RMB/BER BCI 1Q23 a mix, results of loadshedding partly countered in Q1

Johannesburg - The RMB/BER Business Confidence Index (BCI) declined further from 38 in the fourth quarter to 36 in the first quarter of 2023. While the outcome could have been worse given the severity of power outages and the associated drop-off in business activity, the result is nonetheless disappointing. The business mood certainly remains gloomy.

The first quarter survey was conducted between 8 and 27 February. It covered 1 050 senior executives in the building, manufacturing, retail, wholesale, and motor trade sectors.

Details

Results among the different sectors making up the RMB/BER BCI varied. Although confidence in manufacturing and consumer-facing retail nosedived, sentiment changed little in the case of building, and improved a bit, to admittedly still weak levels, in wholesale and new vehicle trade.

Manufacturing confidence crashed by nine points to 17 in the first quarter. A level this low is rare, and it speaks to a sector that is bearing the brunt of the combined impact of intense load-shedding and dilapidated (and poorly run) logistic infrastructure. The deterioration in sentiment occurred across various sub-sectors, all of which shared a common feature in falling domestic sales and production. Fixed investment to expand existing production capacity also suffered as demand weakened and capital expenditure budgets were increasingly absorbed by alternative energy generation measures.

Retail confidence also fell sharply from 42 to 34. Similarly, the deterioration in sentiment was broad-based as retailers too could not escape the impact of loadshedding which reduced trading hours and increased operating costs due to diesel generators having to run more often.

This, at the same time when still high consumer price inflation and slowing growth in compensation continue to place pressure on household disposable income. Sales volumes worsened further across retailers of durable goods (such as furniture and electronics) and non-durable goods (food, beverages etc.), while retailers of semi-durables (mainly clothing) saw a slight improvement in sales during the first quarter.

Confidence of building contractors, the group which is captured in the RMB/BER BCI, declined marginally from 46 to 43. Although still in net negative terrain, at 43, building confidence is a far cry from the extremely low levels witnessed during much of 2020 and 2021. Strikingly, if we also consider sub-contractors – particularly electricians – confidence and activity in the overall building sector rose massively thanks largely to the installation of backup power. At least for some, loadshedding seems to have a silver lining.

Wholesaler confidence edged up from 37 to 40. In the same quarter new vehicle dealer confidence rose from 41 to 44. These are minor increases. Both outcomes also remain below 50, which means most respondents in these sectors are unhappy with prevailing business conditions.

Bottom line

In the first quarter, pervasive power outages coupled with deteriorating household income knocked manufacturing and retailer confidence hard. By contrast, sentiment among wholesalers and new vehicle dealers improved a little. The standout however was the BCI of contractors and sub-contractors combined which surged to 49 in the first quarter. Even though this improvement does not reflect in the headline RMB/BER BCI result, the upsurge in the installation of renewable energy and other load-shedding mitigation measures is certainly a boon for the broadly defined building and civil construction sector.

“That said, a thin silver lining attached to loadshedding must not distract from the devastating blow loadshedding specifically, and failing rail, road, and port infrastructure more generally, are inflicting on the economy. The urgent need of a united public and private sector effort to fix disruptive supply-side bottlenecks cannot be tressed enough,” says RMB Chief Economist Ettienne le Roux.