Sentiment sinks in retail and wholesale as BCI collapses to 20-year low
JOHANNESBURG – South Africa’s struggling economy was dealt a new blow on Thursday as business confidence plummeted to a 20-year low in the third quarter, while the SA Reserve Bank (Sarb) said it did not expect growth to exceed 0.6 percent this year.
The Rand Merchant Bank and Stellenbosch University’s Bureau of Economic Research (RMB/BER) Business Confidence Index (BCI) yesterday showed that sentiment among captains of industry fell 7 points to 21 points in the third quarter, after remaining unchanged at 28 points in the second quarter.
The index was supported by the SA Chamber of Commerce and Industry (Sacci), which showed that its sentiment gauge declined to 89.1 points last month – the lowest in more than 34 years – from 92 points in July.
RMB/BER said business confidence collapsed because a growing majority of respondents experienced worse business conditions than 12 months ago, with more growing pessimistic about the future.
“In fact, the last time the BCI was at similar levels was in the 1998/99 emerging market debt crisis,” it said.
“Then spillover effects dramatically weakened the rand exchange rate, and the prime lending rate, as a result, shot up to a high of 25.5 percent.”
Business confidence swept to a high last year after President Cyril Ramaphosa succeeded former president Jacob Zuma.
However, the sentiment has waned on stagnant growth and lack of expected reforms.
On Wednesday, Reserve Bank deputy governor Rashad Cassim told legislators that last week’s print of 3.2 percent growth in the gross domestic product (GDP) did not mean that the economy was out of the woods.
Cassin said the economy was now expected to grow by between 1.8 and 3 percent in the next three years.
“The positive message from the last GDP numbers is that we are not in recessionary territory, but we are not out of the woods yet,” Cassim said.
RMB/BER said the sentiment fell in the retail and wholesale trades sectors, which until recently have proved to be comparatively resilient.
It said the only sector that showed a slight improvement was the motor trade.
BRM chief economist Ettienne le Roux said courageous leadership was required to help break the negative feedback loop and called for an urgent implementation of structural reforms to boost the economy.
“To further delay growth-boosting reforms that should have been implemented years ago – such as easing of immigration regulations, cutting red tape, auctioning spectrum and simplifying visa regulations – will simply perpetuate this vicious cycle South Africa is currently in,” Le Roux said.
“Time is not on our side, especially now that the global headwinds that the country is facing are becoming ever fiercer.”
Sacci said seven of its 13 sub-indices deteriorated between July and last month, while four improved and two remain unchanged.
It said the sentiment occurred due to a decrease in merchandise export volumes, a weaker rand exchange rate, and declining all-share prices on the JSE.
Sacci said although the economy dodged a recession in the second quarter of this year, it was not because of specific actions by the government.
“Challenges responsible for the past low growth of the South African economy continue to exist and will have to be addressed urgently,” Sacci said.
“The economy is in dire need of implementation of policies to achieve economic growth and job creation. The current state of fiscal deficiencies, social injustices and unemployment … is denting the status of South Africa as a favoured investment destination; and affecting lives and businesses of ordinary South Africa.”