Overall business confidence in Q4 remained unchanged at 26 points after two consecutive quarterly declines, according to Absa’s Q4 Manufacturing Survey. This was in part due to pressure from load-shedding, water restrictions and transport constraints, which continue to weigh on local manufacturers.
“Despite Q4 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 Justin Schmidt, head of manufacturing sector at Absa Relationship Banking. “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 approximately 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 - likely driven by rising operating costs as manufacturers implement methods to remain productive during bouts of load-shedding.
“With the increased production cost and unchanged selling prices, margins might continue to be under pressure this quarter, making management of working capital paramount going forward,” Schmidt said.
Positively, some manufacturers indicated an increase in their fixed investment realised in Q4. “This may be indicative that manufacturers are investing in renewable energy projects and energy-efficient machinery and equipment to curb the impact of load-shedding and hedge against rising electricity costs,” he added.
Although the manufacturing sector is struggling to gain growth momentum, there are positive factors that may improve the sector’s final fourth-quarter production numbers. The rise in manufacturing’s contribution to Q3 GDP shows the ability of the sector to remain resilient and continue making a positive impact on the South African economy. “Absa remains committed to supporting investment into green energy projects as both a risk mitigation strategy for manufacturers and a way to reduce carbon emissions. Fixed investment will be key to the growth and recovery of the sector and the overall economy,” added Schmidt.
