The Q3 Absa Manufacturing Survey saw a slight dip in overall sector confidence, with business confidence falling five points to 41 during the quarter.

“With continued uncertainty regarding Covid-19 lockdown restrictions during the quarter as well as the unrest experienced in KwaZulu-Natal and Gauteng, the drop in confidence is not too surprising,” says Justin Schmidt, head of manufacturing sector at Absa Retail and Business Bank. “While the fall is disappointing, the current level remains well above those experienced during 2019 and 2020 and in line with the long-term average.”

The quarterly survey, which covers approximately 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 11 and 30 August 2021. The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence.

The Q3 survey data regarding inventories is more positive than in previous quarters. While supply chain disruptions remain a concern, manufacturers noted an improvement in both their raw material stock relative to their planned production and their finished goods stock relative to expected demand.

“As manufacturers head into their peak sale season they will increase their investment in inventory. Indeed, a sizeable majority of manufacturers expect an increase in inventory investment in the next 12 months, which is a good lead indicator for future growth,” Schmidt says.

Unfortunately, margin pressure remains a concern – the total cost realised per production unit increased by 10 points to 71 during the quarter, the highest it has been since Q4 2018. “Respondents flagged increased raw material costs, high plastic, steel and packaging costs, rising electricity tariffs as well as elevated transport costs as key contributors to margin pressure.”

Although official manufacturing production data for July highlighted the economic damage of the riots, these shocks were relatively short-lived and August should see some rebound in output. “This is supported by the Absa Manufacturing PMI, which surged to 57.9 in August from 43.5 in July, as well as indications from the manufacturing survey,” says Schmidt.

With an expected recovery in demand and production following the shocks in the third quarter, the majority of manufacturers are optimistic regarding overall business conditions in the coming months.