Election jitters knock business confidence to seven-month low
The rand, load-shedding, electricity tariff hike and slump in manufacturing output weighed on the index
Jitters ahead of the national election have weighed on business confidence, dragging it to its lowest level since August.
The SA Chamber of Commerce and Industry’s (Sacci's) business confidence index (BCI) declined to 91.8 in March from 93.4 in February.
“The BCI reflects a depressed business climate that is dominated by concerns over continued difficult and uncertain domestic economic circumstances. The upcoming May 8 2019 general election adds to this uncertainty,” Sacci said in a statement on Wednesday.
The index is a measure of the volume of activity rather than a poll of sentiment, and has a relatively strong relationship with economic growth.
Six of the 13 sub-indices of the BCI improved on their February 2019 readings, while four declined and three were unchanged. The rand, load-shedding, the electricity tariff increase and an ease in manufacturing output weighed on the index.
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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 in the context of sluggish economic conditions and continued political uncertainty.
“It is only after the upcoming general elections that one would expect certainty on the elements that impact business confidence,” Sacci said, adding that while there were positive, short-term business climate indicators in response to efforts and measures by the government to grow the economy, “they do not overshadow the negative impact these challenges will have in the months ahead”.
The blow to confidence was exacerbated by power cuts. SA had rolling blackouts for 10 consecutive days in March as embattled power utility Eskom implemented stage 4 load-shedding.
“Load-shedding [in March] was unexpected, and its impact on the well-being of the economy, in particular business, consumers and investors was notable,” Sacci said.
This comes after the World Bank warned on Monday that low business confidence driven in part by the slow pace of structural reforms is holding back investment and constraining growth. SA has not breached the 2% mark since 2013 and estimates show growth will remain tepid in 2019.
Ramaphosa will need to make progress in consolidating the fiscus, stabilising Eskom both operationally and financially and kick-start growth following the election, Absa economist Peter Worthington said.
“Moody’s Investors Service’s nonpronouncement of its ratings, and the tenacity and resilience of households and business provides hope of a positive response to policy certainty after the elections,” Sacci said.
Moody’s said last week that depressed business confidence readings have contributed to weak economic growth, following heightened political and policy uncertainty.
Following the election, SA could see a boost in sentiment coupled with the strengthening of SA’s institutions and state structures which will lift private sector fixed investment, Investec economist Lara Hodes said.