Strong export and import activity, together with robust retail sales, delivered a surprise boost to SA business confidence in January, underlining the resilience of the private sector, according the latest SA Chamber of Commerce and Industry (Sacci) business confidence index (BCI).
Sacci’s index rose 2.1 points to 94.1 in January from December, a three-month high, and better than the 92.5 points forecast by economists surveyed by Bloomberg.
Business confidence had been expected to feel the pressure of a global wave of Omicron-induced Covid-19 infections, but Sacci said on Wednesday that increased merchandise import and export, and retail trade volumes drove the index higher. Rising inflation, and higher debt-servicing costs in line with higher rising interest rates had minor negative effects.
BCI gauges activity from vehicle and retail sales to export and import volumes, as well as energy supply and stock prices. As a quantitative survey collecting data, it is more a reflection of the business climate rather than sentiment as reported by businesses themselves.
The index has been gradually recovering after slumping in early 2020 as Covid-19 took hold. The index dipped as low as 70.1 points in May 2020 — its lowest since 1985. It recovered to a pandemic-era high of 97 in the same month of 2021, but then took a hit from July’s riots. It averaged 93.9 points in 2021, from 86.5 points in 2020.
January’s figure reflects a 0.4 point decline from the same period a year ago, but Sacci said on Wednesday that given “difficult economic circumstances, this is a positive start to 2022”.
Precious metals prices, which have helped fuel record SA trade surpluses, remain lower than they were a year ago, while inflation has also picked up, fuelling expectations that there will be a series of interest rate increases in SA in 2022.
“Despite non-economic incidents having a negative impact on the economy, particularly in the second half of 2021, business resilience and tenacity kept the economy from being distracted into uncertainty and dismay,” Sacci said in a statement on Wednesday.
SACCI economist Richard Downing said that in absolute terms the index wasn’t at a particularly good level, given that it uses 2015 as a benchmark score of 100, when Jacob Zuma was still president.
SA was still struggling with structural issues, as well as the severe economic fallout of lockdowns, but the index did point to the resilience of business, said Downing.
“If it weren’t for the private sector, and certain parts of society, it would be a lot worse,” he said.
The budget statement due on February 23 must provide a clear path forward, Sacci said. Issues such as public and private debt levels, credit and investment ratings, service delivery, and dealing with maladministration and corruption in the public sector are critical to reviving business and investor confidence.
The budget and Thursday’s State of the Nation Address (Sona), however, are not major themes for markets. Sasfin Wealth fixed-income trade Alvin Chawasema said in note that Sona has rarely ushered in structural reforms, and neither it nor the forthcoming budget announcement can be expected to deliver major surprises.
Investec chief economist Annabel Bishop said the budget was unlikely to deliver any need for credit agencies to reassess SA’s status, but risks remain, including the lack of sufficient reforms to substantially boost growth.
Sona is expected to show little difference in content to prior years, Bishop said in a note, with insufficient reform implementation to drive economic growth past 2% this year.
Load-shedding is still a key risk along with heavy debt and cost pressures on Eskom, she said, and the budget could turn out to be “very boring”, which is often met with approval by markets and credit agencies.
Update: February 9 2022
This article has been updated with additional information.
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