Image: iStock
Business confidence in South Africa’s manufacturing sector has taken a significant dip, but there is hope that volumes will improve, along with prices.
The risks regarding the fourth wave of Covid-19, as well as uncertainty brought about by load shedding are worrying local manufacturers and making them lose confidence, despite positive news about domestic and export sale volumes and fixed investment levels.
According to the Absa Manufacturing Survey for the fourth quarter of 2021, business confidence dipped by three points to 38 during the quarter. This was the second consecutive quarterly decline. The quarterly survey covers approximately 700 business people in the manufacturing sector and was conducted by the Bureau for Economic Research (BER) at Stellenbosch University in October and November.
The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence with all participants satisfied with current business conditions.
ALSO READ: Business confidence unchanged after decline in third quarter
Oxford Economics Africa says seasonally adjusted manufacturing output fell by 5.9% month-on-month in October, compared to the 3.0% rise in September. Annually, production was down by a staggering 8.9% compared to October 2020, while it increased 0.7% in September compared to September 2020.
The largest negative contributors to the year-on-year increase were:
Seasonally adjusted manufacturing production rose by 0.9% compared to the previous quarter. The largest positive contributors were food and beverages (+5.8%) and petroleum, chemical products, rubber and plastic products (+6.5%).
Conversely, motor vehicles, parts and accessories and other transport equipment (-11.2%) and basic iron and steel, non-ferrous metal products, metal products and machinery (-5.3%) were responsible for the largest negative contributions.
ALSO READ: Another business confidence survey highlights SA’s decline
The survey indicated that most manufacturers feel pessimistic about the future, with expectations for business conditions for the next twelve months decreasing by 12 points.
“The risks around the fourth wave, water shortages, continued and more intense load shedding and recent industrial action in the steel industry contributed to the negative outlook,” says Justin Schmidt, head of manufacturing sector at Absa.
There was also a decline in indicators for levels of raw material stocks relative to planned production, with the level of finished goods stock relative to expected demand declining by 14 and 5 points respectively after an improvement in the third quarter.
The indicator for total cost per production unit increased by 10 points to 81 during the fourth quarter, the highest level since the third quarter of 2008.
“The shortage of raw materials and load shedding were two of the main factors behind the increase in production costs. Plastic and steel prices, as well as the cost of transport for fuel and containers were the major contributors to cost increases.”
ALSO READ: SA’s middle class not as confident as the poor and the rich in Q3
On the positive side, manufacturers not only saw an improvement in their volume of domestic and export sales, but also a significant increase in their domestic and export selling prices, with the indicator for domestic prices increasing by 19 points, compared to the previous quarter.
The export price indicator increased by 27 points to 50 points, the highest level since the first quarter of 2002. The manufacturing fixed investment indicator also moved back into net positive terrain, increasing 10 points compared to the third quarter.
Schmidt says the results for this quarter were a mixed bag. “It highlights the ‘stop-start’ recovery the sector faces and is not surprising, given the uncertainty around the current economic situation and how concerned manufacturers feel about the future.
“An improvement in expectations regarding imports and exports over the next twelve months potentially indicates improved demand levels and the easing of shipping constraints.”
Schmidt says there seems to be some green shoots in terms of infrastructure development regarding the transportation of goods and the energy crisis, which will both aid in driving demand for manufacturing.
ALSO READ: Riots hurt business confidence less than Des van Rooyen becoming finance minister
Oxford Economics Africa agrees that the manufacturing sector has experienced a ‘tumultuous’ year so far. “While the mining figures for October were better than expected and seemed to be hardly affected by the impact of loadshedding and the strike, this clearly was not the case for manufacturing.
“While we anticipated a moderation in October, the latest manufacturing figures came in way below both our expectations and that of the consensus for a 1.4% year-on-year decline. The latest figures put the sector on a softer footing for the final quarter.”
Download our app and read this and other great stories on the move. Available for Android and iOS.
