ROFHIWA MADZENA: Business confidence has been very wary over the last 18 months or so – and that’s because of Covid-19. But in South Africa, because of the lack of economic growth, we have seen some stagnant growth and a lack of confidence in businesses operating in the environment. Some major factors contributing to that are the inefficiencies of municipalities, but also the fact that we’ve got a dire lack of electricity supply. Eskom of course announced last week that they will be initiating load shedding until Thursday this week.
With that, we’ve got the latest business confidence data down, and we’ve Richard Downing, the senior economist at Sacci [the South African Chamber of Commerce and Industry], joining us to discuss those numbers further. It’s no surprise, Richard, that we’d have business confidence declining in the period. Despite the fact that it’s higher than in the time of Covid-19, the operating environment is still not great for businesses in South Africa.
RICHARD DOWNING: Well, Sacci’s Business Confidence Index has actually been improving somewhat from a low in May 17, 2020, when the lockdown was extended into May, which actually came as a shock to business to some extent – and also the extent to which the lockdown was actually applied and all that, and to different industries. South Africa actually improved quite a lot up to May, when it reached 97, which is not a bad figure, given the world economy that’s also suffering from Covid and so on.
Then of course in June it actually had a bit of a lapse, but in July of course we had all that sort of adventure down in KwaZulu-Natal and we had an upturn, which actually had quite a destructive and regressive effect on certain areas in the economy. That radicalism actually dented the Business Confidence Index to some extent in July and June. And then it went down to September. But that decline to some extent petered out a bit.
At the moment at 91 it’s till better than it was pre-Covid, but the 91 is not a good level to be at, and one would like to see your Business Confidence Index actually moving more rapidly upwards.
ROFHIWA MADZENA: Before we speak about how we can see business confidence moving rapidly in the upward trajectory, how much of an impact has the unrest had on businesses operating in the country?
RICHARD DOWNING: Well, we have preliminary figures in terms of certain activities. We know manufacturing actually has suffered to some extent – not in the whole country, but in these areas that will be affected as such. Of course, a lot of jobs for the poor people have been at stake in those areas which were intended to benefit them. And then of course a lot of assets were actually destroyed to some extent, especially in the retail sector.
That of course has an opportunity cost to the economy, and therefore a lot of investment that should have gone into creating new assets and more investment is now going back into restoring asset levels and that type of thing in the retail sector. So that has not been a good picture [for us], especially in terms of confidence, investor confidence in terms of foreigners as well as local people who saw law and order getting out of hand to some extent.
That is a main function of government – but that wasn’t the second highest priority in terms of functions of government – law and order. We saw that not at the level one would have expected, and it unfortunately had a great effect on business confidence in the short term, as we saw in the Sacci Business Confidence Index. But more negative effects are coming in terms of investment, and we don’t really see fixed investment picking up as one would like it to pick up to actually support economic growth in future. One would like to have a longer-term view on where economic policy and that type of thing is going before we can move from low business confidence to higher investment confidence – which is a longer-term view on the economy of South Africa.
ROFHIWA MADZENA: What was encouraging, though, is that we did see improved year-on-year merchandise-export volumes. Of course, that helped with the stronger rand exchange rate. But what’s also important was the automotive sector, where we saw an increased number of new vehicles sold. Now I know that South Africa exports a lot of automotive parts to Europe and such. But how important was that particular element in business confidence in this period?
RICHARD DOWNING: Well, I think it was a good windfall at the stage, especially in terms of when we think about government revenue and basic income grants, and things that have to be financed. Of course the vaccine also had to be financed, which called for billions of rands to be set aside for that purpose.
So it has been quite an unfortunate development; but how permanent is it? That’s a good question – how competitive the South African economy really is in terms of maintaining that level of merchandise export. This is a question that one would answer in terms of productivity and all that.
Hopefully we could keep to [those] levels of export, but we have to work harder at maintaining that. Fortunately, in terms of the service account, we’ve now heard about Britain actually allowing people to come to South Africa again as tourists, and South Africans [permitted] to go there.
Balance of course is important, whether we could have a positive balance in terms of tourism towards South Africa and then of course have an effect on the rand. Those are critical type of questions, I think. But what is important now is to get economic policy in place that is supportive of economic growth. That policy is important to actually convince investors, foreign and local, that we are moving in the right direction in the longer term. Investors are taking a longer-term view in terms of where the economy is going, and that we are not actually moving in this radical type of sphere, of trying to be everything to everybody at once. And so the medium-term budget coming up in November will be a critical issue and a critical event to actually see where we are going.
I think that is what we are looking at, at the moment, and longing for, is to – especially on the business side of things – to get some certainty on where we are going in terms of what type of economy we would like, and how we perhaps view the development process that, and any …… 7:35 have a partial approach to that to some extent, and not actually force the whole economy to go into a certain mode of development or whatever.
Those are the important things I think we’re looking forward to see, how the new minister of finance is actually addressing those type of issues.
ROFHIWA MADZENA: Indeed the medium-term budget policy statement is going to be very important, Richard, and it’s coming up. It’s just after the elections, if I’m not mistaken.
But just a final thought from you. You did mention earlier that there are some things that need to be done. So what would it take for business confidence to improve? We’ve had a pronouncements from the Department of Energy, we’ve had a pronouncements from the president, about opening up the energy space into renewables, allowing producers to produce around 100 megawatts of energy. There are a lot of policy changes that are happening, even though we stuck with things like spectrum.
There are some things that are starting to happen. So in your view as an economist who participates with various players in the industry, what is it that’s going to need to happen?
RICHARD DOWNING: I think one also always appreciates those sort of piecemeal developments at this stage. One would like to see those type of developments becoming part of a coherent whole, because the causal relationship in economies is very important. Linkages are very important; it doesn’t help you to have a very fast sort of internet or whatever the case might be, and then of you have a slow delivery system or a transport system that can’t deliver, or you have logistics routes being blocked, and your couriers can’t get through.
So [with] that type of thing, you say I must take a holistic view of the whole health ……9:29. And I think that’s what we’re looking for. When one starts to move on certain issues to make sure we force each other up, and we only go forward. And then of course to have a long-term objective or goal in mind, where we are going and what type of economy we want, and where we will have a free market approach where individuals are allowed to make free choices because the essence of the free-market system is to have the individual making his own type of choices, and he knows about prices and where things are going.
And then of course create employment in the meantime. Therefore some people might not enter this new type of economy or the fourth industrial revolution at this stage. But there are other ways of accommodating them. And therefore a multi-tiered approach towards development might give us some answers to that.
ROFHIWA MADZENA: Very interesting insights there from Richard Downing, who’s the senior economist at Sacci. Business confidence data out for this period, indicating that business confidence is down, but it is still higher than before Covid. And of course [there’s] an important indication there that there need to be seriously structured reforms by government so that there’s investment, and so that businesses can have confidence in the operating environment they’re in. There is lots of water – and right now electricity issues. I suppose it’s a good thing that we’ve got renewables on the horizon with businesses being able to create their own power supplies.