Business confidence unchanged after decline in third quarter

Business confidence remained unchanged after the decline in the third quarter due to the third wave of Covid-19 and unrest and looting in July, as well as transport delays, shortages of inputs and insufficient stock. Although the impact of these factors has faded, companies now have to face the Numsa strike and load shedding, which affected business confidence all over again.

The RMB/BER Business Confidence Index (BCI) remained unchanged in the fourth quarter of 2021 after falling from 50 to 43 in the third quarter but the outcome could have been better if there were not a whole slew of new problems businesses had to contend with.

The fieldwork for the fourth quarter survey was done during the first two weeks of November and covered 1,300 senior executives in the building, manufacturing, retail, wholesale and motor trade sectors.

One could not blame businesses who expected some good news after struggling with the third wave of Covid, unrest, looting, transport delays, shortages and insufficient stocks that made them less confident about doing business in South Africa, says Ettienne Le Roux, chief economist at RMB.

The Numsa strike and load shedding, as well as existing supply chain disruptions and stock shortages prevented sentiment from recovering in the fourth quarter. Confidence declined in all the sectors except construction, which jumped from 18 to a still-low 30 points in the fourth quarter.

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Business confidence in construction

Construction lagged the residential sector since the pandemic started, but now confidence in the non-residential sector bounced back noticeably to surpass the BCI of the residential sector. The improved sentiment among smaller contractors in KwaZulu-Natal stood out which was probably thanks to rebuilding after the unrest and looting.

However, it is hard to be sure about how long the improvement in overall building confidence will last as the non-residential property market continues to suffer from oversupply. The boost from unrest-related re-building will also probably not last, Le Roux says.

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Business confidence in retail and wholesale

Confidence only exceeded the neutral 50-mark with indices significantly above long-term averages in two sectors, retail and wholesale.

Retail confidence declined marginally from 56 to 52 points and wholesale confidence from 55 to 53. Sector rotation within retail trade continued, while sales of non-durable goods subsided and semi-durable and durable goods picked up with Black Friday and festive season sales that can amplify this trend if stock levels improve.

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Business confidence in manufacturing

Manufacturing confidence, on the other hand, declined from 41 to 38 points. Although sales improved noticeably after the disruptions in the third quarter, a string of factors dampened confidence.

These include a struggle to source enough crucial inputs in time, production disruptions due to the Numsa strike, load shedding, escalating cost increases due to higher prices of raw materials, increased transport costs and additional expenses related to load shedding, Le Roux explains.

Insufficient stock also curbed the number of new vehicles sold and caused new vehicle trade confidence to decline further from 47 to 41.

“Thanks to a slight improvement in the composite activity indicator also derived from the survey results, confidence could easily have increased in the fourth quarter. It is a pity that various unfavourable external as well as domestic shocks prevented this from happening. Unfortunate too is the likelihood that supply chain disruptions, insufficient stocks, load-shedding and escalating cost increases will prevail for a while longer, so dimming the hopes of a further strong recovery in the RMB/BER BCI any time soon,” Le Roux says.