SA’s low business confidence raises pressure on battered economy
Business as gloomy as when SP Global Ratings and Fitch Ratings cut country’s debt to subinvestment grade
Business confidence is at its lowest level since SA plunged into junk status in the second quarter of last year. This will increase pressure on the battered economy.
The business confidence index, compiled quarterly by Rand Merchant Bank and Stellenbosch University’s Bureau for Economic Research, plummeted in the fourth quarter to 31 points from 34 points in the third quarter and 69% of businesses surveyed found conditions unsatisfactory.
Business confidence soared to 44 in the first quarter with Cyril Ramaphosa’s election as ANC president. However, the index has remained below the 50-point neutral mark for 15 quarters running.
This means business is as gloomy as it was when former president Jacob Zuma fired Pravin Gordhan as finance minister, which saw S&P Global Ratings and Fitch Ratings cut the country’s debt to subinvestment grade.
Unless these are resolved in a more speedily and concrete fashion, private-sector fixed investment and by implication economic growth will remain disappointingly low.Ettienne Le Roux
RMB chief economist
Depressed business confidence does not bode well for the economy, already under immense pressure with data showing SA is in recession for the first time since the global financial crisis. Low confidence constrains spending and investment, which results in shortfalls on government revenue and can lead to tax hikes and then a negative cycle of low confidence and low spending, according to analysts.
President Ramaphosa announced an economic recovery and stimulus package in September, but confidence has continued to weaken due to policy.
While Ramaphosa’s “refreshing new focus on public-private-sector partnerships” was welcome, policy issues continued to pull business confidence down, said RMB chief economist Ettienne Le Roux.
“Unless these are resolved in a more speedily and concrete fashion, private-sector fixed investment and by implication economic growth will remain disappointingly low. Time is running out as global headwinds are mounting and domestically inflation as well as policy interest rates have bottomed.”
In fact, confidence could remain in the doldrums until after the election, Efficient Group chief economist Dawie Roodt said.
“We have not clawed ourselves up out of the hole yet,” he said.
While Ramaphosa has changed the cabinet to some extent and looked at the governance of key state-owned entities, “he is careful not to really rock the boat” to ensure unity in the ANC until the election, said Roodt.
“Ramaphosa is putting the ANC before the country. Investors don’t like that,” he said.