Amid Ailing Economy, South Africa’s Private Sector Contracts For Third Consecutive Month

Its no doubt that 2019 has so far been a tough year for many South African businesses. The year began with frequent and prolonged blackouts as Eskom, the electricity public utility, struggled to generate enough electricity to meet the high demand.

The cash-strapped power utility provides about 90 percent of the country’s electricity. For a long time, Eskom has grappled with financial challenges and it is what led to the load shedding that took place during the first quarter of 2019.

Owed to financial difficulties, it was not able to do the required maintenance in its coal-fired stations. This resulted in a spell of load-shedding.

The power outages took a toll on the country’s economy as many businesses opted to use generators and battery systems while others were forced to close when the blackouts took place.

South Africa also experienced a recession in the third quarter of 2018 leading to a sharp decline for agriculture, forestry, and industry over the three-month period.

And recently, businesses in the Cyril Ramaphosa-led country had difficulty in achieving growth. This is according to the latest data from IHS Markit.

The IHS Markit purchasing managers index (PMI) for July was released recently. The global index which measures the performance of businesses in the private sector showed that the PMI fell to 48.4 in July from 49.7 in June, below the 50-mark, showing that the private sector’s health continued to deteriorate in July.

“With a surprisingly sharp downturn in South Africa GDP in the first quarter weighing on sentiment, businesses have continued to report a challenging environment across the private sector economy in July,” said David Owen, an economist at IHS Markit.

The demand for new orders reduced and consumer demand also declined during the month.

“Client sales reportedly eased due in part to negative GDP growth figures released in June, while some firms mentioned a lack of liquidity in the market leading to reduced buying power,” the report read. The fall in demand was mostly domestic, as the decline in export orders was only marginal. “Output at South African companies contracted for the third month running and at a faster rate than in June,” the report read.

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