Factory production rises in January but confidence dips on SA headwinds in quarter

Rhodes strawberry and banana fruit juice blend on the production line. Picture: Supplied

Rhodes strawberry and banana fruit juice blend on the production line. Picture: Supplied

Published Mar 15, 2024


While manufacturing production rose by 2.6% year on year in January, according to Statistics South Africa, confidence in the sector dipped during the first quarter thanks to load shedding, challenges at the ports and political uncertainty, the Absa Manufacturing Survey showed.

According to Statistics South Africa, the largest positive contributions were made by petroleum, chemical products, rubber and plastic products (13.6% and contributing 2.9 percentage points) and wood and wood products, paper, publishing and printing (5.0% and contributing 0.5 of a percentage point).

Seasonally adjusted manufacturing production increased by 0.8% in January this year compared with December 2023. This followed month-on-month changes of -1.3% in December and 0.9% in November last year.

The Absa Manufacturing Survey business confidence dipped 5 points to 21, which was significantly lower than the long-term average of 37 points.

Seasonally, the first quarter was typically a quieter period for the manufacturing sector. This trend continued, with domestic and export sales falling 9 and 17 points respectively. Manufacturers further indicated a deterioration in overall business conditions (down 13 points).

Justin Schmidt, the head of Manufacturing Sector at Absa Relationship Banking, said it was concerning that confidence had still not returned to pre-pandemic levels.

“Manufacturing plays a pivotal role in the growth of the South African economy. However, with multiple factors impacting sentiment, the sector continues its stop-start recovery and it is no surprise that manufacturers are feeling downbeat,” Schmidt said.

Professor Raymond Parsons, an economist at the North-West University School of Business and Governance, said the negative outcome of the Absa Manufacturing Survey in the first quarter of this year came as no surprise.

“Several other high-frequency data have recently also confirmed that business confidence was likely to be at a low ebb in the early months of 2024. This was also presaged by South Africa narrowly avoiding a ‘technical recession’ in the fourth quarter of 2023 with gross domestic product (GPD) growth of only 0.1%.

“Leaving aside the usual negative factors of energy insecurity and transport challenges, the ‘big ticket’ item in the manufacturing outlook now appears to be political uncertainty around the pending general election,” Parsons said.

Although the consensus forecast among many analysts still expects about 1% GDP growth this year, the economic recovery was likely to be a very uneven one.

“This recovery is more likely to emerge in the second of 2024 when certain negative trends could reverse, such as interest rates starting to decline and the election outcome being known. In particular, the weakness in the investment outlook revealed in the Absa survey is concerning at a time when South Africa needs strong investment-led growth. Investor confidence still needs to see promised economic reforms speedily implemented,” Parsons said.

Professor Irrshad Kaseeram, an economist based at the University of Zululand (UniZulu) said business confidence had been on a downward trend over the past 15 years given the government’s bad economic policies, poor governance and overt wilful corruption, the budget deficit, lack of investment in basic infrastructure including the rail-roads-harbour interlinkages, and deteriorating electricity supply.

He said that whichever government emerged from the forthcoming elections must form a partnership with private business to resolve the country’s challenges since the current government had consistently followed policies that ignored the private sector in terms of developing coherent policies to compete globally. The government failed to recognise that the country had a significant comparative advantage in its manufacturing and other sectors and failed to provide the right incentives and co-operation to take advantage of this to compete on the global stage, he said.

The constrained business conditions amplified by weaker consumer demand was fuelling manufacturers’ pessimistic outlook regarding expected business conditions for the next 12 months. Against this background, manufacturers were cautious to invest.

Meanwhile, Statistics SA data showed that manufacturing production increased by 2.6% in January this year compared with January 2023.