Business confidence in South Africa has dipped further into contractionary territory as a majority of business owners feel pessimistic about the economic climate and the ongoing power cuts that have crippled activity.
The business confidence index (BCI) slipped to 38 in the final quarter of 2022, with more than six out of 10 respondents dissatisfied with prevailing business conditions.
The BCI survey was conducted by the University of Stellenbosch’s Bureau for Economic Research (BER) between October 26 and November 14 on behalf of Rand Merchant Bank (RMB), covering just more than 1 000 senior executives in the building, manufacturing, retail, wholesale and motor trade sectors.
Although the BCI was little changed, RMB/BER said the outcome hides striking dynamics among the sectors, both positive and negative.
After dropping by 17 points to 29 in the third quarter, building confidence recovered all the way back to 46 in the fourth quarter, extending what has been a volatile trend over the past two years.
This latest improvement was driven by the residential sector where activity regained momentum, in part supported by typical seasonal factors.
However, the wholesale confidence plummeted from 50 to 37 in the fourth quarter, the first time since the third quarter of 2020 that confidence fell below the neutral 50 mark.
The survey said fewer orders from retailers saw sales of consumer goods take a particularly hard knock, while delays at the ports also soured the mood.
Equally, confidence among retailers dropped sharply, from 51 to 42 as sales across all categories worsened.
The deterioration was even more pronounced when accounting for the usual uplift in activity given Black Friday and the festive season.
RMB/BER cited rising food and transport costs as factors that eroded households’ spending power, as did higher debt servicing costs while the supporting impact of special factors such as pent-up demand and the resumption of Social Relief of Distress grant payouts in the third quarter fizzled out.
On top of that, extensive load shedding resulted in a loss of trading hours/sales, while measures to counter the impact of load shedding raised operating costs sharply, weighing down the mood of retailers.
Meanwhile, new vehicle sales delivered a better performance in the fourth quarter, but this was not sufficient to increase the confidence of dealerships markedly.
The new vehicle sales BCI rose just one point to 41 as the long waiting times for stocks of specific makes and models, and an apparent pessimistic outlook given the rising cost of debt, dampened spirits.
In the manufacturing sector, confidence remained flat at a depressingly low 26, with the sharp deterioration in export sales volumes remaining weaker than recorded during the second half of 2021.
Factors like load shedding, surging diesel costs and long delays at the ports were cited as explanations for the fourth quarter’s poor performance.
RMB chief economist Ettienne le Roux said the escalating load shedding could easily have dashed business confidence in the fourth quarter.
However, Le Roux said the fact that the BCI essentially remained unchanged indicated the presence of some underlying resilience as well as countervailing forces at work.
“Even so, there is no denying the fact that the economy would be doing so much better were it not for the slow pace that continues to describe the government’s efforts in addressing growth-damaging constraints such as insufficient electricity, poorly functioning ports and a failing railway network,” Le Roux said.
“The importance of fast-tracking things cannot be overemphasised, especially now that global headwinds manifesting in sharply slowing growth and lower export commodity prices are mounting,” he said.
BUSINESS REPORT