The impact of SA's municipal challenges on local economic development

The upcoming local elections put municipal performance under the spotlight. This BER Research Note explores some of the underlying problems that contribute to local government failure and the poor state of service delivery in many municipalities. Without the infrastructure and basic services that municipalities should provide, local economic development is likely to remain constrained. This makes it more difficult to broaden economic participation and reverse South Africa’s unemployment trend.

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After rising to 17 in 2021Q3, the FNB/BER Civil Confidence Index slipped to 15 in 2021Q4. The current index level means that the vast majority (eighty-five per cent) of respondents are dissatisfied with prevailing business conditions. Importantly, sentiment declined this quarter even though key indicators such as activity and profitability improved.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) lost some momentum in December 2021 but remained in expansionary territory. The headline index declined by 3.1 points to 54.1. Excluding inventories, all the major subcomponents of the PMI were lower in December. The business activity index lost 5 points to just below the key 50 mark. Despite this, at 49.5 in 2021Q4, the index averaged well above the weak level of 43.1 recorded in the third quarter. Even so, the Q4 average was still notably lower than the average of almost 57 points recorded in the second quarter of 2021.

After falling from 50 to 43 in the third quarter, the RMB/BER Business Confidence Index (BCI) remained unchanged in the fourth quarter of 2021. The outcome could easily have been better were it not for a variety of special factors that kept sentiment subdued.

The FNB/BER Consumer Confidence Index (CCI) edged up slightly, from -10 to -9 index points, during the fourth quarter of 2021. The marginal increase in the CCI can be ascribed to small improvements in the economic outlook and household financial position sub-indices of the CCI. Confidence levels of high-income households remained unchanged, but middle- and low-income confidence edged up slightly.