After surging by 15 points to 50 in the second quarter, the RMB/BER Business Confidence index (BCI) retreated to 43 in the third quarter, taking it back into net negative terrain, where the number of respondents unsatisfied with prevailing business conditions outnumber those that are satisfied.
Given the variety of negative factors that affected sentiment in the quarter, RMB says this outcome is “unsurprising”, postulating that “things could easily have turned out even worse”.
The third-quarter survey was conducted between August 11 and 30, and involved about 1 300 businesspeople spread across the building, manufacturing, retail, wholesale and motor trade sectors.
Although it is not unusual for the RMB/BER BCI to decline after a strong surge, several confidence-sapping developments did aggravate the third-quarter decline. Standouts included the third wave of Covid-19 infections and the resultant stricter lockdown restrictions, as well as the unrest in KwaZulu-Natal and parts of Gauteng in July.
Additionally, respondents had to deal with transport disruptions, first arising because of the unrest and later because of a cyberattack that affected the Durban port’s operational system; shortages of inputs and insufficient final stocks related to supply chain interruptions more broadly, as well as higher-than-usual worker absenteeism owing to Covid infections and taxi violence in the Cape metro.
This is a long enough list to dampen anyone’s spirits, RMB says. It notes that, fortunately, however, there were some countervailing factors which ultimately limited the damage to “only” seven points.
Notable, in this respect, was the relief package announced by the government in the wake of the third Covid-19 wave of infections and the social unrest. Other positives included the wage settlement the National Treasury struck with civil servants; the ongoing mineral export boom (and the wider multiplier effects associated with it); and, encouragingly, on the policy front, the Department of Mineral Resources and Energy’s publication of amendments to Schedule 2 of the Electricity Regulation Act to give effect to the increase in the licensing-exemption threshold for embedded generation projects to 100 MW.
Without these, the third-quarter drop in confidence could easily have been even worse, RMB states, noting that, at an industry level, sentiment deteriorated across all the sectors making up the BCI, except for retail trade.
Retail confidence increased marginally from 54 in the second quarter to 56 in the third quarter. Not only does this figure exceed the long-term average of 39, but it is also the highest since 2014.
While sales of clothing and furniture deteriorated, those of food and hardware continued to do well.
The reinstatement of the R350 a month Social Relief of Distress grant in August is also considered to be a major positive that would have specifically boosted the sentiment of retailers of food and other non-durable goods, RMB says.
Similarly, wholesale confidence remained in net positive terrain, even though the index dropped from 63 to 55.
By contrast, new-vehicle dealer confidence declined by 16 points, taking the index all the way back below the neutral 50-point mark, to 47.
Vehicle sales disappointed some dealers, not so much because demand faltered, but rather because of the unavailability of certain models, and delays in the supply of new stock.
Manufacturing confidence receded from 46 to 41.
Transport and other supply chain disruptions resulting in a shortage of raw materials, escalating input costs (ranging from electricity, to steel to plastic), which various respondents could not recoup by lifting selling prices, as well as the looting in July, are all factors that contributed to weaker production, domestic as well as export sales and, ultimately, confidence.
Despite the five-point decline to 41, confidence in the third quarter was still at its highest level since 2016.
Of the five sectors making up the BCI, building is the one that continues to struggle the most, RMB laments, noting that confidence declined from 22 to 18, mainly owing to a continuous general lack of new residential and non-residential projects.
Overall, the unexpected shock of the social unrest and looting, combined with a variety of other negatives, knocked business confidence hard in the third quarter.
However, RMB says retail and wholesale trade confidence (which held up relatively well) cushioned the blow, while manufacturing confidence fell by only five points after the strong 21-point gain recorded in the second quarter.
“Thanks to this resilience, the adverse developments in the third quarter are likely to only deliver a temporary setback to what otherwise remains a cyclical economic recovery,” comments RMB chief economist Ettienne Le Roux.
He suggests that, importantly, to cement and invigorate the business cycle upswing, the government must not only build on the reform momentum already in progress, but should also deliver on the various other growth-boosting initiatives captured in the Economic Reconstruction and Recovery Plan.
“We trust this will happen sooner rather than later,” he adds.