Business confidence developments and the minerals industry

This paper analyses the reaction of the minerals industry to business confidence developments in South Africa. This is achieved by augmenting a Taylor1993 rule type central bank monetary policy reaction function with the indicator of business confidence. The results provide evidence of a statistically significant effect of an increase in business confidence on output of the minerals industry, which peaks after 5 months, the effect of which is statistically significant up to 7 months. The results are generally consistent with the information based rational and adaptive expectation hypotheses, while they are in contrast to the herd mentality based animal spirits hypothesis. The results have further shown a statistically significant effect of an increase in output of mining and quarrying on business confidence, which initially increase and then decrease, bottoming out after 9 months, the effect of which is statistically significant between 1 and 2 months as well as between 7 and 10 months. The results support the information based expectation hypotheses, which has implications for investment, employment and expansion plans, hence policy makers and mining authorities should continue to monitor the developments in business confidence to support overall economic activity and the minerals industry.