S. Africa Business Mood At Pre-Virus Levels As Economy Re-Opens

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South African business confidence jumped to levels last seen even before a nationwide lockdown to curb the spread of the coronavirus restricted economic activity and disrupted global trade, two separate measures published on Wednesday showed.

A quarterly business confidence index compiled by FirstRand Ltd.’s Rand Merchant Bank unit and Stellenbosch University’s Bureau for Economic Research jumped to 50 in the second quarter, from 35 the previous three months. That’s the highest since the end of 2014 and was fueled by sharp rebounds in sentiment in the manufacturing, retail trade and motor trade industries.

Click here to see a table with the breakdown of the quarterly business confidence index

At the same time, a monthly index by the South African Chamber of Commerce and Industry rose to 97 in May from 94.7. That’s the highest level since March 2018, a month after Cyril Ramaphosa became president of the country and pledged to revive the economy and fight corruption. The increase was driven by a resurgence in exports, a stronger rand and higher international commodity prices that bode well for the current account and government finances, Sacci said.

While RMB and Sacci welcomed the improvements in sentiment, both flagged uncertainties, including a third wave of Covid-19 infections that could prompt stricter lockdown measures, as factors that may weigh on the business environment.

Growth-Boosting Reforms

For now, the export-led recovery should give policy makers room to address some of the structural deficiencies in the economy, Sacci said. It has previously called on the government to prioritize economic growth-enhancing reforms to enlarge its tax base and encourage the creation of jobs in the private sector that would reduce the reliance on social welfare and ease the strain on public finances.

While data published Tuesday showed the economy is slowly recovering from the impact of restrictions to contain the pandemic, output is only expected to return to pre-virus levels in 2023. South Africa’s official jobless rate rose to a record 32.6% in the first quarter, while unemployment according to the expanded definition, which includes people who were available for work but not looking for a job, is at 43.2%.

“In the end, for the current cyclical economic recovery to develop into a durable business-cycle upswing, jobs must be created, and for that to happen, fixed investment must accelerate,” said Ettienne le Roux, RMB’s chief economist. “To this end, it would help if the government fast-tracks its infrastructure drive, while simultaneously, and speedily, implements overdue business-friendly reforms.”

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