Development of a credible business confidence survey methodology and instrument for the City of Cape Town

Abstract

This project is being funded by the Consortium for Higher Education in the Cape (CHEC). The City of Cape Town wants to explore the use of a Busijness Confidence Index (BCI) survey/ index to improve the availability of local economic intelligence and data on the performance of the Cape Town economy. The City of Cape Town already publishes Economic Performance Indicators for Cape Town (EPIC) on a quarterly basis1. The OECD (https://www.oecd.org/sdd/leading-indicators/31837055.pdf) in 2023 developed a Handbook stating the following: “Business Tendency Surveys are carried out to obtain qualitative information for use in monitoring the current business situation and forecasting short-term developments. Information from these surveys has proved of particular value in forecasting turning points in the business cycle. The purpose of this Handbook is to show how these surveys are designed and carried out, how the results are processed and how they can be used for economic analysis”. Ideally, business confidence levels in the Cape Town economy need to be compared to business confidence index levels in other Metropolitan cities and/or national business confidence levels wherever this may be feasible so to inform a comparative analysis of business confidence levels. The following points of departure are informing this Cape Town business confidence survey methodology project: 1. The methodology will be informed by a review of existing business confidence surveys in South Africa. This will include exploring whether it is possible for the proposed survey methodology to replicate existing survey methodologies in important aspects so as to allow comparability in survey results (either national surveys and/or other local business confidence surveys). 2. The methodology will seek to build on existing business confidence survey initiatives wherever possible. This will require exploratory discussions with the Bureau of Economic Research and potentially others. 3. The methodology will seek to balance the need to obtain timeous/ rapid / regular insights and feedback on business confidence with the need to ensure a crediblesample and sufficient number of respondents that addresses issues such as the level of confidence and margin of error when interpreting the survey results. Van Rooyen (2011)2 summarises some of the literature on what business confidence is and why it is important as follows: According to Pellissier (2002: 52), business confidence means “the degree of sentiment towards risk-taking by business for whatever reason”. The concept of business confidence is a valuable tool for measuring the prevailing economic climate. Research has shown that business-conditions surveys (the term preferred by Aylmer & Gill 2003:19) help us to predict business behaviour (Collins 2001: 1). An increase in business confidence might increase private investment in fixed capital goods, which will also eventually support economic growth. A decline in business confidence suggests that people are uncertain about the prospects of their company’s performance and in the business environment within which the company operates (Aylmer & Gill 2003; Kershoff 2000: 2–4). The BER has found that business confidence index levels are good indicator for the business cycle. Key progress to date has involved an initial literature review, the development of an BCI methodology framework document and conducting key informant interviews with five following organisations involved in existing BCI surveys in South Africa.