Durban business owners have remained pessimistic about the prevailing economic climate of the only metropolitan municipality in KwaZulu-Natal amid continuing electricity and water supply shortages, and collapse of infrastructure.
This comes as the Durban business confidence index (DBCI), released by the Macroeconomics Research Unit at the University of KwaZulu-Natal (UKZN) on Friday, fell deeply in the contractionary territory in the first quarter of 2023.
This report presents the Durban BCI for the first quarter of 2023, which is the third BCI constructed using survey data collected from senior private sector managers in eThekwini Municipality.
Professor Harold Ngalawa, the head of the UKZN Macroeconomics Research Unit, said confidence slipped from 44.04 index points in the fourth quarter of 2022 to 43.27 index points in the first quarter of 2023.
However, Ngalawa said this masked substantial differences across industries.
For instance, Ngalawa said confidence in the manufacturing sector declined by 7.89 index points, from 38.69 in the fourth quarter of 2022 to 30.8 in the first quarter of 2023.
He said this decline was slightly below, albeit comparable to the decline of 9 index points in the sector at a national level, from 26 in the fourth quarter of 2022 to 17 in the first quarter of 2023.
“This is largely ascribed to the ongoing power outages in the country, which have acutely affected sales and production in the manufacturing sector,” Ngalawa said.
“The uncertainty induced by calls for a ‘national shutdown’ that was scheduled for March 20, 2023, may have contributed to the plummeting of confidence in the manufacturing firms.”
However, confidence unexpectedly rose by 24.91 index points to 30.21 in the electricity sector following the declaration of a state of national disaster and appointment of an electricity minister.
The index, however, remains significantly below 50, which shows a lack of confidence in the economy by players in the sector.
In the wholesale and retail trade sector, confidence declined from 58.72 to 26.37 and was consistent with the national level, reflecting the impact of load shedding which has led to a reduction in operating hours and steep costs of running electricity backup equipment, such as generators.
Confidence in the financial sector in Durban fell sharply from 49.97 to 37.73, largely due to tight financial conditions coupled with weak economic growth in the country and globally.
In contrast, the transport, storage and communication sector, which is deemed as one of the pillars of KZN and the City of Durban, experienced an overwhelming rise in confidence.
Confidence in this sector rose by 15.44 index points, from 51.44 in the fourth quarter of 2022 to 66.88 in the first quarter of 2023.
Similarly, the construction sector witnessed an improvement in confidence as it rose from 33 to 66.04 index points.
Meanwhile, the perception of businesspersons on the efficiency of the authorities on service delivery remained unchanged.
According to the DBCI, at least 78% businesspersons surveyed reported that if they (or anyone else) reported a “poor service delivery” complaint, it was very unlikely that the authorities would attend to it.
The survey respondents also reported that among the services provided by the government in Durban, electricity was the worst followed by environmental management, roads and public safety.
According to the DBCI, more than 30% of the businesses in Durban reported having experienced a decline in their production volumes while more than 20% expected this decline to persist to the second quarter due.
This was to the effect that the load shedding has had on businesses, and especially small businesses that can hardly afford to install backup energy systems.
Additionally, more than 40% of businesses in the Durban area also reported having experienced a decrease in their orders/or sales in the first quarter of 2023.
At least 23% expect that the orders will continue to decline in the second quarter due the rising cost of living in the country.
Ngalawa said businesses, small and large, were spending large amounts of money every month to keep the lights on, consequently increasing their direct costs of production.
In addition, he said inflationary pressures arising from high interest rates, weakening of the rand and high electricity tariffs or power generation costs were adversely affecting Durban’s economy through an increase in the cost of living and investment.
“The prolonged electricity shortages, water rationing and infrastructural deficit in the province of KwaZulu-Natal continues to be a major setback and have a severely suppressing effect on growth of the KZN economy as well as business mood of the province,” Ngalawa said.
“The electricity shortage has increased the amount that businesses are paying each month to maintain standard operational levels – whether it be installing solar electricity generation equipment, uninterrupted power supply devices, or heavy-duty diesel generators.”
BUSINESS REPORT