The ‘business confidence’ effect

“Confidence is contagious. So is lack of confidence” – Vince Lombardy

Business confidence in its most basic form is the optimism or pessimism of business in future economic conditions. This in most instances drives their willingness to invest, hire people and expand operations. According to a report by United Nations Trade and Development (UNCTAD), several factors beyond economic determinants are increasingly shaping investment decisions. These include trends in global value chains, technological advancements, geopolitical dynamics, and environmental concerns.

The Minister of Finance has on numerous occasions conceded that economic growth is the only solution to the country’s fiscal challenges and spending ambitions. However, in the last 15 years, the economic policy and its implementation has left some concluding that “having no plan seems to be the plan”.

Similarly, various Ministers have had to concede that infrastructure is the life blood of an economy, and South Africa’s ageing, stolen and failing infrastructure has the economy on life support. The National Development Plan had set a goal of gross fixed capital formation of 30% of GDP by 2030, which is 5 years from now. That’s R2 trillion at 2023 GDP.

The 2024 Budget clearly shows that the country is below 15% and has been continuously declining since South Africa changed its economic and fiscal policies in 2009.

So, does the data provide confirmation as relates to the correlation between business confidence and investment appetite as noted by UNCTAD? The South African Chamber of Commerce and Industry (SACCI) Business Confidence Index below clearly shows that business confidence increased steadily after the dawn of democracy, with and business enjoying the fruits of a stable and positive economic and fiscal policy. However, the 2007 global economic crisis together with the political change in economic and fiscal policy witnessed in 2009 has continued to dent business confidence, further exasperated by the COVID-19 pandemic in 2020.

It is not just capital investment that has tracked business confidence. The IMF economic growth data shows a similar pattern between 1994 and 2024. It took a few years to settle business confidence and similarly GDP growth, but by 2000 data showed growth in all the metrics, even outperforming world averages and advanced economies. Once again, all 3 metrics take a sharp decline after 2007-2009 and South Africa has unfortunately remained a perennial underachiever in GDP terms ever since.

SONA 2025 promised R940 billion over 3 years in infrastructure spend. Context for business confidence is everything. For example, the 2019 National Water & Sanitation Master Plan estimated a funding requirement of R25 billion in water upgrade backlogs and R332 billion in failing municipal water infrastructure. We know today that this estimate is materially understated with just the City of Johannesburg requiring an estimated R221 billion to repair and upgrade current infrastructure (i.e. not even covering the cost of adding to or expanding its current inadequate infrastructure). Realistic, as opposed to token commitments by government will be required to lift business confidence.

The period between 1995 and 2007 was not just characterised by spending money that improved business confidence, in fact it was the opposite. Success during this period was achieved as a result of a prudent government that promised and delivered on its mandate, doing so by fiscally living within its means and not under the ‘sword’ of debt. This is further supported by the fact that business confidence continued to decline from 2009 notwithstanding government adopting “anti-cyclical spending” measures financed from debt, that would further expand during COVID in 2020. What was also of importance was what the government was spending on, as financed by the debt.

It was not just the private sector that started disinvesting from capital infrastructure. Notwithstanding consistently growing tax revenues, government started in 2009 to disinvest more and more from infrastructure, spending more on operational costs and “social expenses”. To put this into context, the budget of 1994 was a mere R105 billion, in comparison the 2024 budget revenue of R1,84 trillion would be equal to R559 billion in 1994 (i.e. 5- fold what the first democratic government had to work with).

Similar to what happened in 1994, South Africa has once again come to an economic crossroads, with its leadership needing to make difficult decisions as opposed to politically expedient decisions. However, things may be even worse as we now have a downturn in global value chain, even more unequal technological advancements, geopolitical dynamics, regression in environmental concerns and a rise in nationalism. This whilst facing a low skilled working population, a 43% unemployment rate and embedded dependency of the majority of the population on social spending.

Rebuilding together will require compromises and delivery by both government and business, though it is government who will have to take the first steps to rebuild business confidence. As a country, we should not ignore transgressors, but rather “deal with those to blame” later, as we need to focus on building an inclusive future for all our people now. It will not be easy, the people who ‘have’ may have to contribute more through more taxes and the ‘have nots’ will have to wean themselves off unsustainable social benefit spending. ‘Business confidence’ will have to deal with these challenges, but locally, businesses and citizens alike need to be able to trust in a government that is able to deliver on promises of fiscal discipline and spending priorities that do not further create economic challenges and risks, whilst restoring the economic lifeblood of the economy.

Written by Pieter Faber, SAICA Executive: Taxation

About SAICA

The South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body, is recognised as the world’s leading accounting institute and is home to the leading CA designation in the world The Institute provides a wide range of support services to more than 60 000 members and associates who are chartered accountants (CAs[SA]), as well as associate general accountants (AGAs[SA]) and accounting technicians (ATs[SA]), who hold positions as CEOs, MDs, board directors, business owners, chief financial officers, auditors and leaders in every sphere of commerce and industry, and who play a significant role in the nation’s highly dynamic business sector and economic development.

SAICA is a member of Chartered Accountants Worldwide (CAW), a global family that connects over 1,8 million fellow Chartered Accountants and students in more than 190 countries. Together, we support, develop, and promote the role of Chartered Accountants as trusted business leaders, difference makers, and advisers.

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