South African manufacturers have again warned that they are facing a serious margin squeeze, owing to their limited ability to pass on surging input costs and have called on government to prioritise policies that could place them on a more competitive footing.

More than half of the 61 respondents to the Manufacturing Circle’s latest business conditions survey reported input-cost increases of between 6% and 15% during the fourth quarter of 2012, with some respondents reporting that their input costs had risen by more than 15% during the period.

The companies, which include medium-sized and large enterprises across a diverse range of manufacturing disciplines, from metals to food processing to pharmaceuticals, were particularly concerned about enterprise-level competitiveness being further eroded by another round of above-inflation electricity price increases.

State-owned power utility Eskom has applied for yearly price increases of 16% over the five-year period from 2013 to 2018 – these would be additional to a series of increases instituted since 2007 that has resulted in the wholesale price trebling to around 61c/kWh.

Newly elected chairperson Mike Arnold, who is also Consol Group CEO, called on government to use upcoming platforms, such as the State of the Nation address and the Budget announcement, to provide a clear signal to investors that South Africa remained serious about rebuilding its competitiveness.

Flanked by his new deputy, Mpact Group CEO Bruce Strong, Arnold stressed that a competitive business platform was essential if South Africa was to grow exports, stimulate economic growth and create jobs.

Rising power, labour and fuel costs, together with weak domestic and international demand, poor policy cohesion, a hostile industrial-relations climate and rising import competition were not conducive to achieving the country’s reindustrialisation vision.

Outgoing chairperson Stewart Jennings, who is also retiring as PG Group CEO, appealed to Finance Minister Pravin Gordhan to deploy what fiscal resources he still had in a way that stimulated the economy.

“We would like to see government really making some progress on the infrastructural projects,” he said, while calling for an expansionary fiscal signal.

Jennings was particularly keen to see that South Africa’s productive sectors were shielded from the proposed “massive” electricity price increases, and that municipalities were prevented from implementing excessive electricity mark-ups.

“The biggest problem with manufacturing at the moment is margin squeeze. Many of us, for a number of years, have not been in a position to increase prices, but we have had massive energy and input cost increases.”

Respondents to the Manufacturing Circle’s fourth-quarter business conditions survey indicated that conditions were likely to remain stable to weak for the coming two years, despite signals an international economic recovery.

Pan-African Investment and Research Services economist Dr Iraj Abedien, who compiles the survey, argued that, in light of easing external headwinds, priority should be given to those domestic factors that could improve the outlook for manufacturing.

While many manufacturing enterprises were exporting, Abedien stressed that their future prospects would have to be “anchored” in growing a stable domestic demand.

“We have to ensure that all the factors that are under our own control become most favourable for our manufacturers,” he argued.