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The last time confidence in the sector was this low was when the country was in the grips of a drought in 2016.
The last time confidence in the sector was this low was when the country was in the grips of a drought in 2016.

Confidence in agribusiness falls to two-year low, on uncertainty over land

ECONOMIC NEWS

By Sunita Menon - Sep 11th, 08:16

An index tracking confidence in the agriculture industry declined to the lowest level in two years as the governing party presses ahead with plans to change the constitution to expropriate land without compensation. 

This comes as data from Stats SA last week showed that SA had plunged into a recession, dragged down by a contraction in the agricultural sector.

Agriculture output shrank by 29.2% in the second quarter of 2018, after a 24.2% contraction in the first quarter. This dragged economic growth down for the second consecutive quarter.

While Stats SA attributed this to a drop in the production of field crops and horticultural products, there has been growing concern over the persistent policy uncertainty around land reform.

“The agricultural conditions are fairly favourable across the country. The root of pessimism is thus lingering policy uncertainty and weak economic growth,” said agricultural economist Wandile Sihlobo.

The agribusiness confidence index, which gauges sentiment in the agricultural sector, fell by six points to 48 in the third quarter of 2018. A score below the neutral 50 level indicates that agribusinesses are downbeat about business conditions.

The index reflects the perceptions of at least 25 agribusiness decision-makers on the 10 most important aspects influencing a business in the agricultural sector. The index is an indicator of the investment sentiment in SA’s agriculture and agribusiness sector.

The last time confidence in the sector was this low was when the country was in the grips of a drought in 2016.

“The lack of clarity regarding the land reform policy proposal, particularly expropriation without compensation, remains a key risk that could potentially undermine investment and long-run growth prospects in the sector,” said Sihlobo.

While the low production figures have been attributed to the weather, analysts have warned that policy uncertainty has deterred investment.

Policy uncertainty, particularly relating to land reform, was stifling investment and keeping a lid on economic growth, said NKC economist Elize Kruger.

“We attribute part of the sector’s demise to policy uncertainty and, more specifically, the ANC’s decision to change the constitution to allow land expropriation without compensation,” said BNP Paribas economist Jeff Schultz.

Sihlobo said that while uncertainty had the potential to undermine investment and long-run growth prospects in the sector, this had not yet taken hold. “We have not seen evidence pointing to disinvestment yet,” he said.

Importantly, however, the survey was completed before the GDP figures were announced, which could weigh down sentiment even further.

Weak data in the first quarter and low business confidence had impacted the index, said Sihlobo.
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