Business confidence drops in December: Peggy Drodskie – acting CEO, SACCI

A look at economic sub-sector performances.

SIKI MGABADELI: SACCI’s Business Confidence Index shed 2.5 points in December 2014, declining to 88.3 from 90.8 in November. This was the lowest level since July 2014 when it measured 87.9.
Peggy Drodskie is acting CEO at SACCI and joins us now. Peggy, thanks so much for you time this evening.

PEGGY DRODSKIE: It’s a pleasure.

SIKI MGABADELI: That is rather concerning. What has led to this decline?

PEGGY DRODSKIE: It’s very concerning. There are a number of reasons for it. One is that the disparity between exports and imports has widened. We are certainly importing far more than we did in the past and exporting far less. So that’s one of the reasons.
   Another reason is that there is very definite evidence that consumers are under extreme pressure, and this is indicated by the significant continual drop in the retail sales figures. We put that down to the very extensive strike action that took place in the mining industry earlier in 2014, where those consumers were in fact very negatively impacted because they were on strike for such a long time. And it certainly appears that what is happening now is that consumers are using borrowings to cover their normal everyday expenses – and that is concerning to us.
   Another issue is the energy situation – the outage that we had during the beginning of December and Eskom’s announcements that it’s going to be tight for the next several years and that we can expect rolling blackouts during the course of the near future.

SIKI MGABADELI: So that of course is going to impact on the investment decisions that business is going to make.

PEGGY DRODSKIE: It does. It has a severe impact on it. It’s not only international investment, it impacts on domestic investment as well.
   And then, to add to the investor confidence problem, there is the fact that the certainty surrounding intellectual property protection has not yet been finalised. So people are not really interested in investing unless they know that their intellectual property is going to be safe.

SIKI MGABADELI: And what sort of guarantees would they need for that?

PEGGY DRODSKIE: Well, they would like to know that South Africa at least is complying with international standards. But we are still in the process of putting that particular piece of legislation to bed, and there is still uncertainty as to what will come out of that. It has already gone through Nedlac, but the process is very, very slow.

SIKI MGABADELI: Well, you’ve also said in your statement that the immediate economic outlook for South Africa is largely influenced by the much lower international oil price, of course, and electricity power shortages. Just looking at the lower international crude oil price, that’s kind of good for the consumption side, right?

PEGGY DRODSKIE: It is good for the consumption side, but the reports are that in fact our imports of the crude have actually increase significantly because of the shortage of diesel for Eskom to generate through its diesel-generation processes. That has of course almost negated the improved drop in the fuel price. But we must also remember that the fuel price only came down in January, and this BCI reflects the December perspective.

SIKI MGABADELI: Just looking at the specific one for December, you have 13 sub-indices. What was the split in terms of their performance?

PEGGY DRODSKIE: Municipal services remained unchanged. Manufacturing improved. Exports were on the negative side, imports positive – that shows more imports but fewer exports. Vehicle sales were slightly improved. Retail sales were much poorer, construction slightly better. Inflation was also on the negative side, share prices on the negative side. Private-sector borrowing increased, real financing costs decreased – but that is also something interesting because of the interest rates that we are having. Precious metal prices decreased and the rand exchange rate also deteriorated.

SIKI MGABADELI: Thanks to Peggy Drodskie.

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