CEO confidence falls amid uncertainties

The Index‚ released towards the end of each quarter‚ collates views from the chief executives of top South African companies and is used as a leading indicator of how business leaders perceive local market conditions and the economic outlook for the immediate future.

Merchantec Capital is an independent corporate finance and research company and the confidence index is prepared quarterly and collates responses from more than 150 top CEOs‚ primarily from the JSE-listed environment.

According to the research‚ the basic materials sector experienced the sharpest decrease in confidence‚ falling by 16.2% following recent strike action and labour unrest.

Overall sentiment decreased in all sectors‚ with the exception of the financial services where increased levels of confidence were recorded as it rose by 4.5%.

Economic growth prospects appear range bound‚ as 65% of South African CEOs believed that the country's 2013 gross domestic product (GDP) figure will not exceed National Treasury's revised 2012 growth forecast of 2.5%.

This lack of confidence stems from SA's weakening business and investment climate‚ the slowdown in Asia's economic growth prospects and prolonged economic uncertainty in the eurozone.

Collectively‚ CEOs have expressed concerns regarding the country's political stability‚ the uncertainty around the 2014 national elections and high corruption levels.

Additional concerns among chief executives include the recent labour unrest and its potential as a contagion for other sectors‚ poor infrastructure‚ the heightened trade deficit and its consequential influence on the exchange rate.

The basic materials sector recorded a 16.2% drop in confidence for the fourth quarter of 2012‚ the largest decline in confidence for the sector to date.

With a 27% decrease in confidence for planned company investment and a 22.2% decrease in confidence for the availability of equity/debt capital‚ CEOs were particularly bearish about their own company's prospects.

The Marikana strikes damaged business and investor confidence on a national scale and is the primary reason CEOs lack confidence within this sector.

Overall confidence in economic conditions decreased by 14.7% quarter-on-quarter‚ to a score of 41.2‚ the largest decline of all components of the index.

This negative sentiment was driven by CEOs representing basic materials‚ consumer services‚ industrial and technology sectors.

The bearish economic outlook is a result of both international and local market factors. Internationally‚ the continued uncertainty and slow recovery in Europe‚ SA's major trading partner‚ is having a dampening effect on local exports.

On the local front‚ political and policy uncertainty‚ labour unrest and inflationary concerns are placing pressure on economic conditions and dampening investor confidence.