The fact that business confidence has essentially remained unchanged amid some strong economic headwinds indicates the presence of some underlying resilience and countervailing forces at work, says Ettienne le Roux, the chief economist at Rand Merchant Bank (RMB).
The RMB/BER business confidence index (BCI) slipped to 38 in this final quarter of 2022 after dipping from 42 to 39 in the third quarter, said Le Roux.
“Although the BCI was little changed, the outcome hides striking dynamics among the sectors, both positive and negative.”
The index’s findings are based on a survey conducted between 26 October and 14 November 2022, covering over 1,000 senior executives in the building, manufacturing, retail, wholesale and the motor trade. 60% of the respondents remained unsatisfied with the prevailing business conditions.
Over the final quarter of this year, a rebound in business confidence in the building sector made up for the first significant falls in wholesale and retail confidence since the pandemic.
“After dropping by 17 points to 29 in the third quarter, business confidence recovered back to 46 in the fourth quarter, extending what has been a volatile (but rising) trend over the past two years,” said Le Roux.
“Escalating load-shedding could easily have dashed business confidence in the fourth quarter. The fact that the BCI essentially remained unchanged indicates the presence of some underlying resilience and countervailing forces at work.”
The recovery in residential building activity, as well as rising capital spending on renewable energy projects, machinery, capital goods and the like, reveal increased fixed investment in at least some sectors, added the economist.
To boot, and given the ongoing recovery in international tourism, employment seems to be expanding again in service sectors like hotels, hospitality, and related to that, travel agents and tour operators. These all experienced increased demand in the fourth quarter.
“Even so, there is no denying the fact that the economy would be doing so much better were it not for the slow pace that continues to describe the government’s efforts in addressing growth damaging supply-side constraints such as insufficient electricity, poorly functioning ports and a failing railway network…
“The importance of fast-tracking things cannot be overemphasised, especially now that global headwinds manifesting in sharply slowing growth and lower export commodity prices are mounting,” said Le Roux.
Outlined below are the RMB BCI outcomes for the select period of analysis:
Residential uptick
The residential sector drove the latest improvement in BCI, with typical seasonal factors making activity regain momentum.
By contrast, the recovery in non-residential activity faltered. Interference by the construction mafia, delays in tenders awarded, fierce competition to secure work, sharply rising building costs and load-shedding depressed profitability and confidence.
Wholesale and retail
According to the RMB economist, besides wholesale confidence plummeting from 50 to 37 in the fourth quarter, it is the first time since the third quarter of 2020 that confidence fell below the neutral 50 mark.
“Fewer orders from retailers saw sales of consumer goods take a particularly hard knock, while delays at the ports also soured the mood.”
Confidence among retailers dropped sharply, from 51 to 42, said, Le Roux. Sales across all categories worsened.
“The deterioration was even more pronounced when accounting for the usual uplift in activity given Black Friday and the Festive Season. Rising food and transport costs eroded households’ spending power, as did higher debt servicing costs.”
The impact of special factors such as pent-up demand, spending on durable goods and eating out or entertainment all fizzled out in the fourth quarter. This was exacerbated by load shedding, adding to the loss of trading hours.
Motor industry
In the fourth quarter, new vehicle sales delivered a better performance, but this was not sufficient to markedly increase the confidence of dealerships; their BCI rose just one point to 41, said Le Roux.
“Long waiting times for stocks of specific makes and models, and an apparent pessimistic outlook, given the rising cost of debt, dampened spirits.”
Manufacturing
The latest index points to manufacturing confidence remaining flat – but depressingly low at 26.
Over the period of analysis, there was a sharp deterioration in export sales volumes, similar to domestic sales volumes – these were weaker than in the second half of 2021.
Factors like load-shedding, surging diesel costs and long delays at the ports were cited as explanations for the fourth quarter’s poor performance, said Le Roux.
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