South Africa: business confidence falls to eight-year low

15 Jun 17

Business confidence in South Africa has slumped to its lowest since 2009 after a third ratings agency downgraded the country’s debt last week.


Cape Town, South Africa - Photo: iStock

Cape Town by night - Photo: iStock


The country’s economy, hit by political uncertainty and scepticism around the trustworthiness of Jacob Zuma’s administration, slumped into recession in the first three months of this year, when growth had been expected to rebound somewhat.

Fitch Ratings and Standard & Poor’s both downgraded the government’s credit rating to junk status in April. Moody’s also brought this down one notch last week, which meant the government avoided another sub-investment grade rating, and the rand rallied as a result.

Business confidence levels, however, still dropped across the board in the second quarter of 2017, according to a Business Confidence Index published by The Rand Merchant Bank and the Bureau for Economic Research.

The index collapsed by 11 points, from 40 to 29, in the second quarter of the year, BER and the bank said.

“This means that seven out of every 10 respondents are downbeat about prevailing business conditions,” a statement continued. “We last saw such despondency during the 2009 recession.”

South Africa has been rocked by a series of corruption and mismanagement scandals in the past few years, as well as infighting within the ruling African National Congress party between those loyal to Zuma and those who are more critical.

A key rival had been former finance minister Pravin Gordhan, who Zuma sacked earlier this year during a cabinet reshuffle. Gordhan had been internationally regarded as a trusted pair of hands within a chaotic administration and a much-needed restraint on Zuma’s perceived financial irresponsibility.

Gordhan’s removal unnerved investors. Zuma’s government, meanwhile, continues to face demands for resignation from the public and no-confidence votes from parliament – although it has survived them all so far.

Gerrit van Rooyen, analyst at NKC African Economics, said such a “severe knock” to business confidence was expected after the ratings downgrades, and the events that had preceded them.

“Worryingly, unlike in 2009, South Africa does not have the ‘fiscal room’ to stimulate the economy through increased government spending or tax cuts due to pressure from rating agencies to consolidate government debt,” he continued.

“The current scenario, where very low confidence levels constrains spending and investments, results in shortfalls on government revenues, which can lead to tax hikes and, subsequently, a negative cycle of low confidence and low spending.”

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