The confidence of South African manufacturers fell in the third quarter of this year, the latest quarterly Absa Manufacturing Survey has shown, with the index dropping two points to 26. The survey has an index that runs from zero (absolutely no confidence at all) to 100 (extreme confidence).

“Although cost and stock pressures appear to be easing slightly, manufacturers are still faced with a tough operating environment,” noted Absa Relationship Banking Manufacturing Sector head Justin Schmidt. “Many manufacturers felt that business conditions worsened during the quarter with load-shedding, high input costs and bottlenecks at [South African] ports all weighing on sentiment.”

The survey was conducted on behalf of Absa by the Bureau for Economic Research at Stellenbosch University. It covered some 700 business people in the manufacturing industry and was conducted from August 10 to August 29.

Shortages of raw materials were less constraining than they had been during last year, but they remained a constraint, the business people reported. Supply chain disruptions had also eased. Cost increases for raw materials had decelerated. Moreover, manufacturers reported that they now had enough raw materials and finished goods for their planned production and expected demand. This was the first time they had indicated this since 2020. “This should free up working capital and reduce the pressure that manufacturers have felt on their margins,” he pointed out.

But the majority of the business people surveyed expected business conditions in the country to further deteriorate over the next 12 months. This was the consequence of expected poor global economic growth, rising inflation and continuing South African energy problems. On top of these, the cost of credit, and insufficient demand, were expected to become larger constraints. And manufacturers were anxious that reduced disposable income for consumers would restrict demand in the last quarter of the year, which was normally their biggest sales period.

“Manufacturers are as pessimistic about the expected business conditions in the next 12 months as they were in the fourth quarter of 2020,” highlighted Schmidt. The local manufacturing sector needed economic growth assisted by infrastructure investment, reliable energy supplies and regulatory reform. Many manufacturers were currently investing in their own energy generation, as well as seeking ways to reduce their energy consumption.