The run up to the US elections in November have kept the world transfixed on both Hillary Clinton and Donald Trump for a variety of reasons some good and some not so good. Hillary Clinton has already made history by becoming the first female candidate to be nominated by a major political party in the US and if the democrats win in November she will become the first ever female president.
It could be argued that Donald Trump on the other hand is the most controversial candidate ever to run for president. Those in favour of this point of view would likely highlight some of his most contentious statements such as the need to build a wall to separate the US and Mexico as well as banning Muslims from entering the US. This has all made for a very interesting and surprising election year.
While not nearly as widely followed, municipal elections recently took place in South Africa leading to similarly surprising and interesting results. The ANC has for the first time since the country became a democracy has seen its unwavering majority support falter resulting in its greatest ever election losses. While this may be seen as a turning point for South Africa politically and socially the same cannot be said economically as the state of the economy remains dire.
The most developed economy in Africa is in a precarious position according to executives representing firms in the retail, manufacturing, wholesale, motor trade as well as the building and construction sectors. The majority of whom have explicitly stated that prevailing business conditions are unsatisfactory according to the Bureau for Economic Research (BER).
During the second quarter of the year the wholesale sector’s confidence levels dropped below the 50% neutrality mark joining the other four sectors. Business confidence in the retail sector has seen 74% of gross respondents unsatisfied with prevailing conditions. In the wholesale sector 53% and in the building and construction sectors 62% of respondents’ rate business conditions as unsatisfactory. The sectors which have the bleakest outlook on business conditions are motor trade and manufacturing which registered 75% and 77% unsatisfied levels respectively.
The composite business confidence index which represents the unweighted mean of the five sectoral indices decreased by 3.8% from the first quarter of the year to reach its lowest levels since the first quarter of 2001. The index has steadily trended downward to its current levels with only 32% of gross respondents having satisfactory outlooks on prevailing business conditions since the last quarter of 2014.
This is will be considered by many to be worrying given that the BER’s composite business confidence index has over the years proved to be a reliable leading business cycle indicator according to Mr George Kershoff of the bureau. It can therefore be expected that economic growth, private fixed and inventory investment could decrease in the next 9 to 12 months as indicated by the drop in business confidence levels.
Whether it is just naïve optimism many people and firms will be hoping for a turning point around the corner after six consecutive quarters of decreases in business confidence. According to the BER, business confidence tends to rise when an increase in business activity matches or surpasses previous expectations as well as the external environment remaining stable.
The municipal elections have indicated the biggest political change that South Africa has seen in a quarter of a century. Many will be hoping that this change in the political arena could help facilitate a change in the country’s economic prospects. Whether or not a change in the political landscape will lead to a more stable external environment to help foster business activity and in doing so lift business confidence remains to be seen.