Business confidence in Durban has declined for the second quarter of this year, as load-shedding, poor service delivery, crime and recurring natural disasters persist.
Researchers at the University of KwaZulu-Natal’s macroeconomics research unit compiled the Durban Business Confidence Index (BCI) report for the second quarter of 2023.
The BCI helps determine the current economic atmosphere and future direction of commerce, monitor output growth, and present an advance warning of turning points in economic activity.
The index is compiled using data collected from the business community through surveys. The index ranges from zero to 100 — if it is less than 50, it implies pessimism regarding the current and future economic environment; equal to 50 means the business situation is neutral; and greater than 50 denotes optimism about economic prospects.
During the second quarter of 2023, business confidence in Durban declined to 37.28 from 43.27 in the previous quarter.
This is a second consecutive decline of the index after another dip in business confidence in the municipality from 44.04 in the fourth quarter of 2022 to 43.27 in the first quarter of 2023.
The researchers say the downward trend mirrors the overall national business confidence, which has been declining for five consecutive quarters.
“The Durban business confidence index, however, remains higher than the national average, which stands at 27 index points.”
The researchers attribute the decline to factors such as ongoing electricity rationing, public policy uncertainties, the breakdown in diplomatic relations between the US and South Africa, and weak economic performance including lacklustre growth, cost pressures, and a series of interest rate increases.
The business confidence index of 37.28, however, conceals significant variations across different sectors. For instance, business confidence in the financial sector has, according to the Durban BCI, been steadily declining, dropping from 37.73 in the first quarter of 2023 to 35.22 in the second quarter of the year.
“This decline can be attributed to the challenging economic and financial conditions prevailing in both domestic and global economies.
“Central banks worldwide, including the South African Reserve Bank, have been implementing tight monetary policies to mitigate the escalating cost of living.”
Reports of torching of heavy-duty trucks in Kwazulu-Natal and other provinces are highly likely to have adverse effects on business confidence, not only in Durban, but also in the KwaZulu-Natal and the whole country.
— Durban Business Confidence Index (BCI) report
Community, social and personal services is another sector experiencing a substantial decrease in business confidence. The sector has witnessed consecutive quarterly declines in business confidence from 46.51 in the first quarter of 2023 to 39.96 in the second quarter.
In contrast to the national business confidence index, the manufacturing sector has shown improved business confidence in the second quarter of 2023 compared to the previous quarter.
“Business confidence in this sector has risen from 30.8 in the first quarter to 34.75 in the second quarter of 2023, which is likely attributable to the recent enhancements in the country’s electricity supply. It is noteworthy, however, that the improved business confidence in this sector remains significantly below the normal level.
“This could be explained by rising costs (primarily due to increasing interest rates), and lower-than-expected activity due to the ongoing electricity shortages.”
The report also shows the transport, storage, and communication sector experienced a decline in business confidence, dropping from 66.88 index points in the first quarter of 2023 to 44.51 index points in the second quarter.
“This decrease can primarily be attributed to escalating fuel costs, uncertainty stemming from the looting incidents in KwaZulu-Natal, and the recurrent natural disasters affecting the province, particularly Durban.
“The recent torching of heavy-duty trucks in KwaZulu-Natal and other provinces is expected to have a further depressing effect on the transport, storage, and communication sector.”
The report also indicated that service delivery perceptions in Durban worsened in the second quarter of 2023, partly explaining the decline in confidence.
Among those surveyed, 84.6% stated that if they (or anyone else) reported a “poor service delivery” complaint, it was very unlikely the authorities would attend to it. This represents a 6.6 percentage points increase in the proportion of surveyed participants that hold this view.
On the list of the poorest services provided by the government, the environment (sewerage, solid waste and parks) is at the top (30.8%), followed by electricity (23.1%), roads (21.2%) and public safety (police, fire, and ambulance) at 21.2%.
The recent police recorded crime statistics reveal public safety is deteriorating in KwaZulu-Natal. According to the South African Police Service, in the first quarter of 2023, community-reported serious crimes increased by 17.1% in Durban and 5.1% in KwaZulu-Natal.
Respondents also identified the cost of labour as the most limiting factor (36.5%) to business performance in Durban.
“The high rate of inflation continues to cause disorder in the Durban economy with cost pressures weighing on the profitability of businesses as well as palpable stress on household consumption.
“Given the high inflation rates, the monetary authorities implemented tight monetary policy by increasing the repo rate from 7% at the end of 2022 to 7.25% in January 2023, 7.75% in March 2023 and 8.25% in May 2023. Since November 2021, the repo rate has been increased 10 times consecutively.”
The report also found the rand volatility reflected the uncertainty in the economy and has a propagating effect on the Durban and KZN economies, especially on international trade and input costs of production, as investors are sceptical about their expected rates of return on investments.
It is estimated that trucks in South Africa transport nearly two-thirds of total freight weight and about three quarters of total freight value.
“Given the below-normal and declining business confidence in Durban and South Africa, the news of heavy-duty trucks being torched will further worsen the business confidence levels, which may have negative effects on investment, employment and growth,” the report states.
“KwaZulu-Natal is yet to fully recover from the floods that hit Durban in April 2022. This is the most devastating disaster that has hit the province in terms of loss of life, infrastructure damage and economic impact.
“In addition, the continued electricity shortage, and the recent ‘tornado’ that hit parts of Inanda in Durban, damaging water pipelines, power lines and property, have further caused a major setback in the recovery process.”
eThekwini municipality has set up an emergency joint-operations team to co-ordinate the response to the damage caused by the “tornado” and heavy rains in areas within Inanda. This is likely to burden the local budget further, the report stated.
“One of the sectors likely to be hardest hit is tourism, as visitors to Durban worry about their safety.”
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