Manufacturers face uphill battle

Despite slower global growth and power outages, economists are predicting moderate growth in manufacturing output in 2015, albeit off the low 2014 base. This follows the recent release of manufacturing output statistics for November 2014 and December 2014. The Kagiso Purchasing Manager’s Index (PMI) declined by 3.3 index points in December and Statistics South Africa figures showed a 1.3% year-on-year decline in November 2014. Executive director of The Manufacturing Circle, Coenraad Bezuidenhout, believes manufacturing output growth for 2015 will depend on South Africa’s traditional export markets such as Europe and the United States. Nedbank economist, Nicola Weimar, added that an economic slowdown in emerging markets such as China would further affect export demand and impact manufacturing output. Energy prices and labour instability could also impact manufacturing output growth, according to Bezuidenhout. “South Africa is at a distinct disadvantage as energy prices are increasing and energy supply is decreasing,” he said, adding that there were again threats of strikes in key industry sectors this year which not only disrupt production but undermine business confidence. Chief economist at the Steel and Engineering Industries Federation of South Africa (Seifsa), Henk Langenhoven, told FTW that the impact of electricity supply disruptions on the metals and engineering sector was clearly visible in the manufacturing output statistics. “The cumulative effect of the production disruptions during 2014 now amounts to a 2.5% overall contraction of production in the sector,” he pointed out. Eskom’s announcement last Thursday that loadshedding was inevitable for the first quarter of 2015 could mean a drop of 23% per month in production, said Langenhoven. The good news is South Africa’s close proximity to a growing continent where 800 million people are expected to make the move to urbanisation over the next 10 years, said Bezuidenhout. “They will need pots, pans, security systems, security gates etc which we can manufacture very competitively in South Africa,” he said. Bezuidenhout said it would be crucial for South Africa to address market access to Africa and reduce obstacles to entry such as tariff barriers and red tape which cause major delays. “South Africa is also facing renewed competition from its neighbours who are not only driving strong industrialisation policies but in many cases have cheaper labour and more affordable energy pricing,” said Bezuidenhout. INSERT & CAPTION South Africa is at a distinct disadvantage as energy prices are increasing and energy supply is decreasing. – Coenraad Bezuidenhout INSERT 23% The estimated monthly drop in production due to load-shedding. CAPTION Motor vehicle production decreased by over 33% late last year.