calculated risk for the sake of growing their businesses,” said Singh.

A substantial portion of businesses are already doing business in foreign countries, stating that exports account for an average of one-fifth of their turnover.

The last year has been favourable for exporters due to the devaluation in the rand. Six in ten South African exporters anticipate export turnover growth in the next year.

“The instability of our exchange rate, government bureaucracy and a lack of skills are the challenges constraining further growth of our export revenues,” he said.

“Businesses do not feel they are supported in their ambitions to grow their exports. Very few businesses feel they receive the support they need from government, and what government should do to help them grow exports is to offer more financial incentives.”