South African Business confidence at lowest level in 5 years

Carin Smith

Cape Town - Business confidence has fallen even further between October 19 and November 16, according to the latest RMB/BER Business Confidence Index (BCI) released on Thursday.

After falling from 43 to 38 in the third quarter, the index fell by a further two points to 36 in the final quarter of 2015. The index shows that over the past year, business confidence has dropped by a full 15 points and is now at its lowest level in five years.

Underlying activity in sectors such as retail, new vehicle trade and manufacturing weakened by more than it had done in the third quarter. That is why it is surprising that BCI fell by only two points in the latest index, according to Ettienne Le Roux, chief economist of RMB.

One reason could be that some respondents were relieved by conditions in the fourth quarter not turning out as badly as they had thought at the time of the survey, the economist said.

The absence of load shedding for over three months may have also lifted the mood somewhat, particularly for energy intensive businesses.

"The latest BCI result suggests that real gross domestic product (GDP) growth moderated further in the fourth quarter compared with the same period in 2014," said Le Roux.

"In aggregate, growth of around 1% to 1.5% seems like the most probable outcome for this year, with a very similar prognosis for 2016 at this stage. And all this of course assuming that the current drought does not get any worse."

The index shows that confidence levels among new vehicle dealers is now at the lowest level since the recession in 2009. Sales volumes continued to decline in the fourth quarter and the business confidence among new vehicle dealers declined by 8 points to 19.
Confidence among building contractors fell from 45 to 39, as many existing commercial projects had been completed and few new ones came on stream. According to Le Roux, the fall in the overall level of building confidence would have been even larger was it not for residential building activity showing some improvement.

Wholesalers' confidence fell by three points to 47 in the fourth quarter.

"A slight deterioration in overall profitability reflects the fact that only a few wholesalers have been able to raise selling prices in response to higher purchase price increases, while still maintaining some volume growth," said Le Roux.

Manufacturing confidence remained unchanged at 34 due to production growth continuing to track sideways at weak levels. Stronger growth in domestic sales by manufacturers of mainly non-durable consumer goods compensated for export growth, which lost some momentum.

The only sector where business confidence increased, was the retail sector - up by 6 points to 40, which is still regarded as low. The current level is still about 20 points lower than the 60 peak the sector reached recently.

"A sign of the weakness of effective demand is the fact that many retailers had to further trim price increases just to sustain moderate sales growth," said Le Roux.

The South African Chamber of Commerce and Industry's Business Confidence Index in September fell to the lowest level in 22 years, after falling to its lowest level in 16 years in August. According to the Sacci index, business confidence recovered in October, mainly influenced by retail sales volumes, merchandise export volumes and share prices.

Apart from feeling less confident, it seems many business owners also feel less safe. More than 83% of the members of the Cape Chamber of Commerce and Industry, who took part in a recent survey, indicated that they feel more unsafe than they did five years ago.