SA business feels down and out

[boramk]

Johannesburg - Business confidence is at its lowest level in seven years as the RMB/BER Business Confidence Index (BCI) plummeted by 19 index points to 48 during the first quarter of 2008 from 67 during the last quarter of 2007.

The 19-index point plunge in business confidence is the biggest drop between consecutive quarters in 24 years.

This means that while two-thirds of respondents had been satisfied with prevailing business conditions before, fewer than half are satisfied at present.

The last time confidence fell by such a big margin was during the third quarter of 1988 (when the index declined by 18 points), and before that, during the fourth quarter of 1984 (-23).

Deeper slowdown

"The sharp fall in business confidence during the first quarter of 2008 reflects a deepening slowdown in business volumes, profitability coming under pressure, as well as increased economic and political uncertainty," said the researchers.

While various factors impacted on business volumes, the most important were seen as last year's interest rate hikes, the tightening of credit standards (following the introduction of the National Credit Act), escalating inflation (which erodes the real purchasing power of households and consequently their spending), as well as electricity blackouts in January and February.

The increase in interest rates probably also dampened private sector fixed investment, said the researchers.

In addition to slowing volumes, business confidence was also adversely affected by rising costs, as well as an inability to fully pass on higher input costs to customers in an environment of weaker demand. As a result, profit margins came under pressure.

Uncertainty

"If these developments were not enough, increased economic and political uncertainty also weighed on businesses' mood," said the researchers.

The current BCI survey was the first to be conducted after the December 2007 ANC conference.

"The leadership change has increased uncertainty about the direction economic policies will take in future. This is borne out by the percentage of manufacturers rating the political climate as a constraint, which rose sharply from 34% during the fourth quarter of last year to 49% now," said the survey analysts.

International economic prospects have become even more clouded since the previous survey.

Unsettled

"The surge in the oil price, volatility of equity markets, reports of huge financial losses experienced by international banks, and speculation about an imminent US recession must have unsettled many business people," noted the analysts.

Electricity blackouts in January and February made businesses realise that the uninterrupted electricity supply, which they had taken for granted, will not be guaranteed in the future.

"This might have forced many of them to put contingency plans in place and reconsider expansion and the upgrade of plants," said the researchers.

In terms of the sub-components of the RMB/BER BCI, business confidence dropped to below the 50 breakeven point in both the manufacturing (from 69 to 46) and wholesale sectors (from 80 to 45).

Slower economic growth

New vehicle dealer confidence, which had already fallen below the 50 mark last year, declined even further (from 34 to 30). Retailers' confidence fell sharply from 71 to 52 and building contractors' confidence from 83 to 69.

As the fieldwork of the first quarter survey was completed before Eskom announced the delay of the issuing of electricity certificates for all new building projects bigger than a single house, building contractor confidence could fall even further.

Statistics SA recently reported that economic growth (calculated year-on-year) slowed from a peak of 5.7% during in the fourth quarter of 2006, to 4.9% during in the last quarter of 2007.

"The business confidence results for the first quarter of this year foreshadow a further and likely substantial deceleration in economic growth," concluded the survey analysts.

http://www.fin24.com/articles/default/display_article.aspx?ArticleId=1518-25_2286650

 

[The Cosmos]

only one word

ANC

 

[|tera|]

No, it's because there's no service in this country.

 

[Piepalook]

I can only wonder what LancelotSA will say about this.

He seems to be the only positive person left in this country!

I own a paint franchise.

I saw the sales drop.
And drop....
And drop.....

It started in January this year.
Normally January is not a good month in the paint bussiness.
This has continued till now.

I cannot see it improving.

Construction came to a virtual halt.
Prospects does not look good.

 

[boramk]

My photo business which I started in 1998...

Since 2004

My sales dropped
and dropped...
and dropped...

I make a bit worse than 2004 but count inflation in, thats 50% of what i used to make

 

[sox63]

I was at IT Confidence 2008 yesterday, it should have been called LACK of Confidence 2008.

Anyway what I understood from the market analysts is that some sectors are going into a very BAD time atm, and some, lucky for me IT as well, will continue to grow.

 

[Piepalook]

My photo business which I started in 1998...

Since 2004

My sales dropped
and dropped...
and dropped...

I make a bit worse than 2004 but count inflation in, thats 50% of what i used to make

In January i had to pay money in as i could not cover my overheads.
That is normal for January.

Normally February is a better month. I had to pay in again.

March is a disaster.

Sales even worse than January, thus far.

I get the idea there is no more money to go around.

This is what irks me, people commenting on how good the economic prospects are.
I am at the coalface,and i can assure you there are problems in the economy.
Small bussiness feel the effect first.
Big bussiness follow soon.

 

[boramk]

This is what irks me, people commenting on how good the economic prospects are.
I am at the coalface,and i can assure you there are problems in the economy.

most definatly....

and you know its not only us... its everyone...
i mean i ask my friends hows business, they so "eish, you know" or "bad"

 

[The_Unbeliever]

Yes, ppl are struggling.

Only fat cats gets bonuses and screws everybody extra hard for good measure

 

[Moederloos]

Yes, ppl are struggling.

Only fat cats gets bonuses and screws everybody extra hard for good measure

And cause the problems to begin with.

 

[Piepalook]

most definatly....

and you know its not only us... its everyone...
i mean i ask my friends hows business, they so "eish, you know" or "bad"

Same here.

Things are bad.

And it's getting worse.

 

[LancelotSA]

I can only wonder what LancelotSA will say about this.

He seems to be the only positive person left in this country!

I own a paint franchise.

I saw the sales drop.
And drop....
And drop.....

It started in January this year.
Normally January is not a good month in the paint bussiness.
This has continued till now.

I cannot see it improving.

Construction came to a virtual halt.
Prospects does not look good.

Too many people to try and cheer up (EDIT : In hindsight I have not done much cheering up but said how I see things, sorry maybe next time I can) on this thread but naturally I cannot resist...

Firstly, let me upset Piepalook by asking if he has taken a look at his business model and seen if he can change the way he does business? That was just a dig but it all honesty, you say that sales have dropped and yes they would have. The economic environment in which we currently find ourselves has changed. You would have found your paint sales booming when interests rates were the lowest they have been in years and as a result property sales and building of new houses were flourishing. Everyone felt rich and splurged out on renovating, buying etc. But we all know markets are cyclical... well we all should but we seem to forget. The same way we forget how cold winter gets when we are bitching about the heat in summer and vice versa.

Surprise, surprise it is not only South Africa that is feeling the pinch currently. And in all honesty a share of what we are feeling is as a result of a tightening of the economies of both the US and UK and many other "first world" countries. When a country which accounts for over 25% of world GDP feels it may be entering a recession the rest of us feel it. (Think about it... the US are consumers first and foremost... they love buying Chinese junk to quench their buying desires.... China gets a lot of their resources to manufacture their junk from us... the US feels the pinch and stops buying... so China stops making... and so they have no need to buy from us! It is a global economy we live in) Sub prime problems have not helped.... House price growth in the US is in negative territory, with houses in some places like California losing more than 20% in value! New houses are not being built. Construction is way down. Car sales are way down there too. So I am sure if you have a look at business confidence there you may find it is not looking too hot!

Yes, we do have the double whammy of Eskom too which has affected this.... and that leads on to my next response....

only one word

ANC

I think you will find that the ANC was in power when business confidence was at an all time high, so not sure your point is very valid. Your obvious delight in attacking the encumbent government at any given opportunity is noted...

And to be pedantic, it would have been more accurate to say "only one acronym... ANC".

Yes, ppl are struggling.

Only fat cats gets bonuses and screws everybody extra hard for good measure

Yip, people are struggling but a lot of it is their own doing and what is happening was Tito's ntention. When he cut interest rates he kept saying that people felt it was a time to party, so he warned us to party but not party too hard. He later warned that people were getting into too much debt and that they should stop partying and go home quietly as the reserve bank may be forced to increase interest rates if we did not curb our spending. The problem was people still partied. They still spent on credit cards, took out loans, extended bonds. So much so the credit act was put in place to try and protect the consumer from himself and his insatiable appetite for debt... this slowed things. But still some partied. So Tito increased the interest rates. Again and again. Now unfortunately we have a lot of people being forced to leave the party and stumbling around suffering the after effects. And yes you are right this means a lot of people are suffering financially. They are battling with the added expense caused by th interest rate hikes. And yes this means not much extra money to spend on "luxuries" like paint and photo equipment. They have bigger things to worry about like keeping their house and their cars.... They perhaps should have heeding Tito's (and hence the governments warning)... they acted a bit like government themselves when not listening to reports saying build power stations... funny how there are none so deaf as those who will not hear!

 

[Piepalook]

Then LancelotSA, things are not as rozy as the government wants us to believe?

We have reason to be concerned.

I agree with you on the overspending.

The average South African is so deeply indebted they might not be in a positive financial position for the next 10 years.

I know about the cyclical economy.
I saw it before.

Most people thought this party cannot stop.
But it did.

 

[LancelotSA]

Then LancelotSA, things are not as rozy as the government wants us to believe?

We have reason to be concerned.

I agree with you on the overspending.

The average South African is so deeply indebted they might not be in a positive financial position for the next 10 years.

I know about the cyclical economy.
I saw it before.

Most people thought this party cannot stop.
But it did.

I'm not so sure it is so much a matter of being rosy and not so rosy. You need troughs to have peaks. You need recessions to have growth. As I said we just happened to have the bad timing of this power problem coming to light during one of these global slowdowns... but we would have felt the effects anyway. Remember we have had bull runs around the world now for way too long. They could not be sustained. The markets had to cool down at some point.

 

[pimal3]

Somehow I missed the party the first time around. This time I am beginning to miss eating every day

 

[dlk001]

I was at IT Confidence 2008 yesterday, it should have been called LACK of Confidence 2008.

Anyway what I understood from the market analysts is that some sectors are going into a very BAD time atm, and some, lucky for me IT as well, will continue to grow.

Engineering consulting is booming!

 

[LancelotSA]

Somehow I missed the party the first time around. This time I am beginning to miss eating every day

So what did you do with the savings you made everytime the interest rates went down? If you did not put these into investments or pay the saved amount back into your bond or vehicle finance then you were part of the party...