Businesses in South Africa hold their breath for what comes next

 ·5 Jun 2024

The RMB/BER Business Confidence Index edged up ahead of the national election in May, with businesses in the country taking a wait-and-see approach to the country’s future now that the results have been declared.

The survey was conducted among 2,500 businesses and took place from 9 to 27 May 2024, a period preceding the 29th of May national and provincial elections that were widely expected to produce a national coalition government.

The second quarter BCI survey results, therefore, predate the outcome of the elections.

Despite this, the index still rose by five points to 35% in the period, meaning that just over a third of business respondents were satisfied with prevailing conditions.

According to the Bureau for Economic Research, the uncertainty around the election was top of mind for many respondents, with comments alluding to a ‘wait-and-see’ approach, likely holding back domestic demand.

More positively, however, the suspension of load shedding for a full two months drove a more positive tone among businesses.

“However, we must wait and see the implications on policy and the business operating environment of coalition government arrangements, as well as the sustainability of the improvement in the energy availability factor (EAF) observed over the past two months, before we can draw any link to the BCI in future,” the economists said.

Still in the doldrums

The five-point increase in the RMB/BER BCI to 35 points followed two consecutive declines and brought confidence back closer to the 36-point level seen in the first quarter of 2023.

Confidence rose in four of the five sub-sectors except for new vehicle dealers.

It is noteworthy that current confidence among wholesalers and building contractors is above its long-term average level, while confidence among retailers is at its longterm average level.

  • Wholesale traders: The most optimistic with 53% of respondents satisfied with prevailing business conditions. Consumer goods traders were upbeat about the increase in sales volumes for a second consecutive quarter, while non-consumer goods traders reported another decline in sales.

  • Retailers: Confidence was slightly worse than that of wholesalers but still increased by five points to its long-term average level of 39%. On balance, sales volumes were better, largely driven by durable goods, with hardware retailers a notable outperformer. In contrast, sales volumes for non-durables declined as selling prices rose.

  • Building contractors: Confidence picked up once more and rose above its long-term average of 44% to reach 47%, going against expectations for a continued slowdown in the building sector which could have weighed on confidence. The uptick was supported by fairly solid activity in KwaZulu-Natal and the Western Cape, and shows that the sector remains resilient.

  • New vehicle dealers: Arguably most sensitive to the prevailing high borrowing costs and subdued consumer demand, declined by 6 points to 10%. This means that just one out of ten respondents were satisfied with prevailing business conditions, well below the long-term average of 43%.

  • Manufacturers: Remained the most downbeat. Confidence rose by 7 points to 28% – the best level in two years. Production improved somewhat from the first quarter, particularly for food and metals manufacturers. Export demand ticked marginally up while domestic demand remained sluggish. A sharp decline in the average hours worked per factory worker despite the two months without load shedding is a concerning leading indicator for the sector.

Isaah Mhlanga, Chief Economist at RMB, said that the uptick in business confidence ahead of the election was a welcome development, but levels are still too low to foster increased private investment and faster economic growth.

To achieve this, South Africa would need to see a sustained improvement in confidence for investment levels (especially non-energy), GDP growth and, importantly, employment growth to pick up.

“For this to materialise, it is important that the new administration accelerates the implementation of the structural economic reforms started in the previous administration to improve the business operating environment of the South African economy,” the BER said.

“Some good progress has been made on the energy front under Operation Vulindlela, but binding supply side constraints remain a concern as progress in logistics, the water sector, and safety and security, among others, remain extremely slow.”

Positively, on the demand side, the survey suggests that price pressures are abating, with selling price
increases generally slowing across the different sectors.

“Lower inflation through the remainder of the year, and the possibility of a somewhat lower policy interest rate later in the year could boost consumer spending. This could aid the struggling new vehicle dealers, in particular, who have been a drag on the overall RMB/BER BCI in the last three quarters,” the group said.


Read: South Africa doesn’t need a miracle

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