Sensitive Business Environment

SACCI today released its Business Confidence Index (BCI) for May 2008. After measuring 93,4 in April 2008, the SACCI Business Confidence Index (BCI) declined further to 93,0 in May 2008. Since the 100,2 registered in May 2007, the BCI has been unable to recover to levels above 100. The index dropped by 10,5 points from the record level in December 2006 to May 2008. The pace of decline in the BCI accelerated again in April and May 2008 and this erratic behaviour reflects an uncertain business climate.

Seven of the thirteen sub-indices that are used to calculate the composite SACCI BCI, had a negative effect on the BCI in May 2008, four had a positive impact and two remained unchanged. The SACCI Business Confidence Index has been in a declining trend since January 2007. It reflects the general slowdown in the economy, which has gained momentum into 2008.

Although there are indications of a more stringent policy environment that adds a negative dimension to business confidence in the short term, SACCI believes that rational policy action could provide credibility for consistency and prudence, which, in turn, could affect business confidence positively in the medium to longer run. The continuing high crude oil prices, much higher global and local food prices, and global food shortages are the other most pressing concerns at present. Both have a negative affect on business confidence.

Socio-political disturbances related to xenophobia have introduced a further negative element into the business environment. Attacks on foreigners have cast a shadow on perceptions of South Africa and operations of businesses. Although this could further influence business confidence levels and business behaviour, it appears not to have played a significant role in the level of the May 2008 BCI.

In the first few months of 2008, intermediary input costs in agriculture rose even faster than produce prices, which in turn put nominal earnings and return on investment in agricultural under pressure. Food security (physical supply and availability of agricultural produce) is becoming a more important variable in price determination in South Africa than the mere measurement of price movements and price levels of agricultural products.

South Africa’s own infrastructural and structural shortages are adding to domestic economic woes and uncertainty, which are detrimental to local business confidence. Geopolitical problems and turbulence in Southern Africa are further contributing to an already nervous business environment.