In the fourth quarter of 2022, South Africa’s business confidence fell to its lowest level in two years due to weak local demand for vehicles and high borrowing costs. According to a report by Reuters on November 21, the business confidence index dropped from 33 points in the previous three months to 31 points in the fourth quarter. This decline was mainly attributed to the pressure on consumer incomes caused by high borrowing costs, which curtailed consumer spending.
The survey conducted by Rand Merchant Bank (RMB) and compiled by the Bureau for Economic Research also showed that confidence among new vehicle dealers dropped by 24 points, marking the lowest level since South Africa imposed its strictest COVID-19 lockdown in the second quarter of 2020.
Respondents on the survey pointed out logistical challenges such as delays at harbours and dealing with potholes as factors contributing to their decline in confidence. Additionally, businesses struggled to pass on higher input costs to buyers due to rising borrowing costs.
Despite these challenges, there was a bright spot for respondents in the retail sector, who experienced a 15-point jump in confidence. While cost pressures have slightly eased, non-durable retailers reported a steep decline in volumes due to price increases late in the year.
Isaah Mhlanga, chief economist and head of research at RMB commented on this decline stating that “structural supply constraints around infrastructure and electricity remain a key challenge to operating in the South African business environment”. However, he also noted that this decline reflects underlying demand weakness.