South Africa’s overall business confidence levels rose ahead of the general election but optimism in some segments of the economy, such as retail vehicle dealerships, that are feeling the pinch of slow consumer demand, dropped significantly.
This is according to the latest RMB/BER Business Confidence Index (BCI) survey for the second quarter of 2024. The survey, conducted between 2 500 businesses, took place from May 9 to 27, just ahead of the general 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.
BER economists said two salient features, the upcoming elections which led to people adopting a wait-and-see approach and the fact that there has been no load-shedding in recent months, could have influenced the results of the survey.
“However, we must wait until we can assess 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,” said economists.
Business confidence rose in four of five subsectors except for new vehicle dealers.
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%,” the BCI noted.
Improved sales volumes were largely driven by durable goods, with hardware retailers a notable outperformer. By contrast, sales volumes for non-durables declined, as selling prices rose.
Business confidence among building contractors rose above the long-term average of 44% to reach 47%, going against expectations of a continued slowdown in the sector. The uptick was supported by 'fairly solid activity' in KwaZulu-Natal and the Western Cape.
Confidence among new vehicle dealers, arguably the most sensitive to prevailing high borrowing costs and subdued consumer demand, declined by six points to 10%.
“This means that just one out of 10 respondents were satisfied with prevailing business conditions, well below the long-term average of 43%. Mention 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,” the BCI noted.
Manufacturers were also among the most downbeat although confidence rose by seven 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 went up marginally 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,” the economists noted.
According to the GDP data released by Stats SA on Tuesday, 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.
RMB chief economist Isaah Mhlanga said business confidence ahead of the election showed 'a welcome uptick' but remained lower than the levels needed to foster increased private sector investment and economic growth.
