The decline in manufacturing production growth in November last year is a clear indication that South Africa’s economy is in for a rough ride to recovery, especially under the current adjusted level 3 Covid-19 pandemic restrictions, according to the Steel and Engineering Industries Federation of Southern Africa (Seifsa).
Manufacturing production declined by -3.5% year on year in November 2020, and at the same time also declined -1.3% month on month from October 2020, down from a growth of 3.2% from September 2020 to October 2020, according to the latest data released by Statistics South Africa.
“The manufacturing sector remains key to the growth and development of South Africa due to its spill-over effect into other sectors of the economy such as the construction sector, especially through the Metals and Engineering (M&E) sector, which remains the major supplier of crucial inputs such as steel,” said Seifsa chief economist Chifipa Mhango. “The data released suggest a worsening trend following a slower decline in the previous months,” he added.
Mhango noted that during 2020 the country had started experiencing shortages of building and construction material due to the effect of Covid-19 lockdown measures at operational level, thus depleting inventories as the economy slowly opened up.
He said it was concerning that one of the key contributors to the decline in manufacturing production was basic iron and steel, non-ferrous metal products, metal products and machinery (-3.9% and contributing -0.7 of a percentage point), a key segment within the M&E sub-sector.
However, he said that it was encouraging that manufactured product sales were consistently rising, reaching R225 billion in November from R221 billion in October.
Of interest to Seifsa, he added, was the continued uptick in basic metals sales from R48 billion to R49 billion over the same period.
It was important, however, to note that this was 2.4% higher when compared to November 2019. Within the M&E industry, sales of electrical machinery, however, showed a year-on-year growth of 7.8%, with parts and accessories segment of motor vehicle parts growing by 42.5% year on year in November 2020.
Capacity utilisation across the manufacturing industry remains below the normal levels and is currently at 71%, which means industry is still producing less than potential production. “With continued lockdown restrictions and reduced industrial demand activities from the domestic and international economy, and as Europe moves into stricter lockdown measures, we expect a tough ride ahead for 2021 in the manufacturing sector,” he said.
For the South African economy to take a strong and smooth ride to the recovery, more effort needed to be made with policy interventions to revive the weak manufacturing sector, he said. “These should include the implementation of the already announced stimulant packages in the form of infrastructure project spending, a stable labour market environment, a stable monetary policy, low import penetration of manufactured goods, and stable and low-cost electricity supply coupled with increased investment incentives into the sector for both small and large businesses.”