Massive decline in 2020 manufacturing sector production a major concern, says SEIFSA

12th February 2021 By: Creamer Media Reporter

The COVID-19 pandemic and the lockdown conditions which it occasioned had a devastating effect on the South African economy in general and the manufacturing sector in particular in 2020, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Chifipa Mhango said today.

Speaking after the release of the latest economic data by Statistics South Africa (Stats SA), which showed that manufacturing production fell by 11% and total sales declined by 9,9% in 2020 when compared to the previous year, Mr Mhango said the Stats SA data revealed the pressure under which companies within the Metals and Engineering (M&E) sector operated: total M&E production across the 13 sub-categories declined by 13.6% in 2020 when compared to 2019, and total sales declined by 12.3% to reach R727-billion. The largest sales value for the year was in the non-ferrous metal products sub-sector at R162-billi.

Mr Mhango pointed out that the M&E sector represents 29% of the South African manufacturing base, and that its decline has massive implications for other sectors of the economy such as construction, into which 60% of its products feed as key inputs. He noted that in 2020 the local economy experienced shortages of several key products used by the construction sector due to industries operating below the prescribed capacity.

“Indeed, there was shortage of steel as construction activity resumed and as other manufacturers that rely on steel in production also resumed operations,” he said.

Mr Mhango said SEIFSA was also concerned about the latest figures on capacity utilisation. According to Stats SA, in 2020 total capacity utilisation in the manufacturing sector was 72.3%, 1.8% down from the 81% in 2019. Within the M&E sector, average total capacity utilisation in 2020 was 67.6%, with the lowest level recorded in the other transport equipment sub-sector, at 58.4%, and the basic iron and steel sub-sector, at 54.2%. He said these figures explained the shortages of steel experienced in the country.

The South African economy is estimated to have contracted by 7.5% in 2020, partially due to the weak manufacturing production trends throughout the year, as a result of low capacity utilisation at producing companies under stringent COVID-19 lockdown regulations.

Mr Mhango said it was important for the Government to do more to revive the ailing economy, with special focus on speeding up implementation of policies.

“At SEIFSA, we want to see the finalisation and speedy implementation of the Steel Master Plan, which we believe will benefit both primary and downstream players in the local steel industry – this will be key to ensuring the M&E sector’s survival,” he said.

Mr Mhango said fixed investment was also key to reviving the M&E industry. He said South Africa’s level of gross fixed investment to total GDP needed to move to levels of above 40%, from below 20% at present, in order to grow the country’s industrial base.

Mr Mhango said although the Government had committed, during the 2020 national budget speech, to spending R815-billion over the next three years on various infrastructure projects, mainly though State-Owned Entities (SOEs), implementation was slow.

He said the M&E sector is heavily reliant on demand from key Government projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. He said the lack of progress in the implementation of such key Government projects was a hindrance to reviving the economy.

“As we await the tabling of the National Budget in Parliament on 24 February 2021, we expect tough statements in dealing with mismanagement of funds at SOEs and speeding up of reforms, coupled with increased investment incentives for the manufacturing sector, for both small and large businesses. More also needs to be done to revive the railway system that is not supporting industrial activity transportation, which was a commitment made by Government in a previous State of the Nation address,” he said.