South Africa’s business confidence fell sharply to a seven-year low in the first quarter of 2008, as the sector fretted about an uncertain economic and political outlook, a survey released on Wednesday found.
The Business Confidence Index, sponsored by Rand Merchant (RMB) and the Bureau for Economic Research (BER), fell by 19 index points to 48.
”The sharp fall in business confidence … reflects a deepening slowdown in business volumes, profitability coming under pressure, as well as increased economic and political certainty,” the sponsors said in a statement.
The survey found that interest rates, tighter credit lending rules, an electricity shortage and higher inflation all affected business volumes.
The Reserve Bank raised interest rates by 400 basis points between June 2006 and December 2007 in an effort to arrest CPIX (consumer inflation less mortgage costs), which galloped further away from the upper end of a 3% to 6% percent target band to 8,8% year-on-year in January.
Rules governing the issuing of loans were also tightened in June last year to curb heavy household indebtedness.
South Africa has experienced power cuts since January, when some of the country’s biggest mines were forced to close down for five days. State-owned power firm Eskom has said the electricity shortage would last until 2013.
”[The blackouts] might have forced business to put contingency plans in place and reconsider expansion and the upgrade of plants,” RMB and BER said.
The confidence survey was the first conducted after the ruling African National Congress’s conference in December at which Jacob Zuma — who is facing corruption charges and enjoys wide support from unions and communists — was elected new party president.
”The leadership change has increased uncertainty about the direction economic policies will take in future,” RMB/BER said.
The percentage of manufacturers who rated the political climate as a constraint rose to 49%, from 34% previously. The sponsors said the survey pointed to slower economic growth this year.
The economy grew 5,1% last year, according to preliminary data from Statistics South Africa, down from a near-three decade high of 5,4% in 2006. The National Treasury says growth will slow further to 4% in 2008. — Reuters