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RMB/BER BCI 2Q23 decline for fifth consecutive quarter to lowest since 2020

RMB/BER BCI 2Q23 decline for fifth consecutive quarter to lowest since 2020
07-06-23 / Tau kaVodloza

RMB/BER BCI 2Q23 decline for fifth consecutive quarter to lowest since 2020

Johannesburg - The RMB/BER Business Confidence Index (BCI) declined for a fifth consecutive quarter to reach 27 in the second quarter of 2023, down by 9 points from 36 in the first quarter. This was the lowest level of confidence since 2020 and suggested that only roughly a quarter of respondents were satisfied with prevailing business conditions. The decline in confidence was on the back of another decrease in business activity, although this likely does not explain the full extent of the deterioration in sentiment.

A challenging business environment amid, among other factors, persistent load-shedding, rising interest rates, and cost pressures weighing on profitability also affected confidence. 

The second quarter survey was conducted by the BER between 10 May and 30 May 2023. The survey covered 1 050 senior executives in the building, manufacturing, retail, wholesale, and motor trade sectors.


The gloomy sentiment was shared among respondents, with three of the five sectors seeing their confidence level decline while the other two remained unchanged.

Of those that declined, the consumer-facing new vehicle dealers and retail sector experienced the most notable deteriorations in confidence. New vehicle dealer confidence plunged by 21 points to 23, while retail confidence declined by 14 points to 20 in the second quarter. The deterioration in retail confidence reflects increased pressure on profitability and a worsening of business conditions. Traders in non-durable goods (food, beverages, etc.) struggled the most amid a steep decline in sales volumes. Semi-durable goods (including clothing) retailers did see a (slight) uptick in volume growth.

There were diverging trends within the durable goods sector as hardware traders were under pressure, but furniture and appliance sales have been supported by load-shedding essentials and replacement purchases of electronics broken due to load-shedding and power surges. The third sector where business confidence declined was wholesale traders. Confidence declined by 8 to 32 index points in the second quarter as sales volumes of consumer goods were under more pressure. Like most other sectors, the wholesale confidence level is well below its long-term average level.

Respondents in the manufacturing sector remained the most downbeat. Confidence stayed at 17 index points in the second quarter, meaning that less than two out of ten businesspeople in the sector were satisfied with prevailing business conditions. The sector continues to be plagued by load-shedding, which also presents an additional cost burden to producers.  Respondents saw demand and activity deteriorate further and turned even more worried about expected business conditions going forward.

Finally, the drop in the overall RMB/BER BCI would have been more pronounced were it not for the business confidence of building contractors remaining unchanged at 43 index points. Confidence was stable despite a notable deterioration in activity. Still, the sector likely bottomed out in the second half of last year, although the growth momentum has eased since a few months ago, due to the tighter interest rate environment. Interestingly, sub-contractors continued to fare better in the second quarter due to spending on load-shedding mitigation measures such as solar power and inverters. 

Bottom line

Confidence was still supported by the consumer-facing sectors in the first quarter of 2023, but amid a steep deterioration in sentiment for new vehicle dealers, retailers and, to a lesser extent, wholesalers, the overall RMB/BER BCI plunged lower in the second quarter. This was in part due to a decline in activity, but when the relationship between activity and confidence is considered over time, confidence would generally be somewhat higher with current activity levels. This underscores that there is more dragging down confidence than just a drop in output. Comments by respondents through the different sectors flagged load-shedding as a continued drag on sentiment as it hurts production capacity, increases costs, and negatively affects profitability.

As such, respondents highlight that any available capital is going towards load-shedding mitigation measures (such as the installation of solar power) rather than investment to build additional capacity. Some respondents also mentioned the weak rand exchange rate and concerns about South Africa’s diplomatic relations with the rest of the world and its possible impact on trade relations. The increased interest rate environment, while inflation remains elevated, is also a challenge, according to the survey.

Says RMB Chief Economist Isaah Mhlanga: “It remains unclear as to what will meaningfully lift confidence over the short term, especially as load-shedding could get worse over the winter months. Indeed, while just skirting a recession in the first quarter of 2023, the South African economy is far from being out of the woods. Indeed, more concerning is the fact that consecutive quarters of business confidence below 30 has historically coincided with contractions in either fixed investment, economic growth, or both. However, some of the drivers of negative sentiment such as strained geo-diplomacy could be resolved in the coming months while current constraints on business conditions such as load-shedding could look somewhat better in 2024 and may support an improvement in confidence over time.”

More structurally, an improvement in business confidence will require continued implementation of economic reforms under Operation Vulindlela, particularly energy procurement and logistics, beyond the current 45% success rate.

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