Reference: Published by Staff Writer on BusinessTech, 22 March 2023

According to the most recent data from the Bureau for Economic Research (BER), confidence in South Africa’s other services sector has fallen in the first quarter of the year as businesses cut back on services in favor of spending more on load shedding solutions.

In the first quarter of the year, confidence in the other services sector collapsed, exhibiting a 23-point decline on the index from 68 to 45. It had been steadily rising since reaching a low during the level 5 shutdown in the second quarter of 2020.

The 18-year history of the study shows that this is the largest ever recorded.

The sector of other services includes lodging, dining, travel, real estate, and business services. To distinguish them from the retail, wholesale, and motor trade sectors, which are also a component of the services sector but are included in the RMB/BER business confidence index, they are designated as “other” services.

Due to its lagging business cycle characteristics, or the fact that it improves or deteriorates later than the BCI sectors, the other services sector is not included in the BCI, according to the BER.

The BCI does not include the other services sector, despite its sizeable 22% contribution to GDP and employment, in order to protect its advanced signaling properties.

The transportation and business services subsectors were responsible for the overall index’s decline.

The crucial3 business service sub-sector saw a decline in confidence from 64 to 47, while the transport sub-sector saw a fall to 14.

The hospitality sub-sector, in comparison, had an improvement in confidence from 73 to 75, a long cry from zero at the time of the severe lockout in 2020.

Real estate was the final subsector to experience a fall in confidence, going from 47 to 43.

The continual load shedding that has wreaked havoc on enterprises and economic activities over the period is the fundamental cause of the sharp decline in trust in these sectors.

Since fewer businesses used these services and instead increased spending on load shedding mitigation measures, this was felt most acutely in the business services sector, which includes renting of machinery and equipment, computer services, legal services, accounting, consulting engineering, advertising, building and plant cleaning, debt collection, and exhibitions.

Hotels and restaurants were the only industry to show growth in the first quarter, and they did so even more quickly than they did in the fourth quarter of 2022.

According to the BER, a base effect may have contributed to some of the unusually strong year-over-year growth.

Not all Covid-19 restrictions were abolished in the first quarter of 2022, and the international travel restrictions reduced the number of foreign visitors. The current summer vacation season, however, saw a rise in overseas travelers.

A partial resumption of work travel, more local travel, higher dining out, and, in the last case, the typical pre-Covid summer seasonal elements are further explanations for the strong gain, according to the BER.

Since lodging costs rose and restaurants had to raise their menu prices significantly to cover rising food costs and load-shedding expenses, the rate of increase in selling prices in the hotel and restaurant industry surged.

Yet in all other areas, the situation appears dire.

Over the era, increased fuel prices, intense competition, and delays at ports were challenges for road freight transport and other ancillary industries like travel agencies, cargo handling, and freight forwarding.

From 47 to 43, real estate confidence continued to drop. The BER remarked that while the long-term average is 45, confidence in the first quarter could be described as neither high nor low.

Respondents made the observation that the decreased real estate sales were partially offset by the ongoing advancements in property management, such as renting.

“The fortunes of the other services industry dramatically flipped in the first quarter of 2023 after steadily improving in 2021 and 2022. While the hospitality industry continued to grow, the situation in transportation, real estate, and business services deteriorated, mostly because of widespread load-shedding and rising expenses, according to the BER.

While the other services sector has mostly maintained GDP growth in recent quarters, it appears destined to follow the more energy-intensive sectors of the economy in reducing growth in the first quarter of 2023.