What companies in South Africa are worried about right now

Despite a significant drop in Covid-19 infections and the easing of lockdown restrictions, business confidence in South Africa remains on track.

This is according to the latest RMB / BER Business Confidence Index (BCI) which dropped from 46 to 42 in the second quarter, a level similar to that recorded in the second half of 2021.

A reading of 42 indicates that nearly six in 10 respondents consider the prevailing trading conditions to be unsatisfactory. The second quarter survey was conducted between 11 and 30 May and involved approximately 1,300 executives from the construction, manufacturing, retail, wholesale and new vehicle industries.

Various shocks over the past year have helped keep confidence so low and many uncertainties remain, the Bureau for Economic Research (BER) said.

“Supported by the gradual lifting of virus restrictions, the BCI RMB / BER has risen from a low of just five at the start of the pandemic to 50 in the second quarter of 2021. Since then, however, it has been hit by various negative shocks (riots, strikes, wars, floods, etc.), business confidence remained blocked in the low 40s “.

While the impact of some of these shocks on the BCI is wearing off, there is a lot for business people to look forward to, the group said.

Some of the factors highlighted include:

  • Global energy and food prices are likely to remain high for longer;
  • Real economic activity in China falters;
  • The stagflationary shock amplified by the furious Russia-Ukraine war will see GDP growth in two of South Africa’s main trading partner countries, the UK and Europe, moderately sharp.
  • The country’s electricity supply remains as unstable as ever
  • Rising inflation and rising interest rates will continue to erode household spending power.

“There is nothing the government can do about the global headwinds the country faces, but it can push through internal reforms that stimulate growth. Better the government pushes hard and builds on the successes that the Vulindlela operation has already achieved in the last year, “said Ettienne Le Roux, RMB’s chief economist.

Not all sectors are the same

The stock result, while disheartening, hides large variations between sectors.

While new vehicle manufacturers and dealers have experienced a sharp deterioration in sentiment, construction contractors, on the other hand, have become significantly more optimistic. Trust between retailers and wholesalers remained broadly unchanged at relatively high levels.

  • Confidence in manufacturing dropped from 43 to 29 in the second quarter. This case can mainly be attributed to the significant direct and indirect impact that the interim closure of the Toyota plant (due to the flooding in KwaZulu-Natal) had on manufacturing production and overall exports. Furthermore, production has also fallen to a boil in most other subsectors, with the exception of food production.
  • Motor confidence it plummeted from 54 to 29 mainly due to inventory shortages, a dynamic that has its roots in a global shortage of certain parts and components that continues to limit local auto production. Unfortunately, the temporary closure of the Toyota Durban plant made matters worse.
  • Building trust it went from 25 to 46, an increase that extends what has been a gradual improvement since sentiment hit rock bottom during the height of the Covid pandemic. Residential real estate contractors saw a notable increase in activity in the second quarter. While the same cannot be said for the non-residential sector, activity has stabilized at a slightly improved (but still depressed) level. Compared to the other sectors that make up the RMB / BER BCI, confidence in construction took longer to return to pre-pandemic levels.
  • while confidence in retail remained unchanged at 49, wholesale trust it rose slightly further to 58. Although currently the two sectors with the highest index levels, the results varied significantly between respondents.
  • Dealers of durable goods (eg furniture, household appliances and DIY) recorded a further deterioration in sales volumes, while those of semi-durable products (eg clothing and footwear) recorded a continuous improvement, albeit on a low basis. Sales volumes of non-durable goods (ie, food) were surprisingly strong in the second quarter. Among wholesalers, suppliers of consumer goods had a better quarter than suppliers of non-consumer goods (e.g. chemicals and machinery), where sales volumes deteriorated. Price increases have become even more prevalent in both retail and wholesale.

Reading: South Africa’s inflation has been “exceptional” over the past year, but can it last?

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