Business confidence improves despite junk status and reshuffle

The April 2017 South African Chamber of Commerce and Industry (Sacci)has released its latest Business Confidence Index (BCI), indicating that business confidence in the country is still positive – despite a turbulent month of reshuffles and downgrades.

In its report published on 4 May, Sacci noted that while some of it sub-indices instantly reacted to events at the end of March into April pertaining to political developments, 9 of the 13 sub-indices making up the BCI were still affected by the business climate prior to the president Jacob Zuma’s cabinet reshuffle and the subsequent credit downgrades.

As a result, positive developments in the economy still informed the business climate in April 2017 and were vibrant enough to carry the positive business climate forward into May 2017.

The bulk of positive monthly contributions in April mainly came from much higher
merchandise import volumes, followed by lower inflation and building plans passed, Sacci said.

The most negative monthly effect on business confidence came from particularly lower
merchandise export volumes, notable less new vehicle sales and, to a lesser extent, new lower inflation sales.

Year-on-year, changes in the sub-indices show that the business climate deteriorated from April 2016 to April 2017. Six of the seven sub-indices on real activity declined over this period while three of the six financial sub-indices deteriorated over the year to April 2017.

“South Africa’s biggest challenge is to enhance a business environment where a larger part of the economic active population could add value (more inclusive economic growth) in support of more employment,” said the report.

“The challenge for growth starts with fixed investment and FDI (foreign direct investment) to augment South Africa’s dismal savings rate and thus business and investor confidence are essential.”

Sacci also noted that the management of investor and business sensitivities was of the utmost importance for business confidence in the country going forward, as it could adversely influence South Africa’s risk profile in local and international financial markets and as a fixed investment destination.

Tough times ahead

According to Sacci, before the events of the last week of March and beginning of April 2017 South Africa was on its way to improving its FDI image.

“There was change in sentiment towards emerging markets. Capital inflows strengthened the rand and amongst others, lowered the price of fuel. This spilled over to lower input prices, lower costs, lower inflation and the strong possibility of declining interest rates,” it said.

However, this was altered by events causing great confusion among the business fraternity and investors. Comments on the future direction of economic policy have increased uncertainty.

“It remains imperative to improve South Africa’s relative economic profile with its peer group of emerging markets as starting point to obtain inclusive economic growth.”

For now, it appears that South African policymakers and advisors are trying to convince the investor and business community that financial prudence will be maintained in order to avoid further credit rating downgrades and negative knock-on effects on the economy, Sacci said.

The success of this plan, remains to be seen, and will be represented in the numbers moving ahead.

Read: Rand takes a knock as the dollar regains some composure

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Business confidence improves despite junk status and reshuffle