Cape Town - Only four in ten respondents in the latest RMB/BER Business Confidence Index (BCI) were satisfied with business conditions.
The index, which was released on Wednesday, rose by 10 points to 42 in the third quarter after falling for seven consecutive quarters. The BCI still remains in net negative, therefore "pessimistic terrain", RMB pointed out in the index report.
At the same time, the SA Chamber of Commerce & Industry (Sacci) also released its latest business confidence index - for August - on Wednesday.
The Sacci Business Confidence Index (BCI) for August 2016 declined from the 96 recorded in July 2016 to 92.9 in August. This level represents a decline of 3.1 index points from last month's Sacci BCI and was 4.7 index points lower than in August 2015.
The RMB/BER BCI report explained that one should keep in mind that the rebound seen in the index level was not supported by a broadly based improvement in underlying business indicators. On top of that, most of the respondents completed the questionnaires after the local elections, but before recent political uncertainty due to, among other factors, renewed questions about the future of Finance Minister Pravin Gordhan.
"The latest jump in the RMB/BER BCI is encouraging, not only because of its full 10 index points rise, but also because confidence increased in each of the five sectors surveyed. Historically, such an outcome often signalled the start of a business cycle upswing," explained RMB.
Yet, RMB is hesitant to draw such a conclusion this time around.
The survey covered 2 900 senior executives in the building, manufacturing, retail, wholesale and motor trade sectors.
"While the rise in the BCI was widespread, the improvement in underlying business indicators was not. Also, in the sectors where conditions did improve, the rebound was not sufficiently robust to confidently conclude we are witnessing the start of a new cyclical upturn," it explained.
"With the recovery in sentiment not being rooted in solid ground, a continuation of the current domestic political uncertainty, or renewed adverse international political or economic developments could easily see business confidence falter again."
On Tuesday Statistics SA announced that, after contracting by 1.2% in the first quarter, growth in real GDP accelerated to an annualised rate of 3.3% in the second quarter.
"We would not take the latest BCI results to mean this pace of growth was sustained in the third quarter," cautioned RMB.
Factors which boosted business sentiment during the RMB/BER survey period included the stronger rand, lower petrol price, lower inflation in general, and a reduction in the likelihood of further interest rate hikes. The successful conclusion of the local government elections without major disrupting violence and in what is regarded as a fair manner likely also contributed to sentiment.
Other likely contributing factors supporting confidence in certain sectors were rising business activity and profitability.
Retail confidence recovered to 43 index points after falling from 44 to 26 in the second quarter. According to RMB this jump was almost entirely the result of a sharp improvement in the mood of retailers of non-durable goods like food and groceries.
"While basic necessities have become more expensive, relative to semi-durable and durable goods they are still more affordable. It is also true that retailers of basic necessities are not exposed to the new - and more onerous - regulations that clothing and furniture retailers, for example, must now comply with when granting in-store credit," said RMB.
Thanks to decent growth in sales volumes, confidence among wholesalers increased by nine index points to 56 after a three point decline from 50 to 47 in the second quarter.
After fluctuating around a very low level of 20 during the first half of 2016, confidence among manufacturers recovered to 30.
"While production stagnated and domestic sales volumes continued to contract, export sales improved somewhat, helped along with the lagged effect of earlier periods of rand weakness. Encouragingly, exporters expect conditions to continue improving in the fourth quarter," said RMB.
Building confidence rose to 44 after a five point decline to 38 in the second quarter.
According to RMB, the rise was solely due to an improvement in sentiment among residential building contractors, where profitability remained under pressure, but less so than before. Non-residential building activity remained weak.
The August picture
Events beyond normal economic activity and business matters disrupted the turnaround in June and July 2016, according to Sacci.
"There was more negativity in the real business environment in August 2016 compared to July 2016 where five of the seven real sub-indices either declined or remained unchanged month-on-month. The month-on-month financial climate also became more uncertain with five of the six financial sub-indices remaining unchanged or declining in August 2016," said Sacci.
"The annual BCI comparison in August 2016 suggests an even tighter economic and business climate as eleven of the thirteen sub-indices were in the red."
Sacci said the "benign" monthly positive contributions to the BCI mainly came from the number of new vehicles sold and consumer inflation excluding petrol, food and non-alcoholic beverage. Merchandise export and import volumes, and real retail sales had the largest negative month-on-month effects in August 2016.
The largest negative year-on-year contribution to the BCI came from merchandise import volumes, followed by merchandise export volumes and real financing costs. A marginal positive impact to the business climate compared to August 2015 came from the dollar gold and platinum prices and manufacturing output.
"During August 2016, South Africa experienced non-economic and non-business events that affected the business climate both negatively and positively. Although the economy remained under pressure and its performance was subdued, there were economic developments that could positively contribute to setting the economy on a recovery path," said Sacci.
Like RMB, Sacci also named the conducting of free and fair local government elections as having enhanced the economic and business climate.
"Sentiment surrounding important financial institutions like the Treasury and the SA Reserve Bank, however, had a negative effect on short-term developments in the financial markets," said Sacci.
"In order to promote a sound economic and business climate, it is imperative to resolve intrigues that could hamper capital accumulation, growth and employment creation. Certainty on policy direction as a key element of business confidence should be re-established."