South Africa’s load-shedding crisis, efficiency challenges at the ports and political uncertainty weighed heavily on manufacturer confidence during the first few months of 2024.
This is according to the Absa Manufacturing Survey Quarter 1, 2024, which showed that business confidence dipped five points to 21 during the period, significantly lower than the long-term average of 37 points.
Seasonally, the first quarter is typically a quieter period for the manufacturing sector.
According to the survey, this trend continued, with domestic and export sales falling nine and 17 points, respectively.
Manufacturers also indicated concerns over a deterioration in overall business conditions.
The quarterly survey, which covers approximately 700 business people in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 8 and 26 February 2024. 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.
“Manufacturing plays a pivotal role in the growth of the South African economy. However, with multiple factors impacting sentiment, the sector continues its ‘stop-start’ recovery.
“It is no surprise that manufacturers are feeling downbeat,” said Justin Schmidt, Absa’s relationship banking manufacturing sector head.
“Concerningly, confidence has still not returned to pre-pandemic levels,” said Schmidt.
Relative to planned production and expected demand, current raw material and finished goods stocks dropped back into negative terrain at 20 and 14 points below the long-term average, respectively. A 22-point drop in seasonally adjusted production further highlights the knock-on impact of supply chain challenges.
Constrained business conditions amplified by weaker consumer demand fuel manufacturers’ pessimistic outlook regarding expected business conditions for the next 12 months. Against this background, manufacturers are cautious to invest.
“While manufacturers have seen the benefit of investing in their own energy generation, most of them seem to be holding off on non-energy investments,” said Schmidt.
For the fifth consecutive quarter, fixed investment remained in negative terrain. Additionally, across investment categories of land, buildings, inventory, additions and replacements, most manufacturers indicated reduced investment intentions over the next 12 months.
“In today's rapidly evolving landscape, manufacturing stands at the forefront of innovation, driving progress and shaping the future of industries worldwide. Manufacturers need to ensure the strategic allocation of capital and resources to keep up with technological advancements and build resilience,” said Schmidt.
