The latest RMB/BER BCI data shows that retail confidence is at its lowest level in 20 years showing 83 percent of retailers were dissatisfied with current business conditions. Photo: Supplied

CAPE TOWN – The materially higher tax burden on South Africans has been cited as one of the key factors behind the decline in the country’s business confidence index (BCI) and a consumption-led recovery is not anticipated for South Africa. 

After remaining unchanged at 28 during the second quarter, the Rand Merchant Bank and Bureau of Economic Research (RMB/BER) BCI dropped to 21 in the third quarter, as 79 percent of businesses surveyed found business conditions unsatisfactory. 

This reading effectively means eight out of every 10 respondents are unsatisfied with prevailing business conditions, according to the RMB/BER report.

The RMB/BER BCI reflects the results of a survey of 1 800 business people. The bulk of the responses were submitted between 14 August and 2 September, which was before the latest outbreak of xenophobic attacks.

The biggest decline was in the wholesale and retail sectors, with the manufacturing and building sectors declining as well.

  • After gradually easing from a “high” of 44 in the first quarter of 2018 to 28 in the second quarter of 2019, retail confidence sank to 17. This is the lowest level in 20 years. In the third quarter sales, volumes remained dismal across the board.
  • A year ago, confidence among wholesalers was still above 50. In the third quarter, however, it fell by a hefty 13 points to 29 - also a 20-year low. The growth in sales volumes, especially of non-consumer goods, plummeted.
  • Although smaller in magnitude than the declines in retail and wholesale confidence, given manufacturers’ and building contractors’ already depressed state, it does not make their respective six- and seven-point declines any less significant.
  • Manufacturing confidence fell from 22 to 16, which is the lowest level since 1999. Growth in production output remained weak, albeit not as dismal compared to the second quarter. Domestic sales also remained weak while export sales worsened.
  • Building confidence dropped from 30 to 23, thereby neutralising all the second quarter’s gains. Residential activity registered the biggest drop-off in ten years, while the weakness in non-residential activity persisted.

The SA Chamber of Commerce and Industry (Sacci) report also showed a decline in sentiment to 89.1 in August from 92 in July – exactly 1 index point above the lowest ever recorded BCI level achieved in April 1985. 

Seven of the 13 sub-indices used in compiling the Sacci BCI deteriorated between July 2019 and August 2019, four improved, and two remain unchanged. Four of the seven economic activity indicators declined on their July 2019 levels and three of the six financial pointers used for the composite BCI, deteriorated month on month.

Investec chief economist Annabel Bishop noted that retail confidence was at its lowest level in 20 years showing 83 percent of retailers were dissatisfied with current business conditions.

Bishop said the fiscal stimulus of heightened government expenditure of the current decade had not yielded sustained, robust growth, while government finances were deteriorated with high debt levels. “A decade-long escalation in taxes and the regulatory burden has left South Africa’s economy battered, with demand weak and growth declining.”

The BER said: “It would appear [as] if more and more business people participating in the BER’s survey are simply giving up hope. Courageous leadership is … required to help break the negative feedback loop where weakening business activity feeds into even lower business confidence … less investment and job creation.”

South Africa desperately needs to resolve this quicksand situation, said economists from PwC Strategy&.

PwC Strategy& economists Lullu Krugel and Dr Christie Viljoen said in a statement that the low business sentiment was holding back the investment required to get the country’s economy to a level that exceeds population growth. 

“For the past four years, real economic growth has been below the growth rate of the population, resulting in decreasing size of the economy pie associated with every resident. This is likely to continue for a fifth straight year in 2019,” reads the statement. 

The economists said the structural changes proposed by the National Treasury paper could help resuscitate the local economy and business sentiment along with it.