The general business conditions in the manufacturing sector deteriorated significantly in the first quarter of 2008, with the Bureau for Economic Research’s (BER’s) latest survey showing that this sector’s business confidence had plummeted, and it reported a contraction in production volumes.
The BER's confidence index for the sector fell to 46 in the first quarter of 2008, from 69 in the fourth
quarter of 2007 as general business conditions deteriorated sharply.
The BER said that producers were faced with the perfect storm, as both the domestic and global economies were slowing down, and pressure on input prices and competitive issues in general continued. This was, however, aggravated by the effects of the electricity crisis, which had hit many industries hard.
“For the first time in nine years, manufacturers reported a contraction in production volumes. The significant turnaround in production is a clear indication of the negative impact of the electricity crisis and specifically the unplanned load shedding that occurred,” the bureau said.
Domestic demand had slowed substantially during the first quarter of the year, with most manufacturers reporting year-on-year declines in domestic sales volumes. It stated that, although manufacturers had expected growth in local sales and orders to taper off, it did not anticipate negative growth. Negative growth was last witnessed in 2003, when South Africa’s manufacturing sector was in a recession, it noted.
The BER also said that exports continued to battle, despite a more competitive exchange rate, as rising input costs and continuing general constraints persisted. Manufacturers of intermediary- and capital goods, however, expected some recovery in exports' performance in the second quarter and beyond.
The sector’s cost pressures also increased “dramatically” from the previous quarter, leading to unit cost inflation to reach historical highs. The BER said that the rate of increase in the average purchasing price per unit of raw material had risen significantly and that both domestic and export selling price inflation had jumped up sharply.
It added that employment might be bearing the brunt of the deterioration in business conditions, with most of the survey’s respondents indicating that they had, or that they planned to, decrease the number of factory workers.
Earlier, South Africa’s mining industry said that thousands of jobs were on the line because of the power problems.
In the last quarter, growth in fixed investment also slowed, as a result of the impact of interest rates and the effects of the electricity crisis. Total fixed investment in the next year was expected to decelerate, but manufacturers have indicated that they would continue to increase capacity.