JOHANNESBURG, 10 DECEMBER 2020 – The latest dip in the manufacturing production growth rate in October shows that economic recovery will be bumpy under COVID-19 restrictions, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
Manufacturing production declined by 3.4% year on year in October, while growing by 2.6% month on month from September 2020, down from 2.9% in September, according to the latest data released by Statistics South Africa (Stats SA) today.
SEIFSA Chief Economist Chifipa Mhango said the manufacturing sector remained key to South Africa’s growth and development due to its multiplier effect into other sectors of the economy, such as the construction sector. He said this was especially true of the Metals and Engineering (M&E) industry, which is a supplier of crucial input such as steel.
Mr Mhango said it was encouraging to note that manufactured product sales had been consistently rising, reaching R221-billion in October from R201-billion in September. Of interest to SEIFSA was the continued pick up in basic metals sales from R45-billion to R48-billion over the same period. Mr Mhango said it was important to note that this was 4.7% lower when compared to October 2019.
However, within the M&E industry, sales of electrical machinery showed a year-on-year growth of 5.4%
“There are many factors at play – capacity utilisation across the entire manufacturing industry remains low at around 71%, which means the industry is still producing less than potential production. This is mainly due to the restrictive lockdown measures that the industry was – and still is – operating under at plant level. Coupled with this situation is unsustained demand patterns in both the domestic and international markets, with key markets such as Europe moving back to stricter COVID-19 lockdown measures, thus disrupting supply chains and industrial activities,” Mr Mhango said.
He noted that the M&E sector in South Africa was heavily reliant on the performance of the construction industry. He said although other recent data suggested a pick-up in construction and building material sales from May 2020 to October 2020, the upward trend had slowed. Construction and building material sales declined to R11.8-billion in October 2020, from R13.1-billion in the previous month.
Mr Mhango said historical patterns had demonstrated that during times of massive infrastructure investment into the South African economy, such as 2002-2010 when the construction sector showed growth of above 10%, manufacturing production is correspondingly higher. Between 2002-2010, capacity utilization in the sector was above 85%, while it was over 90% in the M&E industry. He said while the economy has yet to return to those levels, it was good to see a positive month-on-month growth in manufacturing production and an easing decline in the year-on-year percentage change.
Mr Mhango said that several factors were key to recovery in the manufacturing industry: “These include a well-managed approach to COVID-19 pandemic restrictions to ensure that we do not return to level-five-type lockdown measures, a stable labour market environment, a stable monetary policy, low import penetration of manufactured goods into the local economy, stable and low-cost electricity supply, increased investment into the sector, and the steady implementation of the Government’s economic stimulant recovery plan announced in October 2020.”