Manufacturing companies in South Africa have remained more pessimistic regarding expected business conditions for the next 12 months due to tough trading conditions emanating from constrained electricity supply and logistical challenges at the ports.
The Absa Manufacturing Survey, released yesterday, showed that confidence in the manufacturing sector has improved slightly to 26 points in the fourth quarter.
This was the highest level the Absa Manufacturing Survey has been in 2023, even though it remained firmly below the 50-points mark, which separates expansion from contraction.
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.
Absa Relationship Banking’s head of manufacturing sector, Justin Schmidt, said although trading conditions remained tough, manufacturers noted an overall improvement in business conditions as that category went up by nine points.
Schmidt said domestic and export sales, which rose seven and six points, respectively, were performing better than their long-term averages, while the total cost per production unit decreased by nine points.
“It is clear that easing electricity supply disruptions, the resulting increase in the average hours worked and improved production, have positively impacted sentiment in the sector,” Schmidt said.
“Yet, current confidence levels are still too low to encourage large-scale growth or expansion.”
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 25 and November 13.
This is a crucial period because the backlog of at least 100 container vessels carrying goods off the ports of Cape Town, Richards Bay and Durban due to inefficient equipment and bad weather was still being under-reported.
Transnet Port Operations (TPT) has indicated that the backlog will only be cleared by February/March 2024, thus international freight companies responded by announcing a “congestion surcharge” for cargo varying between $200 and $400 per container, which translates into a notable increase in cost for the importers and exporters.
The congestion surrounding ports is expected to have a detrimental impact on the economy and consumer prices as many retailers anxiously await stock for Christmas, which is now stuck somewhere in a container either in the port or at sea.
Also, Eskom had not ramped up its rotational load shedding to Stage 6 for at least two months during this period, but the situation has drastically changed now due to insufficient generation capacity and emergency reserves.
Schmidt said that given these constraints on current activities, manufacturers remained cautious to invest in machinery and equipment over the next 12 months.
He said manufacturers were more pessimistic regarding expected business conditions for the next 12 months as the sector approaches a quieter first quarter and the 2024 national elections.
“South African manufacturers continue to prove their resilience as the fourth quarter survey results paint a slightly better picture compared to the rest of the year. In order to remain competitive, it is vital for manufacturers to continually evaluate their business operations and invest in cost-effective and efficient processes,” Schmidt said.
“Despite some positive results this quarter, manufacturers continue to note challenges in the operating environment, with respondents specifically mentioning issues at the ports, water shedding and political uncertainty.”
Still, Schmidt said forward-looking trade expectations indicated that the majority of manufacturers expected import and export volumes to increase in the coming months.