More than 70% SA businesses unsatisfied with current conditions - survey

South African business confidence remained pessimistic during the second quarter of 2019, according to the Bureau for Economic Research.

More than seven out of 10 businesses indicated that they are unsatisfied with prevailing operating conditions.

The Rand Merchant Bank (RMB)/BER Business Confidence Index (CCI) was unchanged from the first quarter at a reading of 28. According to Lullu Krugel, PwC Strategy & Chief Economist for Africa, and Christie Viljoen, PwC Strategy & Economist, this is significantly lower than the break-even level - between positive and negative sentiment - of 50.

Like 2008 crisis

Krugel and Viljoen said the BER has indicated that sentiment has seldom been this negative since the global financial crisis.

According to the BER, improvements in the building, retail and wholesale environments were offset by deteriorated sentiment amongst manufacturers and retailers of new vehicles.

Building confidence increased by seven index points to a still-weak reading of 30. According to Krugel and Viljoen, this reflects the scarcity of new work available to builders.

They point out that several of SA's large construction companies have filed for bankruptcy over the past year.


"Builders are planning to trim their workforce going forward after the construction industry already shed 142 000 jobs in the first quarter of 2019 – a decline of nearly 10% compared to the fourth quarter of 2018," Krugel said in a statement.
"Retail and wholesale confidence both improved but remained in negative territory due to weak sales volumes across the spectrum."

Viljoen pointed out that Statistics South Africa reported on June 12 that real retail sales declined by 0.3% in February to April compared to the previous three-month period.

In the second quarter of 2019 manufacturing confidence declined to its lowest level since late-2017. Statistics South Africa reported on June 11 that local manufacturing production declined by 1.1% in February to April compared to the previous three-month period.

Krugel and Viljoen also mention in their joint statement that the Absa Purchasing Managers' Index (PMI) for May 2019 reported that, despite a recent decline in production prices, factory output has certainly not impressed this year so far.

Possibly worse

"Soft domestic demand for manufactured goods and producers reducing their inventories have weighed on manufacturing activity. In turn, the value of new and used vehicle sales declined by 2.5% in the first quarter of 2019 compared to the previous three-month period," said Krugel.

Viljoen pointed out that the survey for the latest edition of the BCI was conducted before the release of disappointing gross domestic product (GDP) data in early June. In his view, business sentiment would likely have been worse if measured after the economic data was published.

To him this suggests that, heading into the third quarter, there is very little in the way of economic data that could stimulate business confidence.

Krugel added that, from a political perspective, the appointment of a new Cabinet and the upcoming State of the Nation Address (SONA) will refine businesses' sentiment towards where the economy is going as the year progresses. Nonetheless, policy uncertainty will continue to haunt the private sector in general, in the view of Krugel and Viljoen.

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