The Relationship Between Business Confidence and Private Sector Investment: Evidence From Selected Sectors of the South African Economy

This study examined the relationship between business confidence (measured by BER BCI) and private sector investment (measured by GFCF per sector) in South Africa from 2000 to 2018. Most studies on business confidence use time series analysis and mainly focus on measuring its impact on aggregate private sector investment and other variables such as stock market returns and not specifically on investment per sector of the economy. This study employed panel co-integration analysis to examine the relationship between business confidence and investment in five sectors of the economy: manufacturing, construction, mining, retail, and transport sector. The results of this study confirm a positive and statistically significant association between business confidence and gross fixed capital formation. The study concludes that to encourage favorable conditions for increased business confidence and investment, policymakers need to fast-track the implementation of policies and economic reforms. Furthermore, the government must act with urgency on its commitment to bring those responsible for corruption to justice to restore the trust of domestic and foreign investors in the system and the rule of law.