Riots hurt business confidence less than Des van Rooyen becoming finance minister

Business confidence took an unsurprising dive in July after rioting and looting in KwaZulu-Natal and Gauteng left shopping centres, shops, warehouses and factories stripped and burned.

The good news is that it was still not as bad as when finance ministers were switched over a weekend in December 2015.

According to the South African Chamber of Commerce and Industry (SACCI) Business Confidence Index (BCI) for July 2021, business confidence dipped slightly in June 2021 by 0.8 index points to 96.2 and declined further by 3.0 index points to 93.2 in July 2021.

However, the decline of three index points in July was still less than the 6.6 index point month-on-month decline in November 2015 and the 3.6 month-on-month decline in December 2015, when there was a switch of finance ministers over a weekend.

The month-on-month negative moves in April and May 2020, during the level 5 Covid-19 lockdown, were also much more severe than the July 2021 effect on the index, with the recent month-on-month dip of 3 index points suggesting a more muted and limited effect than the disruptions had on the overall business climate in the country.

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Positive month-on-month contributions

According to SACCI’s data, three sub-indices positively impacted the BCI month-on-month between July 2021 and in June 2021. The positive month-on-month contributions in July 2021 mainly came from merchandise export and retail sales volumes. Less new vehicle sales and less merchandise import volumes also had a notable negative impact on the business environment.

However, compared to July 2020, there was still an unusual year-on-year improvement of 10.4 index points compared to a business climate that already showed signs of improving in July 2020 from the strict lockdown of April and May 2020.

“The continuing and exceptional trade surplus continued to be driven by the extraordinary value of merchandise exports caused by higher global prices and increased demand volumes. Manufacturing output and building plans passed also made valued year-on-year contributions to the improved business climate,” SACCI says.

Although they had to deal with energy supply and tighter credit extension to the private sector, eleven of the thirteen sub-indices had a positive impact on business confidence in July 2021 compared to July 2020. The real economy benefitted the business climate the most between July 2021 and July 2020.

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Working together helped too

SACCI says in a statement that the collective actions of businesses and communities resulted in a containment of the disruptions caused by the rioting and looting by mobs in certain areas.

“The spate of looting and destruction during July in certain areas of South Africa, whatever the intention, was a setback to inclusivity, growth and job creation.”

The downside is that the opportunity cost will extend the timeline to attend to critical structural programme implementation in the economy, SACCI says.

“Public sector efficacy on all levels of government was exposed as lacking ability and urgency, but collaboration and the resilience of communities and business indicated the resolve of society against radicalism.”

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Be careful of creating expectations

SACCI warns about the importance to attend to the process of creating expectations that could only be fulfilled by generating equal opportunities, the ability to create wealth and enhancing individual entrepreneurial capabilities.

“We should revisit the development process and attend to it to ensure that South Africa will be able to sustain the development required for the economy to sustain raised expectations.”