CEO confidence in South Africa has hit an all-time low, according to the latest Merchantec CEO confidence Index released this week. The index recorded a decrease of 7% from a score of 45.4 points in the second quarter of 2015 to 42.2 points in the third quarter of 2015, persisting at a score below the neutral score line of 50 points. This is the lowest score recorded in the index since its inception in the second quarter of 2009.
The decrease in the overall confidence of CEOs in South Africa is demonstrated by a drop in confidence in the all sectors, namely basic resources, industrials, financial, consumer goods, consumer services and information and communication technology. CEO confidence relating to the current economic conditions, compared to six months ago, dropped by 5% to 30.6 points, with the largest decrease demonstrated by CEOs in the consumer services sector.
Half of South African CEOs indicated that they are looking to expand their operations into Africa in search of growth opportunities. Of this 50%, 44% are expanding close to home in other Southern African countries, while 26% are looking to West Africa and an additional 26% are looking to East Africa. Northern Africa was the least attractive region for CEO’s expansion strategies. About 6% of South African CEOs already have operations running across the continent.
CEOs who are exploring expansion strategies in Africa commented on the presence of Chinese-owned companies operating throughout the continent and the difficulty in beating the lower prices set by these Chinese competitors. The remaining 50% of CEOs, who are not actively pursuing African expansion strategies, are either unable to do so due to their companies currently being in what they call “survival mode” or they are looking to expand offshore.
The largest decrease in CEO confidence related to their planned level of investment in business activities which dropped by 9.4% to 49.7 points. This was primarily driven by CEOs in the basic materials sector.
The only sector to record an increase in confidence relating to their planned level of investment in business activities was the industrial sector.
Consumer services recorded the second largest decrease in confidence, dropping 13.1% to 42.3 points. The decrease in sentiment was primarily driven by a 21% decrease in confidence relating to economic conditions, a 20.3% decrease in confidence relating to industry growth and a 20.3% decrease in confidence relating to their company growth expectations. The score for financials remained in line with the 48.4 points recorded for the second quarter of 2015, while all other sectors recorded a decrease in confidence and dropped further below the neutral score line.
The 23.4% increase in confidence relating to company growth expectations for CEOs in the financial sector was offset by a 14.2% decrease in confidence relating to their ability to secure debt or equity capital, a 5.5% decrease in confidence relating to their planned level of investment in business activities and a 3.5% decrease in confidence relating to their industry growth expectations.
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