Low business confidence bodes ill for SA
SA’s battered economy will come under further strain as business confidence reached its lowest level in a year.
The SA Chamber of Commerce and Industry’s (Sacci’s) business confidence index fell in August on the back of a decline in merchandise export volumes, a weaker rand and higher inflation. The rand has weakened 20% against the dollar since the start of the year, while inflation stands at 5.1%.
Business confidence raced to a two-and-a-half-year high in January after Cyril Ramaphosa’s election as president of the ANC in December as business expected greater policy certainty. The sentiment has since faded after data last week showed that SA plunged into a recession for the first time since the global financial crisis.
This also comes as the ANC pushes to change the constitution to make it easier to expropriate land without paying for it.
Depressed business confidence does not bode well for the economy, which has already come under immense pressure. Low confidence constrains spending and investment, which results in shortfalls in government revenues and can lead to tax hikes and, a negative cycle of low confidence and low spending, according to analysts.
"The positive mood that prevailed at the beginning of 2018 has been overtaken by uncertainty and events that weigh on the economic prospects for SA. This also taints SA as a sought-after investment destination," said Sacci.
The index, which measures business activity, dropped by 4.2 index points in August to 90.5, compared to 94.7 in July.
While seasonally adjusted retail trade sales increased by 1.3% in July, according to data from Stats SA, consumer spend is running out of steam. This is likely due to the additional strain of a VAT hike and higher transport costs, said Jason Muscat, a senior economic analyst at FNB.