Business confidence in South Africa continues to circle the drain

 ·8 Mar 2023

Load shedding and failing rail, road, and port infrastructure has hit South Africa’s business confidence hard, with optimism nosediving in the manufacturing and consumer-facing retail sectors.

This is according to the latest RMB/BER Business Confidence Index (BCI), which declined further from 38 in the fourth quarter of 2022 to 36 in the first quarter of 2023. The index has not been in positive territory for the better part of a decade.

The first quarter survey was conducted between 8 and 27 February, covering 1,050 senior executives in the building, manufacturing, retail, wholesale, and motor trade sectors.

The responses of these executives across the four major sectors varied.

Confidence in manufacturing and consumer-facing retail tanked, while sentiment was little changed in the case of building contractors. The index did improve a bit in wholesale and new vehicle trade – however, this was still at low levels, said the Bureau for Economic Research (BER).

“Pervasive power outages coupled with deteriorating household income knocked manufacturing and retailer confidence hard. By contrast, sentiment among wholesalers and new vehicle dealers improved slightly,” said the BER.

“The standout, however, was the BCI of contractors and sub-contractors combined, which surged to 49 in the first quarter of 2023.

“Even though this improvement does not reflect in the headline RMB/BER BCI result, the upsurge in the installation of renewable energy and other load-shedding mitigation measures is certainly a boon for the broadly defined building and civil construction sector,” it added.

However, the bureau noted that a thin silver lining attached to load-shedding must not distract from the devastating blow load-shedding specifically and failing rail, road, and port infrastructure, more generally, are inflicting on the economy.

While the outcome could have been worse, given the severity of power outages and the associated drop-off in business activity, the result is nonetheless disappointing.

The urgent need for a united public and private sector effort to fix disruptive supply-side bottlenecks cannot be stressed enough, and the business mood in South Africa certainly remains gloomy, said the BER.

The overall sentiments for South Africa’s business sectors, as outlined by the BER, are listed below.

Manufacturing 17 (-9)

Confidence crashed by nine points to 17 in the first quarter. A level this low is rare, and it speaks to a sector that is bearing the brunt of the combined impact of intense load shedding and dilapidated (and poorly run) logistic infrastructure, said the BER.

The bureau added that the deterioration in sentiment occurred across various sub-sectors, all of which shared a common feature in falling domestic sales and production.

Fixed investment to expand existing production capacity also suffered as demand weakened and capital expenditure budgets were increasingly absorbed by alternative energy generation measures, the BER added.

Retail 34 (-8)

Confidence in retail also fell sharply from 42 to 34. The deterioration in sentiment was broad-based as retailers, like most of the economy, could not escape the impact of load-shedding, which reduced trading hours and increased operating costs due to diesel generators having to run more often.

This comes at a time when high consumer price inflation and slowing growth in compensation continue to place pressure on household disposable income, said the BER.

According to the index, Sales volumes worsened further across retailers of durable goods (such as furniture and electronics) and non-durable goods (food, beverages etc.), while retailers of semi-durables (mainly clothing) saw a slight improvement in sales during the first quarter.

Building 43 (-3)

Confidence of building contractors, the group which is captured in the RMB/BER BCI, declined marginally from 46 to 43. Although still in net negative terrain, at 43, building confidence is far from the extremely low levels witnessed during much of 2020 and 2021.

Strikingly, if sub-contractors are considered – particularly electricians – confidence and activity in the overall building sector rose significantly, thanks largely to the installation of backup power – showing a silver lining for some.

Wholesale 40 (+3)

Wholesaler confidence increased from 37 to 40 in the first quarter of 2023. At the same time, new vehicle dealer confidence rose from 41 to 44.

However, these are minor increases, and both outcomes remain below 50, which means most respondents in these sectors are generally unhappy with prevailing business conditions.

Read: South Africa’s biggest retailer is spending over R3 million a day to beat load shedding

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