Business confidence riding high

8 October 2004

South African business confidence is soaring, with the highest level ever recorded in the first month of spring. That’s according to the South African Chamber of Business (Sacob), which says confidence is being boosted by strong consumer spending and low interest rates.

Sacob’s business confidence index reached 130.9 points in September, up from 127.8 points in August. The chamber says the lift reflects business attitudes to the structural changes in the country’s economy.

Low inflation, record low interest rates, and a stable rand have all boosted business prospects, Business Day reports.

Increased consumer spending is reflected in the latest retail sales figures released by Statistics South Africa. Retail sales rocketed 11.7% in July from the same month in 2003 – the biggest year-on-year increase on record.

However, Sacob says not everything has escaped the winter economic chill. Production is still held back by a weak export sector, with a deficit in the trade account of R5.5-billion in the second quarter of 2004. According to Business Day, it’s South Africa’s first deficit in 22 years.

Business confidence keeps climbing
Business confidence in the country has been buoyant for some time. In the second quarter of 2004 it rose to its highest level in 15 years, according to the Rand Merchant Bank/ Bureau for Economic Research (RMB/BER) Business Confidence Index.

The index increased from 69 to 71 index points in June – its fourth successive quarterly rise – reaching its highest level since the first quarter of 1989.

The BER and RMB said at the time that the increase boded well for South Africa’s economic growth for the remainder of the year. According to Statistics SA’s GDP numbers, economic growth accelerated from 1.3% during the fourth quarter of 2003 to 3.3% during the first quarter of 2004.

SA businesses doubly bullish
SA businesses are ready to take on the future. A recent survey finds local business owners more than twice as confident about their economic prospects as they were last year – and the fourth most optimistic in the world.

The survey results “confirm that the manufacturing sector has turned the corner for the better”, RMB chief economist Rudolf Gouws said in a statement. “With activity remaining lively in the retail, wholesale, new vehicle trade, building and construction sectors, strong domestic and external demand are increasingly feeding through to production.”

Confidence, Gouws said, “has now clearly recovered from the dip brought about by the 2002 interest rate hikes and the problems created for parts of the economy by the sharp rise in the rand in 2003”.

The BER and RMB attributed SA’s business confidence high to political and economic stability since the previous survey.

“The peaceful run-up to and smooth conduct of the national election on 14 April, and the President’s and ministers’ subsequent announcements of plans to boost economic growth through, among others, infrastructure development, job creation and support to small and medium-sized enterprises, shored up business confidence”, the BER/RMB said.

“The boost to national pride following from South Africa’s winning of the right to host the World Cup Soccer tournament in 2010 may also have underpinned business confidence.”

Other contributing factors were strong domestic demand, some recovery in manufacturing output, and greater stability in the rand, with further property price increases playing an additional indirect role.

“On the other hand, the sharp increase in the domestic fuel price would have weighed on business confidence, and may take a further toll going forward.”

Sectors
Business confidence increased in four of the five sectors covered by the BER/RMB survey, rising marginally further in building and manufacturing, and substantially in retail and wholesale trade.

New vehicle trade was the only sector in which business confidence declined in the second quarter, though it remained “well within net positive terrain”, the BER/RMB reported.

Retail and wholesale trade
A large rebound in sales of food and groceries shored up the confidence levels of retailers of non-durable goods. “The relatively subdued price increase of food and groceries, and increase in social grants, are two of a number of factors that probably added to the more lively growth in food and grocery sales”, Gouws said.

In contrast, sales of household furniture, appliances and electronic equipment eased substantially from its heady rates of the last quarter of 2003 and first quarter of 2004. Although sales of clothing, footwear and textiles also edged lower, it nevertheless remained relatively lively during the second quarter.

Building & construction
According the survey, interest rate cuts in 2003 and unceasing increases in property prices continued to underpin residential and non-residential building activity, which increased at an even higher rate in the second quarter than in the first – boosting building contractor confidence to 78 from an already high level of 74.

Manufacturing
The confidence levels of manufacturers also increased further, in tandem with a growth in manufacturing production made possible by higher domestic sales and some recovery in export sales.

“At 58, confidence levels of the manufacturing sector remains the lowest of the sectors surveyed”, the BER/RMB noted, “but it has now been in net positive terrain for two consecutive quarters – a far cry from the negative mood that prevailed in this sector for most of last year”.

Motor trade
Although new vehicle dealer confidence declined sharply to 66 index points in the second quarter, it nevertheless remained well within net positive territory during the second quarter.

“We do not know what led to the fall in vehicle dealers’ confidence, as one would have expected confidence to remain at its previous high level given the continued, unprecedented strong growth in sales”, Gouws said.

“One possible reason for the decline in confidence is that sales of some makes dropped off because of the unavailability of stocks. Another reason – according to some dealers – is that some customers are postponing their purchases of new vehicles in anticipation of lower prices following the Competition Commission’s inquiry into vehicle prices.”

The BER/RMB second quarter survey was conducted between 17 May and 8 June 2004, covering 2 952 regular participating business executives in manufacturing, retail, wholesale, motor trade, building and construction.

SouthAfrica.info reporter