- 29th Sep 2023
- Posted by: Gil Harper
- Category: Uncategorised
iLembe businesses still embrace a pessimistic outlook, survey finds
While the latest measurement of business confidence in the iLembe district features negative sentiment, there is optimism that the outlook can improve with certain interventions.
Dark clouds still hang over businesses in the iLembe district – the iLembe Business Confidence Index (iBCI) for mid-year 2023 has recorded negative business sentiment.
The iLembe Chamber of Commerce, Industry & Tourism and Enterprise iLembe believe a responsive and effective public sector, refurbishing ageing infrastructure, enhancing law and bylaw enforcement, curbing community unrests, reining in the cost of doing business and removing red tape, are all necessary for businesses to overcome the numerous structural and economic challenges.
The iLembe Chamber of Commerce, Industry & Tourism, in partnership with Enterprise iLembe, collaborate to produce the iLembe Business Confidence Index (iBCI), aimed at providing a biannual picture of business confidence in the iLembe district, as well as an overall business outlook.
The iBCI is a hybrid index derived from, firstly, a biannual business survey conducted in the iLembe district, and secondly, a weighted index of financial and economic activity variables.
Linda Mncube, CEO of Enterprise iLembe, said greater impetus is required to improve the overall business confidence in the district.
“The repairs to critical road infrastructure, ensuring energy security, turning the tide on high inflation and the conclusion of the ongoing business rescue processes at Tongaat Hullet and Gledhow Sugar are some of the critical interventions to restore confidence back into positive terrain.
“The Tourism, Catering, Accommodation, and Property Management sector is still in the negative territory, which is concerning as they are key contributors to the district economy. It should, however, be acknowledged that the recent tourism industry research confirmed that this sector is firmly on an upward trajectory following the slump induced by the pandemic. The contribution made by this sector to the GDP of the district during the first half of 2023 is now more than the pre-pandemic figures in 2019 (2023= R3.4bn, 2019= R2.2bn).
“Notwithstanding the prevailing negative sentiments, it should be acknowledged that the economic activity component of the iBCI is above 50 index points, signifying the resilience and continued robustness of the district economy,” said Mncube.
iLembe Chamber CEO, Cobus Oelofse, said a further decline in business confidence was concerning, especially since it further embeds negative sentiment from previous periods.
“The iBCI 2023 Mid-Year was shaped by several macro and local factors – Eskom’s power generating woes with more Gigawatt hours being load shed in the first five months of 2023 than in the whole of 2022; damaged electronic equipment; reduced production capacity and increased operational costs as businesses invest in load shedding mitigation measures.
“The cost-of-living crisis manifested itself in fuel, fertiliser, and stubbornly high food prices, setting the trend for headline inflation.
“Locally, the ongoing delay in repairs to infrastructure, specifically critical roads, following the KZN floods of 2022, the continued beach closures in the neighbouring eThekwini Metro, and business rescue interventions at Tongaat Hulett and Gledhow Sugar, formed the background to a challenging 1st half of 2023.
“There is some optimism in that the private sector and all levels of government within the iLembe district are committed to dynamically partnering on specific initiatives to stabilise our economy, and that will aid the viability and growth of small and medium enterprises and secure investment in key economic sectors and geographies in our district,” Oelofse said.
Highlights and key findings
- Negative business sentiment resulted in the iBCI 2023 Mid-Year (i.e., both the Survey and Economic Activity Indices) being recorded at 48.3 index points, a decline of .7 index points compared to the second half of 2022, and a 1.8 index point decline Y/Y.
- The iBCI Survey Index component, in which regional businesses leaders and investors indicate their sentiment about the region’s economic and business performance, was firmly entrenched in negative territory at 40.6 index points.
- The iBCI Economic Activity Index element was recorded at 55.9 index points, the fifth successive period of positive economic activity for the iLembe district.
All business indicators included in the iBCI Survey Index were recorded in the negative.
Sales Volumes (34.9;<10.6), as a measure of business performance, return on sales efforts and trading location, and Order Book (38.4;<0.1), as a leading indicator of market depth and liquidity, remained firmly entrenched in negative territory.
Levels of Employment (48.4;>8.4) persistently remain in the negative, despite the improvement recorded. Sentiments around job retention and creation are symptomatic of the challenging economic conditions.
With regard to business sentiment per economic sector, only two sectors recorded positive business confidence, i.e., above the neutral level of 50 index points.
The sectors that recorded positive sentiment are Transport, Warehousing, Storage sector (56.5;>22.7), and Arts, Culture & Creative Industries sector (75.0;>17.5), also the most confident sector.
Business sentiment in other critical economic sectors in the region were in the negative, namely Manufacturing, Assembly sector (28.4;<1.6), Agriculture, Forestry, Hunting sector (37.0;<3.5), Construction, Property Development, Property Sales sector (46.4;>5.7) and the Tourism, Catering, Accommodation, Property Management sector (46.5;>2.5).
Manufacturing, Assembly sector
The Manufacturing, Assembly sector remains the least confident business sector, with sentiment being recorded at the lowest levels since the introduction of the iBCI – lower than the levels seen during the pandemic and 2021 unrests.
Loadshedding, load curtailment and power outages remain the primary drivers of dampened sentiment in the sector. The factors impact directly on production downtime, output capacity and profitability, and filtering through to business sentiment as well.
The cost-of-living challenges and subdued local economic growth have left manufacturers with not only a reduction in sales volumes, as indicated above, but also with limited opportunity to pass on factory gate price inflation.
Agriculture, Forestry, Hunting sector
Sentiment in this sector declined by a further 3.5 index points to a confidence level of 37.0 index points – a position best summarised by the recent newspaper headline “KwaZulu-Natal’s sugar industry is enduring a long, long winter”.
Gledhow Sugar Mill’s announcement that it is voluntarily commencing business rescue proceedings, short on the heels of a similar move by Tongaat Hulett in October 2022, set the tone for sentiment in this sector.
Reports of payment defaults and the escalation in fertiliser and fuel prices are contributing to the dejected sentiment in this sector.
Construction, Property Development, Property Sales sector
The slump in business sentiment in this sector stalled with an improvement of 5.7 index points, although business confidence in this key sector in the iLembe district’s economy remains firmly in the negative.
Views expressed by responding businesses in this sector once again highlighted delayed planning approvals, unwieldy building control processes, development of infrastructure, expectations around developers’ contributions towards infrastructure development, and increasing concern about the capacity of especially road infrastructure and resulting traffic congestion.
These constraints are magnified in periods of rapidly increasing input costs, and higher inflation in general, with respondents stating that it is not uncommon for developers to rework development costs, and return on cost, numerous times in between development plan submissions.
An increase in the illegal occupation of private property, and land invasion in general, were highlighted as a growing concern.
Tourism, Catering, Accommodation, Property Management sector
Business confidence in this sector remained entrenched in the negative, despite an improvement of 2.5 index points during the previous six-month period.
This dampened sentiment persisted despite the delivery of a hugely successful 2023 edition of the Ballito Pro Surfing competition, with its popular ancillary activities, that provided a boost to holiday accommodation, with occupancy levels of 95% and above being reported, and the hospitality industry in general.
The inaugural ZA Fest, which featured the Ndlovu Youth Choir, and the international surfing competition, the Ballito Pro, added to the KZN North Coast’s destination appeal.
The ongoing water quality issues plaguing the neighbouring Metro resulted in the closure of seven Durban and wider eThekwini Metro beaches immediately prior to the commencement of the mid-year school holidays. Fears were expressed that impressions might exist that these issues extend onto the KZN North Coast, and that brand North Coast becomes collateral damage.
Confidence within municipalities
In line with the business sentiments expressed by respondents in the Manufacturing, Assembly sector, the Mandeni Local Municipality (22.0;<9.9), which hosts the Isithebe Industrial Estate, the manufacturing heartland of the iLembe district, remained the least confident region in the iLembe district. The most confident local municipality remains Maphumulo (60.0;<12.5), whilst business sentiment in KwaDukuza (41.5;<2.5) declined to entrench itself in the negative.
The iBCI Survey component also reflects on business expectations and business outlook over the next six months. Business expectations for the second half of 2023 remain marginally in the negative, being recorded at 49.7 index points, 9.1 index points more positive than the current sentiment. The Activity Index of the composite iBCI was recorded at 55.9, confirming that the general business climate in the region is potentially better than what businesses perceive it to be according to the Survey Index (40.6).
The two market related indicators of Market size, and the economic decline, and Competitiveness and adaptability, were indicated by 62% of participating businesses as primary constraints to conducting business in the iLembe district. The public sector indicators of Service delivery & infrastructure provision (38%), Regulations and compliance (23%), and Property rates and taxes (29%) were selected by all the business respondents as primary business constraints.
Several macro and local factors formed the background to a challenging first half of 2023, reflected by the iBCI 2023 Mid-Year remaining in the negative.
The iLembe Chamber of Commerce, Industry & Tourism and Enterprise iLembe are of the view that a concerted effort is required in addressing the “basics” viz. a responsive and effective public sector, refurbishing ageing infrastructure, enhancing law and bylaw enforcement, curbing community unrests, reining in the cost of doing business and removing red tape. These elements are all essential for local businesses to overcome the numerous structural and other modern economic challenges.