Macroeconomics Research Unit Developing Business Confidence Index

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The Macroeconomics Research Unit (MRU) in UKZN’s School of Accounting, Economics and Finance has signed a Memorandum of Understanding (MOU) with the Durban Chamber of Commerce and Industry (DCCI) and eThekwini Municipality that lays a framework for the development of the Durban Business Confidence Index (BCI).

In the three-party agreement, the MRU is the technical partner responsible for formulating an implementation plan for the BCI, developing and testing the methodology for the index, conducting regular surveys, computing the index and compiling quarterly reports on changes in investor sentiments in eThekwini Municipality.

The DCCI plays an administrative role that involves managing activations and the launch of the final project through its various networking platforms, providing a gatekeeper’s letter for the surveys, and compiling project overview documents, progress reports, and other associated project materials in collaboration with UKZN’s MRU. The project is being funded by eThekwini Municipality.

Founder of the MRU Professor Harold Ngalawa; MRU Executive Committee member Dr Ntokozo Nzimande, and Research Director at the Unit Dr Adebayo Kutu comprise the technical team working on the Durban BCI.

‘The project was rolled out in March this year with a pilot phase and the first substantive index will be released in October,’ said Ngalawa, adding that the index would serve as a barometer to measure business and investor sentiments, monitor economic growth and project turning points in economic activity within the greater eThekwini region.

In the pilot phase of the project, it was found that the Durban BCI for the second quarter of 2022 was 34.69, indicating that the mood or sentiment of business people in the greater Durban area was negative. The index compares very well with the 2022 second quarter BCI for South Africa computed by the Stellenbosch University’s Bureau of Economic Research (BER) in collaboration with the South African Reserve Bank (SARB) which was recorded at 42, indicating that the mood or sentiment of business people in the country was also negative.

The Durban BCI was lower than the SARB/BER’s national BCI, indicating that the level of business confidence in eThekwini Municipality was lower than the national average in the second quarter of 2022.

Said Ngalawa: ‘This finding is not surprising, especially given that the Municipality was hit by severe floods and landslides following heavy rainfall between 11 and 13 April this year, which prompted the President to declare a National State of Disaster on 18 April. This happened while the region was still struggling to recover from the effects of the July 2021 looting and burning as well as COVID-19 and the corresponding policy responses.

‘This is a ground-breaking project in which the BCI will measure the present mood or sentiment of business people in conducting their day-to-day business in Durban.’

A member of the Durban BCI technical team, Dr Ntokozo Nzimande, said in theory, business confidence could be described as the degree of sentiment towards risk-taking by business for whatever reason.

‘If there is low business confidence in the economy, entrepreneurs and investors delay or postpone expenditures intended for the present period. Conversely, if business confidence is high, economic agents are willing to spend at the prevailing economic conditions. This suggests that there is a turning point where investment decisions change direction,’ Nzimande said.

He further pointed out that the reaction of businesses to the current economic environment could be interpreted as a function of their perceptions and evaluations of current business conditions and expectations of future eventualities. The level of these two psychological identities of perceptions and expectations impacts directly on the human nature observed in business decisions. Actions taken by businesses can to a large degree be ascribed to the level of business confidence.

The business confidence index, according to MRU’s Research Director, Dr Adebayo Kutu, helps in the development of business cycle models and the improvement of forecasts in the behaviour of macroeconomic variables.

Words: NdabaOnline

Photographs: Supplied