Picture: 123RF/RAWPIXEL
Picture: 123RF/RAWPIXEL
Image: 123RF/Rawpixel

Business confidence has not been this low since former president Jacob Zuma fired Pravin Gordhan as finance minister in 2017. 

The surprise midnight cabinet reshuffle triggered a host of credit rating downgrades with S&P Global Ratings and Fitch Ratings cutting SA’s debt to junk.

President Cyril Ramaphosa’s rise to power boosted business confidence in early 2018 but despite political changes and efforts to weed out corruption and turn around key state-owned entities, uncertainty has prevailed and economic growth has remained tepid.

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The business confidence index, released on Wednesday and compiled quarterly by Rand Merchant Bank and Stellenbosch University’s Bureau for Economic Research, fell by three points to 28 in the first quarter of 2019 – with more than seven out of 10 business people dissatisfied with current conditions and sentiment dented in four of the five business sectors.

This is only slightly higher than the low of 27 reached in the second quarter of 2017 and in the first quarter of 2009 following the global financial crisis.

A year ago, business confidence soared to 44 on “Ramaphoria”. A score below 50 reflects depressed business confidence levels.

A further dent to business confidence does not bode well for SA, already under immense pressure from load-shedding, a rising unemployment rate and slower global growth. Growth forecasts for the year are already tepid, with the economy expected to expand by less than 2%.

“Since taking the reins, Ramaphosa has launched several initiatives to help reverse SA’s decline,” RMB chief economist Etienne le Roux said.

“Yet, as encouraging and necessary as these have been, measures such as these – to first expose past corruption and then deal with rebuilding institutions – will only bear fruit in the longer term,” he said.

Investors are sceptical about Ramaphosa’s ability to bring in reforms ahead of elections in May, Old Mutual Investment Group chief investment strategist Dave Mohr said. “What is weighing most on investors’ minds is policy uncertainty and how the election outcome will influence government reform initiatives,” he said.

The drop in the index comes just over two weeks before credit rating agency Moody’s Investors Service is expected to make an announcement. Moody’s is the only major ratings agency that has not already downgraded SA’s sovereign debt to subinvestment grade.

Analysts expect Moody’s to change its outlook from stable to negative, which could spell a downgrade within 18 months.

Last year’s investment and job summits will eventually lead to increased private sector fixed investment and employment creation but this will take time, said Le Roux.

Low confidence has weighed on private sector fixed investment spending, which has contracted in real terms in four of the last six quarters, Absa economist Peter Worthington said. “Higher business confidence remains key for private sector investment outlook,” he said.

Le Roux warned that SA will face more short-term pain before it can shift to a “lasting higher growth and prosperity path”.

“A favourable election outcome in May would 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,” Investec economist Lara Hodes said.