Surveys shows a decline in Africa's business confidence
The latest findings of the Global Economic Conditions Survey (GECS) show that the second quarter of 2014 was a particularly difficult time for many African economies.
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The survey, organised by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA), indicates that 45% of respondents in Africa reported a loss of confidence, up from 36% in early 2014, while only 28% (down from 33%) reported confidence gains. Confidence was down throughout the real economy, among large financials and in the public sector.
"This level of pessimism wasn't down to a poor macro-economic outlook among respondents in Africa. This became only marginally more negative since early 2014, with 42% of respondents (up from 41%) believing that conditions were deteriorating or stagnating. The majority remain optimistic - 55% (down from 57%) believe that conditions are improving or about to do so," Karen Smal, acting head of ACCA South Africa, said.
"We can explain only some of the fall in business confidence in terms of fundamentals," said Manos Schizas, senior economic analyst at ACCA. "Access to growth capital became more difficult, cash flow and demand conditions deteriorated, and input prices and exchange rate volatility remained elevated. However, business opportunities rose marginally and opportunities for inorganic growth through business acquisitions or asset purchases remained stable. As a result, business capacity building rose in the second quarter of 2014."
Crisis mentality
"It appears as though a crisis mentality has taken hold among respondents in Africa. Further analysis reveals that business confidence has steadily become decoupled from business opportunities since Q2 2013, and increasingly tied to government spending. Over the last two quarters, business confidence has also become unresponsive to the supply of growth capital. In the latest quarter business confidence has become more sensitive to fears of unsustainable government finances as well as the strength of cash flow and demand. These are all signs of businesses worried about survival, and of a looming crisis," said Schizas.
Globally, the economic recovery has once again run out of momentum, according to GECS. Business confidence fell marginally in Q2 2014, and is becoming increasingly reliant on financial stability. The two bodies believe that this is a sign of mounting risks for the future of the recovery. Although the change in business confidence between Q1 and Q2 2014 is statistically negligible, this apparent stability is the result of dwindling business opportunities and an improving investment environment cancelling each other out, according to the report's findings.
The survey shows that there is growing business dynamism around the world, with North America and South Asia leading the charge in terms of capital spending, new orders and headcount. Conversely, Africa and the Middle East fared worst, with all three areas either falling or stable.
Improvement balanced out
Overall, most of the world's confidence boost appears to be coming from North America, as well as a temporary rebound in Central and Eastern Europe, but improvements in these regions were balanced out by receding optimism throughout Asia, Western Europe, Africa and the Middle East. Post-Taper, emerging markets are still under-performing in crucial areas such as access to growth capital, but the gap between them and the more developed markets is now narrowing.
One positive sign for the Asia Pacific region and beyond is that China's prolonged slowdown is now starting to bottom out, which should be good news for a range of suppliers and commodity producers worldwide. On a country-by-country basis, it is clear that much of the recovery in business confidence is temporary. Despite relatively good news from the real economy, the survey also revealed that the first half of 2014 had been a very depressing time for major Western banks, and became more so in the second quarter.
GECS figures for large financials in the US and Europe suggest that confidence in the sector retreated sharply in anticipation of tougher stress tests, rising interest rates and falling property prices, geopolitical risks and the threat of tougher regulatory enforcement.
