A manufacturing survey undertaken by financial services company Absa finds that confidence levels in the manufacturing sector dropped by nine points to 17 in the first quarter – the lowest since the Covid-19 hard lockdown and similar to that experienced during the 2007/8 global financial crisis.
The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence where all participants are satisfied with current business conditions.
Absa Relationship Banking manufacturing sector head Justin Schmidt says manufacturers are feeling pessimistic as loadshedding, especially at higher levels such as Stage 6, continues to have a significant impact on their businesses.
The quarterly survey, which covers about 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research at Stellenbosch University between February 8 and 27.
“Although many manufacturers have implemented measures to become resilient to loadshedding, once Stage 4 is exceeded, heavy manufacturers may be asked to curtail their production in an attempt to stabilise the national grid,” Schmidt points out.
With raw material shortages and insufficient demand as constraints on current activities declining to 50 and 61 points respectively in this quarter’s results, the impact of loadshedding becomes apparent in the 15-point drop in production realised.
In addition, capacity underutilisation increased by six points to 74 – the highest level since hard lockdown – and costs remain high, with the total cost per production unit indicator at 85 points – well above the long-term average of 60.
“Survey respondents noted the cost of loadshedding in the form of both production downtime and diesel purchases for generators as key costs this quarter,” says Schmidt.
While selling prices remain fairly high, concern remains as manufacturers are limited in the extent to which they can pass rising costs onto their customers, leading to margin pressure.
Despite the already-difficult operating environment, Absa reports that pessimism continues to surround forward-looking expectations as the majority of manufacturers expect that business conditions will deteriorate even further over the next 12 months, with both import and export volumes expected to decline.
As such, Absa says manufacturers have indicated poor investment intentions over the next 12 months.
“We are seeing that manufacturers’ investments are currently focused on surviving loadshedding in the form of transitioning to renewable energy, while investments into additions or expansions have been put on hold until manufacturers see a shift in the operating conditions,” Schmidt says.
With these matters taken into consideration, Absa says it remains committed to supporting manufacturers on their journey to becoming energy resilient.