/ 11 June 2024

Business confidence dips on the back policy uncertainty

Voting 6903 Dv
Business confidence fell in April and May, reflecting uncertainty about future policy ahead of the elections. (Delwyn Verasamy/M&G)

Business confidence fell in April and May, reflecting uncertainty about future policy ahead of the elections, and recovery rests on whether coalition talks among political parties result in a government that can take the struggling economy forward.

The South African Chamber of Commerce and Industry’s (Sacci) business confidence index (BCI) dipped by 1.1 index points to 107.8 in May after falling 5.8 points in April —  a cumulative decline of 6.9 points over the two months, according to a report released on Tuesday.

Sacci said uncertainty ahead of the 29 May national and provincial elections was the main driver of the retreat in business confidence. Prior to that, the BCI had been on an upward trend since November 2023, reaching a 114.7 in March, its highest level since January 2018.  

Pre-election polls showing that the ANC would lose its majority in the National Assembly for the first time in 30 years made businesses nervous about future policy, and this would persist until there was a clearer picture of who would govern the country at the conclusion of current talks among parties, Sacci chief executive Alan Mukoki said.

“A change in the political establishment may well entail uncertainty because you do not know who the new people are going to be and who the coalition partners are going to be,” he said.

“Given the volatility of the environment in South Africa, given the many different manifestos that we’ve seen — some being seen as more business friendly than the others — obviously that would impact people’s confidence in the South African economy.”

Mukoki said the uncertainty was likely to prevail for some time “until there is certainty of what’s going to happen at the National Assembly; whether the parties that emerge agree on what policy options for South Africa in terms of growing the economy, dealing with the issues of unemployment, of inequality etc”.

“We generally refer to this particular environment as the four horsemen of VUCA [volatility, uncertainty, complexity and ambiguity] that have entered the environment … that you now need to manage, additional to trying to run your business and trying to drive the investment around suppliers, customers, capital returns and all those particular bits and pieces,” he added.

On a month-on-month basis, three sub-indices — manufacturing, tourism inward and imports — negatively affected the business climate in May 2024, outweighing the three neutral and eight positive effects of the other sub-indices. 

According to Tuesday’s report, the decrease in overseas tourists and the decline in merchandise import volumes weighed on the BCI in May, while a moderate boost came from merchandise export volumes and new vehicle sales.

On a year-on-year basis, the BCI increased by 0.9 points, driven mostly by inward tourism. Improvements in the rand exchange rate had the largest positive year-on-year effect.

While noting these improvements, Sacci economist Richard Downing warned that “unwarranted” political developments may hurt sentiment.

“We will look at the economy and what’s needed to get the economy growing, because that’s the only way out. There’s no easy, populist way that we could get out of this quagmire that we found ourselves in at the moment,” he said.

“So it is a positive in the sense that it seems like there are some positive elements in the political system that understand this necessity for the economy to grow, create jobs and become more inclusive.

“But there are certain conditions that we must adhere to and one of them is to find the necessary capital investment into the South Africa economy because production is not possible without capital,” Downing added.

Downing said Sacci had noted with concern data from Statistics South Africa which showed that the economy contracted by 0.1% in the first quarter of 2024.

“The whole question of the moment is that political stability and policy certainty will be detrimental if not handled positively. There must be assurances that grows business and the investment sentiment grows in the months ahead and it is possible that the business confidence index could improve from present levels,” he said.