Real Estate Investor Magazine South Africa Real Estate Investor Magazine - October 2017 | Page 56

UPDATE
Business
confidence
up marginally in
the third quarter
BY ETTIENNE LE ROUX
A
fter plunging from 40 to 29 in the second quarter,
the RMB/BER Business Confidence Index (BCI)
rose by six points to a still low 35 in the third quar-
ter. Almost seven out of ten respondents therefore remained
unsatisfied with business conditions – a troubling outcome
to say the least.
Figure 1: RMB/BER Business Confidence
Source: BER, SARB (Shaded areas represent economic down-
swings)

The fieldwork of the third quarter survey was done during
the last two weeks of August, with more than 1600 senior ex-
ecutives surveyed across the building, manufacturing, retail,
wholesale and motor trade sectors.
Highlights
Following a collapse in the second quarter, at least business
activity in general did not deteriorate further. Also, no major
new unsettling political events occurred during the survey
period (unlike in March and April, for example, when the
cabinet was reshuffled, and related to that, the sovereign’s
credit rating was further downgraded). The fact that the
RMB/BER BCI recovered moderately during the third
quarter is therefore not entirely unsurprising. Still, at 35 it
remained disappointingly low. Moreover, although confi-
dence did increase in four of the five sectors making up the
BCI, not a single sector has a reading above the neutral-50
mark. Pessimism thus remained relatively widespread in the
third quarter.
From heavily depressed levels in the second quarter, sen-
timent improved both in the manufacturing and the motor
trade. Aided by an increase in production volumes, confi-
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OCTOBER 2017 SA Real Estate Investor Magazine
dence among manufacturers rebounded from 16 to a still low
27. Similarly, new vehicle dealers’ confidence bounced back,
rising from 11 to 19 in the third quarter as sales volumes
accelerated somewhat.
Consistent with mediocre growth in trade volumes, retail
as well as wholesaler confidence remained virtually unchanged.
In the case of retailers, the BCI edged up marginally from 35
to 38, which is still relatively far off the 45 in the first quarter.
Wholesale is the only sector where confidence declined; it did
so by just one index point to 48. In the beginning of the year
the index was 56.
Building confidence rose from 36 to 44. Still in net nega-
tive terrain, the index is now back at the levels that prevailed
throughout most of the past 18 months. Given a challenging
operating environment characterised by ample supply of most
types of non-residential buildings, continued hesitancy among
banks to ease credit standards for extending mortgage loans, and
the government’s capex budgets being under pressure, we doubt
confidence in the construction sector will increase much further
in the period ahead.
Bottom line
While the small increase in the third quarter RMB/BER BCI
is encouraging, the improvement must be seen in the broader
context of continued weak domestic demand, subdued business
activity, low profitability (for most respondents) and heightened
political uncertainty. This is not the environment in which the
economy is about to experience a resurgence. In fact, the more
likely scenario is one where GDP growth remains stuck at
around 1% over the short to medium term, hamstrung by lack-
lustre private sector fixed investment and jobs growth.
While falling inflation, and related to that lower interest
rates, will provide some temporary impetus, clear determination
as well as action from policy makers to implement appropri-
ate structural reform is the only durable way through which
South Africa will be able to turn its growth fortunes around.
In this regard, concrete moves towards effectively governed
SOEs, skills advancement and quality education, improved
immigration policies and less red tape, to name but a few
measures, would be a good start. Tinkering around the policy
edges is no longer an option.
Ettienne le Roux is the Chief Economist at RMB