The document summarizes the results of the Business Vulnerability Index (BVI) for the first quarter of 2015 in South Africa. The key points are: - The composite BVI score was 63.8 out of 100, indicating businesses feel "exposed" to risks. This is slightly improved from Q3 2014. - Vulnerability varied by sector and business size, ranging from 59.3 to 67.6. Small businesses reported the highest vulnerability. - External factors like crime, weak government, taxes and political instability caused the most vulnerability, with scores below 50. Internal factors scored above 70. - The study found vulnerability is influenced more by external business constraints outside companies' control than

1. SUMMARY: BUSINESS VULNERABILITY INDEX (BVI) RESULTS FOR Q1 2015
1 INTRODUCTION
The National Development Plan (NDP) confirms that conditions are not favourable
for conducting business in South Africa. The NDP identifies the following business-
related issues as of particular concern:
 The high cost of doing business in South Africa.
 Unfavourable relations between business and labour.
 Non-optimal development of small businesses.
 The need to improve access to the financial services of medium-sized
businesses.
 The need for higher levels of trust between government and business.
Recent business confidence index results confirmed the problems experienced in the
South African business sector. The RMB/BER business confidence index fell in the
first quarter of 2015 to 49 index points from 51 in the fourth quarter of 2014 (Bureau
of Economic Research, 2014). This means businesses are about evenly split between
those that are satisfied and unsatisfied about prevailing business conditions.
In an effort to contribute towards addressing negative sentiments or vulnerability in
the business sector, MBD Credit Solutions has approved its sponsorship of the
Bureau of Market Research (BMR) at Unisa to develop and maintain a Business
Vulnerability Index (BVI) for the 2013 to 2015 period. This summary contains an
outline of the BVI purpose and research methodology, the results of the BVI
measured during Q1 2015 as well as a comparison of the latter with findings of Q3
2013 and Q1 and Q3 2014.
2 PURPOSE AND METHODOLOGY OF THE BVI
The BVI model was designed to allow for the construction of business vulnerability
indices. The aim of such indices was to identify the potential negative impact or risks
of changes in a variety of variables on business vulnerability and ultimately on
business formation, development and growth.

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The cornerstone of measuring business vulnerability is regular business surveys.
Business surveys have a proven track record as being exceptionally reliable. For
purposes of this study, businesses were interviewed telephonically. A sample of 250
businesses was selected to ensure a broadly representative business sample
disaggregated by sector and business size.
The business vulnerability model focuses primarily on the degree to which changes
in business-related variables intensify or ameliorate exposure (or susceptibility) to
risks that may impact on their sustainability and growth. For this purpose, a list of 24
variables reflecting the major issues impacting on business vulnerability and growth
were identified. The said 24 variables were categorised into the following five
clusters:
 International business environment.
 Macroeconomic environment in South Africa.
 Financial position of business.
 Major business constraints.
 Business competitiveness.
The level of business vulnerability is measured on a 10-point scale where ‘1’ denotes
a strong deterioration and ‘10’ a strong improvement during the preceding six
months of a particular variable. Similarly, businesses were also requested to rate the
severity of constraints on conducting business on a 10-point scale where ‘1’ denotes
a serious constraint and ‘10’ no constraint at all. A list of 14 constraints was
presented to respondents for rating purposes.
The mean scores calculated for each variable (on a rating of 1 to 10) are elevated to
an index level, implying that the BVI varies between 1 and 100 where a value of 1
reflects an extremely high level of vulnerability and 100 portrays no vulnerability at
all. On average, an index value below 50 ventures into vulnerable territory while an
index value above 50 initially portrays same exposure towards negative influences,
transforming into more secure territory as the index value approaches 100. For
purposes of interpreting the BVI, the following BVI vulnerability categories need to
be kept in mind:

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BVI: Index
score
Level of
vulnerability
Policy action required Colour
1 – 29.9 Extremely
vulnerable
Very urgent need for action Red
30 – 49.9 Vulnerable Urgent need for action Orange
50 – 69.9 Exposed Improvement required Yellow
70 - 100 Secure
Ensure no slippage (maintain
policy environment)
Green
As with the BVI, the mean scores yielded by the business constraints (on a scale of 1
to 10) are elevated to an index level where a value of 1 reflects a serious constraint
and 100 no constraint at all. An average index value below 50 indicates a severe to
very severe impact of constraints on the business while a value above 50 reflects a
less serious impact on the business. For purposes of interpreting the severity of
constraints on business performance, the following framework should be applied:
Index score
of
constraints
Severity of
constraint
Policy action required Colour
1 – 29.9 Very serious
constraint
Very urgent need for action Red
30 – 49.9 Serious
constraint
Urgent need for action Orange
50 – 69.9 Mild constraint Improvement required Yellow
70 - 100 No constraint
Ensure no slippage (maintain
policy environment)
Green
3 BUSINESS VULNERABILITY RESULTS
Table 1 shows the vulnerability indices by economic sector and business size for Q1
2015. The following is evident from table 1, containing the vulnerability indices by
cluster:
(a) Composite BVI
The composite BVI is recorded at 63.8 (out of 100) for the South African
business sector as a whole during Q1 2015. This signals an ‘exposed’
classification (between 50 to 69.9 index points) in terms of vulnerability (see
section 2). This score implies slightly less business vulnerability during Q1
2015 compared to Q3 2014 when the BVI score was 60.2.

4. 4
(b) Sectoral BVI
By sector, the Q1 2015 average BVI ranged from 59.3 in the electricity, gas
and water supply sector to 67.6 in the construction sector.
(c) BVI by business size
The average BVI by business size ranged from 60.7 for large businesses
(turnover of >R100 million) to 66.4 for small businesses (turnover <R10
million). Businesses in all three size classes fall within the exposed business
vulnerability category. However, the BVI index values confirm the highest
level of vulnerability among large businesses and the lowest level among
small businesses.
(d) BVI by vulnerability cluster
The BVIs within the various vulnerability clusters ranged from 53.9 in the
‘business constraint’ cluster to 75.9 with regard to the cluster representing
the ‘financial position of businesses’. Therefore, business vulnerability is
influenced far more strongly by business constraints (53.9) than by the
financial position of the businesses (75.9). This implies that business
vulnerability is strongly influenced by exogenous factors outside the control
of businesses and much less by endogenous factors within the field of control
of business leaders.

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TABLE 1
VULNERABILITY INDICES (CLUSTERS) BY ECONOMIC SECTOR AND BUSINESS SIZE CLASS, Q1 2015
Sector and business size
International
environment
SA macro
economy
Financial
position
Business
constraints
Business
completeness
Average of
BVI
Agriculture, fishing and
forestry 61.4 60.4 77.0 54.4 66.3 63.9
< R10m 61.5 52.8 70.7 60.6 62.8 61.7
R10.1m - R100m 58.0 70.0 77.7 53.6 71.0 66.1
> R100.1m 65.4 56.9 83.3 48.4 64.4 63.7
Mining and quarrying 60.6 61.6 74.0 50.8 64.8 62.4
< R10m 63.7 66.0 72.0 50.6 66.0 63.7
R10.1m - R100m 59.6 65.0 78.9 51.6 65.0 64.0
> R100.1m 58.1 53.3 71.5 50.1 63.3 59.3
Manufacturing 65.1 61.7 74.2 55.4 69.4 65.2
< R10m 71.3 62.5 73.8 60.0 67.5 67.0
R10.1m - R100m 60.7 61.5 76.3 52.2 72.5 64.6
> R100.1m 64.4 61.1 72.2 54.9 67.8 64.1
Construction 68.3 66.0 79.9 56.9 67.0 67.6
< R10m 74.6 74.4 82.5 63.9 73.1 73.7
R10.1m - R100m 71.1 65.0 77.8 57.3 68.9 68.0
> R100.1m 58.8 58.8 79.6 49.6 58.8 61.1
Electricity, gas and
water supply 45.0 47.5 83.3 45.7 75.0 59.3
> R100.1m 45.0 47.5 83.3 45.7 75.0 59.3
Trade 61.2 61.5 72.6 54.4 64.2 62.8
< R10m 67.6 70.7 70.0 64.4 75.0 69.5
R10.1m - R100m 59.3 61.0 71.7 51.7 59.5 60.6
> R100.1m 58.1 55.0 75.6 49.6 61.1 59.9
Transport, storage and
communication 63.1 60.6 74.4 53.7 59.3 62.2
< R10m 65.9 60.6 64.8 54.7 57.8 60.8
R10.1m - R100m 62.9 66.9 83.8 57.5 63.8 67.0
> R100.1m 60.7 55.5 75.7 49.7 57.0 59.7
Financial, business and
real estate 57.0 60.5 78.2 49.4 57.3 60.5
< R10m 67.7 61.5 74.7 53.4 65.5 64.5
R10.1m - R100m 49.7 61.5 78.7 44.6 48.5 56.6
> R100.1m 52.9 58.1 82.1 50.4 58.1 60.3
Personal, social and
community services 64.9 64.2 76.5 56.8 66.7 65.8
< R10m 75.2 68.2 72.7 66.4 72.7 71.0
R10.1m - R100m 69.3 71.7 78.1 56.7 69.4 69.0
> R100.1m 53.3 55.8 78.5 48.8 59.6 59.2
Total 62.5 62.0 75.9 53.9 64.5 63.8
< R10m 68.4 64.4 72.6 59.0 67.4 66.4
R10.1m - R100m 61.1 65.2 77.7 53.0 64.7 64.3
> R100.1m 58.3 56.4 77.3 50.0 61.5 60.7

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Upon focusing on the 24 variables making up the vulnerability clusters shown in Table 1 the
following four business vulnerability variables scored the lowest during Q1 2015, indicating
high levels of business vulnerability (index value below 50.0):
- Levels of crime and corruption 35.6 (Exogenous)
- Weak government 37.7 (Exogenous)
- Municipal rates and taxes 46.2 (Exogenous)
- Political environment (including social unrest) 48.3 (Exogenous)
The results of the study clearly confirm the high levels of vulnerability caused by factors
exogenous to the business. The most severe of these are high levels of crime and
corruption, weak government, municipal utility rates and taxes and uncertain political
environment including social unrest. These factors yielded index scores below 50.0. Other
important contributors to business vulnerability include government red tape/bureaucracy,
policy uncertainty, quality of infrastructure, price inflation and labour quality and stability.
On the other hand, the impact of endogenous factors on the vulnerability levels of South
African businesses is positive. An index score of above 70.0 was recorded for business cash
flow, net wealth of business and long-term financial sustainability of the business.
4 BUSINESS CONSTRAINTS RESULTS
Business formation and growth can be constrained by a variety of factors, ranging from the
government policy framework within which businesses have to operate, to supply and
demand factors within a specific sector and even business strategies within the business
itself. The second part of the business survey was aimed at generating insights into the
constraints inhibiting business development and growth. Business respondents were
requested to rate the seriousness of a list of 14 constraints (on a 10-point scale) on
conducting business in South Africa.
It appears from the business survey results that the following 12 constraints fell into the
‘serious constraint’ category (rating between 30 and 49.9 index points), exerting a negative
impact on business growth and development:

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Constraint Index score
 Level of crime and corruption 32.8
 Weak government 34.8
 Political environment (social and political unrest) 42.3
 Municipal utility rates and taxes 43.3
 Government red tape and bureaucracy 44.2
 Restrictive labour regulations 45.5
 Policy uncertainty 46.1
 Quality of infrastructure 46.1
 Price inflation 48.4
 Labour stability 49.3
 Poor work ethic 49.5
 Labour quality 49.6
The above index ratings confirm a general constrained environment within which South
African businesses have to operate. The composite index for all constraints yielded a score
of only 46.5. Of particular concern are the relatively low ratings for government-related
constraints (restrictive labour relations, political environment, especially the level of crime
and corruption and weak government, yielding an average score of below 40.0).
The average index scores by economic sector placed nearly all the sectors in the ‘serious
constraint’ category. Average index scores ranged from 40.9 for agriculture, fishing and
forestry to 49.7 for financial, business services and real estate. Only electricity, gas and
water recorded a ‘mild’ constraint environment probably due to the lucrative government
support provided to Eskom.
It was also evident from the results of the business survey that all three business size
categories yielded scores falling into the ‘serious’ constraint category - medium-sized
businesses = 44.7, large businesses = 45.8 and small businesses = 49.1.

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5 OVERVIEW AND COMPARISON WITH Q3 2013 AND Q1 AND Q3 2014
The findings shown in this report, when compared with the previous BVI findings,
clearly show that numerous changes in business vulnerability occurred during the
past year. A sectoral BVI comparison between Q3 2013, Q1 2014, Q3 2014 and Q1
2015 is provided in table 2.
TABLE 2
COMPARISON OF THE COMPOSITE BVI SCORES BY SECTOR OF Q3 2013, Q1 2014, Q3 2014
AND Q1 2015
Sector
BVI score
Q3 2013
BVI
score
Q1 2014
BVI score
Q3 2014
BVI score
Q1 2015
%
movement
Q3 2014 to
Q1 2015
Agriculture, fishing and
forestry
61.7 66.2 57.4 63.9 +6.5
Mining and quarrying 58.5 62.1 60.5 62.4 +1.9
Manufacturing 60.6 63.4 59.3 65.2 +5.9
Construction 61.7 63.9 61.4 67.6 +6.2
Electricity, gas and water
supply
- - 38.9 59.3 ..
Trade 61.7 52.5 57.9 62.8 +4.9
Transport, storage and
communication
58.4 57.1 60.9 62.2
+1.3
Financial, business and
real estate
62.1 60.3 64.0 60.5 -3.5
Personal, social and
community service
63.2 61.2 61.2 65.8 +4.6
Composite index 61.1 60.9 60.2 63.8 +3.6
It appears from table 2 that the composite vulnerability index shows a gradual
decline from 61.1 in Q3 2013 to 60.9 in Q1 2014 to 60.2 in Q3 2014 whereafter a
slight improvement to 63.8 was recorded in Q1 2015. During the preceding six
months, business vulnerability levels worsened in the financial, business services and
real estate sector. However, improvements were recorded in all other sectors.
Table 3 shows a comparison of business vulnerability indices of Q3 2013, Q1 2014
and Q3 2014 by business size. The table shows a gradual improvement in the BVI of

9. 9
small businesses from 58.6 in Q3 2013 to 66.4 in Q1 2015. For medium-sized and
large businesses, a gradual decline in BVR scores was evident from Q3 2013 to Q3
2014 with a slight improvement in Q1 2015.
TABLE 3
COMPARISON OF COMPOSITE BVI SCORES BY BUSINESS SIZE OF Q3 2013, Q1 2014,
Q3 2014 AND Q1 2015
Sector
BVI score
Q3 2013
BVI score
Q1 2014
BVI score
Q3 2014
BVI score
Q1 2015
%
Movement
Q3 2014 to
Q1 2015
<R10 million 58.6 60.5 64.3 66.4 +2.1
R10.1 million to R100 million 61.5 59.9 57.5 64.3 +6.8
>R100 million 63.1 62.3 59.1 60.7 +1.6
Composite index 61.1 60.9 60.2 63.8 +3.6
When comparing the most serious business constraints experienced since Q3 2013, it
appears from table 4 that all the mentioned constraints still fall into the ‘serious’
constraint category in Q1 2015. The table also confirms that the most serious
constraints are government and labour market related.
TABLE 4
COMPOSITE INDEX SCORES OF CONSTRAINTS BY SELECTED VARIABLES, Q3 2013, Q1 2014,
Q3 2014 AND Q1 2015
Sector
Constraint
index score
Q3 2013
Constraint
index score
Q1 2014
Constraint
index score
Q3 2014
Constraint
index score
Q1 2015
Movement
Q3 2014 to
Q1 2015
Level of crime and
corruption
42.7 42.7 48.8 32.8 -16.0
Weak government 32.1 43.1 44.4 34.8 -9.6
Government red tape and
bureaucracy
36.5 45.4 45.1 44.2 -0.9
Municipal utility rates and
taxes
37.7 48.6 48.1 43.3 -4.8
Labour stability .. 57.5 44.6 49.3 +4.7
Political environment
(social and political unrest)
45.4 55.5 43.3 42.3 -1.0
Composite index 45.7 49.8 47.2 46.5 -0.7

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