SA business confidence at highest level in three years

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May 2021's business confidence levels climbed to 97 points.
May 2021's business confidence levels climbed to 97 points.
  • May's business confidence levels reached 97 points, the highest level recorded since March 2018 when the index was at 97.6.
  • The positive business climate was fuelled in part by stronger exports, according to the South African Chamber of Commerce and Industry.
  • But constrained retail sales, slower credit extension, uncertain electricity supply and fewer plans for new buildings are negatively impacting the business climate.

Business confidence climbed to its highest level in three years, data from the South African Chamber of Commerce and Industry (Sacci) show.

Sacci on Wednesday released the business confidence index for May, which ticked up to 97 points from 94.7 previously. This is the highest level recorded since March 2018, when the business confidence index recorded 97.6 points.

Business confidence has been on a recovery path since harsh lockdown level 5 restrictions were implemented in March 2020 to slow the spread of Covid-19. Confidence levels hit a low of 70 points in May 2020 but have since climbed up to the mid-1990s.

Business confidence levels have been climbing sinc
Business confidence levels have been climbing since bottoming out at 70 points in May 2020. Chart: Sacci

Sacci attributed improvements to confidence in part to an increase in export volumes, and high prices for commodities.

In addition, rand strength, supported by the trade surplus, is counteracting rising oil prices.

"South Africa's export-led recovery should give room to address some of the structural deficiencies in the economy," the report read. Sacci flagged unemployment as an ongoing major concern to be addressed.

Constrained real retail sales, slower real credit extension, uncertain energy supply and fewer plans for new buildings are negatively impacting the business climate, compared to a year ago.

Sacci said the "tight financial situation" of many businesses can have a "real adverse" outcome for many small businesses and households. Citing the South African Reserve Bank's financial stability review, Sacci said that high household and public sector debt levels could impact the pace of economic recovery.

Noting expectations of an economic recovery following the contraction of 7% last year, Sacci highlighted that the economy may only reach pre-pandemic levels in 2023. The World Bank recently revised the 2021 growth outlook for South Africa from 3.3% to 3.5%. Domestically, economists are pencilling in growth close to 5% as first quarter GDP surprised on the upside. 

However, uncertainty of possible lockdowns and the vaccination process for Covid-19 will weigh heavy on economic activity and the normalisation of the business climate, Sacci said. "It remains important to continue to assure investors that South Africa remains an attractive investment destination."

Second quarter confidence

The RMB/BER business confidence index was also released on Tuesday, which similarly showed an improvement in sentiment. The survey covers 1 300 business people across the building, manufacturing, retail, wholesale and motor trade sectors. Outcomes show confidence levels picked up across all five sectors.

The RMB/BER reading climbed from 35 to 50 points - this means the number of respondents satisfied with prevailing business conditions equal those which are not satisfied, an outcome which has not been seen in years. Business confidence is higher than pre-Covid-19 levels, the report indicated.

"Still, however encouraging the improvement in sentiment is, uncertainties remain," the report read. Some risks highlighted include fast-spreading third wave of infections that warrant additional lockdown restrictions, load shedding and possible industrial action.

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