The Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index (BCI) slipped by two points to 31 in the fourth quarter, meaning that less than a third of respondents to the survey were satisfied with prevailing business conditions.

Business confidence was largely unchanged in three of the sectors, but a 15-point rise in retail confidence was outweighed by a steep 24-point drop in the confidence of new-vehicle dealers, resulting in overall confidence edging down. 

The business environment remained difficult in the fourth quarter, as business conditions deteriorated, against expectations.

In addition, activity ticked down somewhat despite an ease in loadshedding relative to the third quarter.

"Sluggish demand means that there is likely increased pressure on turnover and profitability, with purchasing prices reaccelerating but selling prices slowing for a fourth consecutive quarter.

"While this is good news for the consumer as it may translate into lower consumer price inflation, this would have weighed on the confidence of businesspeople as they struggle to pass on higher input costs," RMB points out.

It adds that real gross domestic product growth likely slowed in the third quarter of 2023 and the survey results do not point to a meaningful reacceleration in momentum in the fourth quarter as activity remained subdued.

Beyond poor activity growth, the business environment remained tough and trading conditions did not improve as respondents had hoped for last quarter.

Respondents lamented logistical challenges, ranging from delays at the harbours to dealing with potholes, while crime and corruption also remained top of mind. Some respondents also remarked that they struggle to receive timely payment for goods delivered, with knock-on implications for their production process.

“Structural supply constraints around infrastructure and electricity remain a key challenge to operating in the South African business environment. However, the decline in the RMB/BER BCI also reflects underlying demand weakness. The best example being the depressing outcomes for the interest-rate-sensitive new-vehicle dealers this quarter, but local sales volumes remained sluggish across the board,” says RMB chief economist and head of research Isaah Mhlanga.

Without a sustained recovery in demand, it will be difficult for production growth to accelerate, which is needed to stimulate (non-energy) investment and employment growth, RMB adds.