South Africa Business Sentiment Drops on Politics, State Firms

(Bloomberg) -- South African business confidence fell to the lowest level in four months in July as concerns over political uncertainty and state companies' finances outweighed the positive effects of lower interest rates and higher commodity prices.

An index measuring sentiment to declined to 92 from 93.3 in June, the South African Chamber of Commerce and Industry said Wednesday in an emailed statement. The median estimate of 4 economists in a Bloomberg survey was 93.

Key Insights

• Business sentiment, which surged to a two-year high in early 2018 after Cyril Ramaphosa won the leadership of the ruling African National Congress and took over as president of the country, is affected by indications that the ruling party is divided “on policy, political and factional lines,” the chamber said. That's because these divisions have a direct impact on the government's efficiency and effectiveness in implementing its policies and managing the fiscus.

• Central bank data shows the economy is stuck in its longest downward cycle since 1945. The business chamber said structural deficiencies, including a widening budget deficit, the debt burden created by loss-making state-owned companies such as Eskom Holdings SOC Ltd. and an increase in public-sector borrowing requirements need to be addressed to create a better business environment.

• “Government's own current practice of how leadership and management is appointed to run its businesses and municipalities is where all problems start,” the chamber said. “It is no longer negotiable that government urgently restructures its policies and procedures on how state-owned companies are managed, particularly through the independent appointment of competent boards and management.”

To contact the reporter on this story: Prinesha Naidoo in Johannesburg at pnaidoo7@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Alastair Reed

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