Business confidence up in South Africa under unity government

Business confidence in South Africa has tentatively improved after the formation of the government of national unity (GNU), according to a leading survey.

Following a five-point increase in the second quarter, the Rand Merchant Bank/Bureau of Economic Research Business Confidence Index (BCI) rose by another three points to reach 38 in the third quarter of 2024, reflecting a “cautious optimism about improving business conditions.”

Of the five sectors making up the BCI, retailers and new vehicle dealers showed an improvement in confidence, manufacturing remained unchanged, and wholesalers and building contractors saw a decline in confidence (although remaining at relatively high levels).

New vehicle dealers registered the biggest increase in confidence, rising by 17 points to 27 in the third quarter, a one-year high. Retail trader confidence improved from its long-term average of 39 index points to an above average 45 index points in the third quarter.

“Although respondents still noted constraints, especially weak demand, they were less negative about current conditions and encouragingly, were more upbeat about business conditions going forward,” the report found. 

“The improvement in sentiment was likely supported by a continued absence of electricity supply disruptions and political certainty following the May 29 election.” 

South Africa’s GNU launched after the ANC agreed a coalition deal with the opposition Democratic Alliance (DA) and a number of small parties following the loss of their three decade-long parliamentary majority in May. The new administration has promised to prioritise economic growth after years of stagnation, and analysts expect the right-leaning DA to exert its influence to push for pro-business policies and infrastructure expansion.

Activity remains sluggish

However, the survey also revealed the fragility of business confidence in the country. At the current level, just under four out of ten respondents are satisfied with prevailing business conditions. 

Growth remains subdued – data released by Statistics South Africa showed a slight expansion of 0.4% quarter-on-quarter in GDP in the second quarter after a revised flat performance in the first quarter. 

Confidence in the manufacturing sector remained unchanged at 28 index points amid a general improvement in the assessment of current business conditions, but conditions in the sector deteriorated, with a decline in export and domestic demand contributing to a decline in production.

“With continued pressure on local consumers observed across the sectors and sluggish export demand noted by manufacturers, there was not enough demand to fuel a faster uptick in sentiment. Indeed, broadly speaking, activity did not materially improve compared to the second quarter.”

Still, for the first time since early 2022, a slight net majority of respondents across the different sectors expect business conditions to improve in the next quarter. 

“Another positive outcome is likely in the third quarter, but a recovery in demand is required to get momentum going,” the report concluded. 

Isaah Mhlanga, chief economist at Rand Merchant Bank, said future indicators showed the possibility for a further boost to business sentiment. 

“Fortunately, the widely anticipated interest rate cut in South Africa later this month, on the back of lower consumer inflation, and a boost from the introduction of the two-pot retirement system should spur domestic demand through the remainder of the year. This should benefit sentiment, but logistical constraints remain top of mind and will need to be urgently tackled to support a sustained lift in business confidence”.

To find out more about South Africa’s GNU and economic prospects, read our special report.