Business confidence, as measured by the Rand Merchant Bank (RMB) and Bureau for Economic Research (BER) Business Confidence Index, was little changed in the fourth quarter, declining by one point to a level of 46.

Sentiment improved among manufacturers, retailers, wholesalers and building contractors while the business mood in new motor trade declined.

Confidence of manufacturers improved slightly in the fourth quarter, with the index climbing by five points to 38, despite the impact that the wildcat strikes could have had on manufacturing confidence, given its close association with mining.

“This could have easily resulted in a sharp drop. The fact that it did not, points to an important countervailing factor: domestic sales volumes turned out stronger during the fourth quarter than most respondents had initially anticipated, which also more than made up for weaker exports,” said RMB chief economist Ettienne le Roux.

But, a level of 46 still indicated that slightly more than half of the respondents remained downbeat about prevailing business conditions.

Le Roux said that businesses were not necessarily ignoring what seemed to be a general deterioration in labour relations and worsening political climate.

“While the impact on activity from both these developments may be counteracted by improving sales volumes and production levels for now, there are already signs they are beginning to negatively affect businesses’ investment intentions.”

He pointed out that 73% of manufacturers – the highest percentage since the uncertain period before South Africa’s first democratic elections – rated the political climate as a constraint on their businesses.

Greater uncertainty in general, and the domestic political climate in particular, were highlighted as the main reasons behind plans to cut capital expenditure (capex).

“If what are still just plans to cut capex become reality, the longer-term economic growth and employment creation potential of the economy will no doubt be endangered,” Le Roux warned.

Also, while fixed investment in the manufacturing sector held its own in the fourth quarter, few respondents expected this to last. In fact, the majority of manufacturers anticipated investment to contract notably in the first quarter of next year, and to stay weak on a 12-month horizon.

Investec analyst Annabel Bishop said companies needed to be able to price risk to operate successfully.

“To improve this ability, i.e. to improve business confidence, government needs to improve policy uncertainty and engender firm leadership in an environment of improved property rights, regulatory efficiency, reduced State intervention and open markets,” she said.

Bishop also said the country had to return the mining industry to profitability and restore its attractiveness as a foreign investment destination.

Le Roux pointed out that, while the profitability of some sectors improved in the quarter relative to initial expectations, general business conditions across all sectors worsened further compared to a year before. In this regard, the deterioration was especially pronounced in the case of motor trade, wholesale trade and manufacturing.