RMB/BER Business Confidence Index edged up ahead of national election

Media Release

5 June 2024

RMB/BER Business Confidence Index edged up ahead of national election 

The second quarter fieldwork for the RMB/BER Business Confidence Index (BCI) was conducted among 2 500 businesses and took place from 9 to 27 May 2024, a period preceding the 29th of May national and provincial elections that were widely expected to produce a national coalition government. The second quarter BCI survey results, therefore, predates the outcome of the elections. 

The RMB/BER BCI rose by five points to 35% in the second quarter of 2024. This means that roughly just over a third of the survey respondents were satisfied with prevailing business conditions. There are two salient features of this survey, which could have played a role in the results. First, the uncertainty around the election was top of mind for many respondents, with comments alluding to a ‘wait-and-see’ approach, likely holding back domestic demand. Second, there has been no load-shedding for over a month prior to the survey and throughout the survey period, which could have had a more positive impact on survey respondents. However, we must wait and see the implications on policy and the business operating environment of coalition government arrangements, as well as the sustainability of the improvement in the energy availability factor (EAF) observed over the past two months before we can draw any link to the BCI in future.

RMB/BER Business Confidence Index (BCI)

Source: BER, SARB (Shaded areas represent economic downswings)

Details

The five-point increase in the RMB/BER BCI to 35 points followed two consecutive declines and brought confidence back closer to the 36-point level seen in the first quarter of 2023. Confidence rose in four of the five sub-sectors except for new vehicle dealers. It is noteworthy that current confidence among wholesalers and building contractors is above its long-term average level, while confidence among retailers is at its long-term average level.

Wholesale traders were the most optimistic, with 53% of respondents satisfied with prevailing business conditions. Consumer goods traders were upbeat about the increase in sales volumes for a second consecutive quarter, while non-consumer goods traders reported another decline in sales.

Confidence in the closely linked retail sector was slightly worse than that of wholesalers but still increased by five points to its long-term average level of 39%. On balance, sales volumes were better. This was largely driven by durable goods, with hardware retailers a notable outperformer. In contrast, sales volumes for non-durables declined as selling prices rose. Sales volumes for semi-durable goods sales also declined in line with non-durables, however, this is despite declining selling prices. 

Business confidence among building contractors picked up once more and rose above its long-term average of 44% to reach 47%, going against expectations for a continued slowdown in the building sector which could have weighed on confidence. The uptick was supported by fairly solid activity in KwaZulu-Natal and the Western Cape, and shows that the sector remains resilient.

On the other hand, confidence among new vehicle dealers, who are arguably most sensitive to the prevailing high borrowing costs and subdued consumer demand, declined by 6 points to 10%. This means that just one out of ten respondents were satisfied with prevailing business conditions, well below the long-term average of 43%. Comments of purchasers ‘buying down’ and solid activity among spare part traders, as owners hold on to their vehicles for longer, reinforces the view that consumers remain under pressure. Positively, the rate of decline in car sales volumes slowed somewhat.

Barring the ultra-depressed new vehicle dealers, manufacturers remained the most downbeat. Still, confidence rose by 7 points to 28% – the best level in two years. Encouragingly, production improved somewhat from the first quarter, particularly for food and metals manufacturers.  Export demand ticked marginally up while domestic demand remained sluggish. A sharp decline in the average hours worked per factory worker despite the two months without load-shedding is a concerning leading indicator for the sector.

Business confidence per sector

Source: BER

Bottom line

 According to the GDP data released by Stats SA yesterday, the economy marginally contracted by 0.1% in the first quarter of 2024 following an upwardly revised expansion of 0.3% in the last quarter of 2023. Of concern and consistent with lower levels of business confidence, the growth in gross fixed capital formation contracted for the third consecutive quarter in the first quarter of this year. The survey results point to some lift in activity in the second quarter of 2024. Still, the ‘wait-and-see’ approach ahead of the election could have held back a more pronounced recovery in demand, while doubts about the sustainability of no load-shedding may have prevented production from being ramped up more significantly.

As per Isaah Mhlanga, Chief Economist at RMB, “business confidence ahead of the election showed a welcome uptick but remained below the levels conducive to foster increased private sector investment and faster economic growth”. We would need to see a sustained improvement in confidence for investment levels (especially non-energy), GDP growth and, importantly, employment growth to pick up. For this to materialise, it is important that the new administration accelerates the implementation of the structural economic reforms started in the previous administration to improve the business operating environment of the South African economy. Some good progress has been made on the energy front under Operation Vulindlela, but binding supply side constraints remains a concern as progress in logistics, the water sector, and safety and security, among others, remain extremely slow.

On a positive note, on the demand side, the survey suggests that price pressures are abating with selling price increases generally slowing across the different sectors. Lower inflation through the remainder of the year, and the possibility of a somewhat lower policy interest rate later in the year could boost consumer spending. This could aid the struggling new vehicle dealers, in particular, who have been a drag on the overall RMB/BER BCI in the last three quarters.

ENDS

Enquiries:

Isaah Mhlanga

Chief Economist

Tel: 073 736 5357 / 011 282 1460

Isaah.Mhlanga@rmb.co.za