According to a statement released by the South African Chamber of Commerce and Industry, business confidence is at a one-year low in South Africa. The Chamber of Commerce attributes the decline in business confidence to COVID-19 and riots.
The South African Chamber of Commerce and Industry’s confidence index fell to 91 from 91.9 in August, the group stated in an emailed statement Monday. While this is the lowest level since September 2020, the average for the first nine months of the year was 9.8 index points higher than a year ago as conditions stabilized.
“The current business climate appears to have stabilized, with the company confidence index remaining near pre-Covid-19 levels,” the report stated. “In comparison to a year ago, when the business climate was still in the early stages of recovery, the September 2021 level of the business confidence index demonstrates a marked improvement in the business climate, despite the lagged impacts of the July 2021 disruptions.”
The influence of the COVID-19 Regulations on business confidence
To combat the spread of COVID-19, countries throughout the world blocked their borders, thereby reducing international trade. Additionally, the government implemented progressive lockdowns on a local level. As a result, both foreign and domestic lockdowns had a detrimental effect on enterprises. There does appear to be some light at the end of the tunnel, as the country has decreased the lockdown to Level One, the most permissive of all lockdown periods. Other countries are easing travel restrictions as well.
South Africa stands to profit from greater economic activity associated with holiday tourism as the world begins to open up. The country continues to profit from high global commodity prices and a surge in ecommerce activity.
Impact of the July Riots on Business Confidence
The Constitutional Court issued an arrest warrant for former President Jacob Zuma in July. Supporters of the former President flocked to the streets to demonstrate against their leader’s imprisonment. The demonstrations devolved into violence and looting. The government has dubbed the unrest a ‘insurrection.’ Businesses have been pillaged and residences have been destroyed. Numerous businesses are still reeling from the aforementioned occurrences. This has caused many enterprises to doubt if South Africa is a safe place to conduct business. The administration has continued to reassure businesses and foreign investors about the legal system’s strength.
The central bank predicts the economy to decrease by 1.2 percent in the third quarter – partially as a result of the greatest civil upheaval since the end of White minority rule in 1994 – and to grow by an average of 5.3 percent in 2021, a remarkable comeback from last year’s record low production.
The riots, looting, and arson stifled the economy’s good momentum and destroyed fixed capital assets and inventory, which must now be rebuilt, Sacci explained. With the “urgent need for cash” to finance fixed investment —- both public and private —- contingent on short-term shifts in business sentiment, investors would be looking for direction from Finance Minister Enoch Godongwana’s medium-term budget, it added.
“Clarity, consistency, and investment-friendly economic policy certainty, as well as its implementation, are crucial for convincing both domestic and foreign investors of a reasonable rate of return,” the chamber stated.
The budget, which is scheduled on Nov. 4, is expected to reflect an improvement in key measures following changes to the way gross domestic product is measured, which resulted in the economy being larger than previously projected.