Basic Resources Sector Leads the Way as CEO Confidence Improves

This quarter’s CEO Confidence Index shed light on the impact of artificial intelligence (AI), on business growth and operational optimisation within the ever-changing South African market. Although some businesses in South Africa have prioritised other areas of their business, most CEOs have provided insightful feedback on their active exploration of AI technologies to revolutionise their industries, boost efficiency, foster innovation, and enhance the overall customer experience across South Africa.

As part of their global digitisation strategy, companies from various sectors are harnessing the power of AI to streamline processes and achieve unprecedented levels of efficiency. One CEO remarked, “We utilise AI for target marketing, logistic planning, and numerous other aspects of our operations. It has proven to be a game-changer in terms of precision and effectiveness.”

While embracing automation and cutting-edge technologies, South African businesses are keen to emphasise the importance of human touch and personal interaction. Another CEO emphasised, “We are currently automated but have fail-safe procedures that are human-managed. Personal interaction remains key to building strong relationships and providing exceptional customer service.“

Overall, the Merchantec CEO Confidence Index recorded a 5% improvement in CEO Confidence between Q1 and Q2 of 2023.

This is predominantly attributable to the Basic Resources sector, that underwent a dramatic turnaround in confidence between Q1 and Q2 2023, with an overall increase in confidence of 45%. In Q1, confidence in the Basic Resources sector suffered especially due to financial and economic uncertainty caused by energy supply constraints. CEOs across the raw materials industry believe current economic conditions in South Africa compared to six months ago are better, shown by a confidence increase of 18 points.

Watch interview with Marcelle Gordon from eNCA & Myles Waldeck, Head of M&A Buy Side at Merchantec Capital

Second Quarter 2023

Basic Resources increased to a score of 56.67 as a result of an improvement in economic confidence in South Africa over the previous six months.

Technology recorded a decrease of 7% in confidence. It is worth noting that technology experienced a significant boom during the COVID-19 pandemic, as businesses rapidly adopted digital solutions to adapt to remote work and changing consumer behavior. However, the sector has now stabilised, facing challenges in securing debt or capital due to recent interest rate hikes and the repercussions of widespread retrenchments. These factors have contributed to a decrease in confidence levels within the technology industry, highlighting the need for careful financial planning and strategic decision-making in the current economic landscape.

Consumer Goods recorded an increase in confidence for Q2 2023, rising 6% from 43.24 to 45.88 points, remaining below the neutral score line. The rise in sentiment was primarily driven by a 20% increase in confidence relating to their ability to secure debt or equity capital.

Financials recorded a 3% decrease in confidence. This fall can be attributed to a 9% decrease in confidence relating to planned levels of investment in company business activities, and a 11% decrease in economic conditions.

Consumer Services recorded the same score as Q1 2023.

Industrials decreased by 2%. Sentiment was primarily influenced by two key factors. Firstly, there was a significant 12% decline in confidence regarding industry growth expectations. This suggests a cautious outlook among industrial businesses regarding their future expansion and overall market performance. Secondly, there was a notable 13% decrease in confidence concerning the ability to secure debt and equity capital, likely aggravated by recent interest rate hikes. The higher interest rates have made it more challenging for industrial companies to access necessary funding for their operations, leading to a decrease in confidence levels within the sector. These combined factors highlight the current challenges and uncertainties faced by the industrial industry, emphasising the need for prudent financial strategies and adaptability to navigate the evolving market conditions.

More about the Merchantec CEO Confidence Index

The Merchantec CEO Confidence Index, which consists of five components, collates views from CEOs of top South African companies and therefore provides a leading indicator into how business leaders perceive local market conditions and the economy going forward.

The Merchantec CEO Confidence Index is a copyright report prepared quarterly by Merchantec Capital. The survey collates responses from over 1 000 top CEOs, from the listed and non-listed environment.