BUSINESS confidence in eThekwini Municipality surged to 63.01 in the third quarter of 2024 (2024Q3) from 55.49 in the previous quarter (2024Q2), according to Prof Harold Ngalawa and Dr Ntokozo Nzimande from the Macroeconomics Research Unit, University of KwaZulu-Natal.
The Durban BCI
The authors explain that confidence in Durban’s business environment continued on a positive trajectory in 2024Q3. In the second quarter of 2024 (2024Q2), the Durban business confidence index (BCI) was recorded at 55.49, above the 50-point mark reflecting confidence in the business conditions in Durban, for the first time since the index was started in 2022.
The trend was maintained in 2024Q3 when the index rose by 7.52 index points, reaching 63.01. This represents a year-on-year (Y-on-Y) improvement of 41.02%. Although the Durban BCI typically moves in the same direction as the national BCI, it remains significantly higher than the national index computed by the Bureau of Economic Research (BER). The BER national BCI improved by 3 index points in 2024Q3, from 35 in Q2 to 38 in the following quarter.
Overall, all sectors registered improvements in business confidence, resulting in a noteworthy increase in the overall BCI. These improvements are attributable to several factors, including easing macroeconomic conditions. The performance of the Rand has greatly improved, resulting in a decline in petrol and diesel prices. The decrease in inflation and expectations thereof has resulted in interest rate cuts. On the political front, the situation appears stable following the establishment of the Government of National Unity (GNU).
In KwaZulu-Natal (KZN), where Durban is located, the Government of Provincial Unity (GPU) also appears stable. These structures of government allow political parties to leverage each party’s strengths for the greater good. In addition, they ensure increased accountability and transparency, which, in turn, increase optimism and hence confidence in the business atmosphere.
Disaggregating the data reveals large differences in the dynamics across sectors. For instance, in the ‘agriculture, hunting, forestry, and fishing sector’, business confidence rose from 40.12 in 2024Q2 to 70.3 in 2024Q3. This represents a quarter-on-quarter (Q-on-Q) change of 75%, indicating a strong rebound of business confidence in the sector. On a Y-on-Y basis, business confidence increased by 45% in 2024Q3.
In the manufacturing sector, business confidence continued to rise in 2024Q3, increasing from 50.8 in 2024Q2 to 62.94 in 2024Q3. This presents a 23.89% increase in business confidence. This increase is attributable to several factors, such as the decline in fuel prices (that consequently reduces the cost of production), stable electricity supply, and stable macroeconomic conditions, which result in strong demand for goods and services.
Previously, poor electricity-related service delivery has been a challenge for businesspeople in Durban. However, in this quarter, only 8.2% of the participants raised concerns about electricity-related services in the city. It is not surprising, therefore, that business confidence in the ‘electricity, gas and water supply’ sector improved, albeit marginally, from 73.81 in 2024Q2 to 75.24 in 2024Q3. This represents a 1.94% Q-on-Q increase. This can largely be ascribed to the recent improvements in electricity supply. For many years, the country has been plagued by electricity shortages that virtually affected all economic sectors and hence business confidence.
Developments in the electricity sector usually spill over to other industries. Accordingly, improvements in this sector will likely bolster business confidence in other sectors, such as manufacturing, inter alia.
The construction sector also experienced an increase in business confidence during the quarter under review. The index increased from 61.59 in 2024Q2 to 68.91 in Q3, representing an 11.88% increase on a Q-on-Q basis and 359.4% Y-on-Y. This reflects the efforts by law enforcement agencies, together with relevant government stakeholders, to fight the scourge of the so-called ‘construction mafias,’ which has destroyed business confidence in this sector.
The ‘transport, storage, and communication industry’ recorded an improvement in business confidence in 2024Q3. The industry experienced a Q-on-Q increase of 12.61%, i.e., an increase from 68.29 points in Q2 to 76.90 in Q3 of 2024.
The ‘Community and Social Services industry’, on the other hand, witnessed a 10.67% decline in business confidence from 50.31 in Q2 to 44.94 in 2024Q3. This is the only sector to experience a decline in business confidence in the third quarter of 2024.
A 6.62% Q-on-Q increase was recorded in the ‘financial intermediation, insurance, real estate, and business services’ sector. This implies that business confidence in the sector increased from 54.04 in the second quarter to 57.62 in the third quarter of 2024. This represents a 60.31% increase in business confidence on a Y-on-Y basis. These improvements largely reflect the easing of financial market conditions. The South African Reserve Bank (SARB) recently slashed the repo rate from 8.25% to 8% (in September 2024), following the slowing down of inflation and expected inflation, as well as the easing of inflationary pressure in the US and the Euro-zone. The interest rate cut implies a cheaper cost of credit and improved economic conditions.
The wholesale and retail trade sector, including the repair of motor vehicles, motorcycles, personal and household goods, catering, and accommodation, significantly improved in 2024Q3 compared to 2024Q2. The business confidence in the sector increased from 65.97 in Q2 to 67.12 in Q3. This translates into increases of 1.74% Q-on-Q and 13.09% Y-on-Y in 2024Q3. This increase in business confidence is largely explained by the improvement in economic conditions, which implies higher expected aggregate demand. The decline in prices, i.e., inflation, implies increased demand of goods and services in the sector, hence, the strong rebound in business confidence.
On the whole, all sectors, except for the Community, Social, and Personal Services sector, witnessed improvements in the third quarter of 2023. The construction and manufacturing sectors are the biggest gainers or contributors to the improved overall business confidence. As pointed out, these reflect the confidence gains arising from attempts to deal with the issues plaguing the construction sector and the robust and stable macroeconomic conditions in the City, Province, and the rest of the country.
Service delivery
While business confidence has improved, poor service delivery continues to be a major challenge in eThekwini Municipality. In the Survey of Business Opinion used to compute the Durban BCI in the third quarter of 2024, nearly three-quarters of the surveyed participants (73%) reported that if they (or anyone) complained about poor service delivery, it is unlikely that the local municipality will deal with it within a reasonable time. This was a marginal decrease from 76.4% in 2024Q2.
Management of the environment (sewerage, solid waste and parks) was reported as the poorest service provided (29.7% in 2024Q3 compared to 29.1% in 2024Q2), followed by water (27% in 2024Q3 compared to 21.8% in 2024Q2), public safety (21.6% in 2024Q3 compared to 21.8% in 2024Q2), roads (13.5% in 2024Q3 compared to 7.3% in 2024Q2), and electricity (8.1% in 2024Q3 compared to 20% in 2024Q2), in that order.
Given the absence of loadshedding during the quarter, it is not surprising that the smallest proportion of the surveyed participants (8.1%) considered electricity as the poorest service provided by the municipality in 2024Q3 (down from 20% in 2024Q2).
