Manufacturing sector gains ground at slower rate off a low base and civil unrest

MANUFACTURING production in South Africa is expected to continue growing well into the second half of the year from last year’s significant slump, albeit at a slower rate due to recent civil unrest.

Data from Statistics South Africa (StatsSA) yesterday showed manufacturing production increased by 12.5 percent year-on-year in June from a year ago, lower than the 15 percent consensus.

This followed an upwardly revised 36.3 percent jump in May.

This was the fourth consecutive month of rising industrial activity, although at a much softer pace than a month before due to base effects from last year’s Covid-induced decline.

The largest positive contributions came from motor vehicles, basic iron and steel, wood and wood products, food and beverages, and furniture.

However, production was down 0.7 percent month-on-month in June, and fell 1 percent on a quarterly basis. In the year to date, manufacturing production has increased by 16.3 percent.

Chief economist of the Steel and Engineering Industries Federation of SA (Seifsa) Chifipa Mhango said the metals and engineering industry needed to focus on ramping-up production to meet increased demand as the economy normalises.

Mhango, however, said that last month’s unrest would negatively impact production patterns.

“While the current production data is positive, we expect growth patterns in July to be slightly lower due to the disruptions caused by the unrest and looting,” he said.

StatsSA said six of the 10 manufacturing divisions reported a slowdown in activity over this period, with manufacturers in petroleum, chemical, rubber and plastic products registering the biggest decrease in activity with a decline of 7.3 percent.

FNB economist Thanda Sithole said while seasonally adjusted manufacturing output had persistently disappointed, they expected improved production in the second half of 2021 as the domestic and external demand recovery persists.

Nevertheless, Sithole said production was likely weaker in July due to the local social unrest that damaged infrastructure and disrupted supply chains.

“Encouragingly, manufacturers still expected improved operating business conditions over the near term.

“Persistent load-shedding also poses a risk to domestic production as most manufacturers rely on power supply for production.

“The projected fourth wave of Covid-19 infections before year-end could also disrupt overall economic activity.”

StatsSA said total manufacturing sales increased by 29.3 percent year-on-year in June, while declining marginally by 0.3 percent from May.

However, year-to-date sales have improved by 28.9 percent.

Investec economist Lara Hodes said the protest action had forced many manufacturing plants to close, while interruptions to transport resulted in supply disruptions, affecting production at a range of other manufacturers.

“While August should see a recovery, the effect on confidence is likely to be marked, weighing on growth,” Hodes said.

Additionally, unreliable electricity supply continues to remain a downside risk for manufacturers and the economy, with Eskom’s energy availability factor averaging just 62.78 percent year-to-date.”