Business seems more confident as political developments change landscape

10th January 2018 By: Megan van Wyngaardt - Creamer Media Contributing Editor Online

Business seems more confident as political developments change landscape

Photo by: Duane Daws

Business sentiment in South Africa showed yet another month-on-month improvement, with the South African Chamber of Commerce and Industry (Sacci) reporting a 1.3 index point uptick in its Business Confidence Index (BCI) for December.

The index now stood at 96.4, following on the improved business mood in November and was nearly seven index points higher than the lowest 2017 BCI level of 89.6 in August.

However, it was still below the starting point of 97.7 in January 2017. The BCI dipped to below 90 in the middle of last year, but has since recovered lost ground.

The average for the BCI in 2017 was slightly up to 94.4 compared with the average of 93.5 for 2016.

“The current improvement in the business mood is only partially explained by the BCI as political developments taking place in the Southern African region also contributed to raise expectations.

“The anticipation for more policy certainty and sustainable growth orientated domestic economic policy, global economic growth and a probable fresh approach towards business and investor challenges, should further augment the business mood,” Sacci said in a statement.

Four of the thirteen subindices that comprise the Sacci BCI had a positive month-on-month impact in December, while five subindices moved sideways and four were negative.

Meanwhile, five of the seven real economic subindices had either neutral or positive month-on-month impacts on the index in December and implied improving activity in the short term.

The improved year-on-year BCI in December was the result of six subindices improving, three subindices remaining unchanged and four subindices being negative.

Only two of the seven real economic activity subindices had a negative year-on-year effect on the December BCI, while financial conditions were also more positive in December than a year before, with four of the six subindices contributing positively to the index.

Sacci stated that the business mood and business climate had been supplemented by traces of improvement in the financial markets and that the economy and the latest economic figures confirmed suggestions of improving prospects.

Further, the chamber noted that there appeared to be suggestions of optimism beyond the improvement in its BCI. “Economic dynamics in Southern Africa have set in motion the realisation that economic performance could improve to serve the broader population.”

However, Sacci conceded that the country still faced many challenges. “The challenges faced by fiscal consolidation, unemployment, excessive debt, low growth and sovereign credit ratings remain challenges that require visionary leadership and urgent and strong action going forward,” it stated.

It highlighted that the proposal to change the ownership structure of the South African Reserve Bank (SARB) was a matter that could increase the risk levels and financial and economic uncertainty in present frail economic circumstances.

“The SARB plays an important role in maintaining price stability and containing the inflationary process. These are imperatives and necessary conditions for sustainable and higher economic growth. Ample examples exist in countries where the central bank and monetary policy has come under threat and where credit extension has become exuberant and seen as a panacea for economic ills,” it stated.

Sacci added that this led to hyperinflation and the demise of the domestic currency and imploding of the economy in the medium to longer term. “It caused dire consequences for the people it was supposed to assist.”

Property rights also remained a critical issue, the chamber pointed out.