Confidence levels among South African manufacturers have remained muted amid a challenging outlook for the sector, due to the country’s ongoing intensifying energy crisis.
The Absa Manufacturing Survey for the fourth quarter showed that overall business confidence during the quarter remained unchanged at 26 points, after two consecutive quarterly declines.
Justin Schmidt, the head of the manufacturing sector at Absa Relationship Banking, said this was in part due to pressure from load shedding, water restrictions and transport constraints, which continue to weigh on local manufacturers.
“Despite the fourth quarter being a peak sales period for manufacturers, increased production costs and insufficient demand as consumers struggle with the rising cost of living hampered potential improvements in confidence this quarter,” said Schmidt.
“Additionally, insufficient demand will remain a concern as many manufacturers expect export volumes and sales orders to decline in the next quarter.”
The quarterly survey, which covers about 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between October 26 and November 14.
The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence, where all participants are satisfied with current business conditions.
According to the survey, while confidence in the fourth quarter may be unchanged, most manufacturers remained pessimistic about the expected business conditions in the next 12 months.
Schmidt said this was likely driven by rising operating costs as manufacturers implement methods to remain productive during bouts of load shedding.
“With the increased production costs and unchanged selling prices, margins might continue to be under pressure this quarter making management of working capital paramount going forward,” he said.
However, some manufacturers indicated an increase in their fixed investment realised in the fourth quarter.
“This may be indicative of manufacturers investing in renewable energy projects and energy efficient machinery and equipment to curb the impact of load shedding, and hedge against rising electricity costs,” Schmidt said.
Although the manufacturing sector is struggling to gain growth momentum, Schmidt said there were positive factors that could improve the sector’s final fourth quarter production numbers.
He said the rise in manufacturing’s contribution to the third quarter economic growth showed the ability of the sector to remain resilient, and continue making a positive impact on the South African economy.
The manufacturing industry was a significant positive contributor to the third quarter gross domestic product as output was bolstered mainly by the automotive sector, food and beverages, and metal products.
Schmidt said Absa remained committed to supporting investment into green energy projects as both a risk mitigation strategy for manufactures, and a way to reduce carbon emissions.
“Fixed investment will be key to the growth and recovery of the sector, and the overall economy going forward,” said Schmidt.
“With many manufacturers currently investing in their own energy generation and exploring ways to consume less energy, Absa remains committed to support the manufacturing industry along their journey,” he said.
BUSINESS REPORT