JOHANNESBURG, 11 AUGUST 2020 – The national lockdown occasioned by COVID-19 has had a devastating impact on manufacturing output, as reflected by negative growth rates in the volume of manufacturing production data released by Statistics South Africa (Stats SA), the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
SEIFSA Chief Economist Dr Michael Ade said the data, which reflects a deceleration by -16.3% in June 2020 compared with June 2019, is worrisome for local companies in both the Metals and Engineering cluster of industries as well as the broader manufacturing sector, especially given the need for key labour-intensive sub-industries to remain resilient in order to sustain and create jobs.
“Thhe ongoing economic crisis and added pressure on the Government to address the widening current account and budget deficits mean that there will be a significant delay in the urgency with which businesses are assisted during these difficult times of the Coronavirus pandemic,” Dr Ade said.
Year on year, the latest preliminary seasonally adjusted production data captures a decrease in production in the broader manufacturing sector in June 2020 when compared to June 2019, with manufacturing output decelerating by -16.3% in June 2020. However, although a relative slowdown on a month-on-month basis, seasonally-adjusted manufacturing production increased by 16.8% in June 2020 compared with 30.4% in May 2020, highlighting continuing volatility.
Disconcertingly, the largest negative contributions of -36.6% were made by the sub-components of the Metals and Engineering Sector, comprising the basic iron and steel, non-ferrous metal products and metal products and machinery.
“The poor performance which reflects the extensive negative impact of the COVID-19 pandemic on the manufacturing sector over the months of April, May and June 2020 is cause for concern. However, the slightly-improving trend over the same months – albeit still negative – provides a degree of comfort as it means that local businesses are slowly gaining control over the challenges faced, including a disruption of supply-chain activity since the advent of the COVID-19 pandemic,” Dr Ade said.
“These are unusual times for businesses and the current economic environment, underpinned by increasing operational costs and a volatile exchange rate, has compelled businesses to be selfish in exploring ways of ensuring their survival before considering the interest of the broader industry,” he said.
Dr Ade said that despite the challenging economic atmosphere, he strongly recommends that local businesses think long term by continuously supporting other businesses where possible. He said the ongoing crisis means that much-needed assistance to improve cash flow from development finance institutions or the Government will be slow in coming.
“If local businesses cannot be assisted financially or funded, the best companies can do in the interim is to buy or source inputs locally and promote private-private partnerships,” he said.
Specifically, in times of crisis, big local or multinational businesses with the capacity and cash reserves to absorb negative shocks should assist the industry and complement ongoing long-term efforts – such as planned infrastructure spending – by the Government aimed at boosting demand and, by extension, production, he added.
“It is important to sort out demand and boost sales. Increased sales of intermediate and final manufactured products will invariably compel companies to take up more capacity as they strive to meet demand, with positive implications for manufacturing output and jobs. Importantly, increased sales will have a direct positive effect on struggling companies’ profits and margins as they strive to navigate murky waters and remain sustainable,” Dr Ade said.