South African business mood at one-year low, but there are green shoots

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Photo: iStock
Photo: iStock

South African business sentiment dropped to a one-year low in September as economic activity, hamstrung by restrictions to curb the coronavirus pandemic and deadly riots in July, continues to normalise. 

A confidence index compiled by the South African Chamber of Commerce and Industry dropped to 91 from 91.9 in August, the group known as Sacci said Monday in an emailed statement. While that’s the lowest since September 2020, the average for the first nine-months of the year is 9.8 index points higher than a year earlier. 

“The present business climate appears to have leveled out with the business confidence index, maintaining pre-Covid-19 levels,” it said. “Compared to a year ago when the business climate was still on its initial recovery path, the September 2021 level of the business confidence index reflects a much improved business climate despite the lagged effects of the July 2021 disruptions.”

While the country continues to benefit from a windfall as result of high international commodity prices, it is “imperative” that output expands by more than 3% a year, it said. The central bank expects the economy to contract 1.2% in the third quarter - partly due to the worst civil unrest since the 1994 end of White-minority rule - and for growth to average 5.3% in 2021, a sharp recovery from last year, when output fell the most in almost three decades. 

The riots, looting and arson quelled positive momentum in the economy and destroyed fixed capital assets and inventory, which will now have to be rebuilt, Sacci said. With the “dire need for capital” to finance fixed investment - both in the public and private sectors - hinging on short-term shifts in business sentiment, investors will be looking to Finance Minister Enoch Godongwana’s medium-term budget for direction, it said.   

“Clear, consistent and investment friendly economic policy certainty as well as the application thereof, is critical to convince both local and foreign investors of a reasonable return on investment,” the chamber said

The budget, scheduled for November 4, is likely to show an improvement in key metrics, after changes to the way gross domestic product is calculated resulted in the economy being bigger than previously estimated. 

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