Investment tracker points to growing optimism in manufacturing sector

12th March 2018 By: Simone Liedtke - Writer

Investment tracker points to growing optimism in manufacturing sector

Manufacturing Circle executive director Phillipa Rodseth
Photo by: Creamer Media

Investment in the manufacturing industry increased in the final quarter of 2017, reflecting a growing optimism and changing sentiment in the sector, the latest Manufacturing Circle Investment Tracker (MCIT) has indicated.

In the fourth quarter, the MCIT increased by five index points year-on-year to 63 points. This was mainly driven by new investments in property and a higher spend on salaries and wages, which Manufacturing Circle executive director Phillipa Rodseth said was expected in the fourth quarter, as firms often hire more temporary staff to meet increased demand during this period.

Announcing the results of the latest MCIT on Monday, Rodseth said that investment on expanding property and/or the purchasing of new buildings increased by 16 index points, while expenditure on property maintenance rose by eight points to 66 points - the highest level since the introduction of the MCIT in 2016.

The new plant and equipment index remained above the neutral 50-point mark, but dropped from 72 points to 70 between the third and fourth quarters. Spending on the maintenance of existing plant and equipment increased by 10 index points to 66.

Looking ahead, the MCIT indicated that investment in new plant and equipment is likely to increase at the same rate in the first quarter of 2018 as it did in the previous quarter. Expenditure on the maintenance of existing plant and equipment, however, is likely to drop following extensive maintenance in the fourth quarter.

While spending on inventory follows demand patterns, it fell below the neutral 50-point threshold to 46 points after having risen to 56 in the previous quarter.

"This is expected since sales generally increase in the fourth quarter every year, using up existing inventories," Rodseth noted.

Expenditure on salaries increased by 14 index points between the third and fourth quarters, rising from 54 to 68.

This, Rodseth highlighted, was likely owing to firms taking on more temporary workers in order to meet an increased demand. There was also an increase in training, similar to that in the previous quarter, she added.

Rodseth further explained that looking at expectations, the surveyed manufacturers were likely to increase expenditure on salaries and training at a slower rate as the use of temporary workers was discontinued. Expenditure on training and development was likely to increase as firms upskilled existing employees.

Investment in research and development, which increased by 10 index points to 66 in the fourth quarter, was expected to continue.

Spending on inventories, however, would fall in the first quarter of 2018.

Meanwhile, Manufacturing Circle chairperson Andrew de Ruyter stressed in a statement that the uptick in results needed to be sustained and that the manufacturing sector was not out of the woods.

"With unemployment at a 14-year high of 27.7%, business confidence at its lowest level in a quarter of a century, and more than half of the population living in poverty, delivering jobs and inclusive growth has to be the highest priority for government, business and labour."

He added that if manufacturing could expand to 30% of the gross domestic product (GDP), between 800 000 and 1.1-million direct jobs could be created, with five to eight times that number in indirect jobs.

In an attempt to deliver these one-million jobs, the Manufacturing Circle's 'Map to a Million' puts forward detailed proposals to deliver one-million jobs in manufacturing within the next ten years.

"If we work to succeed in catalysing a debate on how to grow the economy, and put more people to work, we will have achieved the first step on the road towards creating a million new jobs," De Ruyter said.