Business Confidence Hanging On

11 February 2021

The SACCI BCI measured 94.3 in December 2020 which was 0.9 index point up in November 2020 and 1.2 point higher than in December 2019. A further 0.2 month-on-month increase in January 2021 to 94.5 kept to the slow upward pace. The positive month-on-month contributions to the January 2021 BCI were mainly attributable to real economic activity (66%) while the financial environment made a 34% positive month-on-month impact.

With base year 2015 at 100, the 2020 average of 86.5 is the lowest annual level for the BCI since its inception in 1985. During the economic sanctions period of the 1980s, the 1985 BCI measured the second lowest average of 91.5, followed by the average of 92.6 in 2019. The highest annual average for the BCI was recorded in 2006 at 137.5.

The conducive financial environment more than contributed (104%) to the 2.3 index point year-on-year improvement of the BCI in January 2021 than was made by the negative impact (minus 4%) of real economic activity to the business climate in January 2021. The lockdown had a stifling effect on physical economic activity and output, with a concomitant effect on employment in the formal and informal sectors.

Short-term movements of increased merchandise import volumes and real retail trade made significant positive impacts on the business climate of January 2021 compared to December 2020. The most negative short-term effect on the business mood came from less merchandise export volumes and less new vehicles sold in January 2021 than in December 2020.

Lower inflation and interest rates largely helped the business mood to improve on a year ago while merchandise export volumes also made a lesser but valuable positive contribution to the business mood. Notably the rand exchange rate against the major investment and trading currencies of the world, as well as retail trade volumes had a negative effect on business confidence if compared to January 2020.   

In the IMF’s January 2021 update of the World Economic Outlook (WEO), South Africa’s growth was revised lower by 0.2 %-points to 2.8% for 2021 and 0.1 %-point lower to 1.4% for 2022. This is after South Africa’s estimated output has contracted by 7.5% in 2020.

It is in this context that Budget 2021/22 will be a watershed event to pay urgent attention to medium term corrections and adjustments of public sector finances. Read together with the upcoming State of the Nation Address, it will be important to note if decisions that reflect on the realism of the Minister of Finance find their way into the Budget and overall policy direction.

South Africa finds itself in a fiscal logjam and therefore it has become essential to prioritise economic restoration in an unbiased way and simultaneously attend to the health hazard of Covid-19. The successful application of a viable vaccine appears to have become critical in addressing the Covid-19 risks and ensure the survival of the economy.

For a full background to this month’s SACCI BCI see the full BCI report on www.sacci.org.za.

Issued by Alan Mukoki, CEO, SACCI, 10 February 2021