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Authors: Harold Ngalawa and Ntokozo Nzimande, Macroeconomics Research Unit, University of Kwa-Zulu-Natal
April 2024

The Durban BCI

The confidence in Durban's business atmosphere remains relatively unchanged in Quarter 1 of 2024 compared to Quarter 4 of 2023. Durban’s Business Confidence Index(BCI) marginally increased by 0.3 index points from 38.12 in the fourth quarter of 2023 to 38.42 in the first quarter of 2024 (see Figure 1). By contrast, business confidence in Durban remains slightly above the national business confidence, which registered a decline in the first quarter of 2024.

The national index dropped for the second consecutive quarter in the first quarter of 2024 from 33 in Quarter 3 of 2023 to 31 in the following quarter and 30 in the first quarter of 2024. The persistently low confidence at both the national and Durban levels is concerning. While the national and Durban's figures differ, they both indicate that at least 6 out of 10 people surveyed had no confidence in the economy. The low index at both national and Durban City levels is not surprising, especially because of the upcoming elections scheduled for 29 May 2024. Elections are typically associated with policy and economic uncertainty. Thus, investors tend to be sceptical about the economy until certainty is re-established.

The reported overall index, however, masks significant heterogeneities across the sectors of the economy. Community, social, and personal services experienced a sizable increase in confidence from 26.52 index points in Quarter 4 of 2023 to 35.05 points in the first quarter of 2024. This represents an increase of 8.5 index points quarter-on-quarter (Q-o-Q).While the sector’s index rose by 32% Q-o-Q, it declined by 24.6% Year-on-Year(Y-o-Y).

The manufacturing sector also recorded an increase in confidence, rising from 33.08 in Quarter 4 of 2023 to 39.83 index points in the first quarter of 2024 (i.e., a 6.03 index points increase). This represents a 20% increase in Q-o-Q confidence, demonstrating the resilience of the sector in the City of Durban. Furthermore, the manufacturing sector recorded a 29% Y-o-Y improvement in the sector’s business confidence.

These improvements may be attributed to positive strides in electricity supply, which has long troubled the country’s economic prospects. The stabilization of interest rates, with a strong likelihood for a decrease towards the end of the year, along with the relatively stronger rand, could also explain the improved confidence in the manufacturing sector.

Wholesale and retail trade, repair of motor vehicles, motorcycles, and personal and household goods, catering, and accommodation significantly contributed to the improved confidence in Durban. This sector experienced a 12.34 index point increase in the first quarter of 2024. In the fourth quarter of 2023, the sector's confidence was at 27.7 points and rose to 40.4 in the first quarter of 2024. This increase can be attributed to a slight decrease in prices combined with the stabilization of interest rates. However, downside risks persist in this sector due to escalating energy prices, which could drive inflation up and consequently necessitate an interest rate hike.

The electricity sector also recorded significant improvements, with confidence recorded at 39.83 in the first quarter of 2024. This improvement is reflected in the sector’s Y-o-Y growth in confidence of 22%. This demonstrates confidence in the measures, among other things, to fix the country’s electricity supply shortages. The improvements in this sector could be a contributing factor to the confidence gains by other sectors as well.

Service Delivery

Satisfaction with service delivery remains relatively low in Durban. Among the participants in the survey, 90.7 % reported that if they or anyone else complained about poor service delivery, it is very unlikely that the relevant authorities would address the problem within a reasonable period, while only 9.3% were positive that the authorities would address the problem within a reasonable time frame. Among the poorest services provided in Durban, electricity tops the list (34.9%) as the worst followed by water (20.9%), public safety (police, fire and ambulance) (16.3%), environment (sewerage, solid waste and parks) (16.3%) and roads (11.6%).

Review of Selected Macroeconomic Indicators

Real GDP

The country’s GDP growth rate remains below par. In the fourth quarter of 2023, South Africa’s real GDP grew by 0.2%, a marginal improvement from a decline of 1% in the previous quarter. The improvement in the country’s real output growth, albeit marginal, may be attributed partly to a reduction in load-shedding hours. According to Eskom, load-shedding hours declined from 1,801.25 during the period December 2022 to February 2023 to 1,217.98 hours during the period December 2023 to February 2024. In the same period, load-shedding days declined to 57 during the period December 2023 to February 2024 from 78 in the period December 2022 to February 2023 (see Table 1). More needs to be done to minimise or even eliminate load shedding in the country.

South Africa’s real GDP growth is expected to remain subdued in the first and second quarters of 2024, especially given the impending general elections, which are likely to put investors in a wait-and-see position.

Interest and inflation rates

The REPO rate remained unchanged at 8.25% throughout the first quarter of 2024 (see Figure 3). This was the third consecutive quarter that the South African Reserve Bank(SARB) has decided to keep the REPO rate unchanged. The last time the REPO rate was adjusted was 26 May 2023. The SARB uses the REPO rate as the primary operating tool of monetary policy in its attempts to control the rate of inflation. In the first quarter of 2024, inflation rose from 5.1% in December 2023 to 5.3% in January 2024 and 5.6% in February 2024 (Figure 4).While the REPO rate is significantly above the rate of inflation, suggesting that a decrease rather than an increase in the REPO rate is likely to happen, the recent upward pressure on inflation rates may explain the central bank’s reluctance to reduce interest rates.

Exchange Rates

The South African rand (ZAR) lost 3.38% of its value against the United States dollar (US$) between January and March 2024, compared to a loss of 5.07% value against the same currency in the fourth quarter of 2023. At the beginning of January 2023, the local currency traded at ZAR18.3500/US$ compared to ZAR18.9926/US$ at the end of the quarter. In the previous 12 months, the rand depreciated by 5.78% against the US$(see Figure5).

A currency that is consistently depreciating against major trading currencies (such as the rand over the previous year) tends to adversely affect the local economy by increasing uncertainty and interest rates, inhibiting foreign direct investment and increasing inflation volatility.

Post Script

The Durban Business Confidence Index (BCI) is a measure of the present mood or sentiment of business people in conducting their day-to-day business in the greater eThekwini Municipality. The index ranges from 0 to 100, where the extreme values of 0 and 100 represent a complete lack of confidence and full confidence, respectively, in the local (Durban) economy. A BCI of 50indicates that the business situation is normal/neutral, less than 50 denotes a lack of confidencein the Durban economy, and greater than 50 shows confidence in the economy. The Macroeconomics Research Unit (MRU) at the University of KwaZulu-Natal computes the index once every quarter using survey data on business conditions and business expectations

For more information on the DBCI or its methodology, contact Dr Nuthan Maharaj from eThekwini Municipality's Economic Development Unit on nuthan.maharaj@durban.gov.za or Prof. Harold Ngalawa from UKZN's Macro Economic Research Unit, on ngalawa@ukzn.ac.za.

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