JOHANNESBURG, 6 MAY 2021 – Persistant low levels of capacity utilisation in the manufacturing sector and low demand for locally manufactured goods are worrying as COVID-19 alert restrictions continue to limit operations at industrial plants, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
Data released by Statistics South Africa (StatsSA) today shows that total capacity utilisation was 74.0% in first quarter of 2021 compared with 77.5% in first quarter of 2020, representing a decrease of 3.5%. Within the Metals and Engineering (M&E) sector, capacity utilisation was marginally down to 76.1% in the first quarter of 2021 from 76.8% in first quarter of 2020. This was mainly as a result of insufficient demand, with maintenance and shortages of raw material such as oxygen and steel also contributing to the under-utilisation of production capacity.
Overall, the manufacturing sector remains weak in terms of production patterns, with a year-to-date production decline of 3.1% in February 2021. Manufacturing has remained under pressure for some time, with data depicting a low annual average production growth rate of 0.1% in the last four years to 2019, coupled with a massive decline of 13.7% in 2020. In the last five years to 2020, total capacity utilisation in the manufacturing sector has averaged 79.8%, with that of the M&E sector at 77.5%.
While total manufacturing capacity utilisation dipped to 59.8% and to 52.8% the second quarter of 2020 amid Level 5 lockdown restrictions, it improved in the latter quarters of 2020 as the restrictions were eased, reaching 79.3% and 74.6% respectively in the fourth quarter of 2020. In 2020, capacity utilisation for the manufacturing sector and M&E sector totalled 72.3% and 67.6% respectively.
According to SEIFSA Chief Economist Chifipa Mhango, weak manufacturing production amid the lockdown regulations contributed to the economy contracting by 7% in 2020. “COVID-19 significantly hampered production last year. However, there are encouraging signs of a slight recovery as evidenced by Absa’s Manufacturing PMI, which is in an expansionary trajectory of above 50, even though there was marginal decline from 57.4 in March to 56.2 in April,” he said. “We, do, however, reiterate that any recovery in manufacturing production will be driven by the Government’s efforts to revive the economy. It is, therefore, critical, that the Government speeds up the implementation of its economic recovery plan,” Mr Mhango said.
“This is particularly critical for the recovery of the M&E sector, which has experienced a worrying decline in levels of employment and investment,” he said.
He said the M&E sector is heavily reliant on demand from key Government infrastructure projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. An increased level of industrial domestic demand is, therefore, required for manufacturers to reboot capacity utilisation levels to above 80%.
Mr Mhango added that it is imperative that the South African Government efficiently rolls-out its COVID-19 vaccination programme to enable the economy to open-up further and restore industrial production.