The spectre of load shedding in South Africa led to business confidence continuing to deteriorate in the first quarter of 2023, while the manufacturing sector is on its knees.
The RMB/BER Business Confidence Index (BCI), released yesterday, declined further from 38 in the fourth quarter to 36 in the first quarter of 2023.
Annabel Bishop, the chief economist at Investec, said, “Overall business confidence continued its downward slide as load shedding intensified, with whistle-blower reports of the high levels of corruption and sabotage to Eskom’s operations and so electricity producing capacity, not as yet a stated, serious concern of the state, itself depressing confidence for businesses in the future operating environment.”
However, at risk is jobs and the deindustrialisation of the country as the index showed manufacturing confidence crashed by 9 points to 17 in the first quarter.
RMB/BER said, “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.
“Fixed investment to expand existing production capacity also suffered as demand weakened and capital expenditure budgets were increasingly absorbed by alternative energy generation measures,” it said.
Bishop said, “This means virtually all manufacturers represented here are expiring probability issues, which is negative for job creation and as well as continued staff employment, if not the ability of the operations themselves to survive.”
Bishop said such a low reading was an unusual outcome.
“It strongly highlights the deteriorated business operating conditions for manufacturers, but also highlights high risk of further deindustrialisation of South Africa. This is a severely negative outcome for South Africa, with the manufacturing sector typically providing better paid jobs than in the retail, wholesale and vehicle sales sectors, although these three industries are also showing business conditions are weak,” she said.
Retail confidence also fell sharply from 42 to 34.
Taking less strain was the confidence of building contractors, which declined marginally from 46 to 43.
RMB/BER said strikingly, if it considered sub-contractors – particularly electricians – confidence and activity in the overall building sector rose massively thanks largely to the installation of backup power.
Meanwhile, yesterday the rand plummeted to a three-year low against the dollar.
By 5pm it was at R18.51, 9 cents weaker than the previous day at the same time.
Sanisha Packirisamy, an economist at Momentum Investments, said the rand (against the dollar) was trading much weaker than its fair value, which Momentum sees this at R17.50.
She said the rand was weak due to recent comments from the US Federal Reserve’s Jerome Powell that the hiking cycle might be extended and interest rates may peak at a higher level due to ongoing inflationary pressures and a reasonably resilient economy.
There were also lingering recession risks in the global economy.
Packirisamy also said the rand was affected by South African-specific issues.
Load shedding was crippling growth and confidence, while the country’s greylisting had added to concerns over foreign bond and equity flows into South Africa and lingering political risks in the run-up to the 2024 national elections
Furthermore, the Cabinet reshuffle had resulted in a number of underperforming ministers retaining their positions in key portfolios pivotal to the economic trajectory for South Africa, while the legal cases against President Cyril Ramaphosa left a risk of his early departure before the 2024 elections
“We have experienced significant outflows (from foreigners) in the SA bond market in February leaving the currency weaker,” she said.
BUSINESS REPORT