Other services survey results: 2020Q2
Services sector hit hard by the lockdown
The second-quarter results of a long-running internal BER survey (made public for the first time), once again confirmed the devastating economic fallout of the phased lockdown restrictions imposed to slow the spread of the coronavirus. The latest results of the BER’s other services survey showed that business confidence in the sector plummeted from an already-low level of 17 in the first quarter to a meagre 7 in the second quarter. This is a record low in the 15-year history of the survey.
Figure 1 Other services confidence
The survey revealed that activity in restaurants, hotels and real estate came to a complete standstill, while transport and business services registered historically unprecedented falls in the second quarter. Although individual cases of the hardship in these sectors have already been reported, with the public release of these
survey results a consistent yardstick is now available for the first time to compare the current situation to that over the past 15 years since we have been collecting the data.
Of the various sub-sectors making up the services sector of the economy, the BER’s surveys have covered the domestic trade sectors (i.e. the retail, wholesale and motor trade) since their inception in the 1950s. In 2005, the BER expanded the surveys’ sector coverage to select other services sectors, namely catering (restaurants and take-away outlets), accommodation (hotels and guest houses), transport, real estate and business services. (For more information on the sector coverage and how these sectors differ from those that the BER have been reporting on for many decades, see the section “Background” at the end of the release.)
The current heightened COVID-19-induced uncertainty, delays with the release of some of the official data, and recent financial support to cover the cost of conducting the survey created the ideal opportunity and means for the BER to make the results of this long-running survey public for the first time. The long time series also allowed us time to first validate the survey’s reliability before making it public.
The fieldwork for the second quarter survey was conducted online between 13 May and 1 June and covered about 450 senior executives. It, therefore, took place during risk level 4 and the announcement of the switch to the less restrictive level 3 on 1 June.
At risk level 4, most businesses were prohibited from operating or could only operate on a limited scale – barring those producing and selling essential goods or inputs to essential producers and suppliers. Of the different other services sub-sectors, only the transport of essential goods was permitted under risk level 4. Business service providers could, in effect, also continue operating, in as much as their staff could work from home.
The unmatched drop-off in activity in the other service sector could be attributed to the lockdown restrictions, as well as the sector’s linkages to other sectors in the economy.
- Restaurants and hotels. All businesses were closed during risk levels 4 and 5. Even if these establishments were allowed to remain open, the demand for their services would have crashed, as local and international leisure and business travel, which forms a crucial part of hotels and restaurants’ business, was prohibited. During this time, people were also not allowed to leave their homes except to buy basic necessities and for medical treatment.
- Although the transport of essential goods was permitted during risk levels 4 and 5, activity in the transport sector nevertheless plunged, as the movement of essential goods makes up a relatively small share of the total sector. The closure of non-coal mines and most manufacturing plants, the shutdown of almost all international trade in April (level 5) and the cancellation of capital projects had a huge adverse impact on land freight transport volumes.
- Government agencies providing non-essential services, such as the deeds office, were closed during this time. This severely affected the real estate sector, as past and new property transactions could not be concluded.
- Although most business service providers could continue operating during the lockdown, the demand for business services plummeted. The diminished work could be attributed to 1) the business service sector’s close linkage to other sectors of which the majority were not allowed to operate, 2) the private and the public sector’s cost-cutting and cash conservation measures (including delayed payment of past invoices) and 3) specific cases where the nature of the work does not allow for it to be conducted from the homes of staff. An example of the first is that the renewed cutbacks and outright cancellations of capital projects as a result of the deterioration of the current economic situation and outlook came on top of the already dire state of the building and construction sector. As a result, consulting engineers and other professionals supplementing the sector, such as architects, quantity surveyors and interior designers, experienced a further huge fall-off in work. Another example is legal services that depend on work from the real estate sector and other businesses. An example of the third reason is auditing and certain other accounting services that could only be provided on the client’s premises. Other examples include training, aspects of management consulting, conferences and exhibitions.
Since the survey was completed, South Africa moved to risk level 3 and advanced level 3. Restaurants werepermitted to introduce takeaway food for pick-up or self-collection under level 3. Under advanced level 3, they were permitted to accept sit-downs, but with reduced capacity and strict hygiene measures. Also, local business travel across provincial borders and hotel stays were allowed for the first time. The other services sector will benefit from this gradual lifting of the restrictions, but the road to full recovery and the return to pre-lockdown levels is likely to be slow and bumpy.
Along with the record low Q2 reading for the RMB/BER Business Confidence Index and the close to all-time low for the FNB/BER Consumer Confidence Index , the results of the other services survey provide further evidence that South Africa suffered a historic GDP decline in the second quarter.
Consult the BER web page (www.ber.ac.za) for more information about the business tendency survey method.