Sentiment in the business sector in South Africa is expected to remain subdued at the beginning of the new year due to the ongoing energy and logistics crises, in spite of business confidence rising to a nine-month high in November.
The South African Chamber of Commerce and Industry (Sacci) yesterday said the Business Confidence Index (BCI) held steady at 108.6 points in October and saw a boost to 111.5 points in November.
The largest positive contributions came from tourism and foreign trade relations, including higher merchandise import volumes.
However, Sacci noted that economic challenges persisted, amid a volatile rand exchange rate and high real financial costs.
The BCI, which measures how financial and economic factors impact businesses over time, inched up from an average of 109.0 points in the first 11 months of 2022 to 109.4 points for the same period in 2023.
Unfortunately, it seems like there’s a lack of positive momentum in business confidence, with several lingering economic challenges yet to be resolved.
Sacci economist Richard Downing said that when one compares it with November last year when it stood at 110.9, the latest BCI suggested that the business climate and economic conditions didn’t provide the spark for increased confidence over the medium term.
Downing said particularly worrisome was the performance of critical sectors such as electricity and water, and agriculture, struggling to meet intermediary demand from other sectors.
He said even in sectors such as transport and communication, where logistical challenges impeded fulfilling necessary obligations to other sectors, hindering export and manufacturing from achieving optimal output and potential.
Downing said the subdued growth in major employment-intensive sectors such as manufacturing, construction, and agriculture during the third quarter of 2023 raised serious concerns, especially given the high expanded unemployment rate in South Africa.
“While the Sacci BCI did recover a few index points in November 2023, it’s important to note that this doesn’t necessarily mean the business climate has become favourable or that upward momentum is fully restored,” Downing said.
“Much of the positive vibe came from civil society and businesses showing resilience and endurance. Swiftly addressing and resolving painful adjustments by the public sector could potentially restore upward momentum in business and, more crucially, inspire investor confidence for a higher economic growth rate.
“Creating such a positive environment requires fostering appropriate international relations and ensuring supportive human and fixed capital stocks, especially in a dynamic economy like South Africa’s.”
On a year-on-year basis, the BCI only improved by 0.9 index points compared with the 2.9 index point increase from October to November.
Increased inward tourism, higher merchandise import volumes, and lower core inflation were the standout positive contributors on a year-on-year basis.
However, fewer new vehicle sales, the weaker and more volatile rand exchange rate, and high real financing costs were the main negative factors impacting business confidence negatively in November 2023 compared with a year ago.
Downing said a more immediate concern revolved around inflation, though the country has succeeded in containing consumer inflation to 5.5%, just above the median inflation rate of 5% within its peer group.
He said a more profound challenge confronting emerging economies is the management of their twin balances: the fiscal and current account balances of the balance of payments.
“South Africa, primarily due to its fiscal deficits, finds itself in a less favourable position when compared to its peer group. The twin deficit in South Africa stands at 7.5% of GDP, surpassing the median number of 4.4% of GDP and placing the country in a comparatively worse position,” Downing said.
“The pressing issue arises from social needs that exceed what is economically affordable, coupled with critical management and financing concerns at state-owned enterprises. Addressing these challenges in public finance portfolios demands urgent and critical attention.”