Sentiment in the business industry in South Africa has remained muted as the prevailing business climate is not conducive to stimulating overall economic activity, the SA Chamber of Commerce and Industry (Sacci) has noted.
The Sacci Business Confidence Index (BCI), released yesterday recorded a reading of 108.6 in August, followed by a slight dip to 108.2 in September.
Sacci said while this represented a slight increase from the July figure of 107.3, it was evident that the BCI had been lacking substantial upward momentum, hovering around an average level of 107.5.
In comparison, the BCI for September stands 2.7 index points below the corresponding level from a year ago in September 2022.
From an average level of 112.5 in the 4th quarter of 2022, the BCI declined to 112.0 in the first quarter of 2023, further dropping to 107.6 in the second quarter, before rebounding to 108.0 in the third quarter.
Factors such as energy supply constraints and inflation negatively affected sentiment, whereas foreign business-related elements had a positive influence.
Eskom continued implementing various levels of power cuts between Stage 2 and Stage 4 load shedding in September and the national grid remains constrained by the generation capacity deficiencies.
Consumer prices were also elevated during the month, with headline inflation having ticked up from 4.7% in July to 4.8% in August, pushed higher by the rising global oil price as a result of rising demand amid production cuts in major oil-producing countries.
Sacci economist Richard Downing said that despite the absence of a strong upward trend in business confidence, the BCI appears to have stabilised, with an average of 109.2 in the first nine months of 2023, slightly surpassing the 108.7 recorded during the same period in 2022.
Downing said that in the short term, foreign business-related factors - including merchandise imports, exports, and inward tourism - had the most positive impact on business confidence in September.
He said that over the medium term, increased inward tourism and higher precious metal prices made notable positive year-on-year contributions.
“Conversely, the unpredictability of the weaker rand against major trading currencies, increased real cost of credit, and reduced merchandise export volumes had the most notable negative year-on-year impact on business confidence in September,” Downing said.
“Addressing the current fiscal challenges, there is a renewed emphasis on preserving debt-servicing capacity in public finances. Many countries, including South Africa, are compelled to consolidate over the medium term to achieve prudent debt targets.”
Sacci also noted that the International Monetary Fund (IMF) highlighted the importance of critical institutional reforms tailored to the needs and constraints of developing countries.
These reforms encompass medium-term budgeting, fiscal risk management, expenditure controls, and revenue administration.
The recent BRICS Summit explored alternatives to the World Bank and IMF to better cater to the specific needs of emerging economies, although the details of this alternative BRICS approach require further verification.
Finance Minister Enoch Godongwana has recently acknowledged the tight fiscal conditions and debt situation, necessitating the application of austerity measures by the government.
The Treasury has also cautioned that the fiscus was under unprecedented revenue and expenditure pressures, compelling government departments and entities to reduce their spending by at least 15% until the next budget cycle.
Downing said this fiscal strain was reverberating across various public sector institutions, impacting service delivery from central government to local authorities.
“In conclusion, the Sacci BCI continues to exhibit a sideways movement, signalling that the current business climate is not conducive to stimulating overall economic activity,” he said.
“Remedying this situation and enhancing the economy's long-term prospects will require appropriate investments in human capital and fixed capital stock.”
BUSINESS REPORT