The South African Chamber of Commerce and Industry (Sacci) Business Confidence Index (BCI) increased to 94.5 index points in January, in line with the slow upward pace seen over the last few months.

The BCI measured 94.3 index points in December, which was 0.9 index points higher than in November.

However, with base year 2015 at 100 index points, the 2020 average of 86.5 was the lowest yearly level for the BCI since its inception in 1985. During the economic sanctions period of the 1980s, the 1985 BCI measured the second lowest average of 91.5, followed by the average of 92.6 in 2019. The highest yearly average for the BCI was recorded in 2006 at 137.5. 

Meanwhile, the positive month-on-month contributions to the January BCI were mainly attributable to real economic activity (66%), while the financial environment made a 34% positive month-on-month impact, Sacci said in a statement on February 10.

The conducive financial environment made more of a contribution (104%) to the 2.3 index point year-on-year improvement of the BCI in January than negative (-4%) real economic activity impacted on the business climate in January.

The lockdown had a stifling effect on physical economic activity and output, with a concomitant effect on employment in the formal and informal sectors, and the short-term movements of increased merchandise import volumes and real retail trade made significant positive impacts on January's business climate compared with December, Sacci said.

However, it lamented that the most negative short-term effect on the business mood came from less merchandise export volumes and less new vehicles sold in January than in December.

Lower inflation and interest rates largely helped the business mood improve on a year ago, while merchandise export volumes also made a lesser but valuable positive contribution to the business mood.

“Notably the rand exchange rate against the major investment and trading currencies of the world, as well as retail trade volumes had a negative effect on business confidence if compared to January 2020.”

In the International Monetary Fund’s January update of the World Economic Outlook (WEO), South Africa’s growth was revised lower by 0.2 percentage points to 2.8% for 2021 and 0.1 of a percentage point lower to 1.4% for 2022.

This after South Africa’s estimated output contracted by 7.5% in 2020. 

It is in this context that Sacci said the upcoming National Budget for 2021/22 will be a “watershed event” to pay urgent attention to medium term corrections and adjustments of public sector finances.

“Read together with the upcoming State of the Nation Address, it will be important to note if decisions that reflect on the realism of the Minister of Finance find their way into the Budget and overall policy direction,” the chamber commented.

It further suggested that South Africa now finds itself in a “fiscal logjam” and, therefore, it has “become essential to prioritise economic restoration in an unbiased way and simultaneously attend to the health hazard of Covid-19”.

The successful application of a viable vaccine appears to have become critical in addressing the Covid-19 risks and ensure the survival of the economy, Sacci said.