Financial services provider Absa Bank’s latest Manufacturing Survey finds that confidence levels have remained low into the fourth quarter of the year and unchanged at 26 points.
The bank points out that persistent loadshedding, water restrictions and transport constraints continue to weigh on local manufacturers, despite the fourth quarter normally being a peak period for manufacturers.
Absa relationship banking manufacturing sector head Justin Schmidt says insufficient demand will remain a concern as many manufacturers expect export volumes and sales orders to decline in the next quarter.
The Manufacturing Survey covers responses from about 700 businesspeople in the manufacturing sector. It ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 an extreme level of confidence where all participants are satisfied with current business conditions.
Schmidt notes that most manufacturers are 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 loadshedding.
“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,” he states.
Positively, some manufacturers indicated an increase in their fixed investment realised in the fourth quarter, which may be indicative that manufacturers are investing in renewable energy projects and energy efficient machinery and equipment to curb the impact of loadshedding and hedge against rising electricity costs.
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.
Schmidt notes that the rise in manufacturing’s contribution to gross domestic product in the third quarter of the year shows the ability of the sector to remain resilient and continue having a positive impact on the South African economy.
“Absa remains committed to supporting investment in green energy projects as both a risk mitigation strategy for manufactures and a way to reduce carbon emissions. Fixed investment will be key to the growth and recovery of the sector and the overall economy going forward,” Schmidt highlights.
“With many manufacturers currently investing in their own energy generation and exploring ways to consume less energy, Absa remains committed to support the manufacturing industry along their journey,” he adds.