Business confidence seems to be increasing despite the challenges of load shedding and high interest rates.
The other services sector, that includes the hospitality and transport sectors, performed better than other sectors in the fourth quarter, but also off a low base in 2021.
The South African Chamber of Commerce and Industry (SACCI) Business Confidence Index (BCI) for November recorded a reading of 110.9 and although the BCI declined by 1.4 index points to 109.4 in October, it again recovered the 1.4 index points in November 2022.
The BCI was 3.6 index points higher in November 2022 than in November 2021 and 2.9 index points higher than in November 2020. The average of 109.0 for the SACCI BCI in the first eleven months of 2022 was slightly higher than the 108.7 for the corresponding period in 2021, which indicates a relatively stable situation.
According to SACCI the unexpected performance of business confidence during 2022 was affected by a combination of global and local economic developments, but the present level of the SACCI BCI indicates that the disruptive effects experienced during and after Covid in 2020 and in 2021 has been largely overcome.
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Covid replaced by other events
However, the Covid aftermath was replaced by global and domestic events that carried further disruptions in 2022 as well as risks to the business fraternity. The erratic movement of the SACCI BCI in 2022 from a high of 112.0 in February to a low of 103.2 in May, a difference of 8.8 index points, in itself mirrors the risk and uncertainty surrounding the business climate in South Africa during 2022, SACCI says.
Eight of the fourteen sub-indices monitored had a positive or neutral impact on the BCI between October and November. Increased new vehicle sales, share prices on the JSE and manufacturing output made the largest positive short-term (month-to-month) impact on the BCI in November.
On an annual basis (the medium-term), increased inbound tourism, increased new vehicle sales and higher merchandise import volumes had a notable positive effect on the BCI.
The index shows that import and export volumes both experienced increased activity in the first nine months of 2022, increasing significantly by 15.9% y/y and 9.6% y/y respectively, with foreign trade activity playing an important role in support of business confidence.
South Africa’s real GDP grew by 2.3% y/y in the first three quarters of 2022, while the tertiary sector increased by 4.1%, the secondary sector declined by 0.9% and the primary sector dipped by 6.1%. SACCI says it appears that economic performance contributed to the relative stability of business confidence and that investor confidence should benefit from the latest economic performance.
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Confidence in the other services sector
Confidence in the other services sector, measured by the Bureau for Economic Research (BER) at Stellenbosch University, jumped from 53 in the third quarter to 68 in the fourth quarter, suggesting that while just over half of the respondents were satisfied with prevailing business conditions in the third quarter, over two thirds are now.
The other services sector is made up by hotels, restaurants, transport, real estate and business services and are called “other” services to distinguish them from the retail, wholesale and motor trade sectors, which are also part of the services sector, but included in the RMB/BER business confidence index (BCI).
The other services sector is not included in the BCI due to its lagging business cycle characteristics, which means it recovers or deteriorates later than the BCI sectors. Although the other services sector contributes a considerable 22% (2019) to GDP and employment, BER does not include it in the BCI to safeguard its advanced signalling properties.
According to BER, the level of other services confidence surpasses all the other sectors covered by the RMB/BER Business Confidence Index (BCI).
“More notably, domestic trade confidence retreated to 40 in the fourth quarter, after edging up to 47 in the third quarter. The divergence in confidence between the domestic trade and the other services sector is noteworthy and may be a sign that consumers, particularly on the high-income end, are shifting their spending from goods to services, such as eating out, accommodation, travelling and property rental.”
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Domestic tourism is looking up
The domestic tourism industry will probably experience its first ‘normal’ summer holiday season post-lockdown in the fourth quarter.
Covid-19 restrictions imposed at the height of the pandemic cut the number of foreign visitors in the past three years, while the other services sector also dealt with various other shocks, including the political unrest in July 2021 and the floods in KwaZulu-Natal in April 2022, which particularly hurt the hospitality and transport sub-sectors of the other services sector.
BER says given this low base, it is therefore not surprising to see that the rise in total confidence this quarter was mainly derived from the transport and hospitality sub-sectors, with confidence in the transport sector increasing sharply from 27 to 94 in the fourth quarter, the highest level of confidence since 2006.
Hoteliers and restauranteurs were also more confident, with their confidence increasing by an impressive 20 points to 73 in the fourth quarter, again the highest level of confidence since 2016. BER says this rise in confidence was matched with firmer activity.
Activity in the hospitality industry increased at a faster pace in the fourth quarter as more people ate out and stayed over. After falling from 57 to 48 in the third quarter, activity in the hospitality industry rebounded to 56 in the fourth quarter which is striking for a sector so vulnerable to power outages during peak times.
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However, increases are from a low base
However, BER says, this result must be viewed against the low base established in the last quarter of 2021 when travel bans restricted travellers from the country’s key tourist source destinations in Europe and the USA, while hotels and restaurants were compelled to provide services to domestic residents at discounted rates to make up for the loss in customers.
Activity in the transport sector advanced further in the fourth quarter, mainly due to the speedier recovery in road freight transport after the devastating floods in KwaZulu-Natal in April and the deterioration of rail freight.
The performance of the real estate sector remained more sedate than in earlier 2022 as the combination of rising interest rates and the winding down of the backlog in households wishing to move after the lockdown further detracted from the sale and auctioneering sub-component of the real estate sector.
