Turnaround hopes dim

2012-11-08 00:00

THE strong economic turnaround for 2013 that businesses have been hoping for is in jeopardy, according to the South African Chamber of Commerce and Industry (Sacci), which yesterday released its Business Confidence Index (BCI) for October.

The BCI came in at 92 points, compared with 91,7 in September 2012 and 97,5 in October last year.

Sacci CEO Neren Rau told The Witness that the BCI represented a “really disappointing performance” and that a turnaround in the BCI in the last two months of the year was unlikely.

The BCI is a composite index that takes into account 13 key macro-economic indicators that affect the decisions made by businesses.

“The decent start to 2013 is at risk. Businesses and consumers, together with the government and labour, need to help turn around the situation. Belts may now have to be tightened even further in the new year if the situation does not improve.

“We need national domestic savings to increase. We need businesses to invest in their operations, even though this will be a hard sell to shareholders. We will look toward labour to increase its productivity,” Rau said.

He expressed concern at the fact that the BCI was only a whisker away from its historic 12-year-low of 90,9, which was recorded in July 2012.

Rau said that although the deterioration in the BCI in 2012 reflected the weak international environment, the domestic environment left much to be desired. “Unfortunately, the domestic economy is weighing heavily, especially labour uncertainty.”

There has also been concern over the ballooning trade deficit, which has come about as a result of export growth failing to keep up with import growth.

“It shows that we are not churning as an economy. Although imports are growing, they are not growing that quickly. It is a warning that there is weak domestic economic activity. On the other hand, exports need to improve. Companies need to find new markets, despite the global recession,” he said.

On a positive note, the BCI revealed that the retail sector remained resilient. The retail and new vehicle sales sub-indices were positive on a month-on-month and annualised basis.

Rau said this was a positive sign ahead of the festive season.

 

COMPANIES continued to hoard cash on the back of political and economic concerns in South Africa, according to Ian Ferguson, head of cash solutions at Nedgroup Investments.

He said yesterday that Reserve Bank figures showed record cash balances held by the private non-financial corporate sector.

However, he warned that with historically low interest rates and corporate balances in South Africa increasing, it was crucial for companies to ensure that they used their cash balances effectively by selecting the investment vehicle best suited to their individual profile.

Ferguson added that corporate cash piling was counter-intuitive, considering that interest rates are wallowing at near 40-year lows.

“An astounding R549 billion was sitting on the balance sheets of such corporates at the end of August 2012, representing an increase of 14% over the last year — double the growth rate of overall deposits,” he said.

“The decision by South African corporates to build their cash to such levels appears to be driven by a number of factors — including delayed investment in projects and expansions.

“Political instability, unclear policies and labour unrest have all contributed to an uncertain environment for business, which has made planning and forecasting difficult for corporates.” — BE.

 

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