Confidence levels among local manufacturers held steady at 28 points during the third quarter, according to the latest Absa Manufacturing Survey.
This was driven mainly by manufacturers’ optimism regarding policy direction after a peaceful election and the formation of the Government of National Unity (GNU). Prior to elections, manufacturers highlighted the political climate as a key constraint to current activities, but in the Q3 survey results, this indicator improved by a substantial 21 points, aligning to levels last experienced over a decade ago.
“The current positive sentiment towards the developments in the political landscape seems to have offset the demand side challenges as well as an increase in unit production costs and a decline in output,” says Justin Schmidt, executive for manufacturing sector at Absa Business Banking. “This level of confidence is the highest seen since the beginning of 2022 and bodes well for a further uptick in confidence in the Q4 survey results.”
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 7 August 2024 and 26 August 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.
Stronger July performance mainly attributable to a backlog of orders as a result of the “wait and see” approach pre-election, seems to have masked some of the underlying headwinds. Demand continued to slow, with domestic and export sales declining by 7 and 25 points respectively. The knock-on effect was evident with seasonally adjusted production down 17 points and capacity underutilisation up 10 points, resulting in a sharp increase in total production cost per unit from 65 to 75 points, quarter-on-quarter.
Manufacturers consider business conditions to have improved slightly in this quarter (up 2 points), likely driven by the 12-point increase in export selling prices. Supply chain constraints appear to have eased – current raw material stocks relative to planned production increased by 11 points and finished goods stocks relative to expected demand rose by 8 points. Schmidt indicates that “slowing inflation, nearing rates cuts, fuel price relief and more than 155 days of no load shedding are some of the factors that are keeping manufacturers positive about the next 12 months”.
Survey participants expect business conditions to improve, with this indicator increasing 32 points, supported by an expected increase in both imports and exports (up 5 and 7 points respectively). In addition, whilst still taking a 12-month forward view, manufacturers have expressed an improved likelihood to invest in fixed assets. This indicator showed a 34-point increase.
“Given load shedding in preceding years, manufacturers have usually focused their efforts on building resilience into operations by investing in backup power and renewable energy solutions – perhaps now we will start seeing investment in improving capacity and efficiency in operations,” says Schmidt.
Absa has a team of sector experts with in-depth knowledge of the manufacturing landscape and remains committed to support this vital sector with a range of future-fit financial and non-financial solutions.