Business Confidence Index: November 2020
Business Confidence Fragile, but Gradually Re-calibrating
The business restrictions following the lockdown led to the BCI bottoming out to about 70 in May 2020 before bouncing back in June 2020 and then gradually regaining some lost ground to reach 93.4 in November 2020. Although 0.7 index points better than the 92.7 in November 2019, the BCI still reflects a business climate that is plagued by poor economic performance, recessionary conditions, high unemployment and fiscal unsustainability. In November 2020 the BCI nevertheless progressed by 23.3 index points above the trough of 70.1 of May 2020 – signifying the impact of the severity of the lockdown process on the business climate.
The present short-term month-on-month recovery of 1.4 index points in the BCI is primarily the result of the low base of activity from where the recovery is gradually gaining traction. Low inflation, the recovery in certain trade categories, and the reset of international trade and commodity prices, are the major developments that contributed to an improved business climate at present. The continuing easier and positive financial conditions, however, appear to be waning somewhat in relation to real economic activity that is gradually being restored to pre covid-19 levels.
The medium-term annualised recovery in the business climate needs to be strengthened. It must build on policy decisions that restore foreign and local investor confidence, economic growth and employment creation that takes the country on an upward trajectory. There are signs that merchandise export and global commodity prices should benefit the business climate in 2021. It remains important to highlight South Africa as a prime tourist destination to attract foreign exchange earnings from this sector. The weaker rand exchange rate, loss of disposable household income and the high import propensity of durable spending, remain medium term challenging areas. Easier financial conditions than a year ago due to lower inflation and interest rates contributed to the more positive medium-term business climate at this stage.
Various institutions like international credit rating agencies, the IMF, the World Bank as well as the South African Treasury and the SA Reserve Bank have expressed their concern about the economic effect of not only the Covid-19 pandemic, and the local and global radical governmental interventions it caused, but also the necessity of rectifying economic policy matters to place the economy in a better structural position.
It has become clear that structural reform is necessary in South Africa. Finding solutions to the health and economic effect of Covid-19 call for expedited credible economic policy changes to enhance economic performance and place economic growth on a new trajectory.
The sharp initial decline in the SACCI BCI due to Covid-19 and the radical lockdown intervention was followed by a reactionary upward spike in June, but then gradually recovered to a more stable momentum. A further improvement in business confidence will depend on a more substantial economic performance by South Africa emanating from the necessary recalibrating reforms to bolster economic growth and sustainable productive employment.
For a full background to this month’s SACCI BCI see the full BCI report on www.sacci.org.za.
For more information, contact:
Alan Mukoki SACCI CEO 082 551 1159
Richard Downing SACCI Economist 082 822 5566