Load shedding, challenges at the ports and political uncertainty weighed on manufacturer confidence during the first quarter of 2024.
According to the Q1 Absa Manufacturing Survey, business confidence dipped 5 points to 21, which is significantly lower than the long-term average of 37 points.
Seasonally, the first quarter is 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).
“Manufacturing plays a pivotal role in the growth of the South African economy,” says Justin Schmidt, head of manufacturing sector at Absa Relationship Banking. “However, with multiple factors impacting sentiment, the sector continues its ‘stop-start’ recovery and it is no surprise that manufacturers are feeling downbeat.
“Concerningly, confidence has still not returned to pre-pandemic levels.”
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 8 and 26 February 2024. The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence where all participants are satisfied with current business conditions.
Relative to planned production and expected demand, both current raw material and finished good stocks dropped back into negative terrain (20 and 14 points below the long-term average respectively). Additionally, a 22-point drop in seasonally adjusted production further highlights the knock-on impact of supply chain challenges.
Constrained business conditions amplified by weaker consumer demand is fueling manufacturers’ pessimistic outlook regarding expected business conditions for the next 12 months. Against this background, manufacturers are cautious to invest.
“While manufacturers have seen the benefit of investing in their own energy generation, the majority of manufacturers seem to be holding off on non-energy investments,” adds Schmidt.
For the fifth quarter in a row, fixed investment remained in negative terrain. Additionally, across investment categories of land, buildings, inventory, additions and replacements, the majority of manufacturers indicated reduced investment intentions over the next 12 months.
“In today’s rapidly evolving landscape, manufacturing stands at the forefront of innovation, driving progress and shaping the future of industries worldwide. Manufacturers need to ensure the strategic allocation of capital and resources to keep up with technological advancements and build resilience,” Schmidt notes.