South Africa’s manufacturing sector is showing signs of recovery, with recent data indicating positive developments. According to a report from StatsSA, manufacturing production increased by 1.9% in November 2023 compared to the same month in 2022. Seasonally adjusted manufacturing sales also rose by 2.1% over the past three months. This growth signifies a gradual return to pre-Covid levels, despite Investec noting that conditions in the sector “remain lackluster” (BusinessTech,2024).
InterGest South Africa takes a deep dive into the most recent statistics of the manufacturing sector and provides an overview of how less loadshedding, increased deliveries and demand for plastic has all positively affected this weight-holding South African Industry.
2024 Business Activity in the Manufacturing Industry
The business activity index improved significantly, rising from 44.5 in March to 57.2 in April, while new sales orders increased from 45.5 to 55.6 during the same period. These improvements suggest a positive shift in manufacturing performance, though some comments indicate that demand remains sluggish. The absence of load-shedding for over 30 days likely supported better business conditions. Eskom, the national power utility, reported sustained improvements in coal-fired plant generation, sufficient emergency reserves, and lower demand. However, Eskom cautioned that load-shedding is expected to return during the winter months.
Stronger Domestic Demand fueling Recovery
Export sales have remained muted, indicating that stronger domestic demand has driven the improvement in the sales orders index. The supplier deliveries index, which is inverted, increased from 54.1 in March 2024 to 57.4 in April 2024, reflecting slower deliveries. This slowdown is likely due to higher demand from factories, although the index remains below recent highs impacted by port and rail issues. Looking ahead, the index for expected business conditions over the next six months decreased with the anticipated return of load-shedding and fewer interest rate cuts than previously expected.
In January, manufacturing output expanded by 0.8% month-on-month in seasonally adjusted terms, contrasting with December’s 1.3% decrease. This turnaround was driven by growth in the below sectors:
- Basic iron
- Steel
- Non-ferrous metal products
- Metal products, and machinery
Growth in petroleum, chemical products, rubber, and plastic products also accelerated, outweighing a fall in food and beverages production. Annually, manufacturing output rose this year by 2.6% in January, up from 1.3% in December, signalling an improving trend.
Meeting South Africa’s Full Potential
However, the ABSA manufacturing survey for Q4 2023 indicated that the confidence index has shown gradual, slow progressive improvement over the past three years and remains below the long-term average of 37. Numerous domestic challenges, including inconsistent electricity supply and logistical constraints, continue to impede optimal manufacturing activity. Investec pointed out that the intensity of load-shedding increased towards the end of November, and congestion at ports weighed on the delivery of significant inputs. The subdued global manufacturing environment also continues to undermine South Africa’s export potential.
Thanda Sithole, FNB Senior Economist, stated that manufacturing output achieved marginal growth in 2023, marking a modest rebound from a 0.4% decline in 2022. This gradual uptick is something which investors are clinging to with the rise of a new governing union of political parties. This growth, paired with the interesting political climate puts South Africa’s manufacturing sector in an interesting position to keep a keen eye on.
In conclusion, while South Africa’s manufacturing sector shows signs of recovery, significant hurdles still remain. The sector’s ability to navigate these challenges will be crucial for sustaining growth and achieving long-term stability. While we are in a promising position with slow growth being seen in domestic demand, production and the confidence index, South Africa remains a consistent player in the global market.
InterGest South Africa, with 20 years of experience has seen the highs and lows of our market. Our dedicated team of accountants, tax experts, payroll and banking specialists are ready to face the volatility and offer solutions to the unique issues faced when entering the local market.
For more information on just we have guaranteed success to our clients, visit our website!
SOURCES:
https://businesstech.co.za/news/business-opinion/770302/bright-spark-for-south-africas-economy/
https://businesstech.co.za/news/trending/741713/boost-for-manufacturing-in-south-africa/
