<strong>By: Lullu Krugel, PwC Strategy& Chief Economist for Africa, and Christie Viljoen, PwC Strategy& Economist</strong>

<h2>Urgent action needed on government’s reform agenda</h2>

<span style="font-weight: 400;">The </span><a href="https://www.ber.ac.za/BER Documents/BER-press-release/?doctypeid=1068"><span style="font-weight: 400;">Bureau for Economic Research (BER)</span></a><span style="font-weight: 400;"> reported on November 27 that </span><b>South African business confidence improved slightly in 2019Q4 – though remained very pessimistic. </b><span style="font-weight: 400;">The Rand Merchant Bank (RMB)/BER Business Confidence Index (CCI) increased from a 20-year low reading of 20 in the third quarter to 26 in the current period. After a slippery downward slope since late 2017, the 2019Q4 increase in the BCI was the first improvement in two years. Nonetheless, at current dismal levels, three out of four business people are pessimistic about operating conditions. The BER commented that the BCI is consistent with “an economy bumbling along in near recession-like conditions.” RMB commented that tangible progress on government reform plans are needed before they can conclude that the uptick in sentiment during 2019Q4 signals a turning point for business confidence. </span>

<img class="aligncenter size-full wp-image-140820" src="https://www.cover.co.za/wp-content/uploads/2019/11/Screenshot-2019-11-28-at-07.50.20.png" alt="" width="487" height="298" />

<i><span style="font-weight: 400;">Source: BER</span></i>

<strong>The BER and RMB indicated that business confidence improved between 2019Q3 and 2019Q4 in three out of the five sectors included in the BCI survey:</strong>

<ul>

<li style="font-weight: 400;"><span style="font-weight: 400;">Building contractors’ sentiment improved from 23 to 31 on the back of some recovery in residential activity. However, non-residential building activity remained subdued.</span></li><li style="font-weight: 400;"><span style="font-weight: 400;">Manufacturing companies’ confidence reading improved from 16 to 24. Sentiment remained extremely weak due to poor production levels across most sub-sectors as well as weak export sales.</span></li><li style="font-weight: 400;"><span style="font-weight: 400;">Retailers’ confidence jumped from 17 to 30 despite generally weak sales volumes, with the upcoming Black Friday, Cyber Monday and Christmas shopping campaigns stirring some optimism. (See PwC SA’s perspective on Black Friday/Cyber Monday </span><a href="<https://www.pwc.co.za/en/assets/pdf/black-friday-cyber-monday-2019.pdf>"><span style="font-weight: 400;">here</span></a><span style="font-weight: 400;">.)</span></li><li style="font-weight: 400;"><span style="font-weight: 400;">Wholesale enterprise sentiment edged lower from 29 to 28 due to heavily depressed sales of non-consumer goods.</span></li><li style="font-weight: 400;"><span style="font-weight: 400;">New vehicle sellers declined from 22 to 17 as y-o-y vehicle sales growth turned negative. </span></li>

</ul>

<span style="font-weight: 400;">The business community’s general pessimism is far from misplaced: </span><a href="https://www.markiteconomics.com/Public/Home/PressRelease/3bb1a07f69ff485c835f2c8e99214a37"><span style="font-weight: 400;">IHS Markit</span></a><span style="font-weight: 400;"> recently reported that new business received by private sector firms has now declined for 16 straight months. Both </span><a href="https://www.moneyweb.co.za/news/economy/sa-outlook-cut-to-negative-by-sp-amid-fiscal-woes/"><span style="font-weight: 400;">S&P Global Ratings</span></a><span style="font-weight: 400;"> and </span><a href="https://www.moneyweb.co.za/news/south-africa/moodys-changes-sas-outlook-to-negative-from-stable/"><span style="font-weight: 400;">Moody’s Investors Service</span></a><span style="font-weight: 400;"> have in recent weeks revised their outlooks on South Africa’s sovereign to ‘negative’, reflecting weak fiscal dynamics partly as a result of the slow economy and weak growth prospects. It does not appear that the local and international business community is excited about the country’s prospects and reform agenda. This stands in stark contrast to </span><a href="https://www.gov.za/speeches/opening-address-president-cyril-ramaphosa-second-south-africa-investment-conference-6-nov"><span style="font-weight: 400;">President Cyril Ramaphosa’s comments</span></a><span style="font-weight: 400;"> at the South Africa Investment Conference held earlier this month that the state draws “strength and encouragement from the many business people, investors and entrepreneurs” who – like the government – “see incredible potential in this country”. </span>

<span style="font-weight: 400;">In the aftermath of its annual visit to and consultations with many stakeholders in South Africa, the </span><a href="https://www.imf.org/en/News/Articles/2019/11/22/mcs11252019-south-africa-staff-concluding-statement-of-the-2019-article-iv-mission"><span style="font-weight: 400;">International Monetary Fund (IMF)</span></a><span style="font-weight: 400;"> commented on November 25 that “[a] more decisive approach to reform is urgently needed. Impediments to growth have to be removed, vulnerabilities addressed, and policy buffers rebuilt. Expediting structural reform implementation is the only way to sustainably boost private investment and inclusion.” The IMF sees a window of opportunity for the government to advance its policy and reform initiatives – and recommends timely implementation of the proposals contained in the </span><a href="http://www.treasury.gov.za/documents/mtbps/2019/Towards a Growth Agenda for SA.pdf"><span style="font-weight: 400;">National Treasury</span></a><span style="font-weight: 400;">’s updated economic policy paper. The multilateral organisation added that time is of the essence and the vulnerable economic outlook emphasizes the urgency of reforms. “With delays in structural reforms, growth and social conditions will worsen.”</span>