Ramaphoria gives business confidence a lift; but still in net negative terrain

RMB media release

The RMB/BER Business Confidence Index (BCI) jumped by 11 points from 34 in the fourth quarter of 2017 to 45 in the first quarter of 2018. An increase of such magnitude is rare: since 1975, the BCI rose by 11 points or more on only 15 occasions. If sustained, the first quarter rise implies a much-improved economic growth performance this year and next, relative to 2017’s 1.3% GDP expansion.

Figure 1: RMB/BER Business Confidence

Source: BER, SARB (Shaded areas represent economic downswings)

The survey covered a total of 1,700 senior executives spanning the five sectors that make up the headline RMB/BER BCI. Sentiment improved across the board:

  • New motor vehicle trade registered the largest jump with an increase of 20 points to 52 in the first quarter.
  • Manufacturing and retail trade both recorded increases of 13 points each. Sentiment among manufacturers improved to 37, and in the case of retailers, to 42.
  • Building confidence soared by 7 points to 41.
  • By contrast, wholesale confidence climbed by a more modest 2 points to 53.

The widespread rise in the BCI had one common cause: the recent turn for the better in domestic politics. To be sure, in the absence of the appointment of Cyril Ramaphosa as the country’s new President and his subsequent cabinet reshuffle, among other factors, developments around business activity (and profitability) would not have justified the large 11-point jump in the BCI.

Ramapanther. More cartoon magic available at

In fact, activity remained sub-par across all the sectors surveyed in the first quarter. For instance, in manufacturing the growth in production moderated due to a deterioration in both export and domestic sales volumes. The latter, in turn, tallies with the recent subdued increase in retail sales volumes of clothing and food.

Similarly, a strong majority of respondents in the building sector again highlighted insufficient demand as a serious factor constraining activity, while ongoing cutbacks in government infrastructure budgets remained a drag on civil engineering and construction as well.

Bottom line

The first quarter’s jump in the RMB/BER BCI mainly reflects a “re-calibration” following the improved political situation in South Africa rather than a marked improvement in the underlying business landscape. While such a disconnect between real-time business conditions (still depressed) and the jump in confidence is not an unusual occurrence, it is only when the increase in the BCI is sustained that we are likely to see a convincing rise in private sector fixed investment, and so ultimately faster economic growth. Simply put, it will take more than one quarter’s improvement in sentiment to do the trick.

Moreover, it is important to note that despite the BCI’s sharp increase in the first quarter, at 45, it is still in net negative terrain. In fact, confidence is above the neutral 50-level in only two of the five sectors i.e. wholesale and the new motor vehicle trade. The improvement in the business mood thus seems quite fragile, and by implication susceptible to change in the event of an adverse negative international economic or domestic political shock.

“With this in mind, it goes without saying that the current uncertainty around land reform needs to be resolved as quickly as possible. If allowed to linger, the latest rise in the RMB/BER BCI could easily fizzle out with little or even no enduring positive impact on business capital expenditure and the economy at large. This is especially the case as the first quarter confidence jump is driven more by the expectation that the recent (mainly) market-friendly political development will boost activity levels in future than an immediate improvement in the real economy”, said Ettienne Le Roux chief economist at RMB.

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