Johannesburg, 5 March 2019 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes South Africa’s continuous improvement in the gross domestic product (GDP) for the fourth quarter of 2018, and urges companies to capitalise on improving local demand to boost competitiveness.
South Africa’s real GDP increased by 1,4% in the fourth quarter of 2018, following a revised seasonally-adjusted 2,6% quarter-on-quarter (q/q) increase recorded in quarter three of 2018. The broader manufacturing sector’s performance was equally encouraging, with the sector significantly contributing to growth in GDP in the fourth quarter by 0,6 percent.
Speaking after today’s release of GDP numbers, SEIFSA Chief Economist Michael Ade said hitherto the South African economy had looked vulnerable and faced prospects of a continuous slowdown amid high debt and deficits, increasing production costs and unemployment. However, since the rebound in growth in quarter three 2018 from a technical recession, there is a promising basis for increased economic activity and expansion of industry activity, driven by firming local demand and promising manufacturing production.
Dr Ade said despite the improvement in domestic economic activity, there is still a need for policy consistently to support initiatives aimed at continuously improving GDP in order to ensure sustainability. This is especially given that the World Bank, the National Treasury and the South African Reserve Bank all slashed their initial GDP growth forecasts for 2019, based on an increasingly difficult domestic environment.
Dr Ade said continuous support for business is vital. He said although challenges to local business operations are still prevalent and business expectation is still very volatile, the robust domestic demand will provide impetus for companies to service not only the local markets, but also the regional African and global markets, despite the additional logistics costs involved.
He said the prospects for improved international trade for South Africa are rosy, given the boost early last week by the news that US President Donald Trump granted China another amnesty on possible further import tariff hikes. In return, China promised not to depreciate its currency as a weak yuan makes Chinese exports cheaper. Dr Ade said the scenario creates a conducive atmosphere for increased South African exports which will help reverse a negative domestic trade balance recorded in January 2019.
“The slowdown in global trade war will also boost trade patterns and production patterns,” he said.
Dr Ade said in the current era where companies are increasingly making use of advance manufacturing processes – involving the use of innovative technology – to improve products or manufacturing processes, there is hope that capital intensity will also translate to higher GDP. He said while the improvement in GDP growth will ensure that in the longer term changing patterns of trade and technology are moving to the benefit of local businesses, there is a need to improve efficiency correspondingly and promote job friendliness.
“SEIFSA applauds the Government’s efforts aimed at generally supporting and reconfiguring strategic but beleaguered State-owned enterprises (SOEs), while also containing high debt levels. The initiative will also rectify the dreadful situation at several SOEs by taking decisive measures to improve governance, strengthen leadership and restore stability. The efforts which will also deal with profligacy and the corrosive effects of corruption will help in restoring the integrity of the identified institutions, which are key to the survival of the manufacturing sector, including its diverse metals and engineering cluster of industries,” Dr Ade said.
He added that SEIFSA specifically welcomes urgent interventions aimed at preventing the recent electricity blackouts by Eskom from spiraling out of control. He said the ripple effect from load shedding will inevitably place businesses under duress, discourage investment and impact negatively on manufacturing production and growth levels.
Dr Ade said continuous support for the broader manufacturing is key, especially considering that manufacturing is amongst the sectors which contributed positively to the lift in fourth-quarter GDP growth momentum, increasing by 4,5%.
He said the manufacturing sector seems to be slowly regaining its influence, as evidenced by repeated recordings of positive monthly output figures since April 2018. He said the sector is arguably the most attractive sfor job creation, with the largest indirect job creation multiplier potential, but needs more support to ignite investment and employment.