MCCI Business Confidence Indicator

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MCCI Business Confidence Indicator

MCCI Business Confidence Indicator

13 th Edition

2 nd Quarter 2013


I. BUSINESS CONFIDENCE INDICATOR FOR Q2 2013

Figure 1: The Business Confidence Indicator for all enterprises

All entreprises

115.0

110.0

105.0

100.0

%

95.0

90.0

85.0

80.0

QI

2010

100.0

96.7

Q2

2010

Q3

2010

96.3

Q4

2010

101.9

Q1

2011

106.5

Q2

2011

111.0

99

Q3

2011

Period

Q4

2011

100.1

Q1

2012

98.8

Q2

2012

99.4

Q3

2012

88.1

Q4

2012

85.4

Q1

2013

91.6

Q2

2013

87.5

On the basis of the quarterly business tendency survey, conducted

between 3 and 17 June 2013, we have noted a decline in the business

Decline of 4.5

percent in the

Business

Confidence

Indicator in the

2nd quarter of

2013

confidence indicator in Mauritius in the second quarter of this year

Indeed, the index lost 4.1 points (4.5 percent) between April and June of

this year to stand currently at 87.5 points, which is well below the longterm

average of 100 basis points.

This decline in the index comes after a favourable first quarter of 2013.

This result shows that we are still in a period of crisis with latent

uncertainties suggesting that the economic performance will be lower

in the second quarter of 2013 compared to the same period in 2012, all

things being equal.

1


II. THE “BAROMETRE ECONOMIQUE” FOR Q2 2013

Figure 2: MCCI “BAROMETRE ECONOMIQUE”

Recovery/Upswing

- Present economic situation: still

bad, but improving

- Economic expectations: positive

Economic Climate

40

30

20

Upturn/ Boom

- Present economic situation:

good

- Economic

expectations:positive

Present economic

situation

Q1 2012

Q1 2013

10

0

-40 -30 -20 -10 0 10 20 30 40

Q3 2012

Trough/Recession

- Present economic situation:

bad

- Economic expectations:

negative

-10

Q4 2012

-20

-30

-40

Economic expectations

Q2 2012

Cooling down/ Downswing

- Present economic situation:still

good, but deterirating

Economic expectations: negative

The Economic

Climate

Barometer

allows a short

term appraisal

of the evolution

of the

Mauritian

economy

We are

presently 2 in the

upturn phase of

the economic

cycle.

The economic climate barometer, based on the CESifo methodology,

allows us to see the evolution of the two variables of the business

confidence indicator, that is, the arithmetic mean of the assessments of the

current situation and economic expectations for the next three months.

The assessments on the present economic situation are positioned along the

abscissa, the responses on the economic expectations on the ordinate.

The correlation of the two climate components can be illustrated in a fourquadrant

diagram, defining the four phases of the business cycle.

Thus, using the medium term expectations of entrepreneurs we can assess

the present situation, and have a useful insight of the evolution of the


Mauritian economy in the short term.

The net

anticipation of

entrepreneurs

on future

perspectives is

negative

According to the study, the business confidence indicator has worsened

during this quarter. The reason behind this fall is that the net opinion of

entrepreneurs on future perspectives, the first component of the index, is

largely negative.

Indeed, regarding the on the evaluations of the perspectives, the net

anticipation of entrepreneurs is at -15.9 percent. More than 40 percent of

entrepreneurs interviewed are anticipating a fall in the level of business

activity for the next quarter relative to the same quarter of last year.

Concerning the second component, the present economic situation, with

respect to turnover, during this particular quarter, the net opinion is

moderately positive at 2.3 percent, which has partially offset the general

decline of the index.

We are in the

"Cooling down/

Downswing"

phase of the

economic cycle

Nearly 30 percent of entrepreneurs interviewed have experienced stronger

sales performance during the second quarter compared to the same period

last year. Approximately 27 percent have noted a deterioration.

The correlation between these two components show that the indicator is in

the Cooling down/ Downswing quadrant of the barometer and is clearly

oriented downwards as far as future development is concerned.

After an ephemeral improvement during the first quarter, the perspectives

of the Mauritian economy seem to worsen once again.

3


III. FACTORS AFFECTING BUSINESS PERFORMANCE

Figure 3: Net assessment of entrepreneurs on the influence of selected factors

35

25

24.8

Global environment

Customer demand

15

5

-5

-15

14.9 14.9

8.9

1

-1

-16.8

-5

-7.9

Competition in the

marketplace

Opportunities to expand in

new markets

Exchange rate

Tax burden

-25

-22.8

Access to capital

-35

-45

-55

-65

-63.4

-49.5

-37.6

Transport problem

Staff turnover

Availability of management

skills

Government support for

business

Logistics and connectivity

A worsening of

the global

situation and

increasing

competition

have contributed

to this decline

An analysis of the data allows us to identify "the deterioration of the

global environment and fierce competition in the market" as the two main

factors that have had a negative impact on business performance during

the quarter.

A large majority of entrepreneurs say that the uncertain global situation,

particularly in our key markets, and intense competition between

operators which are sometimes unfair, have had a negative impact on

business.

4


Other factors have also had an impact. They are as follows:

Some elements have

improved activity

during this quarter,

such as new

opportunities and

accommodative

fiscal and monetary

policy

Recurring problems with traffic congestion affecting

competitiveness

Staff turnover and the lack of qualified personnel

Problems of logistics and connectivity

The lack of government support for business

Nevertheless, there are some elements have facilitated business

during the quarter.

Entrepreneurs concede that significant opportunities have been

identified, particularly in the region and on the African continent.

Thus, they have increased their efforts to turn to these new markets in

order to continue to fuel their own growth. However, difficulties with

connectivity make this process quite complex.

An accommodative taxation, a policy of competitive exchange rates

and an open access to capital were other positive elements.

5


IV. INVESTMENT

Figure 4: Entrepreneurs’ assessments on the evolution of investment for the next twelve months

compared to the same period last year

Increase

18%

Stable

51%

Decrease

31%

Decrease in

anticipations of

investment for the

next twelve

months

In this quarter, entrepreneurs plan to reduce their investments over the

next twelve months. The average of their expectations is approximately

at negative 13 points.

More than 30 percent of respondents say they will reduce their level of

investment over the next twelve months compared to the previous

twelve months while about 18 percent are planning the opposite.

The vast majority of companies surveyed, nearly 85 percent, will

primarily focus on material investment, especially on machinery and

equipment (60 percent). Some 15 percent of respondents will prioritise

intangible investments, primarily research and development.

6


V. EMPLOYMENT

Figure 5: Employment prospects

Stable

67%

Increase

17%

Decrease

16%

On employment prospects, the net opinion of companies surveyed is

slightly positive; with a score of one point after an increase in the first

quarter.

Hiring intentions

are positive

17 percent of respondents have indicated that they will increase their

personnel in the coming months following decisions to diversify and /

or expand their activities, and in certain cases , due to an increased

demand.

However, 16 percent of the respondents have indicated that they will

most probably resort to cuts in their staff. Half of those have replied

that they will resort to redundancies in light of the continued decline in

turnover while the other half will need to restructure in order to

continue their business.

7


VI. PRICING POLICY

Figure 6 : Evolution in the level of prices in Q2 2013

Increase

14%

Stable

51%

Decrease

35%

Fall in prices in

Q2 2013.

Concerning changes in the price level, the continuing trend of

disinflation is what can be noted in the second quarter of 2013. The

average evaluation of entrepreneurs on prices of goods and services is

negative, which indicates a fall in the general level of prices.

Indeed, on the question of the evolution of prices of goods and services

during the past three months, 35 percent of respondents reported that

they have had to lower prices in order to remain competitive in their

markets. Fourteen percent have increased theirs..

A majority, 51 percent of the entrepreneurs interviewed, have

maintained their prices.

8


Figure 7: Evolution in the level of prices for the next quarter

Increase

11%

Decrease

17%

Stable

72%

For the next quarter, we find that the downward trend is expected to

continue.

Net expectation of entrepreneurs on this variable is at -6 percent,

indicating a probable decrease in the level of prices in the next quarter.

Inflation under

control in 2013.

Although it appears that at first glance we can be pleased with the fall

in prices, a closer look reveals some cause for worry.

The reason behind this, according to entrepreneurs, is the fall in

activity. Entrepreneurs have indicated that they are having to reduce

their margins in order to keep their business afloat.

This will have an effect on profitability, which is a crucial variable in

the determination of investment.

The year 2012 was marked by the control of the level of prices

compared to 2011, and we saw the inflation rate dropping from 6.5 to

3.9%. For 2013, this trend will continue, all other things being equal.

9


VII. SECTORAL TENDENCIES OF THE BUSINESS CONFIDENCE

INDICATOR FOR Q1 2013

Figure 8: The Business Confidence Indicator by sector of activity

10

5

5.1

2.2 1.9

7.9 7

1.8

%

0

-5

-10

-15

Commerce Manufacturing -1.9 Services

-3.6

-3.5

-5.7

-8 -8.1

-10.8

-15.1

-4.3

-20

Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013

For this quarter, apprehensions have reappeared in the economy. The

business confidence indicator is down in all sectors.

General fall in

the business

confidence

indicator in all

sectors

A thorough analysis shows that it is the manufacturing sector that

recorded the largest decline.

After an improvement in the first quarter of this year, the confidence

indicator for this sector decreased again, at a rate of 5.7 percent, in the

second quarter.

The three variables used in the estimation of the indicator for this sector

are found to be unfavourable. Manufacturers concede that the

performance has been average for the second quarter, and anticipate a

ripple effect in the third quarter of this year.

10


In addition, stocks level is high. This may weigh on the financial ability of

the companies concerned, and therefore hinder capital investment or growth

opportunities.

This downward trend, if confirmed, will have a definite impact on the

development of this sector this year.

For the services sector, we have observed a deterioration in the business

confidence indicator. There is a decrease of 4.3 percent this quarter for this

sector of activity, following the sharp increase of 7 percent in the first quarter

of 2013.

Given the importance of this sector, which includes approximately 70

percent of our GDP, and its holistic reach spanning from tourism related

activities to outsourcing, this decline is particularly worrying.

If we want to find the path to strong and sustainable growth, this segment of

our economy must re-discover its bearings and vigor.

Finally, in the commerce sector, after a promising first quarter of 2013 with a

net increase of about 5 percent, the indicator declined by 3.6 percent in the

second quarter of this year.

Entrepreneurs of the sector have indicated that the wage compensation in the

public sector, as recommended by the PRB, has not had the desired effect on

their sales, and they anticipate a deterioration in business over the coming

months.

11


VIII. CONCLUSION

To conclude, we can draw some observations from this study.

First, the latest business tendency survey shows that business confidence

deteriorated in the second quarter of 2013, following the temporary increase

observed at the beginning of the year. It currently stands at 87.5 points.

It is highly

likely that

the GDP

growth rate

will be lower

in 2013 than

in 2012, all

things being

equal

Since the first quarter of 2012, the index has been below the long term

average of 100 basis points, highlighting that we are still in a period marked

by latent uncertainties.

Second, it appears that no sector is spared. The decline is widespread across

the economy, with all sectoral indices a downward trend.

Third, the decline in confidence could have a negative impact on investment.

Indeed, the net evaluation of entrepreneurs of this variable is negative.

It is to be noted that the net opinion on investment is negative for commerce

and manufacturing, and positive for services.

Fourth, disinflation in this quarter, and falling prices in the next are expected

to continue; the net opinion of entrepreneurs to the question on the evolution

of prices in the next three months being negative.

The explanations given by entrepreneurs confirm the fall in activity. They are

highlighting about their obligation to minimize their margins in order to

maintain their businesses in their current situation.

12


This will have an impact on profitability.

Fifth, status quo should prevail concerning the level of employment.

This result is

not expected

to remain

constant, and

may be

adjusted

upwards or

downwards

in the

coming

months,

depending on

new

information

There was a slight increase the score on hiring prospects, and this will

have a positive effect on employment this quarter if this trend continues

in the coming months.

The correlation of the two business climate components, “the present

economic situation "and “future expectations of entrepreneurs”, show

that we are in the downward phase of the economic cycle.

If this trend is confirmed in subsequent reports, the economic

performance of our country in 2013 will be affected and the economic

growth rate in 2013 will be lower than in 2012, all things being equal.

This result is a snapshot of the mindset of our entrepreneurs when

questions were asked and it will not remain constant. In the days and

months ahead, depending on new data, the business confidence

indicator is made to be changed either up or down.

13


ANNEX – THE METHODOLOGY

The

methodology

used to

construct the

Business

Confidence

Indicator

follows that

of the OECD

The « MCCI Business Confidence Indicator » is a composite indicator of

business climate in Mauritius summarizing, in a single variable, the

simultaneous changes of several variables and thus allows the transcription

of the state of mind and morale of business leaders. The higher it is the

more confident are the businesspersons about the economic outlook, and

vice- versa.

The objective is to collect information on the current economic situation

and its evolution in order to have a holistic view of the business world.

The methodology used to construct this index of the business climate is one

recommended by the OECD 1 , namely:

• Preparation of a questionnaire with qualitative and trimodal questions,

• Using harmonized processing techniques,

• Construct a sample representing 20 percent of the members of our

organization,

• Conduct a business survey on the sample in a maximum period of three

weeks,

• Assign weights to responses according to the size of the enterprises

To follow the evolution of the indicator, this study will be performed

repetitively on the same sample. In our case, we have opted for a quarterly

survey.

1 OECD : Business Tendency Surveys – A Handbook, 2003

14


Authors of this publication:

Dr. Renganaden Padayachy

rpadayachy@mcci.org

Sanroy Seechurn

sseechurn@mcci.org

15

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