Manufacturing businesses in South Africa remain optimistic about conditions over the next 12 months, but have resolved to hold back on investing in expanding their operations due to uncertainty over the electricity supply.
The Absa Manufacturing Survey for the third quarter yesterday showed that confidence levels in the manufacturing sector improved by 6 points to 23 on the back of better business conditions.
However, the sector remains under pressure as confidence levels were still in contractionary territory below 50 points, which separates contraction from expansion.
Absa Relationship Banking head of manufacturing sector, Justin Schmidt, said that respondents to the survey had noted an increased level of sales and production during the third quarter, supported by the easing intensity of load shedding during August.
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 August 16 and 29.
“With load shedding averaging Stage 6 in May and dropping to an average of stage 3 in August, it is clear that easing electricity supply disruptions, resulting in increased capacity utilisation, have positively impacted sentiment in the sector during the quarter,” Schmidt said.
“While the sector continues to face headwinds, encouragingly, it continued to show some growth during the second quarter, as highlighted by Stats SA’s latest gross domestic product (GDP) figures, indicating that many businesses have adapted or invested to insulate themselves from the effects of load shedding.”
According to Stats SA, real GDP expanded by 0.6% in the second quarter, following a 0.4% rise in the first quarter, with manufacturing and finance driving much of the upward momentum.
Manufacturing production expanded by 2.2%, mainly pushed higher by petroleum, chemical products, rubber and plastic products.
Manufacturers in metals, metal products, machinery and equipment also recorded a good quarter, driven in part by increased demand for crude steel.
Increased investment in South Africa’s automotive sector helped lift the production of transport equipment and motor vehicles.
Schmidt said although Absa’s manufacturing third quarter survey still pointed to depressed conditions, the overall results suggested that the manufacturing sector was in a better position than in the second quarter of this year.
“However, some manufacturers noted that infrastructure failures due to load shedding and rising interest rates posed a challenge to their operations in the third quarter,” Schmidt said.
Schimdt said investment intentions had improved somewhat with total expected fixed investment in the next 12 months increasing by 5 points.
This was evident in the survey data, with more respondents citing improved intentions to invest in replacements (up 11 points) compared to intentions to invest in additions (increased by 6 points).
However, he said while forward-looking expectations improved significantly, ongoing uncertainty was fuelling a cautious approach, which will likely delay growth.
“Given the uncertainty around the operating environment, manufacturers’ investments are focused on remaining in operation while investments into additions or expansions remain on hold,” Schmidt added.
As manufacturers head towards their peak sales season in the fourth quarter, their expected production and sales levels as well as their import and export volumes were more optimistic.
This builds on positive readings which indicated a jump in exports during the third quarter, including a 3% net majority of manufacturers reporting higher exports relative to the third quarter of 2022, due to a weaker rand as well as the lower base due to the KwaZulu-Natal floods in 2022.
BUSINESS REPORT