Businesses still under immense pressure in South Africa
Although business confidence edged higher in the third quarter of 2023 thanks to reduced load shedding over the period – the country is back in the throes of stage 6 load shedding, while other businesses are concerned about risks of social unrest, as optimism remains very weak.
This is according to the latest RMB/BER Business Confidence Index (BCI), which ticked higher to 33 in Q3 2023 from 27 in the second quarter.
Although higher, sentiment is still very weak, with the current level of the index suggesting that two-thirds of respondents are still dissatisfied with prevailing business conditions.
The third quarter survey was conducted by the BER between 16 August and 31 August 2023. The survey covered 1,050 senior executives in the building, manufacturing, retail, wholesale, and motor trade sectors.
“The challenges posed by relatively high interest rates, the resultant strain on consumers, and social unrest meant that business activity remained constrained,” said the Bureau for Economic Research (BER).
Encouragingly, the slight reprieve in the incidence of load-shedding provided support to some firms, especially in manufacturing, which showed in the latest GDP stats as manufacturing contributed 0.2% of the 0.6% growth over the quarter.
Many of the respondents’ comments again related to the impact of load-shedding, but this quarter the taxi strike in the Western Cape was also mentioned frequently, and to a lesser extent, the N3 truck attacks.
“There is no doubt that this had a detrimental effect on the economy in the third quarter of 2023,” said the BER.
“While some sectors were likely more affected than others, respondents lamented the lack of production due to staff shortages as well as the cost of having to repair damages.
“The confidence of executives in the Western Cape nonetheless gained four points to record a level of 35, but it would likely have been higher if not for the disruption,” it added.
The Bureau noted, however, that the high interest rate environment and costs of mitigating the impact of load shedding are still putting pressure on businesses in South Africa – especially those that rely on stressed consumers, such as the retail and motor trade sectors.
The overall sentiments for South Africa’s business sectors, as outlined by the BER, are listed below.
Retail 32 (+12)
The business confidence of retailers gained 12 index points to reach 32. Overall, sales remained weak while profitability improved on the back of softer purchasing price increases, said BER.
In terms of the sub-segments, the confidence of non-durable and semi-durable goods retailers was at its best level this year. However, sentiment among durable goods retailers deteriorated further.
The BER noted that this trend is mimicked in the measure for growth in sales volumes, which saw a steep decline.
Wholesale 38 (+6)
Wholesaler confidence was up six points to 38, even though the sales volumes of consumer goods continued to struggle, the Bureau said.
Similarly, new vehicle dealer confidence moved higher to 30 (from 23 in the second quarter of 2023), despite a further deterioration in sales and orders placed, while stock levels remain elevated.
Manufacturing 23 (+6)
At 23 (from a level of 17 in the first and second quarter of 2023), the business confidence of manufacturers remains the lowest among the sectors included in the composite index.
The underlying results, however, are not as downbeat as the sentiment reading suggests. Total production is close to its long-run average, led by improvements almost across the board, said the BER.
This is likely due to the less frequent load-shedding over the past few weeks compared to much of the first half of the year and a return to production in industries that had recently experienced other non-energy-related disruptions. Growth in exports was also significantly up.
On a less positive note, production costs remain elevated, and so does the rating of new demand and the political environment as business constraints. In all, the results from the manufacturing sector are somewhat encouraging, even though sentiment is weak, it said.
Building 41 (-2)
Building work gathered further momentum in the third quarter of 2023. Despite this, building contactor confidence slipped to 41 from 43 in the second quarter of 2023.
The business constraints related to the availability of building materials and new work remained quite elevated, likely weighing on sentiment.
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