Factories speed up as power cuts ease
SA’s manufacturing activity improved in the third quarter, reflecting the easing of electricity supply disruptions, though the sector remains depressed, according to a sector report.
The Absa/BER manufacturing survey released on Tuesday posted a confidence reading of 23 in the third quarter, six points up from the preceding three months. However, the reading indicates the sector is still under significant pressure. The index is based on a scale of 0 to 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence.
Absa’s head of manufacturing sector Justin Schmidt said the industry was supported by the easing intensity of load-shedding during August.
"With load-shedding averaging stage 6 in May and dropping to an average of stage 3 in August, it is clear that easing electricity supply disruptions, resulting in increased capacity utilisation, have positively impacted sentiment," he said.
While the sector continues to face headwinds, it showed some growth during the second quarter, as highlighted by Stats SA’s latest GDP figures. "This indicates that many businesses have adapted or invested to insulate themselves from the effects of load-shedding."
The manufacturing sector has been trending downward for 16 years, eroding its contribution to GDP and leading to a big drop in jobs.
The R513bn sector in real gross value-added terms contributes about 13% to the economy, down from 23% of GDP at its height in the early 1980s.
Manufacturing is the fourth-biggest sector, employing nearly 1.2-million people, according to employment statistics from the first quarter of 2023.
Schmidt said that while the latest reading still points to depressed conditions in the sector, overall results suggest it is in a better position than in the second quarter of this year.
"However, some manufacturers noted that infrastructure failures due to load-shedding and rising interest rates posed a challenge to their operations in the third quarter."
He said that given the uncertainty surrounding the operating environment, manufacturers’ investments are focused on remaining in operation, while investments into additions or expansions remain on hold.
Forward-looking expectations have improved significantly for the next 12 months, increasing by 16 points.
Schmidt said that as manufacturers head towards their peak sales season in the fourth quarter, their expected production and sales levels, as well as their import and export volumes, are more optimistic.
"This builds on positive readings which indicated a jump in exports during the third quarter, including a 3% net majority of manufacturers reporting higher exports relative to the third quarter of 2022," he said.
A weaker currency as well as the lower base due to the KwaZulu-Natal floods in 2022 may have contributed to the increase in exports.
Absa economist Andiswa Mdingi said survey respondents reported improved production and sales performance.
"However, official output data show a weak start to quarter three, with seasonally adjusted production shrinking in July," Mdingi said. "The July output weakness could be partly due to the temporary supply chain disruptions related to the truck vandalism during the month, and we anticipate some rebound in the coming releases."
Mdingi said manufacturers were less gloomy about prospects for investment and activity. "However, as electricity supply constraints continue, the sector’s ability to adapt or insulate itself further from the effects of load-shedding will be critical for growth in addition to the strength of demand."