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Nenegate drives business confidence to pre-democracy low

Jan 07 2016 12:39
Carin Smith

Cape Town - South Africa's average business confidence in 2015 hit the lowest annual average since 1993, according to the latest Business Confidence Index (BCI) of the SA Chamber of Commerce and Industry (Sacci) released on Thursday.

"Business confidence is in dire need of affirmative economic policy action," said Sacci.

While the slowdown in building plans passed is a matter of concern for Sacci, it regards merchandise export volumes as having had a strong positive impact on the BCI.

"The passive performance of the SA economy and its effect on the business mood was complicated by changing of the guard at the Treasury when it was least desirable."

However, it believes the partly restored situation provides an opportunity for a turnaround to ensure policy consistency in a difficult global and domestic economic environment.

Finance minister Nhlanhla Nene was unceremoniously replaced by ANC backbencher David van Rooyen on December 9, only to be replaced in turn by Pravin Gordhan four days later, following aggressive reaction by the markets. 

The annual average of 86.4 index points for the BCI for 2015 is the lowest since the average of 81.3 in 1993.

At 79.6 index points, business confidence slipped to its lowest level for 2015 in December. This is a decline from the 82.7 index points in November 2015. It is also 8.7 index points lower than the confidence level in December 2014.

READ: SA business confidence at 22-year low - survey

According to Sacci, a wide range of factors impacted negatively on the business climate in December. Although physical economic activities represented by BCI sub-indices did not materially decline between November 2015 and December 2015, the negative affect on the BCI mainly came from financial market sub-indices like share prices and the rand exchange rate.

Sacci describes the month-on-month changes in the Sacci BCI sub-indices in December as "discouraging", as only export volumes made a positive contribution. Five sub-indices were negative and seven unchanged. In November four sub-indices were positive, five unchanged and four negative.

The year-on-year comparison of business climate indicators with those of December 2014 was negative. Only inflation and merchandise export volumes were in positive terrain in December 2015, while merchandise import volumes, municipal services and private sector borrowing were unchanged.

READ: What SA needs for turnaround in business confidence

The main year-on-year contribution to the deterioration of the Sacci BCI from December 2014 to December 2015 came from the weighted rand exchange rate followed by building activity, share prices and retail trade. Real financing costs, manufacturing output and municipal services also contributed to the decline in business confidence, but to a lesser degree.

"The financial business climate remains tight with international capital flows being affected by the recent interest rate hike by the Fed in the US. International commodity and precious metal prices remain under pressure. The domestic as well as global financial markets continue to experience hesitancy and uncertainty," said Sacci.

"South Africa experiences devastating drought conditions and though the effects have not been evident during December, the lagged effects will be serious. As part of the intermediate and final supply chain, the drought impact will add to the economic woes and performance."

ALSO READ: Business confidence at lowest level in 5 years

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