JOHANNESBURG, 8 JUNE 2021 – The uptick in economic growth during the first quarter of 2021 in South Africa is encouraging as it indicates increased demand for local goods and services – a key driver for much-needed job creation, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.  

According to Statistics South Africa, real gross domestic product (GDP) increased at an annualised rate of 4.6% in the first quarter, though this was lower than the fourth quarter of 2020’s revised growth of 5.8%. The biggest contributors to this growth were the finance industry with 7.4% growth, the mining industry with 18.1%, and trade industries with 6.2%.

“The rise in GDP is a welcome development, particularly given the current strained economic environment, which is marked by rising unemployment levels, rising input costs, increasing energy costs and the COVID-19 pandemic,” said SEIFSA Chief Economist Chifipa Mhango, who added that the signs of economic recovery have been evident, with increasing production levels in key sectors such as the manufacturing and mining sectors, as well as the purchasing managers’ index numbers being in expansionary territory recently. 

Mr Mhango said it was particularly encouraging that the broader manufacturing sector, including the Metals and Engineering (M&E) cluster of industries, was among the positive contributors in the secondary sector, rising by 1,6% in the first quarter. Manufacturing growth was largely driven by the automotive sector, as well as by manufacturers in wood, paper and publishing. 

“Five of the 10 manufacturing sub-sectors reported positive growth rates, which bodes well for South Africa given that the sector is seen as key to South Africa’s growth and development due to its multiplier effect into other sectors of the economy,” Mr Mhango said. 

He said the recovery in manufacturing has been evident as since the easing of the COVID-19 lockdown restrictions implemented in March 2020, with sales of building and construction material picking up from a low base of R1.2 billion in April 2020 to a moving monthly average of R11 billion to March 2021. He said a similar pattern is also reflected in recent M&E production sales improvement from a low base of R62 billion in January to R79.3 billion in March, thus supporting the GDP numbers. 

Mr Mhango noted, however, that the decline in Gross Fixed Capital Formation (GFCF) data released along-side the GDP figures is not supportive of the positive GDP and production figures, as GFCF decreased by 2,6 % in the first quarter of 2021 from a high 12,1 % in the fourth quarter of 2021. He said this decline in GFCF was driven by a decrease in residential buildings, transport equipment and machinery & other equipment, demonstrating that the construction sector remains constrained. 

Mr Mhango said SEIFSA was also disappointed by the first-quarter decline in net exports of 0,9 % amid a 26,5% rise in imports in the same period. The decline in exports of goods and services was largely influenced by decreased trade in minerals and vehicles and other transport equipment, while the rise in imports was largely driven by an increase in mineral products, machinery & equipment, vehicles and transport equipment. 

“Given the strained local environment, we urge the Government to address the challenges faced by the M&E industry that continue to hamper its global competitiveness. The speedy implementation of the Steel Master Plan provides an opportunity for Government and business to work together to support export growth,” Mr Mhango said.