SA engineering capacity utilisation is lowest in decade, report shows
Low capacity utilisation levels, cheap imports and rising power costs were some of the biggest hurdles facing South Africa's metals and engineering sectors, a report by the Steel and Engineering Federation of Southern Africa (Seifsa) has indicated.
Seifsa said in its State of the Metals & Engineering Sector Report: 2021-22, released on Friday, that capacity utilisation in 2020 was at its lowest level in a decade as the Covid-19 pandemic stifled demand.
According to the Seifsa report, the metal and engineering (M&E) sector was operating below capacity due to lack of demand locally, mainly with a depressed economy, and reduced activity of infrastructure projects.
“Capacity utilisation levels are below 70 percent, a situation that has been influenced further by the strict Covid-19 lockdown measures implemented in 2020,” said the report.
South Africa's manufacturing capacity utilisation increased to 72.9 percent in the third quarter of 2020 from 59.8 percent in the second quarter of 2020. Capacity in the M&E sector increased to 66 percent from 52.8 percent.
Seifsa wants the government to create incentives that support companies to invest and advance their technologies in production, to move in step with the fourth industrial revolution, where production can continue even under pandemics. “The local industry needs to look into the future to deal with any future pandemics, as the lockdown has had a massive negative impact on production,” said Seifsa.
In terms of imports, the M&E sector is grappling with a declining market environment domestically, with imports depressing the market share of local producers. “Imports – especially from China – continue to flood into the local market, despite tariffs imposed on some products, thus putting pressure on the prices of locally-produced goods,” said the report.
A total trade in the M&E sector, indicated the report, had favoured imports since 1995. The South African net trade balance in the M&E sector averaged R102 billion since 1995 to the third quarter of 2020.
Imports continued to rise, reaching a peak of R604bn in 2019, with exports reaching a peak of R418bn in the same year. “Between quarter one and quarter two in 2020, the values of both imports and exports dropped.
“Imports dropped from R134bn to R105bn, while exports dropped from R92bn to R59bn, thus indicating a slowdown in trading activities caused by lockdown measures across countries,” said Seifsa.
Seifsa called for monitoring of products entering South Africa to ensure that product classification during customs declaration is right. “The government needs to seek more support from industry to assist in training customs officials regularly on product identification,” said the report.
It also identified rising electricity prices as one of the key challenges impacting on the competitiveness of the metals sector negatively.
“Eskom has for the last four years been increasing its electricity tariffs, and this has affected the cost base of most local producers in the sector, thus negatively affecting profit margins,” the report said.
Seifsa sad it was encouraged because the government was moving to address its infrastructure fund through resourcing project preparation facilities, reviewing regulation and policies, as it introduces reform.