Financial services firm Absa's 2021 first-quarter Manufacturing Survey shows that, for a second quarter in a row, manufacturers are reporting issues in the supply chain that are resulting in raw material shortage constraints negatively affecting their production processes.
“Currently, a major problem globally appears to be the supply of shipping containers and vessels across routes, including to and from South Africa. While manufacturers remain hopeful that this will be resolved within the quarter, the risk of successive Covid-19 waves around the globe and further lockdown restrictions is a major concern,” Absa Retail and Business Bank manufacturing sector head Justin Schmidt adds.
The index is at 57 points – the second-highest level recorded since 1974. The index ranges between 0, reflecting no constraints, and 100, reflecting serious constraints.
“The February production data will provide a good indication of the sector’s production recovery. The sector seems to have gained some lost ground as indicated by the Absa Purchasing Managers’ Index (PMI), which increased for a second consecutive month in February 2021 to 53, signalling an improvement in business conditions,” Schmidt notes.
“External shocks such as the reintroduction of lockdown restrictions to mitigate the impact of a third wave of Covid-19 cases and the resurgence of load-shedding, which will likely remain a factor throughout 2021, pose a risk to the recovery,” he adds.
Insufficient demand as a constraint on current activities remained at 65 index points, only nine points lower than in the first quarter of 2020 and 20 points below a peak of 85 reached in the second quarter of 2020. While this indicates that insufficient demand does remain a constraint for manufacturers, the situation seems to be improving, he said.
“Despite previous promising signals that the manufacturing sector’s output recovery could receive a boost this year if the higher demand levels were sustained and manufacturers could restock inventory to meet forward looking demand, the first quarter survey results indicated that output continued to lag behind demand, as stock levels of finished goods relative to expected demand remained the lowest on record.”
Many manufacturers close during December and January and, as such, there is often a dip in production volumes over this period. This year, however, load-shedding and the introduction of adjusted Level 3 lockdown restrictions, notably the alcohol ban, have been a major drag on production, Schmidt notes.