Purchasing Managers’ Index Still Volatile Despite Rebound In June 2019, Says SEIFSA
Johannesburg, 1 July 2019 – While the increase in overall business activity in the broader manufacturing sector – as reflected in the latest ABSA Purchasing Managers’ Index (PMI) data – is encouraging, nevertheless the trend remains volatile, highlighting the underlying constraints faced by business, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Economist Marique Kruger said this morning.
Based on a survey of purchasing executives, the composite PMI data for June 2019 shows that industrial activity improved to 46.2 points, up from the 45.4 points recorded in May 2019. A reading above the benchmark level of 50 indicates an expansion when compared with the previous months, while the reverse is true for a reading below 50.
Speaking after the release of the data today, Ms Kruger said it is encouraging to note that the majority of the five seasonally-adjusted sub-components correspondingly registered increases in June 2019 when compared to May 2019. Of the five sub-components, the new sales orders and the inventories sub-indices increased the most, surging from 44.4 points in May 2019 to 46.2 points and from 41.6 points to 43.4 points respectively in June 2019, while the worst-performing sub-index was the employment sub-index (41.9 points).
Despite the improvement, Ms Kruger said the PMI trend is still very volatile, highlighting the underlying constraints faced by business.
“Against the backdrop of low domestic demand, companies still have to deal with fluctuating input costs, increasing fuel and energy costs, carbon tax and volatility in the exchange rate. These are very challenging,” concluded Ms Kruger.
SEIFSA is a National Federation representing 21 independent employer Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing fewer than 50 people.
The dti Incentive Schemes
The workshop will look at the different incentives schemes available from the dti to companies in the metals and engineering industries
Who should attend?
- Executives
- Senior Managers
- Managing Directors
- Chief Financial Officers
- Managers
- Entrepreneurs and those directly involved with applications for government incentives
The workshop will cover
- Automotive Investment Scheme(AIS)
- Capital Projects Feasibility Programme
- Critical Infrastructure Programme (CIP)
- Manufacturing Competitiveness Enhancement Programme (MCEP)
- People-Carrier Automotive Incentive Scheme (P-AIS)
- Section 12I Tax Allowance Incentive (12I)
- Support Programme for Industrial Innovation (SPII)
- Export Marketing Investment Assistance (EMIA)
Government Incentives and Import and Export Foreign exchange
At this event experts will look at an overview of Government Cash Investment Incentives available to manufacturers as well as opportunities for importers and exporters in terms of foreign exchange. The workshop will benefit companies looking at additional spend in terms of their manufacturing facilities, as well as any exposure to currency volatility.
The workshop will cover
- Government incentives for manufacturing companies;
- How incentives can be accessed;
- Assistance provided through the process; and
- Foreign exchange opportunities.
Who should attend?
- Entrepreneurs
- SMMEs
- Managing Directors
- Financial Directors
- Senior Managers
Those directly involved with applications for government incentives and foreign exchange transactions.
The State of the Metals and Engineering Report
The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is the undisputed voice of the metals and engineering sector in South Africa and the region. Its knowledge and understanding of the sector are unequalled.
Since its formation in 1943, SEIFSA has seen the metals and engineering sector go through great times and – especially in recent years – challenging times. Not only has it kept pace with developments in the sector, but often it has been a crucial – and sometimes indispensable – part of those developments and a reliable voice of the sector.
Long known for and strongly associated with collective bargaining, SEIFSA offers various products and services of great importance to companies in the metals and engineering sector, including those in other economic sectors with close links to this part of the economy. It boasts four Divisions led by respected experts in their respective fields – Economics and Commercial; Industrial Relations and Legal Services; Human Capital and Skills Development; as well as Safety, Health, Environment and Quality. These services range from consulting through to training, both public and in-house.
Our revered Economics and Commercial (EC) Division is a repository of much of the information on the sector’s economic performance over the years. For more than half a century, the EC Division has published the unique and indispensable SEIFSA Price and Index Pages (PIPS). Over the past two decades, the Division has also conducted training for those keen to benefit from our training in Contract Price Adjustments (CPA).
It is a privilege to present to you the State of the Metals and Engineering Sector 2020 to 2021, which has been compiled by Dr Michael Ade and Ms. Marique Kruger.
The metals and engineering sector has experienced considerable challenges in recent years. We consider it to be imperative that policy makers take relevant steps to protect it and its sub-industries, on a temporary basis, from more internationally-subsidised and efficient producers in order to boost local production capacity and ensure their competitiveness. To this end, designation and localization of production processes is vital, as is the ring-fencing of strategic imported inputs to explore the possibility of producing them locally.
This comprehensive State of the Metals and Engineering Sector Report provides key insights to such a stance by highlighting some of the most imported inputs.
I have not the least doubt that all who monitor closely he fortunes of the broad metals and engineering sector and its sub-sectors in Southern Africa, and those with even a passing interest in it and its related sectors, will find this Report invaluable. As usual, I commend this Report highly to all who are keen to understand a very important – and strategic – part of the broad manufacturing sector, and thank Dr Ade and Ms. Kruger for their labour of love.
Both Michael Ade and Marique Kruger are available for consultations with stakeholders interested in deepening their understanding of the metals and engineering sector and its sub-industries. They can be reached at Michael.ade@seifsa.co.za and marique@seifsa.co.za by those companies keen to invite them to help during their strategic planning sessions, for consultations on any aspect of the sector or to book CPA training.
We, at SEIFSA, values you, as an important stakeholder in the metals and engineering sector. We wish you everything of the very best in 2020.
What does the future promise?
What does the future promise?
The main question is what should be done to ensure that the sector is more competitive, export more and possibly improve profits and employment numbers?
The continued survival of the sector depends, as far as the domestic economy is concerned, crucially on the health and growth of the sectors which are drivers of its demand, namely mining, construction and automotive sectors. Hence the urgent need to conclude issues around the mining charter in order to attract so much needed investments across the board and boost domestic growth. In addition, the need to grow market share in regional markets and also mitigate potential risks from the existing trade war between two of the World’s largest economies is also important.
Also, part of the answer is that all the stakeholders within the sector must put differences aside and collaborate more. A salient and undeniable fact is that the industry is notorious for being more reactive than proactive when dealing with challenges. Although some intermediate products of the metals and engineering cluster are close substitutes, unscrupulous tactics should not be used by one sub-industry over the other, to gain competitive trade advantage. Competition is encourage, albeit in a business-as-usual atmosphere rather than belligerently. Without co-operation, all businesses including the small, medium and micro enterprises cannot flourish and expand. Intra-industry squabbles are counterproductive to the objectives of the National Development Plan (NDP) in the long run, thereby, constricting the effective implementation of its long-term socio-economic road map, with dire consequences on jobs and economic development.
There has been a relative reduction in import volumes, thanks to the protection measures for downstream steel industry (safeguard tariffs) announced by the government. Also, the establishment of a R1.5 billion (over three years) downstream steel industry competitiveness fund, through interest rate subsidy, will relieve some pressure due to a number of structural factors which have undermined the sector’s competitiveness. This had resulted in a number of firm closures and more than 6% related job losses.
Longer-term survival and recovery, however, needs a whole paradigm shift in policy measures and company behavior. There is need to contain input costs and further mitigate the impact of both the 2007/8 financial and economic crises and the 2014 productions crisis which are still felt in the industry. Also, the negative effect of the Chinese economy which is simultaneously slowing down and overwhelming world markets with cheap exports need to be contained. Encouragingly early indications suggest there has been no unusual spike in imports despite the existing trade war.
Increased trade and interdependence with the rest of Africa should receive a boost from a new R13,4 billion export trade facility launched by the Export Credit Insurance Corporation of South Africa (ECIC) and the African Export Import Bank (Afreximbank). This should boost exports from South Africa to the rest of Africa with a combined population of about 1,2 billion people and GDP of roughly US$2,2 trillion. Companies in the sector need to “sharpen the saw” and focus more on the exporting to the SADC region (including SACU), especially given the favourable growth forecast for the region. Of total exports into Africa, almost 81% are destined for SADC, West Africa (8,7%), East Africa (8,9%), North Africa (1,3%) and Middle East (0,5%).
Importantly, a ‘cluster’ approach to the dynamics of each sub-industry is needed. As highlighted in the State of the Metals and Engineering Sector Report for 2018/19, each sub-industry within the sector has its own unique exposure to national and international markets, its own capital or labour intensities and its own productive capacity constraints and production cost challenges. Gross fixed capital formation (new investment) is clearly needed by all the sub components, in order to improve productive efficiencies to that of world benchmarks and to grow.
The M&E sector is intimately linked to the fortunes of the agricultural, mining and quarrying, construction and auto sectors (and to some extent, the electricity and transport sectors). The signs of recovery in each of the aforementioned sectors (and export demand) is crucial for the M&E sector over the longer term. Stimulation and redirection of domestic general government procurement demand towards domestic metals and engineering producers is a policy measure over South Africa has control. The recent initiative by the DTI aimed at designation, localisation and supplier development is lauded as a significant tool in the industrial policy toolkit’ to support the broader manufacturing sector.
This is especially given that government has the largest procurement spend. The steel industry seems to be the earliest beneficiary but the expectation is for the benefit to trickle down to other industries in the M&E cluster. In addition, enhanced cost-effectiveness and moral suasion is also needed to ultimately attract private sector demand as well.
The purpose of the State of the Metals and Engineering Sector Report
The purpose of the State of the Metals and Engineering Sector Report
The main aim of the report is to track whether the sector is expanding or declining and several longitudinal data and trends (which are often very volatile) are monitored accordingly. The study makes use of an eclectic methodology in its analyses and entails comparing the most current data point to the one immediately preceding it. It also makes use of a monthly and annual analyses, including several year-to-date versus previous year comparisons. The approach helps in contextualising the growth trend in the industry, in generally highlighting the various drivers of growth (or lack of) and in predicting output trends in the sector with a high confidence interval. Ad hoc monthly commentary and periodic reviews are subsequently published as derivatives of the research report.
The second objective of the study is to provide an intrinsic understanding of the dynamics of observed trends. The analysis in this regard is evidenced-based, robust and compelling, further igniting several discourses. Resultantly, more in-depth reviews and opinion pieces of specific drivers have been conducted and published in several platforms. Some of these include the SEIFSA News journal and domestic newspapers including technical publications.
The third objective is for the report to ignite interest and provide evidenced-based impetus for collaboration advocacy and lobbying. Collaboration and lobbying should be aimed at reducing specific constraints as identified in various internal for a within SEIFSA. Given that the EC division acts as a repository of much of the information on the sector’s economic performance over the years, an important aspect of the research is, therefore, in facilitating advocacy and lobbying initiatives in several external forums.
The level of advice sought from SEIFSA by policy makers and the impact it had dealing with metals crisis over the years proved how valuable this can be. SEIFSA has received positive indications that it will still be part of a soon to be reconstructed steel price monitoring committee and this is good for the industry. SEIFSA currently serves in other forums including the Technical Sectoral Liaison Committee (TELESICO), the National Economic Development and Labour Council’s (NEDLAC’s) Trade and Industry, Economic Development, Manufacturer’s Trade and Tariffs forum and BUSA’s Economic Policy and Tax Policy committees, including other sub-committees.
A substantive input was made when EIFSA recently held a high-level meeting with President Ramaphosa’s Economic Adviser and a team of investment envoys of the South African government. The meeting provided an opportunity for all parties to discuss salient issues affecting investments into the M&E cluster in particular and the broader manufacturing sector in general. Moreover, it also reaffirmed the importance of business maintaining a good working relationship with the Government (and the governing party) and to continuously work towards broadly improving local economic conditions.
Another substantive input was made when SEIFSA and Transnet recently launched a joint Working Group (WG) with the mandate of addressing prevailing inefficiencies towards ultimately reducing logistics costs for the businesses. Effectively three working streams were created by the joint SEIFSA-Transnet WG to continue with the objective of the working group. These include the logistic efficiency, the competitiveness and benchmarking work streams. Progress reports from these initiatives will be made available to stake holders on a regular basis as stipulated in the WG terms of reference document.
Sectoral Level Economic Research
SECTORAL LEVEL ECONOMIC RESEARCH
The EC division published a fifth further enhanced version of its State of the Metals and Engineering Sector Report in January 2018. The Report which entails research triangulation and robust statistical analyses (including descriptive, inferential and statistical modelling) takes an annual look of the sector, elaborating on the drivers and underlying dynamics of observed variables like production, demand, employment, intermediate input costs, profit trends, export competitiveness, investment and capacity utilization.
Over the years, the Sector Report has become the benchmark for monitoring business activities and developing economic trends on a sub-industry and sector level. The sub-industries covered included the rubber, plastics, basic ferrous, basic non-ferrous, metal products, machinery and equipment, household appliances, electrical machinery and equipment, transport equipment as well as parts and accessories for motor vehicles. Tracking progress of these various sub-components during the year relative to the initial prognosis and outlook proved to be a powerful tool for understanding the health of the sector.
The report relies on recognized external sources of data. These include Statistics South Africa, the South African Reserve Revenue Services, Quantec and the World Bank. These are complemented by other sources such as the Economic Trend South Africa and the Industrial Development Corporation. The availability of accurate and credible economic information on sub-industry level is a resource available to members, but not fully utilised. Great effort was made to ensure that the type of data used, the sources and the methods employed in compiling the data are bench-marked to both national and international standards.
The information is analysed in a unique way to produce an overview of the national and international standards. The information is analysed in a unique way to produce an overview of the national and international standards. The information is analysed in a unique way to produce an overview of the national and international environment, vividly depicting the state of the local M&E cluster, highlighting the important drivers of growth and concluding with a predictive annual outlook.
SEIFSA Welcomes SA’s Exit From Recession And Urges Businesses To Capitalise On Improving Demand In Order To Expand
Johannesburg, 4 December 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes South Africa’s official exit from a technical recession in the third quarter of 2018, and urges businesses to capitalise on improving local demand in order to expand.
South Africa’s real GDP increased by 2,2% in the third quarter of 2018, following a revised seasonally-adjusted 0,4% quarter-on-quarter (q/q) decrease recorded in quarter two of 2018. The broader manufacturing sector’s performance was equally encouraging, with the sector significantly contributing to growth in GDP in the third quarter.
Speaking after today’s release of GDP numbers, SEIFSA Chief Economist Michael Ade said the biggest concern often raised by stakeholders in the broader manufacturing sector as a stumbling block to expansion, profit and job creation is that of stagnant or poor demand. Dr Ade said although other documented constraints still prevail, the overriding challenge is that of lack of demand, with poor local demand often cited by businesses as the main reason for their increasingly turning to regional African and global markets for sales, despite the additional logistic costs involved.
“The improvement in GDP growth is, therefore, encouraging as it provides a platform for local businesses to be inward looking, against the backdrop of an improved demand for their intermediate and finished products,” Dr Ade said.
However, he warned that although South Africa has officially exited the recession, challenges still prevail. Although the improvement in growth signals a step in the right direction, the economy and businesses are still under duress characterised by high intermediate and operational costs, poor ratings from Fitch and S&P (which still rate South Africa’s debt at sub-investment grade or junk status), vulnerability to investor sentiments and poor business and consumer confidence.
He said much work still needs to be done to revive a stuttering South African economy and support industrial growth and expansion. For this to happen, Dr Ade said urgent intervention is needed to prevent the recent electricity blackouts from spiraling out of control as the ripple effect from load shedding will inevitably place businesses under duress, discourage investment and impact negatively on company output and economic growth. Accordingly, the Government needs to continue with identified reforms in beleaguered State-owned enterprises (SOEs), while also containing high debt levels.
“The SOEs and municipalities, through their designation for localisation imperatives, are important parts of a kaleidoscope of end-users which are very key to the survival of the manufacturing sector, including its diverse metals and engineering cluster of industries. Therefore, the SOEs and municipalities need to be in good shape in order to continuously sustain positive GDP growth projections and demand levels and boost expansion in industrial production,” Dr Ade said.
He added that the support of these institutions is important for continuous improvement in manufacturing, especially considering that manufacturing is amongst the sectors which contributed positively to the lift in third-quarter GDP growth momentum.
Dr Ade said although the manufacturing sector seems to be slowly regaining its influence, underpinned by repeated recording of positive monthly output figures since April 2018, it still needs more support.
Going into the new year, Dr Ade said some signs of green shoots which are necessary to kickstart the economy are evident for businesses to capitalise on and move to the next level of growth. He observed that the weak rand-to-dollar exchange rate which presented the biggest challenge to businesses in the manufacturing sector has strengthened, fuel prices have temporarily slowed (with a possible breather on logistic costs), and the PMI rebounded to 49,5 index points in November, representing the first increase after three consecutive months of declines and the best performance since July 2018.
“Above all, domestic demand – which is the most important and sustainable driver of growth for the manufacturing sector, irrespective of Government incentives or protectionism – has improved and stakeholders are very hopeful,” he said.
In conclusion, Dr Ade said SEIFSA is also hopeful about constant improvement in GDP growth, but re-iterates the need for more swiftness in policy implementation and consistency in monitoring and evaluation of relevant interventions in order to maintain the positive growth trajectory.
SEIFSA is a National Federation representing 21 independent employer Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing fewer than 50 people.
SEIFSA Encouraged By Improvement In Broader Manufacturing Purchasing Managers’ Index
Johannesburg, 3 December 2018 - The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the improvement in overall business activity in the broader manufacturing sector, as reflected in the ABSA Purchasing Managers’ Index (PMI) released today.
As a lead indicator and the first data point that is published for the preceding month, the PMI sets the tone for how manufacturers and various stakeholders in the broader manufacturing sector view the month ahead.
The headline PMI data released today improved from 42.4 percent in October 2018 to 49.5 percent in November 2018, placing the PMI data virtually on par with the 50-neutral level which separates expansion from contraction.
“The rebound in the data is encouraging. Despite low business and consumer confidence, it seems that manufacturing activity is generally improving, albeit rather slowly and still under pressure,” SEIFSA Economist Marique Kruger said.
She added that it was also encouraging to note that almost all the sub-indices improved in November 2018 vis-à-vis October 2018, with the new sales orders, inventories and suppliers’ performance trending in expansionary zones.
The only blip in the performance of the sub-indices was that of the employment sub-index, which still trends in the contractionary zone and seems to have taken a knock in November 2018 when compared to October 2018.
Ms Kruger said SEFSA remained hopeful that the increasing trend in the sub-indices would continue and eventually improve the composite seasonally-adjusted PMI for December 2018.
“Progression in the PMI is important towards boosting overall economic activity for quarter 4 of 2018, also enabling businesses to start the year 2019 on a positive note,” Ms Kruger concluded.
SEIFSA is a National Federation representing 21 independent employer Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making companies to micro-enterprises employing fewer than 50 people.
Companies Unlikely To Benefit From Rising PPI For Intermediate Manufactured Goods Unless Inflation Eases Further, Says SEIFSA
Johannesburg, 29 November 2018 – Businesses in the metals and engineering (M&E) cluster are unlikely to benefit from a continuous increase in the selling price inflation in October 2018, given the current domestic economic environment underpinned by high petrol prices and an up-tick in both the prime interest rate and inflation, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
Speaking after today’s release of Producer Price Index (PPI) figures by Statistics South Africa (StatsSA), SEIFSA Chief Economist Michael Ade said the latest release shows the annual percentage change in the PPI for final manufactured goods was 6,9% in October 2018, compared with 6,2% in September 2018. The data also shows a less-than- proportionate increase in the PPI for intermediate manufactured goods, considered a proxy for selling price inflation, from 7,7% in September 2018 to 7,4%. From September 2018 to October 2018, the PPI for intermediate manufactured goods increased by 1,0%.
However, Dr Ade said it is worrisome to note that notwithstanding the improving trend in selling price inflation for intermediate manufactured goods, companies are still constrained by derived logistics costs from high fuel prices and the double whammy of rising prices and higher prime interest rate.
“As captured by recent official releases from StatsSA and the South African Reserve Bank, the headline CPI correspondingly increased from 4,9% in September 2018 to 5,1% in October 2018, alongside the interest rate which increased from 6,5% in September to 6,75% in October. These dynamics definitely have the potential of compounding the dire situation of most businesses. The bigger concern is the direct impact on the depleting margins of companies, with dreadful extended socio-economic consequences on the broader economy,” Dr Ade said.
He said the direct transmission effects of the negative shocks arising from inflation, high costs of servicing existing loans and from snowballing borrowing costs from the financial service providers will impact negatively on consumer demand, thereby reducing the ability of producers to increase selling prices.
Dr Ade said that given that most of the intermediate goods produced in the M&E cluster are further utilised in the production of final manufactured goods which are largely consumed by domestic consumers, the reverse knock-on effect on the M&E cluster will be huge. He said the sharp deterioration in both the consumer and business confidence indices, as captured by the FNB/BER confidence indices, was equally of concern. .
The data reflect consumer confidence dipping from 22 in the second quarter to 7 in the third quarter of the year, while business confidence also fell from 40 in the second quarter to 34 in the third quarter. The bleak picture is further corroborated by the poor performance of the Absa business expectation index, which slowed down from 45,8 in September to 41,7 in October, in the midst of a technical recession and low domestic demand.
Dr Ade said that the lack of demand will invariably affect the speed with which intermediate manufactured goods leave the factories, steel mills, foundries, smelters and warehouses.
“Also, given the direct correlation that exists between changes in the PPI at the retail level (finished goods) and consumers at the point of sale, increases in both inflation and the cost of borrowing will adversely affect the speed at which manufactured goods are sold. Given these constraints, businesses are unlikely to benefit from prevailing increasing selling price inflation as it becomes difficult to pass price increases on to the final consumers continuously,” Dr Ade said.
In conclusion, Dr Ade pointed out that the PPI for the final and intermediate manufactured goods are important drivers of consumer demand. He said both indicators also generally act as a preview of changes in the rate of inflation.
Dr Ade cautioned that, in analysing both trends, businesses should also give significant consideration to other drivers of consumer spending.