South Africa’s manufacturing sector confidence has spiked to the highest level in two years, according to the latest Absa Manufacturing Survey released on Wednesday.
Confidence levels among local manufacturers increased by a healthy eight points to reach 36 index points during the fourth quarter, the highest level since the first quarter of 2022, the survey found.
According to the Absa Manufacturing Survey for the fourth quarter of 2024 production, domestic and export sales as well as new orders have improved and recorded levels better than initially expected.
The quarterly survey, which covers approximately 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research at Stellenbosch University between 24 October and 11 November 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.
Both domestic and export selling price inflation eased on the back of a significant decline in the total cost of production per unit. The reduction in raw material price per unit contributed the most to the overall production cost dropping sharply by 20 points, quarter-on-quarter.
Absa Business Banking Executive for the Manufacturing Sector, Justin Schmidt, said the latest data was encouraging.
“After a difficult year, characterised by demand-side challenges and lingering logistics headwinds, it is encouraging to see an upward shift in business confidence,” said Schmidt.
“The sharp decline in unit production cost comes on the back of lower inflation, lower oil prices and rand strength over the past few months. As we head into peak sales season, manufacturers will be well positioned because of lower production costs. The latest reduction in the repo rate is also expected to result in higher consumer demand over the next few months.”
Subsectors that contributed the most to the overall increase in confidence include metals and machinery, chemicals and food and beverages. The latter subsector’s confidence reading increased the most, by 28 points to 52.
Confidence among manufacturers in the transport sector dropped sharply from 28 in the third quarter to 13 this quarter, mainly as a result of subdued demand in the sector.
Overall, manufacturers feel that business conditions have improved quite considerably with this indicator increasing by 29 points, likely driven by the reduced production costs and the improvement in demand with new domestic and export orders increasing by 26 and 13 points, respectively.
In the previous survey, when taking a 12-month forward view, manufacturers expressed an improved likelihood to invest in fixed assets.
“We are starting to see some of that materialise with the indicators measuring realised fixed investment and investment in machinery and equipment improving by six and 10 points, respectively,” said Schmidt.
“Given load shedding in preceding years, manufacturers have usually focused their efforts on building resilience into operations by investing in back-up power and renewable energy solutions. We are now starting to see investment to improve capacity and efficiency in operations as well as consideration for technology and equipment that will enable their journey to green manufacturing.”
When considering constraints on current activities, most indicators remained stable. However, manufacturers highlighted an increase in the shortage of skilled and semi-skilled workers.
