Business confidence in South Africa has deteriorated to a three-year low due to persistent load shedding and challenging economic conditions amid rising interest rates and cost pressures.
The RMB/BER Business Confidence Index (BCI), released yesterday, declined for a fifth consecutive quarter to reach 27 index points in the second quarter of 2023, down by 9 points from 36 in the first quarter.
This was the lowest level of confidence since 2020 and suggested that only roughly a quarter of respondents were satisfied with prevailing business conditions.
The second quarter survey, conducted by the Bureau for Economic Research (BER) between May 10 and May 30, covered 1 050 senior executives in the building, manufacturing, retail, wholesale and motor trade sector.
Rand Merchant Bank (RMB) said the decline in confidence was on the back of another decrease in business activity, although this likely did not explain the full extent of the deterioration in sentiment.
RMB chief economist Isaiah Mhlanga said comments by respondents through the different sectors flagged load shedding as a continued drag on sentiment as it hurts production capacity, increases costs and negatively affects profitability.
As such, Mhlanga said respondents highlighted that any available capital was going towards load shedding mitigation measures rather than investment to build additional capacity.
He said some respondents also mentioned the weak rand exchange rate and concerns about South Africa’s diplomatic relations with the rest of the world and its possible impact on trade relations.
“It remains unclear as to what will meaningfully lift confidence over the short term, especially as load shedding could get worse over the winter months,” Mhlanga said.
“Indeed, while just skirting a recession in the first quarter of 2023, the South African economy is far from being out of the woods.
“Indeed, more concerning is the fact that consecutive quarters of business confidence below 30 have historically coincided with contractions in either fixed investment, economic growth, or both.”
The gloomy sentiment was shared among respondents, with three of the five sectors seeing their confidence level decline, while the other two remained unchanged.
The manufacturing sector remained the most downbeat with confidence at 17 points, meaning that less than two out of 10 business people in the sector were satisfied with prevailing business conditions.
Respondents saw demand and activity deteriorate further and were even more worried about expected business conditions going forward.
The consumer-facing new vehicle dealers and retail sector also experienced the most notable deteriorations in confidence, with new vehicle dealer confidence plunging by 21 points to 23, while retail confidence declined by 14 points to 20 in the second quarter.
The deterioration in retail confidence reflected increased pressure on profitability and a worsening of business conditions.
Confidence among wholesale traders declined by 8 to 32 index points in the second quarter as sales volumes of consumer goods were under more pressure.
However, business confidence of building contractors remained unchanged at 43 index points, despite a notable deterioration in activity.
Investec chief economist Annabel Bishop said the International Monetary Fund (IMF) annual Article IV review published on Tuesday highlighted that the economy would grow by only 0.1% this year.
The IMF said this was due to a significant increase in the intensity of power outages, and weaker commodity prices and external environment.
“The IMF recommends easing the heavy regulatory burden on corporates, levelling the playing field, and forcefully tackling corruption and governance weaknesses would promote private sector investment,” Bishop said.
“The next move from the SA Reserve Bank is likely to be an interest rate cut, and we expect a 50 basis points drop at the start of 2024, although a quicker deterioration on economic growth and faster fall-off in inflation would hasten it.”
BUSINESS REPORT