Durban business leaders have expressed a slight uptick in confidence in the economy, with sectors such as manufacturing and wholesale and retail contributing significantly to the improvement. (Photo by Hoberman Collection/Universal Images Group via Getty Images)
Durban business leaders have expressed a slight uptick in confidence in the economy, with sectors such as manufacturing and wholesale and retail contributing significantly to the improvement.
But confidence remains anaemic on the whole, with businesses remaining concerned about the poor delivery of services, especially regarding electricity, water, public safety and the environment, including solid waste removal.
The Durban Business Confidence Index (BCI) released by the macroeconomics research unit at the University of KwaZulu-Natal this week shows a rise of 0.3 index points from 38.12 in the fourth quarter of 2023 to 38.42 in the first quarter of this year.
“Business confidence in Durban remains slightly above the national business confidence, which registered a decline in the first quarter of 2024,” the report said.
The BCI is a measure of the present mood or sentiment of business people in conducting their day-to-day business in the greater eThekwini municipality. The index ranges from 0 to 100, where values of 0 and 100 represent a complete lack of confidence and full confidence, respectively, in the Durban economy, while 50 indicates that the business situation is normal or neutral.
Nationally, the business confidence index dropped for the second consecutive quarter in Q1 2024 to 30 from 31 in the fourth quarter last year.
“The persistently low confidence at both the national and Durban levels is concerning. While the national and Durban’s figures differ, they both indicate that at least six out of 10 people surveyed had no confidence in the economy. The low index at both national and Durban city levels is not surprising, especially because of the upcoming elections scheduled for 29 May,” the report said.
“Elections are typically associated with policy and economic uncertainty. Thus, investors tend to be sceptical about the economy until certainty is re-established.”
The overall index masks significant differences in confidence levels across sectors in Durban.
Community, social and personal services experienced a sizable increase in confidence from 26.52 index points in the fourth quarter of 2023 to 35.05 points in the first quarter of 2024, but on an annual basis, this sector’s index declined 24.6%.
Confidence in the manufacturing sector rose from 33.08 in the fourth quarter to 39.83 index points in the first quarter of 2024, a 20% increase which the report said demonstrated the resilience of the sector. On a year-on-year basis, the manufacturing sector in Durban also recorded a 29% improvement in business confidence.
“These improvements may be attributed to positive strides in electricity supply, which has long troubled the country’s economic prospects,” the report said.
“The stabilisation of interest rates, with a strong likelihood for a decrease towards the end of the year, along with the relatively stronger rand, could also explain the improved confidence in the manufacturing sector.”
Wholesale and retail trade, repair of motor vehicles, motorcycles, and personal and household goods, catering, and accommodation also significantly contributed to improved confidence. The sector’s confidence rose from 27.7 points in the fourth quarter of 2023 to 40.4 in the following quarter.
“This increase can be attributed to a slight decrease in prices combined with the stabilisation of interest rates. However, downside risks persist in this sector due to escalating energy prices, which could drive inflation up and consequently necessitate an interest rate hike,” said the report.
The electricity sector also recorded significant improvements, with confidence recorded at 39.83 in the first quarter of 2024, reflecting annual growth of 22%.
“This demonstrates confidence in the measures, among other things, to fix the country’s electricity supply shortages. The improvements in this sector could be a contributing factor to the confidence gains by other sectors as well,” the report said.
However, business leaders’ satisfaction with service delivery remains relatively low in Durban.
Among participants surveyed, 90.7% said if they or anyone else complained about poor service delivery, it was very unlikely that the relevant authorities would address the problem within a reasonable period, while only 9.3% were positive that the authorities would address the problem within a reasonable time frame.
Among perceptions of poor quality of services provided in Durban, electricity was the worst, at 34.9%, followed by water (20.9%), public safety (police, fire and ambulance) (16.3%), environment (sewerage, solid waste and parks) (16.3%) and roads (11.6%).
The report noted that the country’s GDP growth rate remains low, coming in at just 0.2% in the fourth quarter of 2023, although this was an improvement from the decline of 1% in the previous quarter.
“The improvement in the country’s real output growth, albeit marginal, may be attributed partly to a reduction in load-shedding hours,” the report said.
According to Eskom, load-shedding hours declined from 1 801.25 during the period December 2022 to February 2023 to 1 217.98 hours from December 2023 to February 2024. Load-shedding days declined to 57 from 78 for the same period.
“More needs to be done to minimise or even eliminate load shedding in the country. South Africa’s real GDP growth is expected to remain subdued in the first and second quarters of 2024, especially given the impending general elections, which are likely to put investors in a wait-and-see position,” the report said.
The report noted that the South African Reserve Bank’s repo rate, at which it lends to commercial banks, remained unchanged at 8.25% throughout the first quarter of 2024, while inflation rose from 5.1% in December 2023 to 5.6% in February 2024.
“While the repo rate is significantly above the rate of inflation, suggesting that a decrease rather than an increase in the repo rate is likely to happen, the recent upward pressure on inflation rates may explain the central bank’s reluctance to reduce interest rates,” it said.
In addition the rand lost 3.38% of its value against the United States dollar between January and March 2024, after a loss of 5.07% in the fourth quarter of 2023.
“A currency that is consistently depreciating against major trading currencies, such as the rand over the previous year, tends to adversely affect the local economy by increasing uncertainty and interest rates, inhibiting foreign direct investment and increasing inflation volatility,” the report noted.