Speaking after the release of capacity utilisation figures by Statistics South Africa, SEIFSA Chief Economist Henk Langenhoven said that the fourth-quarter numbers were 2,1% lower than in the same period in 2013 and 3,3 lower than in November 2012. The latter seemed to have been the beginning of a decline.

The average capacity utilisation for the sector had been almost constant at 78,8 for the last three years, against a benchmark of 85%. Mr Langenhoven said under-utilisation of capacity could be ascribed to labour and other production disruptions that took place in 2014.

“Just as it was hoped that these disruptions would have subsided, the electricity constraints started to bite and will have an impact in the foreseeable future,” Mr Langenhoven said.

He added that, specifically in manufacturing, capacity utilisation as an indicator was now an important variable used in studies of countries’ growth potential. He said that, taking this important variable into account, latest South African Reserve Bank and International Monetary Fund studies showed that South Africa’s growth potential had declined from 3,5% to 2,5%.

The metals and engineering sector represents 34% of manufacturing in the country.

Mr Langenhoven said gross operating surplus numbers for the sector (indicative of profit margins) had been negative since 2012. With under-utilisation of current production capacity, within an environment of upward cost pressures, profit margins would be under increased threat.

“If the general outlook for domestic and international growth is not rosy, then it is almost logical that little or no investment will take place,” he said, adding that these were very worrying trends for the sector and the country.