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Business confidence to take huge knock - economist

Apr 04 2017 11:34
Carin Smith

Cape Town - The Cabinet reshuffle of last week is likely to weigh on business sentiment and fixed investment growth this year, according to Sanisha Packirisamy, economist at MMI Investments and Savings.
"SA businesses are still feeling the pressure of a low-growth and highly uncertain environment. An already high degree of political uncertainty has been aggravated by President Jacob Zuma’s third Cabinet reshuffle in his eight-year tenure," Packirisamy said on Monday.

She pointed out that the Business Confidence Index (BCI) of the Bureau of Economic Research (BER) inched higher by two index points to 40 in the first quarter of 2017, only marginally higher than what she calls a dismal 37-point index average posted during 2016.

This implies that only four out of every ten respondents were satisfied with prevailing business conditions at the beginning of the year.

READ: Business Leadership SA demands answers from Zuma on Gordhan recall

"The BER notes that, despite a handful of industries benefiting from the revival in agriculture, mining and manufacturing exports, most sectors appear to be in a holding pattern, experiencing continually weak underlying activity. Moreover, survey detail points to a reluctance on the part of corporates to hire additional workers or to ramp up fixed investment," said Packirisamy.

In her view, a stagnant hiring environment is likely to depress household spend this year, while sluggish fixed investment spend is expected to compound weakness in domestic demand in 2017.

"Domestic demand is only anticipated to recover more meaningfully in 2018 on an improvement in sentiment following a clearer outlook on SA’s future political leadership and economic policy direction," she said.

The Cape Chamber of Commerce and Industry also foresees that the downgrade will lead to interest rates going up and the value of the rand shrinking.

Janine Myburgh, president of the Chamber, said “in plain language this means the value of our savings and pension funds will go down and the monthly payments on our cars, home loans, credit cards and our medical schemes will go up".

“Everything we import like petrol, clothes, food and medicines will cost more. That will mean less money for food, clothes and school fees,” warned Myburgh.

"If investment in the country dried up there would be no new factories, no new jobs and the unemployment problem would get worse. It is the ordinary South African and the poor who will feel the pain.”

She said businesses would have to work together to "starve the captured institutions of funds and services" until their boards and management positions were no longer occupied by people with tarnished reputations.

“There is a great deal we can do if we can find the courage. It may mean taking risks but we have reached the stage where the biggest risk of all is not to take the risks,” said Myburgh.

The SA Chamber of Commerce and Industry (SACCI) said on Tuesday it is disappointed with S&P's downgrade decision. SACCI is concerned about the implications for business confidence in these difficult economic conditions.

"We urge the government to redouble its efforts to work with business, labour and other key stakeholders in urgently addressing the gaps in governance, address issues of negative perceptions and restore confidence that the ratings agencies require in order to make South Africa a sustainable investment destination," urged SACCI.   

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