/ 14 July 2023

Durban business confidence declines again

N3 Trucks
The remains of a truck that was torched on the N4. Photos: SAPS

Business confidence in Durban, which deteriorated on the back of repeat floods, the July 2021 riots and load-shedding, is expected to take a further knock after the torching of heavy-duty trucks on the N3 and N2 in KwaZulu-Natal this week.

This was among the findings of the Durban Business Confidence Index (BCI) for the second quarter of 2023, released by the macroeconomics research unit at the University of KwaZulu-Natal in collaboration with the Durban Chamber of Commerce and Industry on Friday.

According to the latest BCI, which uses survey data collected from managers in the private sector in the eThekwini metro, confidence slid to 37.28 in the second quarter from 43.27 in the previous quarter.

This is a second consecutive decline of the index following a dip in business confidence from 44.04 in the fourth quarter of 2022.

The index ranges from zero to 100. If it is less than 50, it implies pessimism regarding current and future economic prospects and a reading greater than 50 denotes optimism.

“The downward trend of the Durban business confidence index mirrors the overall national business confidence, which has been declining for five consecutive quarters. The Durban business confidence index, however, remains higher than the national average, which stands at 27 index points,” the BCI report noted.

The decline can be attributed to factors such as load-shedding, public policy uncertainties, the breakdown in diplomatic relations between the United States and South Africa over Russia and weak economic performance, including lacklustre growth, cost pressures and continuous interest rate increases, the report said.

Confidence in the financial sector steadily declined from 37.73 in the first quarter of 2023 to 35.22 in the second quarter.

“This decline can be attributed to the challenging economic and financial conditions prevailing in both domestic and global economies. Central banks worldwide, including the South African Reserve Bank, have been implementing tight monetary policies in an attempt to mitigate the escalating cost of living,” the report said.

Community, social and personal services fell from 46.51 in the first quarter of 2023 to 39.96 in the second quarter.

But business confidence in manufacturing bucked the national trend, growing from 30.8% to 34.75% for the period, which the report said was probably attributable to the recent short-lived “enhancements in the country’s electricity supply”.

“It is noteworthy, however, that the improved business confidence in this sector remains significantly below the normal level. This could be explained by rising costs (primarily due to increasing interest rates) and lower-than-expected activity due to the ongoing electricity shortages,” it added.

The transport, storage and communication sector experienced a drop in business confidence from 66.88 index points in the first quarter of 2023 to 44.51 in the second quarter.

“This decrease can primarily be attributed to escalating fuel costs, uncertainties stemming from the looting incidents in the province of KwaZulu-Natal (in July 2021), and the recurrent natural disasters (floods in April 2022 and in June 2023) affecting the province, particularly Durban.”

The BCI added that the torching of 21 trucks on national freeways in KwaZulu-Natal, Mpumalanga and Limpopo this week would further affect business confidence. It is estimated that trucks transport nearly two-thirds of total freight weight and about three-quarters of total freight value in the country.

“The recent torching of heavy-duty trucks in KwaZulu-Natal and other provinces is expected to have a further depressing effect on the transport, storage and communication sector,” the BCI said.

It said the reports of trucks being set on fire were highly likely to have an adverse effect on overall business confidence, not just in Durban and the rest of KwaZulu-Natal, but across the country.

“Given the below-normal and declining business confidence in Durban and South Africa, the news of heavy-duty trucks being torched will further worsen the business confidence levels, which may have negative effects on investment, employment and growth.

“KwaZulu-Natal is yet to fully recover from the devastating floods that hit

Durban in April 2022. This is the most devastating disaster that has ever hit the

province in terms of loss of life, infrastructure damage and economic impact,” the report said.

“In addition, the continued electricity shortage, and the 27 June 2023 ‘tornado’ that hit parts of Inanda in Durban, damaging water pipelines, power lines and property, have further caused a major setback in the recovery process.”

Prolonged power outages continued to exert cost pressure on businesses which were forced to install solar power, uninterrupted power supply units and large-scale generators, it noted.

“Furthermore, the high inflation arising from commodity prices; housing and utilities; transportation; cost of production; miscellaneous goods and services and electricity prices, as well as the high interest rates and the instability of the rand/US dollar exchange rates, are adversely affecting Durban’s economy through an increase in the cost of living and investment.”