Absa Relationship Banking manufacturing sector head Justin Schmidt
Confidence in the manufacturing sector improved slightly to 26 points – the highest level this year – in the fourth quarter, financial services firm Absa's latest quarterly manufacturing survey shows.
The confidence index ranges between 0 and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence where all participants are satisfied with current business conditions.
Trading conditions remained tough, but manufacturers noted an overall improvement in business conditions, which was up by nine points.
Domestic sales improved by seven points and export sales increased by six points, and were performing better than their long-term averages, while the total cost per production unit decreased by nine points.
“Easing electricity supply disruptions, the resulting increase in the average hours worked and improved production have positively impacted sentiment in the sector,” says Absa Relationship Banking manufacturing sector head Justin Schmidt.
“However, current confidence levels are still too low to encourage large-scale growth or expansion.”
As manufacturers enter their peak sales season in the fourth quarter, their production level rose by five points, returning to positive terrain for the first time in six consecutive quarters, the survey showed.
“Despite some positive results this quarter, manufacturers continue to note challenges in the operating environment, with respondents specifically mentioning issues at the ports, water shedding and political uncertainty,” he points out.
Given these constraints on current activities, manufacturers remain cautious to invest in machinery and equipment over the next 12 months.
Further, despite dropping slightly, manufacturers' current raw material and finished goods stocks are still considered adequate to meet planned production and expected demand in the quarter.
“South African manufacturers continue to prove their resilience as the fourth quarter survey results paint a slightly better picture compared to the rest of the year. In order to remain competitive, it is vital for manufacturers to continually evaluate their business operations and invest in cost-effective and efficient processes,” says Schmidt.
Manufacturers are more pessimistic regarding expected business conditions for the next 12 months, as the sector approaches a quieter first quarter and the 2024 national elections.
However, forward-looking trade expectations indicate that the majority of manufacturers expect import and export volumes to increase in the coming months, the survey found.