21 Aug 2018

Business confidence update: sharp rise mirrors the perceived substantial reduction in political uncertainty in South Africa

Annabel Bishop

Chief Economist

Figure 1: RMB/BER confidence index
  • The RMB/BER business confidence index (BCI) rose to 45 in Q1.18 from 34 in Q4.17. The survey was taken between 29th January and 5th of March 2018, and so captures the sharp subsidence in perceived political and policy uncertainty on Cyril Ramaphosa becoming President of the ANC, then SA. TheSONA and Budget following shortly thereafter also boosted confidence, as the Budget was seen to dojust enough to stave off the immediate threat of a Moody’s downgrade.
  • The BCI rose by 11 points, a rare occurrence, with the BER identifying that another such jump in Q2.18, should it occur, would indicate that economic growth gained traction. However, the index still remains below the key neutral level of 50, indicating that 55% of businesses surveyed still find conditions unsatisfactory. This means there is more work to be done to boost the investment climate.
  • Indeed, business confidence tends to lead fixed investment and GDP growth. President Ramaphosarecognises this relationship, consequently planning an Investment Summit within the next couple of months to interact with local and foreign investors on key issues to promote investment in South Africa.
  • The outcome of Q1.18’s BCI was held back by confidence levels still below 50 in the retail, building and manufacturing sectors. The perceived improved political situation is the key determinant for the rise in confidence readings across all sectors surveyed, and is the reason expectations of future conditions reached exuberant levels. However, the survey showed actual business conditions remain depressed.
  • The BER notes the larger than normal gap between actual conditions and expected future activity level is normal in the early stages of an upswing. Faster economic growth is likely for SA this year compared to 2017. However, confidence is still fragile and the uncertainty surrounding proposed expropriation without compensation (EWC) will likely have had an impact on the reading, as it remains unclear exactly what will be expropriated.
Figure 2: GDP vs. BCI: Business Confidence leads growth