The underlying picture for South Africa is not as bad as many think

 ·7 Sep 2022

The RMB/BER Business Confidence Index (BCI) eased slightly further from 42 to 39 in the third quarter – meaning that 61% of respondents are unsatisfied with prevailing business conditions.

While, on the face of it, this is a disappointing outcome, the underlying picture is not as bad as the lower BCI implies, according to financial services company RMB.

In terms of the sectors making up the RMB/BER BCI, confidence among retailers and wholesalers remained comparatively high, while a notable improvement in sentiment among new vehicle dealers partly offset a 17-point deterioration in building confidence.

Retail confidence ticked up from 49 to 51 in the third quarter – a level which is well above its long-term average of 40. “Given depressed consumer confidence, rising inflation and rising interest rates, retail confidence could easily have taken a knock,” said RMB.

Fortunately, a countervailing force coming from the resumption of Social Relief of Distress grant payments and a recovery in employment – particularly in the hospitality sector – bolstered spending on essentials, such as food and beverages. Sales of clothing also continued at a heady pace, the financial service group said.

“Improved turnover enabled such retailers to handle higher operating costs which, in turn, propped up profitability and confidence.”

Sentiment among wholesalers deteriorated from 58, to a still-high 50. Although the pace of growth in sales volumes of both consumer and non-consumer goods moderated from earlier record highs, it nevertheless remained quite strong.

Low stock levels continue to make life difficult for new car dealers, said RMB. “While the re-start of production at the Toyota plant in KwaZulu-Natal brought about some relief, the combination of a constant global shortage of computer chips – delaying new vehicle manufacturing – and erratic deliveries of imports, continued to prevent dealers from fully satisfying increased demand.”

Volatile as sentiment in this sector now is, its BCI, after falling from 54 to 29 in the second quarter, bounced back to 40 in the third quarter.

By contrast, sentiment among building contractors deteriorated by 17 points to 29 in the third quarter.

For manufacturing, confidence eased slightly further to 26 in the third quarter, notwithstanding an improvement in domestic and export sales volumes, as well as production receiving a boost from the reopening of the Toyota and other flood-damaged plants in KwaZulu-Natal, and less intense load-shedding in August.

RMB said that while the third quarter drop in the RMB/BER BCI to below 40 is disappointing, it is unlikely that this points to another outright contraction in real GDP.

“Confidence among retailers and wholesalers remains well above long-term averages, which speaks to the surprising resilience of consumer spending, this at a time when falling inflation in due course should ease the pressure on disposable income,” it said.

Simultaneously, underlying activity in the building, as well as the manufacturing sector, is stronger than third quarter confidence figures seem to imply. Notable too is the fact that fixed investment in manufacturing, after a temporary drop in the second quarter, resumed its upward trajectory to a level that is now close to its long-term average.

“None of this is to say that the economy will experience strong growth in the year ahead; external headwinds are mounting, interest rates will continue to rise while the danger of summer power outages is ever-present. But suggestions that the economy is now in the throes of a protracted recession after yesterday’s GDP release is an overstatement,” said Ettienne le Roux, chief economist at RMB.

GDP for the second quarter showed a decrease of 0.7% after two consecutive quarters of positive growth.

The third quarter survey was conducted between 10 and 29 August. It covered about 1,200 senior executives at companies of varying sizes in the building, manufacturing, and trade (i.e., retail, wholesale, and motor trade) sectors, across all provinces in the country.

Minister in the Presidency, Mondli Gungubele, meanwhile, has expressed concern at the latest GDP number.

“As a country, we have experienced slow growth and rising unemployment. Nonetheless, in the midst of these difficulties, our general public and economy has shown to be strong,” Gungubele said.

The Statistician-General attributed the contraction of the GDP to a number of factors that include load shedding, the floods in KwaZulu-Natal and Eastern Cape, as well as the higher cost of living and inflation.

“It was also a heightened period during which the globe experienced slow economic growth. South Africa, like many countries around the world, experienced increases in the prices of food, housing and fuel, which were events beyond the control of government,” the statement issued by the Government Communication and Information System (GCIS) said.

Although the GDP contracted, Gungubele noted that there are signs that the economy is on the road to recovery. “The latest employment figures, specifically, bear testament that our plans are beginning to bear fruit,” the minister said.

According to the latest results published by Stats SA, 648,000 jobs were gained between the first quarter of 2022 and the second quarter of 2022.

“The figures indicate that the priority areas of the Economic Reconstruction and Recovery Plan, such as mass public employment, economic reform and infrastructure development, are having an impact on job creation,” GCIS said.

Read: Comical timing of load shedding in South Africa – signs of an ‘unfixable disaster’

Show comments
Subscribe to our daily newsletter