South Africa's manufacturing output down 49.4% on Covid-19 impact

9th July 2020 By: Simone Liedtke - Writer

South Africa's manufacturing production decreased by 49.4% year-on-year in April.

Statistics South Africa (Stats SA) reports that the largest contributor to this decline was the motor vehicles, parts and accessories and other transport equipment sector, where output decreased by 98% (contributing -7.8 percentage points).

This was followed by the basic iron and steel, nonferrous metal products, metal products and machinery sector, where output decreased by 65.4% (contributing -13.2 percentage points); the wood and wood products, paper, publishing and printing sector, where output decreased by 49.2% (contributing -4.9 percentage points); and the petroleum, chemical products, rubber and plastic products sector, where output decreased by 41.5% (contributing -9.5 percentage points).

The food and beverage sector also contributed -5.4 percentage points as the sector's production decreased by 19.4%.

Seasonally adjusted manufacturing production decreased by 44.3% in April compared with March. This followed month-on-month changes of -1.2% in March  and -2.7% in February.

Seasonally adjusted manufacturing production decreased by 16.9% in the three months ended April 30, compared with the previous three months.

Stats SA says all ten manufacturing divisions reported negative growth rates over this period,.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) says the decrease in manufacturing production "does not augur well for companies in both the metals and engineering (M&E) cluster of industries and the broader manufacturing sector”.

"The outlook is dire, especially given the need for companies to remain resilient against the backdrop of a weak economy that is also under pressure owing to the coronavirus pandemic," Seifsa economist Marique Kruger comments.

She says the decreasing manufacturing output trend is “worrisome” and that the poor performance compounds the various challenges faced by local businesses in the diverse M&E subsectors, including a disruption of supply-chain activity since the advent of the Covid-19 pandemic.

“Businesses are facing tough times, given the current economic environment underpinned by prevailing constraints and a volatile exchange rate, while also trying to deal with the contagion effects of the pandemic, which has also restrained brick-and-mortar meetings and business activity,” she says.

She adds that, to assist the industry, “it would be important for policy makers to concentrate on demand-side measures aimed at boosting demand and, by extension, production for local businesses”.

Kruger highlights the importance of resolving demand-related challenges, as well as the increased demand for intermediate and final manufactured products, which she says will “invariably compel companies to increase capacity utilisation and manufacturing processes”.

Increased sales will have a direct positive effect on struggling companies’ profits and margins, she notes.

Meanwhile, financial services provider Nedbank said it expects manufacturing production to remain subdued this year “as the sector grapples with inherent and external constraints”, including unreliable electricity supply, structural imbalances, generally weak demand, as well as the coronavirus outbreak.

With output having contracted for the past 11 months and having shrunk by 15% over the year-to-date, Nedbank says it “be a long time” before the sector experiences any meaningful growth.

However, Nedbank adds that “the worst of the plunge is probably over”, as June’s global and domestic purchasing managers indices point to some recovery.

Meanwhile, in an industry note published by FNB, the institution anticipates that the sector will record negative year-on-year growth in May as the country remained under level 4 lockdown and consequently a large portion of the sector remained closed.

As lockdown restrictions are eased, manufacturing output levels will increase, but owing to severe capacity destruction, FNB warns that "it could take some time" for the sector to fully recover to pre-Covid-19 levels.

Going forward, output in the sector i expected to continue to be inhibited by electricity supply constraints (as the rest of the economy reopens), the persistently low domestic demand (as households’ finances remain under pressure) as well as low global competitiveness, FNB said.