Illustration photo of South African rand
South Africa’s business confidence slumped to a seven-month low in May as a combination of political tensions, economic policy uncertainty and low credit ratings continue to stalk the country’s business climate.

The SA Chamber of Commerce and Industry’s (Sacci) monthly business confidence index (BCI) fell to 93.2points last month, which is the lowest since October. It fell from 94.9points in April.

“Heightened political tensions, additional economic policy uncertainty and lower credit ratings by rating agencies that converged towards the end of March 2017 continued to affect the business climate negatively in May 2017,” Sacci said.

Sacci said the May 2017 BCI was 1.4 index points higher than 91.8points of May 2016. The figures came a day after Statistics South announced that gross domestic product (GDP) for the first quarter of this year was down 0.7percent, thus pushing the country into technical recession, following a 0.3percent decrease in the last quarter of last year.

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Sacci said the largest negative monthly effect on business confidence came from lower merchandise import volumes, lower real value of building plans passed and higher real financing costs.

Lower inflation

“The stronger rand exchange rate and lower consumer inflation made the most notable positive year-on-year contributions to the BCI between May 2017 and May 2016,” Sacci said.

While the South African economy was relatively stable last month, “severe” constraints on performance remained. Fitch Ratings and S&P's Global last month kept South Africa’s rating at the same level of sub-investment grade as at the end of March. “However, there was a warning that weak economic growth remains a key risk and concern about South Africa’s political situation and the lack of state enterprise reform,” it said.

The recessionary conditions that led to the quarter-on-quarter decline in the GDP in the fourth quarter of last year and the first quarter of this year confirmed the present economic constraints.

“The sub-investment grade since the 2nd quarter of 2017 makes it essential that a policy approach be followed that enhances business and investor confidence and promote economic growth. It has become important to consider a workable normative economic approach to the socio-economic challenges of unemployment, poverty and inequality,” Sacci said.

It said, in order to shore up the local economy, the government needed to press ahead with fiscal restructuring to ensure public sector debt was below 40percent of GDP over the next five to 10 years.

Other important steps included a flexible labour market. “The business climate must improve while reducing the regulatory burden and promote foreign direct fixed investment,” Sacci said.

Nedbank chief economist, Dennis Dykes said yesterday that most of the conditions necessary to boost investor confidence had been met. These included improvement in commodity prices and global economic conditions. “Factors which are destroying investor confidence are domestic. It is politics and policy. At the moment, there is antagonistic and anti-business rhetoric. There is so much uncertainty around certain certain policies,” he said, citing the changes to the Mineral and Petroleum Resources Development Act and the mining charter.

“No business is going to invest if there is uncertainty”.