Political worries keep business confidence constrained

Business confidence has fallen further as SA grapples with political uncertainty in the lead-up to the 2019 election.

In February, the SA Chamber of Commerce and Industry (Sacci) business confidence index declined to 93.4. This is 1.7 points lower than in January 2019 and 5.5 points lower than February 2018. It is also the lowest level since September 2018.

Sacci’s index is a measure of the volume of activity rather than a poll of sentiment, and has a relatively strong relationship with economic growth.

Sentiment lifted at the start of 2018 on expectations of better business prospects following the election of Cyril Ramaphosa as ANC president. The index, however, has fallen significantly owing to sluggish economic conditions and continued political uncertainty.

Sacci warned that business confidence will remain under pressure. “Although action has been taken against some corrupt practices and maladministration, the current preparations by political role-players for the upcoming elections may lead to additional economic policy uncertainty, resulting in a tentative business climate in the weeks ahead,” Sacci said in a statement.

Five of the 13 sub-indices improved from their January 2019 readings, while five declined and three were unchanged. The biggest positive drivers were increased merchandise export volumes, higher share prices on the JSE, and more real credit extended to the private sector.

“Domestically, the SA economy faces serious challenges. These challenges are now deeply entrenched, and need to be handled with urgency and care,” Sacci said. “The upcoming elections do not only serve as an opportunity to establish credible representation, but also provide a platform to come to a rational and sustainable economic policy framework that carries the support of the business community.”

This follows the GDP figures released by Stats SA on Tuesday that showed SA’s economy grew by less than 1% in 2018.

“The effects of perceived domestic political and policy uncertainty have weighed on sentiment and have been a contributing factor to SA’s lacklustre economic performance,” Investec economist Lara Hodes said.

Analysts, however, say that there will likely be a recovery following the elections with growth for 2019 expected to rebound.

“A favourable election outcome in May will further enhance sentiment and this, together with a strengthening of SA’s institutions and state structures, should drive a lift in private sector fixed investment,” Hodes said.

“It will depend on the outcome of the election whether or not there is more policy certainty, notably around the land issue,” Citadel chief economist Maarten Ackerman said, adding that increased certainty and policy implementations will propel growth.

menons@businesslive.co.za