Manufacturer confidence stays low due to electricity, water and transport constraints

Manufacturer confidence levels stayed low due to load shedding, water restrictions and transport constraints during the fourth quarter, with overall business confidence remaining unchanged at 26 points, after two consecutive quarterly declines.

According to the Q4 Absa Manufacturing Survey, most manufacturers remained pessimistic about the expected business conditions in the next 12 months although confidence stayed unchanged in the fourth quarter, probably driven by rising operating costs as manufacturers implement methods to remain productive during bouts of load shedding.

The quarterly survey, which covers approximately 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 26 October and 14 November 2022. The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence, where all participants are satisfied with current business conditions.

“Despite the fourth quarter being a peak sales period for manufacturers, increased production costs and insufficient demand as consumers struggle with rising cost of living hampered potential improvements in confidence this quarter,” says Justin Schmidt, head of manufacturing sector at Absa Relationship Banking. 

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Insufficient demand affects manufacturer confidence

Insufficient demand will remain a concern as many manufacturers expect export volumes and sales orders to decline in the next quarter.

“With the increased production cost and unchanged selling prices, margins might continue to be under pressure this quarter making management of working capital paramount going forward,” Schmidt says.

On a positive note, some manufacturers indicated an increase in their fixed investment realised in the fourth quarter. “This may be indicative that manufacturers are investing in renewable energy projects and energy efficient machinery and equipment to curb the impact of load shedding and hedge against rising electricity costs,” Schmidt says.

While the manufacturing sector is struggling to gain growth momentum, there are positive factors that may improve the sector’s final fourth quarter production numbers.

Schmidt says the increase in manufacturing’s contribution to the third quarter’s gross domestic product (GDP) shows the ability of the sector to remain resilient and continue making a positive impact on the South African economy.

“Absa remains committed to supporting investment into green energy projects as both a risk mitigation strategy for manufactures and a way to reduce carbon emissions. Fixed investment will be key to the growth and recovery of the sector and the overall economy going forward.”

He says with many manufacturers currently investing in their own energy generation and exploring ways to consume less energy, Absa remains committed to support the manufacturing industry along their journey.