Sentiment in the business sector in South Africa ramped up to a four-month high in July following the formation of the Government of National Unity (GNU), and mainly driven by the increased new vehicle sales and a stronger rand exchange rate.
The SA Chamber of Commerce and Industry (Sacci) business confidence index (BCI) released yesterday came in at 109.1 in July, up marginally from 109 in June and the highest since 114.7 in March, after dipping by 5.8 index points in April and a further 1.1 index points in May.
This reflected a modest improvement in business sentiment, which had significantly dropped before May’s elections but has started to recover with the formation of the coalition government with several parties.
“The broader representation and accountability in government have created an opportunity for efficient economic expansion, more employment opportunities, and increased inclusiveness,” Sacci said.
“Continuing along the current economic track will not only lead to stagnation, but also contribute to further economic decay and underdevelopment.
“However, there is an opportunity to shift the economy onto an upward trajectory that fosters greater business and investor confidence. Both the public and private sectors, in fulfilling their respective roles, will play a pivotal role in driving this progress and enhancement.”
Sacci said business sentiment was particularly positively influenced by the increased number of new vehicle sales, and a stronger and less volatile weighted rand exchange rate.
However, lower volumes of import merchandise and a reduced number of overseas tourists notably affected business sentiment adversely.
Sacci economist Richard Downing said the formation of the GNU was expected to lead to inevitable structural economic adjustments for higher economic growth and a more inclusive economy.
“The most immediate effect of the improved business mood after the elections was rising share prices on the JSE. The all share price index increased by about 8% from the end of May 2024 to the end of July 2024,” he said.
“Over this period, the rand also reacted to the potential of more constructive global economic and trade engagements. Accordingly, the rand improved by 3.2% against the currencies of the three most important foreign trade and investment partners.”
On a year-on-year basis, Sacci said business confidence increased by 1.8 index points between July 2023 and July 2024, particularly due to rising tourist numbers, increasing international precious metal prices, optimistic new vehicle sales, and a better-performing rand exchange rate.
However, deteriorating import and export volumes and the disappointing real value of building plans passed had weakened business sentiment.
Sacci said inadequate and slow economic growth in South Africa needed to improve, which would enhance more local and foreign fixed investment and thus a higher level of economic activity that can accommodate additional inclusiveness.
“Slow economic growth negatively impacts the scale of activities, exports, and the viability, profits, and return on investment risks of businesses,” Downing said.
“An extrapolation of present short-term trends indicates that economic growth may not exceed 1.2% per year over the next five years if restraining structural and confidence issues are not addressed.”
BUSINESS REPORT