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Manufacturing business confidence declines marginally on Covid-19, load-shedding

9th December 2021

By: Donna Slater

Features Deputy Editor and Chief Photographer

     

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Facing a second consecutive quarterly decline, Absa’s manufacturing survey finds that, overall, business confidence dipped by three points to 38 during the fourth quarter, thereby effectively resulting in the manufacturing sector facing a “stop-start” recovery.

The bank notes that risks related to the fourth wave of the Covid-19 pandemic and uncertainty regarding load-shedding are continuing to weigh on local manufacturers, despite positive news regarding domestic and export sales volumes, as well as fixed investment levels.

Absa Retail and Business Bank manufacturing sector head Justin Schmidt says the fourth-quarter results were a “mixed bag, highlighting the stop-start recovery” the sector is facing. “It is not surprising, given the uncertainty around the current economic situation, that manufacturers are feeling concerned about the future.”

The quarterly survey, which covers about 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between October 27 and November 15.

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.

According to the survey, the majority of manufacturers are feeling pessimistic about the future, with expectations regarding business conditions for the next 12 months decreasing by 12 points.

“The risks surrounding the fourth wave of Covid-19, water shortages across provinces, continued load-shedding at a heightened level of intensity, as well as the recent industrial action in the steel industry, have contributed to the negative outlook,” he notes.

The survey’s indicators for levels of raw material stocks relative to planned production and the level of finished goods stock relative to expected demand, declined by 14 points and five points, respectively, after an improvement in the third quarter.

The indicator for total cost per production unit increased by ten points to 81 during the fourth quarter – the highest level since the third quarter of 2008.

“The shortage of raw materials and load-shedding were two of the main factors behind the increase in production costs,” says Schmidt, adding that plastic and steel prices, as well as the cost of transport (fuel prices and the cost of containers), were the major contributors to cost increases.

However, on a positive note, the survey finds that manufacturers not only saw an improvement in their volume of domestic and export sales, but also saw a significant increase in their domestic and export selling prices.

As such, the indicator for domestic prices increased by 19 points compared with the third quarter, while the export price indicator increased by 27 points to 50 – the highest level since the first quarter of 2002.

In addition, the manufacturing fixed investment indicator moved back into net positive terrain, increasing ten points compared to the third quarter.

He says an improvement in expectations regarding imports and exports over the next 12 months is potentially indicative of improved demand levels and the easing of shipping constraints.

Further, the survey’s findings suggest the emergence of some green shoots in terms of infrastructure development with regard to both the transportation of goods and the energy crisis, both of which will aid in driving demand for manufacturing.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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