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More job losses on the cards

The latest data on factory output signal future job losses – increasing the danger of social and political instability in the year ahead, after last year’s outbreak of industrial unrest.

Figures from Statistics SA yesterday showed manufacturing production rose only 2.2 percent year on year in December last year, down on the revised growth of 3.7 percent for November and below the 2.6 percent forecast of 13 economists polled by Bloomberg.

File photo: Simphiwe Mbokazi.

The official unemployment rate is just below 25 percent and news this week that 68 000 jobs were shed in the fourth quarter highlighted the possibility that it could rise further.

Elna Moolman, the South Africa economist at Renaissance Capital, said: “Manufacturers are seeing the political environment as similarly constraining to growth as it was in the early 1990s.”

A high level of uncertainty put a damper on output in the run-up to the 1994 political transition when markets were uncertain about the ANC’s policy direction.

Moolman described manufacturing “as one of the sectors – along with mining and agriculture – in which we may see job losses in this year”.

The manufacturing sector seems unable to gain traction despite the weaker rand that has given domestic producers an edge over foreign competitors. The currency has depreciated from a little over R8 to the dollar at the start of last year to about R9 in recent weeks.

Moolman said: “The level of production is still around 6 percent lower than the pre-recession peak. Generally, the manufacturing sector does not seem to have kept pace with the recovery in domestic and global demand since the recession.”

She said this could be due to “sharply rising input costs that put pressure on this sector’s competitiveness”.

The monthly change also disappointed. Kevin Lings, the chief economist at Stanlib, said production fell by a disappointing 2.2 percent, after adjustment for seasonal factors. This compared with a revised monthly rise of 2.6 percent in November and 1.5 percent in October.

He said production was volatile on both an annual and a monthly basis, partly due “to industrial action, maintenance downtime and the timing of public holidays”. But he noted output was up “a reasonable 1.6 percent” in the fourth quarter from the third quarter, seasonally adjusted. This was due to “an improved performance in October and November”.

Lings said a positive contribution in December had come from a “sharp pick-up in petroleum production after a period of maintenance downtime, as well as solid contributions from iron and steel and paper and publishing. These gains were partially offset by a fall-off in vehicle and food production.”

One hopeful sign is an increase in the extent to which factories use their productive capacity. Stats SA also reported yesterday that the utilisation rose from 80.6 percent in November 2011 to 83.8 percent in November last year.

Moolman said, though the production increases over the year had been small, they had boosted capacity utilisation. Typically capacity utilisation at these levels would spur private sector fixed investment, but she did not expect an investment pick-up at this point.

But Lings noted: “Encouragingly, most of the key purchasing managers indices globally have improved somewhat in recent months, including in China. This should have a positive impact on local manufacturing in the coming months.”

Standard Bank strategist Shireen Darmalingam identified labour unrest as one of main risks to growth this year.

“Already, the textile sector is currently in wage discussions. Wage negotiations will resume in the motor trade industry in this quarter… Further wage disputes in the mining sector will also impact on factory output.”

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