CEO confidence shows recovery

CEO confidence is pointing to a continuing recovery in the economy, according to the Merchantec CEO Confidence Index released today.

The index had continued to rise by four points to 64.18 in the first quarter of 2010, recording its third consecutive quarterly gain from the 2009 second quarter low of 48.13, Merchantec said in a statement.

"Coming off a low base, it is not surprising that CEOs have a more positive outlook this year, compared to the difficult start experienced last year, as a result of the power supply crisis and the global financial crisis," Russell Loubser, CEO of the JSE Limited, said.

The South African financial services sector did not have an impact on the economic crisis as was the case with the rest of the world.

This, he said, was as a result of a strong banking sector coupled with stringent stock market regulations.

"This is reflected strongly in the confidence of financial services CEOs receiving one of the highest scores in the index of 68," he said.

There was a noticeable improvement in the confidence of CEOs in the industrials sector, which included construction companies, with an 11 percent jump to a score of 63.

Loubser believed that the optimistic sentiment shown by CEOs was riding heavily on the upcoming Fifa World Cup.

However, he cautioned that, "the World Cup will come and go, but the fundamental problems that resulted in the economic crisis will continue to exist".

These fundamental problems included, amongst others, difficulties companies were experiencing in raising capital and this was reflected by CEOs' confidence in obtaining debt/equity capital which had not improved quarter-on-quarter, staying constant at 61.

Looking ahead CEOs were confident in both their industry's growth and their individual company's growth as global and local demand for goods and services appeared to be increasing.

"This is as a result of a manufacturing slowdown in 2009 and the depletion of stock levels to a point where stock production has been resuscitated in order to meet demand," said Craig Margolius, corporate finance manager at Merchantec Capital.

Most noticeably, more than half of the CEOs surveyed indicated that they would be increasing the planned level of investment in their companies.

"This increased level of investment could be an indication of companies increasing order books in the coming months," Margolius said.

He said a stumbling block to CEOs' optimistic sentiment was their ability to raise capital with only 50 percent of CEOs responding favourably.

"Even though banks have relaxed lending criteria, the cost of accessing this capital has dampened CEOs' lending capacity and enthusiasm."

According to the index, the basic materials sector showed the largest increase in confidence with a 29 percent increase in the sector's overall score which could be attributed to large shifts in industry growth.

This was further confirmed by resource companies indicating that they planned on investing further by increasing their capacity in the form of capital expenditure.

According to the index, the consumer goods sector showed a rebound scoring 66, which represented a 17 percent improvement on the prior quarter.

This had been echoed by an increase of 3.2 percent in gross domestic product off the back of an improving manufacturing sector.

The CEO Confidence Index collates views from CEOs of top South African companies and is carried out by Merchantec Capital.