Rolling blackouts knock business confidence in manufacturing and retail

The rolling blackouts and deteriorating household income during the first quarter of 2023 knocked out business confidence in the manufacturing and retail sectors.

Although this was expected given the severity of power outages and the associated drop-off in business activity, the result is nonetheless disappointing.

The business mood certainly remains gloomy according to the RMB/BER Business Confidence Index for the first quarter of 2023, declining from 38 in the fourth quarter to 36.

The first quarter survey was conducted between 8 and 27 February, and covered 1 050 senior executives in the building, manufacturing, retail, wholesale and motor trade sectors.

When there is no power, nothing can be manufactured and it was, therefore, no surprise that manufacturing confidence crashed by nine points to 17.

Such a low level is rare and it speaks to a sector bearing the brunt of the combined impact of intense load shedding and dilapidated (and poorly run) logistic infrastructure, the Bureau for Economic Research (BER) at Stellenbosch University says.

“The deterioration in sentiment occurred across various sub-sectors, all sharing a common feature in falling domestic sales and production.

“Fixed investment to expand existing production capacity also suffered as demand weakened and capital expenditure budgets were increasingly absorbed by alternative energy generation measures.”

That means that manufacturers who still had money to expand their operations and create more jobs, had to use this money to create alternative power just to keep their operations going.

Rolling blackouts not only eat our time and money, but also our jobs.

ALSO READ: Thank you load shedding! Manufacturing in SA down sharply

Fall in retail business confidence

The other concerning decrease was in retail confidence that decreased sharply from 42 to 34.

The BER says as with manufacturing, the deterioration in sentiment was broad-based as retailers could also not escape the impact of load shedding that forced them to reduce trading hours and handle increased operating costs due to diesel generators running more often.

“At the same time, consumer price inflation stays high and slowing growth as compensation continues to place pressure on households’ disposable income.

“Sales volumes then also worsened further across retailers of durable goods, such as furniture and electronics and non-durable goods such as food and beverages, while retailers of semi-durables which mainly include clothing saw a slight improvement in sales.”

This fall in business confidence already confirms the view of economists that the gross domestic product (GDP) will fail to grow in the first quarter of the year due to rolling blackouts.

The GDP figures for the fourth quarter already showed negative growth and another quarter of negative growth will cause the country to enter a recession.

Results from the other sectors varied and although confidence in manufacturing and consumer-facing retail nosedived, sentiment changed little in the case of building contractors and improved somewhat, although to still weak levels, in wholesale and new vehicle trade.

ALSO READ: Business confidence dips while load shedding looms

Building contractors benefit indirectly from blackouts

Business confidence among building contractors declined marginally from 46 to 43, but this was not thanks to less intimidation at building sites by the construction mafia.

Although it was still in net negative terrain at 43, building confidence is a far cry from the extremely low levels witnessed during much of 2020 and 2021.

The BER says strikingly, if sub-contractors and particularly electricians are included, confidence and activity in the overall building sector rose massively thanks largely to the installation of backup power which shows that at least for some, load shedding seems to have a silver lining.

The business confidence of contractors and sub-contractors combined surged to 49 in the first quarter and although this improvement does not reflect in the headline result, the upsurge in the installation of renewable energy and other load shedding mitigation measures again benefits the broadly defined building and civil construction sector.

However, the BER says, a thin silver lining attached to load shedding must not distract from its devastating blow it inflicts on the economy with the added problems of failing rail, road and port infrastructure.

“The urgent need of a united public and private sector effort to fix disruptive supply-side bottlenecks cannot be stressed enough.”

Wholesaler confidence increased marginally from 37 to 40 and new vehicle dealer confidence from 41 to 44, but the BER says these are minor increases and both also remained below 50, which means most respondents in these sectors are unhappy with prevailing business conditions.