Business confidence mostly flat

Johannesburg – The South African Chamber of Commerce says business conditions continue to remain muted for enterprises in the local economy, based on its latest index.

The Business Confidence Index for January, released on Thursday, shows a marginal improvement on December, coming in at 80 points. This is 0.4 points higher than December, but 9.3 points lower than a year ago. December’s confidence level was at a 20-year low.

In commentary attached to the index, the chamber notes the sub-indices’ January 2016 month-on-month changes were more encouraging than the changes in December 2015.

Also read: Business confidence at 20 yr low

“January 2016 saw five indices moving positive month-on-month, three remaining undecided and five turning negative. December had two positive sub-indices, six undecided and five in negative domain. Four real activity sub-indices and one financial sub-index contributed positively to the m/m BCI in January 2016.”

South Africa’s economy has been hard hit by an emerging market and commodity rout and a plunging rand, which hit a record low of almost R18 to the dollar in January.

In addition, consumers are under pressure with official inflation at 5.2 percent and the prime lending rate at 10.25 percent, following the Reserve Bank’s January decision to hike rates by 50 basis points.

SACCI adds, in addition to global economic misfortunes, South Africa experienced homegrown concerns that worsened the economic and business climate in South Africa as the domestic economy was plagued by several disruptions that prevented the economy performing better.

“Not only were the economy and its performance affected, but it also had a bearing on public finance and several public sector institutions and tiers of general government to deliver goods and services. The credit downgrade during December 2015 by credit rating agencies and the possibility of these agencies giving South African government bonds junk status, is a major cause for concern.”

SACCI notes, however, that the financial climate was slightly more favourable towards business in January 2016 than in December 2015.

This is as the volume of credit extension to the private sector picked up, although the other financial sub-indices weighed on the business climate, with notably higher real financing costs.

In October, the index recovered from a 22-year trough as it rose to 88.4 from 81.6 in September. November’s index came in lower, at 82.7, while December’s plunged to 79.6.

December was marred by President Jacob Zuma’s shock firing of finance minister Nhlanhla Nene, who was replaced by relative unknown Des van Rooyen. That decision was reversed a few days later after the rand plunged, and former finance minister Pravin Gordhan came back to lead the ministry.

SACCI says there was no positive year-on-year impact on the BCI that came from real economic activity in January 2016.

“ All thirteen sub-indices but for one sub-index, were negative with only lower core inflation (used as sub-index), making a positive year-on-year impact on the BCI. Inflationary expectations, however, could soon change the marginal positive inflationary environment.”

Inflation is expected to breach the upper range of the Reserve Bank’s target 3-6 percent bracket.

“SACCI admits there are no quick fixes to provide an instant panacea for longstanding structural challenges. It is, however, important that action be seen as credible, feasible and consistent in order to re-establish investor and business confidence.”