The Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index (BCI) again declined, by one point, to 39 for the third quarter.

This follows a five-point decline in the second quarter and is three points below the long-term average level of 42. It implies that more than 60% of respondents are dissatisfied with prevailing business conditions.

The current level of confidence is insufficient to drive an acceleration of much-needed investment to improve South Africa’s potential economic and employment growth rates, say RMB and the BER.

The underlying results point to an economy that is muddling through, with many activity and demand indicators in line with 20-year average levels, they note.

However, the South African business confidence experience in recent quarters is not out of line with what was seen in many other economies, says RMB chief economist Isaah Mhlanga.

Last year brought significant political and economic policy changes in many countries, including South Africa and, following initial excitement or in some cases disappointment, conditions are normalising into a difficult emerging global world order.

Further, the largely flat composite index masks significant movements on a sector level. Confidence in each sector moved by ten points or more; in most sectors, the change was bigger than the long-term standard deviation.

This is unusual, but there are largely good reasons for the swings per sector, he notes.

Two sectors, namely building contractors and new vehicle dealers, saw their confidence improve from weaker second-quarter readings, while manufacturing, retail, and wholesale dealers reported declines in confidence.

Respondents reported struggling amid rising electricity costs, an onerous administrative burden and competition from imports.

While corruption, red tape, sluggish logistics and other structural issues in the South African economy continue to feature, many comments also highlighted the failure of service delivery at a municipal level.

“We will likely see increased focus on this as we head to the local government elections next year,” he says.

Manufacturers, as is often the case, had the lowest confidence reading at 23 points, which had declined by ten points from the prior quarter.

Many of the underlying indicators had improved from the second quarter closer to long-term average levels. Despite this, confidence declined as the uncertain global trade environment hit this sector harder than the others, Mhlanga says.

Further, confidence among building contractors increased by 11 points to 46 index points, following a weaker second quarter reading. While the non-residential segment continues to outperform, even residential builders were a little less pessimistic.

Many of the underlying indicators returned to long-term average levels, suggesting the sector is chugging along but not accelerating, he points out.

Confidence among wholesalers declined to 38 points, dipping below its long-term average of 45 points and reversing a five-quarter streak of out-performance. Consumer goods struggled with sales volumes.

Additionally, confidence among retail traders fell by ten points to 32 as business conditions deteriorated.

However, there are some pockets of strength, with higher-income consumers still doing relatively well. Furniture retailers stand out as a bright spot.

“The third quarter survey results are not unexpected, but they are certainly not inspiring for an economy whose potential growth must be higher than where it is,” says Mhlanga.

To move from these “muddle through” growth rates to employment-generating levels, the structural weakness in the South African economy must be addressed, including by speeding up economic reforms in the logistics, water and local government sectors, alongside coherent messaging across public and private sectors, he advised.

Meanwhile, the economy is expected to record a modest, but relatively broad-based quarterly expansion in the second quarter when Statistics South Africa releases its GDP figures during the week of September 8 to 14.

The results of the RMB/BER BCI survey do not indicate a meaningful acceleration in the third quarter, he adds.