Big shift for real estate, restaurants and other services in South Africa
Contrary to the gloom-and-doom start to the year, businesses in the real estate, hospitality and services sector in South Africa have made a surprising swing into having a much more positive outlook for the country.
This is thanks to the absence of load shedding since March and a much better-than-expected outcome to the 2024 national elections and the formation of the Government of National Unity, which surprised many, according to the Bureau for Economic Research (BER).
The BER’s latest Other Services Confidence Index for the third quarter of 2024 shows that businesses in this segment have continued to build on the positive momentum from the second quarter, with the index now sitting at 58 points from 55 points before.
This means that nearly six out of ten survey respondents are optimistic and happy with the prevailing business conditions in South Africa.
“There has been a shift from the start of the year, when 2024 started with six out of ten respondents were unsatisfied,” the BER noted.
“The uptick in confidence was met with a slight improvement in business conditions, likely caused by no load-shedding and a market-friendly election outcome.”
The data does come with a caveat, however.
“The uptick in confidence was contrary to the overall decline in business volumes. Even though business volumes remain above the long-term average, the below-zero number implies that most respondents are more pessimistic compared to a year ago,” the BER said.
The positive sentiment is also not being felt equally across all business groups.
In the transport and storage sector, there was a marked decline in business volumes, which left confidence in the sector below the bottom value of the band. Confidence declined relative to the previous quarter.
Business confidence in the hospitality subsector, meanwhile, fell to just above the long-run average and remained lower compared to the same quarter last year.
“The comments suggest that the cold and wet winter in the Western Cape may have discouraged visitors to this region compared to last year. Restaurant sales are also down, possibly because of less load shedding this year and sustained pressure on consumers’ disposable income,” the BER said.
However, in contrast to these two subsectors, the real estate subsector showed strong upward movement in business volumes to a level above the long run and is the first positive reading in over two years.
Confidence also ticked up meaningfully to the highest value in over two years and the highest level since the period of higher interest rates started.
“Surprisingly, business volumes, conditions, and confidence ticked up in the business services subsector. Confidence rose to the highest level in more than a decade. The positive election outcome lifted sentiment in this subsector because many rely on the government’s business, either directly or indirectly,” the BER said.
Positive sentiment around the new Government of National Unity (GNU) has been a common thread in the BER’s surveys as well as in overall market performance. While largely untested—and not without doubts—the formation of a multi-party government has evoked hope and optimism not seen since president Cyril Ramaphosa was elected president of the ANC in 2018.
The strides made in ending load shedding have also delivered positivity, especially since many expected the break in load shedding in April and May to be a possible election ploy, anticipating the return to scheduled outages soon after.
“This optimistic outcome likely reflects the market-friendly election results and a sustained absence of load-shedding; both may have surprised respondents,” the BER said.
“This year’s steady decline in consumer price inflation may have boosted demand and supported the SARB’s plan to cut interest rates. The start of a shallow interest rate-cutting cycle should benefit overall business confidence and business volumes in Other Services since it will remove some pressure from consumers. “
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