Business industry in South Africa remains concerned about a lack of increased private sector investment and faster economic growth in spite of confidence rising to its highest in more than one year in the second quarter.
The RMB/BER Business Confidence Index (BCI) rose by five points to 35 in the second quarter of 2024, the highest in over a year, from 30 in the first quarter.
However, confidence remains in depressed territory below the 50 points that separate contraction from expansion as the majority of businesses (65%) were dissatisfied with prevailing conditions, and so profitability.
The five-point increase in the BCI also followed two consecutive declines and brought confidence back closer to the 36-point level seen in the first quarter of 2023.
This suggests a slight reduction in pessimism among businesses, mainly attributed to the suspension of load shedding for a full two months.
The second-quarter field work for the BCI was conducted among 2 500 businesses and took place from May 9 to 27, a period preceding the May 29 elections that were widely expected to produce a national coalition government.
RMB said roughly just over a third of the survey respondents were satisfied with prevailing business conditions as the uncertainty around the elections was top of mind for many respondents, with comments alluding to a “wait-and-see” approach, likely holding back domestic demand.
However, RMB also noted that there had been no load shedding for over a month prior to the survey and throughout the survey period, which could have had a more positive impact on survey respondents.
As a result, RMB said the implications on policy and the business operating environment of coalition government arrangements, as well as the sustainability of the improvement in the energy availability factor (EAF) observed over the past two months, were yet to be seen before any link could be drawn to the BCI in future.
RMB chief economist Isaah Mhlanga said business confidence ahead of the elections showed a welcome uptick but remained below the levels conducive to foster increased private sector investment and faster economic growth.
This comes as real gross domestic product (GDP) contracted by a marginal 0.1% in the first quarter of 2024, following a revised 0.3% increase in the fourth quarter of 2023, on the back of weaker manufacturing, mining and construction.
“We would need to see a sustained improvement in confidence for investment levels (especially non-energy), GDP growth and, importantly, employment growth to pick up.
“For this to materialise, it is important that the new administration accelerates the implementation of the structural economic reforms started in the previous administration to improve the business operating environment of the South African economy.
“Some good progress has been made on the energy front under Operation Vulindlela, but binding supply side constraints remains a concern as progress in logistics, the water sector, and safety and security, among others, remain extremely slow.”
According to RMB, confidence rose in four of the five sub-sectors except for new vehicle dealers.
Wholesale traders were the most optimistic, with 53% of respondents satisfied with prevailing business conditions.
Confidence in the closely linked retail sector was slightly worse than that of wholesalers but still increased by five points to its long-term average level of 39% as sales volumes were better.
Business confidence among building contractors picked up once more and rose above its long-term average of 44% to reach 47%, going against expectations for a continued slowdown in the building sector which could have weighed on confidence.
On the other hand, confidence among new vehicle dealers, who are arguably most sensitive to the prevailing high borrowing costs and subdued consumer demand, declined by 6 points to 10%.
Barring the ultra-depressed new vehicle dealers, manufacturers remained the most downbeat. Still, confidence rose by 7 points to 28% – the best level in two years.
BUSINESS REPORT