POLITICS

Business climate in uncharted territory – SACCI

Business Confidence Index shows March had sharpest month-on-month decrease since August 2019

Business Confidence Index (BCI) for March 2020

8 April 2020

The Business Confidence Index (BCI) of SACCI decreased by 2.8 index points in March 2020 to 89.9 following on an uptick of 0.5 index points in February 2020. The BCI of March 2020 was 1.9 index points lower than the 91.8 of March 2019. The March decline is the sharpest month-on-month decrease since the 2.9 index points of the BCI in August 2019.

The exogenous Covid-19 pandemic shock and the economic impact thereof came on top of a tight business climate and a subdued South African economy. The economic effect of the Covid-19 on trading partners and lately on the South African economy became more evident and pronounced towards the end of March 2020. Except for new vehicle sales and energy supply, the effect of Covid-19 was not yet reflected in the available data for the real economy. The credit downgrade to junk status by Moody’s on 27 March 2020 did not have a profound effect on the March BCI as this came at the tail end of March. 

Exceptional negative monthly impacts on the BCI came from a notable lower number of new vehicle sales, the weaker exchange rate of the rand against the major trading currencies, and lower share prices – all mainly due to global uncertainty and unpredictability caused by Covid-19. Lower interest rates, improved terms of trade, and the decline in the US-dollar crude oil price somewhat comforted a nervous business community.

An important aspect of managing the virus as a health threat is to flatten the curve of infections and mitigate the spread of the virus so that the health system such as medical facilities and hospitals are not overwhelmed and are able to cope when infections are peaking.

In his address the President acted timeously to alert South Africa to the impact of Covid-19. Apart from its effect on health, the impact on the economy could be severe and all social and business partners have to contribute to limit the shock effect of this pandemic.

Extraordinary steps and sacrifices by government, business and households will be necessary over the weeks ahead. The long-term effects are not clear, but all efforts should be put in place not to create fear and panic and to put sound economic policy in place to ensure sustainable economic performance beyond Covid-19 and the effects of the lockdown.

Much could be learned from other countries on trial and error efforts made to cope with the short-term effects of Covid19, but South Africa must not neglect efforts to re-establish business and investor confidence after the present distractions of Covod-19 have subsided. Although some of the effects of the Moody’s downgrade of South Africa’s sovereign credit rating to Ba1 has been factored in by financial markets, the outlook remains negative. The Covid-19 outbreak will make it difficult to attend to structural economic matters in the short-term.

Issued by Communications, South African Chamber of Commerce and Industry, 8 April 2020