Deputy competition commissioner Trudi Makhaya.
Trudi Makhaya, economist and CEO of Makhaya Advisory, said creating more small businesses could help to improve job creation and economic growth. Picture: SUPPLIED

BUSINESS conditions in the private sector continued to deteriorate but at a slower pace in January as muted demand and sharp increases in input costs due to a weak rand weighed, forcing job losses.

This implies that business confidence levels remain weak, which will translate into lower spending on investment and job creation. The low confidence levels will subsequently result in low growth.

SA’s economic growth forecasts for this year continue to be revised downwards due to the effect of slower growth and demand in China, low commodity prices and low investments. Forecasts are for the economy to grow by less than 1% this year.

The latest to cut SA’s growth outlook was the World Bank this week, which now expects growth of 0.8% from an earlier forecast of 1.4%.

The latest seasonally adjusted Markit/Standard Bank South African purchasing managers index (PMI) rose from 49.1 in December to 49.6 last month, but remained below the critical 50 points level. A level below 50 signalled deterioration in business conditions, although the slight improvement in the index suggested that conditions deteriorated at a slower pace.

The release of the index coincided with a Gordon Institute of Business Science (Gibs) economic outlook conference on Wednesday where business leaders and academics called on policy makers to adopt measures that would ensure policy certainty and boost confidence.

Both President Jacob Zuma’s state of the nation address next week and Finance Minister Pravin Gordhan’s budget speech on February 24 are expected to give details of how the government plans to grow the economy and spend prudently to avoid ratings downgrades.

"Let’s stop scoring own goals as a country ... let’s perpetuate confidence-building messages that will enable us to attract and retain the investors that we need as a country," Massmart chairman Kuseni Dlamini said at the conference. "We need to focus on growth (and) ... job creation like we have never done before."

First National Bank senior industry analyst Jason Muscat said that with business confidence and economic growth prospects so low in SA, companies were increasing borrowings but investing that money in growing their businesses outside the country.

SA needed a new macroeconomic strategy that involved less government intervention in the economy and more private-sector participation to grow the economy faster, economist and lecturer at the University of the Witwatersrand (Wits) Lumkile Mondi said at the Gibs conference.

Labour-market reforms, privatisation, cutting costs at government level and avoiding increasing corporate taxes to attract investments could help SA record higher levels of investment and economic growth, Mr Mondi said.

The government should reduce the size of a "bloated" Cabinet to make its fiscal consolidation and spending cuts more successful, he added.

Although the government had expressed commitment to fiscal consolidation, the risk remained that politicians could be tempted "to be more populist" in their policies in order to get votes. SA will hold local government elections this year.

Trudi Makhaya, economist and CEO of Makhaya Advisory, said creating more small businesses could help to improve job creation and economic growth. She said, however, that red tape, financing, access to infrastructure and barriers to entry needed to be addressed to make it easier for entrepreneurs to start businesses.

The PMI showed that output and new business fell, while input costs increased sharply and job losses were recorded. Firms passed on higher costs to clients.

The PMI is a survey of 400 private-sector executives, canvassing their views about business conditions including new orders, employment and input prices.