RMB index shows low business confidence

2014-06-10 17:11

Business confidence remained low in the second quarter of the year according to the Business Confidence Index released by the Rand Merchant Bank (RMB) and the Bureau of Economic Research today.

According to the index, close to 60% of the respondents continued to be unhappy with prevailing business conditions and the index stayed unchanged at 41 points.

The index reflects the results of a survey conducted among 2 500 companies between May 5 and June 3.

“Events that could have influenced sentiment to various degrees in the second quarter were the platinum strike, which is now in its fifth month, other smaller strikes [sugar], as well as the threat of industrial action in the metals and engineering sector,” the index report said.

“Confidence might also have been impacted by spill-over effects from the country-wide power outage in March, the large number of public holidays in April and the national election [and subsequent new Cabinet appointments] in May.”

Although the business mood soured notably among manufacturers, and to a lesser extent among building contractors and wholesalers, the confidence of retailers and new vehicle dealers improved. The numbers, however, remained in net negative territory.

Investec economist Annabel Bishop said this poor reading is associated with an economy at risk of recession.

“Business confidence gives a good leading indication of the likelihood of expansion or contraction in the economy,” she said.

Bishop also pointed to increased state intervention, custodian ownership and control of the economy, with potential erosion of private sector property rights detailed in the Promotion and Protection of Investment Bill of 2013.

There has been controversy surrounding the bill, with concerns being raised that it could be a way for the government to expropriate land by holding it as a custodian. But the department of trade and industry has said the bill is a way to provide foreign property investors the same protection as local investors, thereby promoting investment.

“There is typically a substantial financial outlay to acquire ownership of property rights, and any increased risk to the returns, or ownership of the property rights, tends to increase costs, and so decrease the confidence of business to invest, expand and employ,” Bishop said.

The index also noted that there is also a more fundamental problem in constrained consumer demand and that the low points could well be reflective of an economy already in a technical recession.

Ettienne le Roux, chief economist at RMB, said the situation could change if the platinum sector strike ended.

“If the services sector, coupled with agriculture and construction, more or less maintain their first quarter growth momentum, a return to more normal conditions in the platinum industry would give the economy a kicker in the second half of the year,” he said.

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