Despite a significant drop in Covid-19 infections and the relaxation of lockdown restrictions, business confidence in South Africa remains in a rut.
This is according to the latest RMB/BER Business Confidence Index (BCI) which dropped from 46 to 42 in the second quarter – a similar level to that recorded in the second half of 2021.
A reading of 42 indicates that almost six out of 10 respondents view prevailing business conditions as being unsatisfactory. The second-quarter survey was conducted between 11 and 30 May, covering around 1,300 executives in the building, manufacturing, retail, wholesale, and new vehicle trade.
Various shocks over the past year have contributed to keeping confidence this low and many uncertainties remain, the Bureau for Economic Research (BER) said.
“Supported by the gradual lifting of virus restrictions, the RMB/BER BCI has surged from a low of just five at the onset of the pandemic to 50 in the second quarter of 2021. Since then, however, and buffeted by various adverse shocks (riots, strikes, war, floods etc.), business confidence has remained stuck in the low 40s.”
Although the impact some of these shocks have had on the BCI is wearing off, there is plenty for businesspeople to still be anxious about, the group said.
Some of the highlighted factors include:
- Global energy and food prices are likely to remain high for longer;
- Real economic activity in China is faltering;
- The stagflationary shock amplified by the raging Russia-Ukrainian war will see GDP growth in two of South Africa’s key trading partner countries, the UK and Europe, moderate sharply.
- The country’s electricity supply remains as unstable as ever
- Rising inflation and increasing interest rates will continue to erode households’ spending power.
“There is nothing the government can do about the global headwinds facing the country, but it can advance growth-boosting domestic reforms. Best the government pushes hard and builds on the successes Operation Vulindlela has already achieved over the past year,” said Ettienne Le Roux, chief economist at RMB.
Not all sectors are equal
The headline result, while discouraging, hides large variations among the sectors.
Although manufacturers and new vehicle dealers experienced a sharp deterioration in sentiment, building contractors by contrast turned decisively more upbeat. Confidence among retailers and wholesalers remained largely unchanged at relatively high levels.
- Manufacturing confidence dropped from 43 to 29 in the second quarter. This fall can mainly be attributed to the significant direct and indirect impact the temporary closure of the Toyota plant (due to the flooding in KwaZulu-Natal) had on overall manufacturing production and exports. On top of this, production also came off the boil in most other subsectors, except for food manufacturing.
- Motor confidence crashed from 54 to 29 mainly due to stock shortages, a dynamic that has its roots in a global scarcity of certain parts and components that continues to restrict local auto manufacturing. Unfortunately, the temporary closure of the Toyota plant in Durban made things worse.
- Building confidence jumped from 25 to 46, an increase extending what has been a gradual improvement since sentiment hit rock bottom during the height of the Covid pandemic. Contractors in the residential property market experienced a notable increase in activity in the second quarter. While the same cannot be said of the nonresidential sector, activity did stabilise at a slightly improved (but still depressed) level. Compared to the other sectors making up the RMB/BER BCI, confidence in construction has taken the longest to return to pre-pandemic levels.
- While retail confidence remained unchanged at 49, wholesale confidence edged up slightly further to 58. Although currently the two sectors with the highest index levels, the results varied notably among respondents.
- Retailers of durable goods (e.g., furniture, appliances, and DIY) encountered a further deterioration in sales volumes, while those of semi-durables (e.g., clothing and footwear) witnessed continued improvement, albeit off a low base. Sales volumes of non-durable goods (i.e., food) were surprisingly strong in the second quarter. Among wholesalers, suppliers of consumer goods had a better quarter than suppliers of non-consumer goods (e.g., chemicals, and machinery), where sales volumes worsened. Price increases have become even more widespread in both retail and wholesale.