The Bureau for Economic Research’s (BER’s) latest Manufacturing Survey has indicated that, while manufacturing business confidence registered its third consecutive increase of four index points to reach 42 in the first quarter of this year, it remains below the 47 index points recorded in the first quarter of 2012.

The most positive result was the notable improvement in export sales and order volumes, which recorded significant increases.

“In fact, the indicator for export sales volumes now stands at its highest level since the first quarter of 2003. The weakening of the rand exchange rate likely supported the improvement, as manufacturers indicated that they were able to push up export selling prices significantly,” said BER economist Lisette IJssel de Schepper.

Producers further expected an increase in the volume of goods exported in 12 months’ time.

However, domestic demand indicators fell back from the high levels recorded during the final quarter of 2012, with both domestic sales and order volumes expected to retreat further in the second quarter of 2013.

Production volume growth remained virtually unchanged from the fourth quarter of 2012, while improved demand, without an acceleration in production volume growth, caused the indicator of final goods stock levels in relation to expected demand to fall to a five-year low.

Input cost pressures accelerated, with manufacturers reporting higher labour and raw material costs.

“The higher raw material cost could have been caused by the weaker exchange rate increasing the cost of imported goods,” said IJssel de Schepper.

“However, manufacturers were able to defend their profitability by increasing selling price inflation, with not only export but also domestic selling prices rising at a fast pace,” she noted.

The net majority of manufacturers reported higher levels of fixed investment compared with the same quarter a year ago, which rose for the first time in a year.

In addition, manufacturers now expected an increase in total fixed investment in a year’s time.

“Despite the improvement in business confidence, manufacturers made a significant downward adjustment to expectations regarding business conditions in 12 months’ time. Manufacturers have not been this pessimistic about the future since the first quarter of 2009,” she said.

The most recent Kagiso Purchasing Managers Index figure also reflected depleted sentiment regarding future business conditions in the sector.

The subcomponent measuring expected business conditions in six months’ time fell to its lowest level since March 2009, and demonstrated the uncertainty currently faced by manufacturers.

“The last time these indicators were at such low levels, the South African economy was in the midst of a recession,” said IJssel de Schepper.

Uncertainty was also reflected in the rating of the general political climate as a constraint to business, which remained at 73, the highest reading since the third quarter of 1993.

The political climate also impacted on expected investment outlays, as the percentage of manufacturers perceiving the general political climate as constraining their ability to invest over the next 12 months’ increased significantly.

This index climbed 13 index points to 72, its highest reading since the first quarter of 1994.

Local industry body the Manufacturing Circle commented that, to improve the prospects of the local manufacturing sector, greater focus should be given to the development of the domestic market.

"Consumers and the private sector should emulate government's local procurement initiatives, contain costs by benchmarking the way we fund, recoup costs for infrastructure against key emerging competitor, and hotly pursue access to the markets of our Brazil, Russia, India and China, or Brics, counterparts," the organisation said.