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Seven out of 10 survey respondents said they are unsatisfied with prevailing business conditions in South Africa according to the RMB/BER Business Confidence Index. The index decreased by another point to reach 30 in the first quarter of 2024 after a two-point decline in the fourth quarter of 2023.
The index indicates the percentage of business people who are satisfied with prevailing conditions and the general state of the economy as it relates to businesses.
Isaah Mhlanga, chief economist and head of research at the Bureau for Economic Research (BER) at Stellenbosch University, says taking a slightly longer perspective shows a concerning picture as less than four out of 10 survey respondents were satisfied with prevailing business conditions for seven consecutive quarters.
Business confidence was, again, largely unchanged among building contractors and wholesalers, while declines in sentiment in the retail and manufacturing sectors outweighed a 10-point improvement among new vehicle dealers.
“Broadly speaking, business activity remained poor while business conditions deteriorated further. As was the case in the fourth quarter of 2023, this result went against survey respondents’ expectations for an improvement.”
Remarks about the negative impact of load shedding, the state of local ports, crime and political uncertainty featured prominently in the feedback from survey participants. Mhlanga says another noteworthy development was an acceleration in selling price inflation across the board.
“Except for retail, the increases were relatively muted, but it does signal that there is an upside risk to the inflation outlook.”
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Building contractors were once again the least pessimistic of all sectors surveyed after wholesalers temporarily took the top spot in the fourth quarter, with business confidence ticking up by one index point to 42.
Main contractor activity was somewhat better than in the fourth quarter, but the underlying data suggests that, after a short-lived surge in activity from the third quarter of 2022 onwards, growth in building activity normalised from the end of 2023 into the first quarter of 2024.
The confidence of wholesalers and new vehicle dealers improved. Wholesale confidence nudged up by one index point to 37, which is equal to the average reading seen in the second half of 2023. Sales volumes of consumer goods looked significantly better this quarter.
Meanwhile, new vehicle dealers saw confidence jump up by 10 points to 16, but this was not enough to reverse the 24-point decline of the fourth quarter. Mahlangu says new vehicle dealers indeed remain the most depressed of all sectors surveyed indicating a consumer squeeze from high interest rates.
ALSO READ: Business confidence increases in third quarter, but still weak
A 13-point decline in retail confidence countered the improvements in wholesale and new vehicle dealers. Although sales volumes were better in the first quarter on the back of significantly less negative non-durable goods sales and a surprisingly solid uptick in semi-durable goods sales volumes, durable goods sales deteriorated once more, particularly on the hardware side. Overall profitability also came under pressure, which likely weighed on confidence.
Another drag on the index came from manufacturers, which saw confidence fall by five points to 21, which is equal to the average confidence reading of 2023. A weakening in activity as well as both domestic and export demand explains the deterioration in confidence, Mhlanga says.
“It is worrying that respondents turned even more downbeat about investment and business conditions going forward.”
ALSO READ: Business confidence dips again in Q4, new car dealers hit hard
Mhlanga says considering the latest GDP data for the fourth quarter, the index unfortunately does not signal an improvement at the start of the year.
“On the contrary, business conditions deteriorated further in the first quarter. The same supply constraints, including load shedding, logistics challenges and heightened global and domestic policy uncertainty keep South African businesses in a stranglehold.”
He says another drag comes from lacklustre demand which is insufficient to sustain production and trade sales volumes at a higher level. A temporary surge in building activity also seems to be fading.
“Looking further ahead, the expectation of moderating inflation and possibly lower borrowing costs due to an expected shallow cutting cycle of the policy interest rate may help with local consumer demand in the second half of the year.”
Mhlanga says while there has been some positive movement on alleviating some supply-side pressures, particularly energy – thanks to private sector investments – much more needs to be done in implementing economic reforms that can generate the kind of economic growth that can pull along non-energy investment, lift sentiment and generate employment.
ALSO READ: New survey results: load shedding kills SME business confidence
Jee-A van der Linde, senior economist at Oxford Economics Africa, says the drop in already low business confidence highlights the dismal business environment South African companies face.
“The situation is exacerbated by undue supply-side issues and crime, which are fanning the cost of doing business, while domestic demand is soft as consumers grapple with high living costs and tight monetary policy. The current state of affairs is expected to persist, in varying degrees, throughout most of this year.”
He says low levels of private sector confidence, the repercussions of state capture and counterproductive policies weigh on private sector investment, limiting the economy’s capacity to generate sufficient job growth and expand the supply of goods and services.
“In addition, state-owned enterprises (SOEs), of which Eskom and Transnet are the most significant, have become massively inefficient over the past 15 years, severely curtailing the commercial prospects of business across the economy.”
High fuel prices, together with energy supply constraints and logistical bottlenecks, will continue to undermine the economy’s performance over the near term, Van der Linde warns.
“Meanwhile, household finances are constrained by high interest rates and elevated price inflation, with interest-rate-sensitive sectors especially impaired in this respect. The latest numbers align with our view that domestic economic activity remained subdued in the first quarter of the year.”
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