Green shoots in manufacturing production, sales as expansion is urged

11th November 2021 By: Simone Liedtke - Creamer Media Social Media Editor & Senior Writer

Specialised consultancy firm the Don Consultancy Group (DCG) says the recent manufacturing production and sales data released by Statistics South Africa (Stats SA) indicate positive news for South Africa’s growth.

However, chief economic Chifi Mhango warned that “South Africa must expand its African market footprint for its manufactured products to sustain the momentum”.

According to Stats SA, total manufacturing production increased by 1.3% year-on-year in September, with a month-on-month increase of 3.8% from August.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) on November 11 also said it was encouraged by the manufacturing data released on Thursday.

The increases were mainly attributed to wood and wood products, paper, publishing and printing; basic iron and steel, non-ferrous metal products, metal products and machinery; food and beverages; and motor vehicles, parts and accessories and other transport equipment.

Total manufacturing sales increased by 9% year-on-year in September to R223-billion, with a monthly increase of 3.6% from August.

Year-to-date, manufacturing production increased by 10.4%, while sales had increased by 21.1%.

This, Seifsa said, meant that the metals and engineering (M&E) sector’s yearly performance was generally in line with that of broader manufacturing production which increased by a year-on-year basis average of 4.6% in September.

Total sales increased by 17% to reach R82.9-billion in September.

Seifsa economist Palesa Molise, however, said the increase in manufacturing output, and specifically in the M&E sector, was in line with total manufacturing capacity utilisation data, which improved to 78% in the third quarter of this year, compared with 71.7% in the third quarter of 2020.

Within the M&E sector, capacity utilisation improved significantly to 74.9% in the third quarter, compared with 66.1% in the third quarter of 2020.

“The expansion in output is encouraging as it filters down to companies in the M&E subsectors which are under duress. Moreover, given the multiplicity of challenges faced by businesses, the uptick of output data provides a glimmer of hope that momentum will continue to increase in the coming months,” Molise commented.

However, she warned that the re-introduction of Eskom load-shedding, high electricity and fuel costs and volatility in the exchange rate would place significant strain on production levels going forward.

Also commenting on the statistics, Mhango said the manufacturing sector was still performing below par, “especially when compared to high growth historical patterns that were driven by demand from building and construction related activities”.

He explained that the level of manufacturing capacity utilisation was also below the high growth periods of above 80% capacity utilisation in the sector.

“Recent trends in manufacturing purchasing managers index data suggest that the South African economy has been in the expansionary zone, thus averaging 54.5 index level for the first ten months of 2021,” Mhango said.

While this was good news for the manufacturing sector, he explained that the value addition to the economy was still low judging from the declining contribution of the sector to the national gross domestic product (GDP) and employment creation.

Mhango was even more concerned with the trade picture within the sector, which he said was skewed towards imports rather than exports, especially for some key subsectors.

“South Africa has massive advantage to look at expanding its manufacturing exports into the African continent, taking advantage of the launched African Continental Free Trade Area. Despite the challenges the agreement may face on implementation, the African continent as a whole should be the basis to re-launching the South African export drive for the manufacturing sector, especially when the domestic demand is weak,” Mhango elaborated.

He further said the manufacturing sector in South Africa had demonstrated improvement from the Covid-19 pandemic strict lockdown regulations of 2020, as data suggests.

Projections for the fourth quarter are that manufacturing production will grow at about 2%. However, Mhango warned that, with current electricity load-shedding, this might not be achieved.

The M&E sector had recently come out of a three-week industrial action which cost the industry immensely, Molise lamented, stressing that an urgent response to the issue of Eskom load-shedding was required for the broader manufacturing sector and for the M&E sector companies to regain momentum and to boost production and sales levels by leveraging on the relaxed lockdown level restrictions.

The picture globally was positive for manufacturing production among major economies, he noted.

In China, manufacturing production increased 2.4% in September over the same month in the previous year, as released by National Bureau of Statistics of China, though this was lower than the previous month.

In the US, data from Federal Reserve reflects manufacturing production in the US increased 4.8% in September of 2021 over the same month in the previous year, the least in six months.

On a monthly basis, factory activity decreased 0.7%, the most in seven months and following a revised 0.4% decline in August as production of motor vehicles and parts slumped 7.2% owing to shortages of semiconductors.

Manufacturing production in the US is expected to be 3% by the end of this quarter and for China at 4.9%.