Additional headwinds have caused a decrease in confidence levels across the manufacturing sector, which dropped by 14 points to 29 in the second quarter, according to the latest Absa Manufacturing survey.
“Following a fairly upbeat set of results in the first quarter of 2022, during the second quarter, the impact of the floods in KwaZulu-Natal, increased load-shedding and the Russia-Ukraine war have weighed heavily on manufacturers,” says Absa Retail and Business Bank manufacturing sector head Justin Schmidt.
The survey indicated that manufacturers experienced a drop in domestic and export sales, while insufficient demand was seen as a more serious constraint to current activities than at the start of the year.
“As consumers feel the pinch of rising food and fuel prices, along with increasing interest rates, the manufacturing sector may experience the spillover effect of reduced disposable income resulting in lower demand,” Schmidt says.
Further, although supply chain disruptions appear to be easing, the shortage of raw materials remains a key constraint.
Simultaneously, manufacturers are feeling increased pressure on their margins as the total cost of production subindex increased by ten points in the second quarter, while the domestic and export selling prices subindices declined by three and four points, respectively.
In their commentary, manufacturers highlighted a lack of reliable energy as a hindrance to their growth, while the use of generators becomes less of an option owing to rising fuel prices.
“While the expectation was that the sector would continue to rebound in the second half of the year, these shocks have created another setback that manufacturers will need to overcome,” Schmidt says.
To support manufacturers’ post-pandemic recovery and future growth, South Africa needs higher levels of infrastructure investment and faster regulatory reform, he adds.
The quarterly survey, which gathers insights from about 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research at Stellenbosch University between May 11 and 30.