Manufacturers in South Africa are on the receiving end of the weak economy, as there is little room to pass on cost increases, says Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Marique Kruger.
She explains that the June 2017 Producer Price Index (PPI) for intermediate goods, released by Statistics South Africa, recorded a 2.1% increase between June last year and June this year, which is down from the 3.1% year-on-year increase recorded in May.
“This reflects a fourth consecutive year-on-year decrease, which is indicative of a lack of demand pull factors in the system,” says Kruger.
She points out that the metals and engineering sector makes up two-thirds of the PPI for intermediate manufactured goods. Also, the PPI measures factory gate prices and therefore is a good proxy for selling price inflation in the metals and engineering sector.
Between June last year and June this year, Seifsa’s composite input cost index, which tracks a basket of input costs for the metals and engineering sector, recorded a decrease of 4.1%.
“This index has exhibited a decreasing trend since the latter part of last year, largely attributable to a relatively stronger rand during this period. Imported inputs contribute just over a third to the sector’s input cost basket and, as a result, a stronger rand has really helped to contain input costs for manufacturers in the sector,” she says.
She explains that, even though selling price inflation has been on the decrease in the last four months, there is a positive deferential between selling price inflation and input cost inflation. This was indicative of reduced pressure on margins, allowing companies to recoup some historic losses and repair balance sheets to an extent. The decreasing selling price limited the extent to which companies could enjoy the positive deferential.
“We anticipate a narrowing in this positive differential, given the fact that the economy remains weak, therefore limiting the upside prospects for selling price inflation. “In addition to that, the metals and engineering sector is in the process of hopefully concluding a new wage deal soon, which will result in an increase in input costs. We will continue to monitor this trend.” she adds.
Third Annual Indaba
Renowned and prominent speakers will address delegates attending the third annual Southern African Metals and Engineering Indaba in September. The Indaba will be held at the Industrial Development Corporation (IDC) Conference Centre, in Sandton, from 14 to 15 September.
Seifsa CEO Kaizer Nyatsumba says the 2017 Indaba will build on the resounding successes of the two previous conferences. Last year’s conference included speeches by former President Kgalema Motlanthe, former Business Unity South Africa CEO Khanyisile Kweyama and Department of Trade and Industry deputy director-general Garth Strachan.
The Indaba is now in its third year and is an opportunity for business executives, captains of industry, policymakers, government Ministers, academics, diplomats and labour leaders to discuss the challenges and opportunities facing the manufacturing sector, in general, and the steel and engineering sector, in particular.
He explains that this year’s conference, which will be held in partnership with the IDC, takes place amid tough conditions in the sector. These have resulted in, among others, lethargic growth, reduced exports, company closures, liquidations and job losses. Efforts to rekindle growth in investment and employment in the sector require collaboration and cooperation between the government, business and labour.
Highlights of the conference will include addresses by Minister of Labour Mildred Oliphant, Minister of Small Business Lindiwe Zulu and Cosatu general secretary Bheki Ntshalintshali. African National Congress National Executive Committee member and African Union former chairperson Dr Nkosazana Dlamini-Zuma will deliver the closing remarks.
Other speakers will include Zimbabwean academic and political commentator Dr Ibbo Mandaza, businesswoman Dr Mamphela Ramphele, Mapungubwe Institute for Strategic Reflection CEO Joel Netshitenzhe, Manufacturing, Engineering and Related Services Sector Education and Training Authority CEO Dr Raymond Patel, South African retail management group Massmart chairperson Kuseni Dlamini, International Trade and Administration Commission chief commissioner Siyabulela Tsengiwe and Manufacturing Circle CEO Phillipa Rodseth.
“We hope that, as in previous years, delegates at this year’s conference will engage in vigorous debate on matters affecting the sector and the economy at large. “The speakers are experts in their areas of focus. The sessions have been carefully structured to tackle the key challenges facing manufacturers,” explains Nyatsumba.
He concludes that the Indaba will focus on topics that include political leadership in Southern Africa – ensuring that manufacturing in Southern Africa is internationally competitive – the proposed continental free trade area, the Automotive Production and Development Programme, the South African metals and engineering sector, whether steel tariffs benefit or hurt the South African economy and South Africa’s junk credit rating.
Seifsa has worked together with the South African Institute of Steel Construction to lobby for tariffs on imported goods as well as to help new steel construction projects to grow effectively.