The South African Chamber of Business (Sacob) Business Confidence Index (BCI) maintained a relatively high level in May, dropping slightly to 123,6 from 124 in April. The index measured more than 20 index points above the level recorded in May 2003.
Sacob noted on Thursday that this was mainly due to the level of the sub-indices on the exchange rate of the rand, inflation and real interest rates in May 2004 being 36% above the level in May last year. The combined level of the other 10 sub-indices was only about 10% above the level of May 2003.
Eight sub-indices slowed or held back the BCI in May. However, import volumes, new vehicle sales, liquidations, manufacturing output and the real value of building plans passed lifted the index.
Sacob said that winning the Soccer Word Cup bid enhanced a spirit of anticipation in South Africa for potentially new business opportunities in the run-up to 2010. Faster global economic growth will also enhance expectations on South Africa’s export performance as new global trade opportunities open up.
However, the 21-year record-high United States dollar crude oil price dampens enthusiasm and rekindles the prospects of double-digit inflation, as was the case with the oil crisis in 1973, if fuel costs are not addressed timeously.
This could pose a real threat to inflation and world growth prospects.
The business chamber noted that despite the more progressive export environment the volume of South African merchandise exports is estimated to have declined by 3,5% during the first four months of 2004 compared with the same period in 2003. Over the same period the rand appreciated by 9,2% against the three major trading currencies. It therefore seems that the strong rand is making it difficult for South African products to remain competitive despite the more generous export environment.
With the hope that the high crude oil price might be temporary, no serious adjustments to the positions of business and/or the government should be necessary in the foreseeable future, Sacob said. If, however, the situation worsens or even remains as it stands at the moment, contingency procedures will have to be devised by business to deal with the changed environment. — I-Net Bridge