Business Maverick

SHRINKING ECONOMY

Rolling blackouts dim business confidence, but solar panels a ray of contractor light – RMB/BER

Rolling blackouts dim business confidence, but solar panels a ray of contractor light – RMB/BER
Solar panels at an energy generating facility in Thuengen, Germany 30 July 2018. The RMB/BER Business Confidence Index notes that the scramble for solar panels is a ray of light for contractors in South Africa – especially engineers and electricians.  (Photo: Alex Kraus / Bloomberg via Getty Images)

The RMB/BER Business Confidence Index (BCI) declined further in the first quarter (Q1) of this year, dimmed of course by the relentless onslaught of rolling power cuts. One of the few bright spots was a surge in confidence among contractors and sub-contractors, which RMB attributed to the scramble for solar panel installation. 

The BCI declined to 36 in Q1 from 38 in Q4 last year, when the economy contracted 1.3%. This is further evidence, if any was needed, that the economy is shrinking again this quarter, meaning it has fallen into recession.

Even with that backdrop, some of the numbers were jarring. Manufacturing confidence tanked nine points to 17, in an index with a range of zero to 100. That doesn’t even rate a matric pass rate.

“A level this low is rare, and it speaks to a sector that is bearing the brunt of the combined impact of intense load-shedding and dilapidated [and poorly run] logistic infrastructure. The deterioration in sentiment occurred across various sub-sectors, all of which shared a common feature in falling domestic sales and production,” RMB said. 

“Fixed investment to expand existing production capacity also suffered as demand weakened and capital expenditure budgets were increasingly absorbed by alternative energy generation measures.” 

So spending was diverted from expanding production to things like generators and solar panels, just to keep the lights on.

On that front, the scramble for solar panels is a ray of light for some contractors whose ranks will include engineers and electricians. 

“Confidence of building contractors, the group which is captured in the RMB/BER BCI, declined marginally from 46 to 43 … Strikingly, if we also consider sub-contractors – particularly electricians – confidence and activity in the overall building sector rose massively thanks largely to the installation of backup power. At least for some, load shedding seems to have a silver lining,” RMB said. 


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“Even though this improvement does not reflect in the headline RMB/BER BCI result, the upsurge in the installation of renewable energy and other load-shedding mitigation measures is certainly a boon for the broadly defined building and civil construction sector.” 

The renewable energy drive is one of the few growth areas in this wretched economy, and so one of the few that is getting a tangible bounce in business confidence. At the moment, this is a consequence of sheer desperation: the need for businesses and households to keep the power on in the face of Eskom’s failure to do so. It’s also known as survival mode. 

In the longer run, it will be driven by the need for an economy that is the most coal-reliant on the planet to decarbonise to retain access to key markets such as Europe, which will penalise the import of products with a heavy carbon footprint. 

Beyond that glimmer, the bulk of the BCI’s component parts was grim. The retail sub-index fell sharply to 34 from 42, as high inflation, declining disposable income, and the mounting costs of power cuts in lost trading hours and outlays for diesel for generators drained confidence among retailers.

New vehicle dealer confidence rose to 44 from 41, but remains in negative territory. And one supposes that a car dealer always has to have some faith. 

“… a thin silver lining attached to load shedding must not distract from the devastating blow load shedding specifically, and failing rail, road, and port infrastructure more generally, are inflicting on the economy,” said RMB chief economist Ettienne le Roux. DM/BM

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