South African business confidence plummeted as load-shedding hammered economic activity during the first quarter of this year.
This is according to the latest Rand Merchant Bank/Bureau for Economic Research Business Confidence Index (BCI) which declined from 38 in the fourth quarter of 2022 to 36 in the first quarter of 2023.
“While the outcome could have been worse given the severity of power outages and the associated drop-off in business activity, the result is nonetheless disappointing. The business mood certainly remains gloomy,” BER economists said in a statement.
The first-quarter survey was conducted from February 8-27 and covered 1 050 senior executives in the building, manufacturing, retail, wholesale and motor trade sectors.
“Although confidence in manufacturing and consumer-facing retail nosedived, sentiment changed little in the case of building, and improved a bit, to admittedly still weak levels, in wholesale and new vehicle trade,” the BER noted in a statement.
Manufacturing confidence crashed by nine points to 17 in the first quarter.
“A level this low is rare, and it speaks to a sector that is bearing the brunt of the combined impact of intense load-shedding and dilapidated and poorly run logistic infrastructure. The deterioration in sentiment occurred across various sub-sectors, all of which shared a common feature in falling domestic sales and production,” the economists noted.
Fixed investment to expand existing production capacity also suffered as demand weakened and capital expenditure budgets were increasingly absorbed by alternative energy generation measures.
Retail confidence fell sharply from 42 to 34 as retailers could not escape the impact of load-shedding, which reduced trading hours and increased operating costs due to diesel generators having to run more often. Sales volumes worsened further across retailers of durable goods (such as furniture and electronics) and non-durable goods (food and beverages) while retailers of semi-durables (mainly clothing) saw a slight improvement in sales during the first quarter.
Confidence of building contractors declined marginally from 46 to 43.
However, in contrast, sub-contractors’, particularly electricians, confidence and activity in the overall building sector rose massively, largely to the installation of back-up power.
“At least for some, loadshedding seems to have a silver lining,” the BER economists said.
Wholesaler confidence rose from 37 to 40, while new-vehicle dealer confidence increased from 41 to 44, remaining below 50, which means most are unhappy with prevailing business conditions.
“In the first quarter, pervasive power outages coupled with deteriorating household income knocked manufacturing and retailer confidence hard. By contrast, sentiment among wholesalers and new vehicle dealers improved a little. The standout, however, was the BCI of contractors and sub-contractors combined, which surged to 49 in the first quarter. Even though this improvement does not reflect in the headline RMB/BER BCI result, the upsurge in the installation of renewable energy and other load-shedding mitigation measures is certainly a boon for the broadly defined building and civil construction sector,” said the economists.
However, they added that this thin silver lining attached to load-shedding should not distract from the “devastating blow” load-shedding and failing rail, road, and port infrastructure were inflicting on the economy.
“The urgent need of a united public- and private-sector effort to fix disruptive supply-side bottlenecks cannot be stressed enough.”
