Business confidence on weak footing
Business confidence dropped in the first quarter of 2024, further highlighting SA’s dismal business environment, a situation expected to worsen mainly due to supply-side issues and crime, which are fanning the cost of doing business.
The RMB/BER business confidence index released on Wednesday shows that after a two-point decline in the fourth quarter of 2023, it ticked down by another point to reach 30 in the first quarter of 2024.
RMB chief economist and head of research Isaah Mhlanga said the same supply constraints, including load-shedding, logistical challenges and heightened global and domestic policy uncertainty were keeping businesses in a stranglehold.
At the same time, domestic demand softened as consumers grappled with high living costs and tight monetary policy.
“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 said.
The index remains in depressed territory below the neutral level of 50.
Data by the Bureau for Economic Research shows all five categories of business confidence readings were depressed, with 70% of businesses saying they are dissatisfied with prevailing conditions and profitability.
Mhlanga said manufacturers turned even more pessimistic about both investment and business prospects later in the year.
“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,” he said.
“Remarks about the negative impact of load-shedding, the state of the local ports, crime, and political uncertainty featured prominently in the feedback from survey participants.”
He added that another noteworthy development was an acceleration in selling price inflation across the board.
Building contractors were again the least pessimistic of all sectors surveyed, with business confidence ticking up by one index point to 42.
The other two sectors where confidence improved were wholesalers and new-vehicle dealers. Wholesale confidence nudged up by one index point to 37, equal to the average reading seen in the second half of 2023. New-vehicle dealers saw confidence jump by 10 points to 16, but not enough to reverse the 24-point decline in quarter four.
The data shows a 13-point decline in retail confidence countered the improvements in wholesale and new vehicle dealers. Another drag on the composite index came from manufacturers, which saw confidence fall by five points to 21, which is equal to the average confidence reading of 2023.
Mhlanga said a weakening in activity and in domestic and export demand explained the deterioration in confidence. “Respondents turned even more downbeat about investment and business conditions,” he said.
Senior economist at Oxford Economics Jee-A van der Linde said low levels of private sector confidence, the repercussions of state capture and counterproductive policies weighed on private sector investment.
Concerns about the negative impact of load-shedding, the state of ports, crime and political uncertainty featured prominently in the feedback from survey participants, he said.
“What’s more, state-owned enterprises, of which Eskom and Transnet are the most significant, have become massively inefficient, severely curtailing the commercial prospects of business across the economy,” he said. “High fuel prices together with energy supply constraints and logistical bottlenecks will continue to undermine the economy’s performance over the near term.”
Household finances were constrained by high interest rates and elevated price inflation, with interest-rate-sensitive sectors especially impaired in this respect, he said.
Investec chief economist Annabel Bishop said that for the whole of quarter one Eskom’s energy availability factor had been very low at just above 50%. Load-shedding was not expected to improve materially this year, and the vgbe consortium report on Eskom’s coal-fired power stations and grid facilities, showed a poor situation for power generation, she said.
The Treasury appointed an international consortium led by the vgbe energy association to conduct an independent assessment of the operational situation of the state-owned utility Eskom. The vgbe report found that Eskom’s maintenance budgets were high compared to other electricity generators internationally, but SA’s energy availability factor was low.
Mhlanga said that while there had been positive movement on alleviating some supply-side pressures, particularly energy due to private sector investments, much more needed to be done in implementing economic reforms that could generate growth that could pull along non-energy investment, lift sentiment and create employment.