Persistent load shedding, high interest rates, and a weaker rand due to diplomatic relations have hit South Africa’s business confidence hard, with optimism nosediving in the consumer-facing new vehicle and retail sectors.

This is according to the latest RMB/BER Business Confidence Index (BCI), which declined further to 27 in the second quarter of 2023 from 36 in the first quarter of 2023.

This is the lowest confidence level since 2020, suggesting that only roughly a quarter of respondents were satisfied with prevailing business conditions.

The first quarter survey was conducted between 10 and 30 May, covering 1,050 senior executives in the building, manufacturing, retail, wholesale, and motor trade sectors.

The responses of these executives across the four major sectors varied.

The gloomy sentiment was shared among respondents, with three of the five sectors seeing their confidence level decline while the other two remained unchanged.

Among other factors, a challenging business environment amid persistent load-shedding, rising interest rates, and cost pressures weighing on profitability affected confidence in the second quarter of 2023.

“Comments by respondents through the different sectors flagged load-shedding as a continued drag on sentiment as it hurts production capacity, increases costs, and negatively affects profitability,” said the Bureau for Economic Research (BER).

“As such, respondents highlight that any available capital is going towards load-shedding mitigation measures – such as the installation of solar power – rather than an investment to build additional capacity,” added the BER.

The bureau also noted that some respondents mentioned the weak rand exchange rate and concerns about South Africa’s diplomatic relations with the rest of the world and its possible impact on trade relations.

“It remains unclear what will meaningfully lift confidence over the short term, especially as load-shedding could get worse over the winter months,” said the BER.

“While just skirting a recession in the first quarter of 2023, the South African economy is far from being out of the woods, considering that consecutive quarters of business confidence below 30 has historically coincided with contractions in either fixed investment, economic growth, or both.”

“However, some of the drivers of negative sentiments, such as strained geo-diplomacy, could be resolved in the coming months, while current constraints on business conditions, such as load shedding, could look somewhat better in 2024 and may support an improvement in confidence over time,” added the BER.

The overall sentiments for South Africa’s business sectors, as outlined by the BER, are listed below.

Retail 20 (-14)

The consumer-facing new vehicle dealers and retail sector experienced the most notable deteriorations in confidence. New vehicle dealer confidence plunged by 21 points to 23, while retail confidence declined by 14 points to 20 in the second quarter.

The BER said that the deterioration in retail confidence reflects increased pressure on profitability and a worsening of business conditions.

According to the index, Sales volumes in non-durable goods (food, beverages, etc.) struggled the most. In contrast, Semi-durable goods (including clothing) retailers did see a slight uptick in volume growth.

There were diverging trends within the durable goods sector as hardware traders were under pressure, but furniture and appliance sales have been supported by load-shedding essentials and replacement purchases of electronics broken due to load-shedding and power surges, noted the BER.

Wholesale 32 (-8)

Confidence declined by 8 to 32 index points in the second quarter as sales volumes of consumer goods were under more pressure. Like most other sectors, the wholesale confidence level is well below its long-term average level.

Manufacturing 17 (unchanged)

Respondents in the manufacturing sector remained the most downbeat.

The BER said that confidence stayed at 17 index points in the second quarter, meaning that less than two out of ten businesspeople in the sector were satisfied with prevailing business conditions.

The sector continues to be plagued by load-shedding, which presents an additional cost burden to producers. Respondents saw demand and activity deteriorate further and turned even more worried about expected business conditions in the future.

Building 43 (unchanged)

The overall RMB/BER BCI drop would have been more pronounced were it not for the business confidence of building contractors remaining unchanged at 43 index points.

Confidence was stable despite a notable deterioration in activity, and sub-contractors continued to fare better in the second quarter due to spending on load-shedding mitigation measures such as solar power and inverters.