Statistics South Africa (Stats SA) reports that manufacturing production decreased by 2.1% in February.

The largest negative contributors were basic iron and steel, nonferrous metal products, metal products and machinery, contracting by 4.8% and contributing -0.9 of a percentage point; and wood and wood paper products, paper, publishing and printing, contracting by 6.3% and contributing -0.7 of a percentage point.

Additionally, textiles, clothing, leather and footwear and glass and non-metallic mineral products, with a contraction of 9.1%, contributed -0.3 of a percentage point, while motor vehicles, parts and accessories, at -3%, contributed -0.3 of a percentage point. 

The largest positive contributor to manufacturing output in February was made by the food and beverages division, at 2.2% and contributing 0.6 of a percentage point.

Stats SA further states that seasonally adjusted manufacturing production decreased by 2.3% in February, compared with January.

This followed month-on-month changes of 3% in January and -3.2% in December 2019.

Seasonally adjusted manufacturing production decreased by 2.2% in the three months ended February 29, compared with the previous three months.

Eight of the ten manufacturing divisions reported negative growth rates over this period.

The largest negative contributions were made by food and beverages, contracting by -2% and contributing -0.6 of a percentage point; motor vehicles, parts and accessories and other transport equipment, contracting by -6.2% and contributing -0.5 of a percentage point; petroleum, chemical products, rubber and plastic products, at -2% and contributing -0.5 of a percentage point.

Additionally, negative contributions in the reporting three months came from wood and wood products, paper, publishing and printing, at -3.6% and contributing -0.4 of a percentage point; and basic iron and steel, non-ferrous metal products, metal products and machinery, at -2% and contributing -0.4 of a percentage point.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) notes that the decrease in manufacturing production figures for February deals a further blow to metals and engineering (M&E) companies already operating under duress of a struggling economy.

“The declining output trend is worrisome as it filters down to companies in the M&E sector of industries, which are under duress. The poor performance compounds the multiplicity of challenges faced by local businesses in the diverse M&E subsectors, including a distortion of supply chains and the recent credit ratings downgrade by ratings agency Moody’s,” says Seifsa economist Marique Kruger.

However, she points out that it is encouraging to see the South African government, banks and civil society responding positively by structuring various assistance, funding and loan packages aimed at cushioning the impact of the global Covid-19 pandemic on beleaguered companies.

Seifsa is urging its members to make use of the existing opportunities and seek to clarity, where applicable, to improve cash flows and restart production processes.

Importantly, Kruger is of the view that existing initiatives by stakeholders aimed at improving sustainability should also be accompanied by efforts to boost local demand for intermediate products and improve competitiveness for exporting companies in challenging foreign markets.

“Outlining key recommendations that may lead to a significant improvement in the M&E sector’s business activity as well as the broader manufacturing sector. There is an urgent need to directly improve the liquidity of businesses which are increasingly struggling with cash flow management, while still having to pay salaries and recurrent expenses,” she says.

Secondly, Kruger remarks that this is the best opportunity for the government to directly provide production incentives and targeted financial support to local companies on a case-by-case basis, given the differences in material and intermediate input costs.

“In a normal business environment, this approach would have been considered anti-competitive behaviour by the World Trade Organisation, but we are living in abnormal times and the survival of businesses is paramount.

"The initiative is necessary, given that businesses are coming from a position of weakness over the past decade, with understandably poor production fundamentals,” Kruger explains.