Manufacturer confidence levels remained low in the fourth quarter of the year amid a challenging outlook, according to the Q4 Absa Manufacturing Survey.
Overall business confidence during the quarter remained unchanged at 26 points, after two consecutive quarterly declines. This was in part due to pressure from load shedding, water restrictions and transport constraints which continue to weigh on local manufacturers.
“Despite Q4 being a peak sales period for manufacturers, increased production costs and insufficient demand as consumers struggle with rising cost of living hampered potential improvements in confidence this quarter,” says Justin Schmidt, head of Manufacturing Sector at Absa Relationship Banking. “Additionally, insufficient demand will remain a concern as many manufacturers expect export volumes and sales orders to decline in the next quarter.”
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 26 October and 14 November 2022. 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.
According to the survey, while confidence in the fourth quarter may be unchanged, most manufacturers remained pessimistic about the expected business conditions in the next 12 months. This is likely driven by rising operating costs as manufacturers implement methods to remain productive during bouts of load shedding.
“With the increased production cost and unchanged selling prices, margins might continue to be under pressure this quarter making management of working capital paramount going forward,” says Schmidt.
Positively, some manufacturers indicated an increase in their fixed investment realised in Q4. “This may be indicative that manufacturers are investing in renewable energy projects and energy efficient machinery and equipment to curb the impact of load shedding and hedge against rising electricity costs,” Schmidt says.
Although the manufacturing sector is struggling to gain growth momentum, there are positive factors that may improve the sector’s final fourth quarter production numbers. The rise in manufacturing’s contribution to Q3 GDP shows the ability of the sector to remain resilient and continue making a positive impact on the South African economy.
“Absa remains committed to supporting investment into green energy projects as both a risk mitigation strategy for manufactures and a way to reduce carbon emissions,” says Schmidt. “Fixed investment will be key to the growth and recovery of the sector and the overall economy going forward.
“With many manufacturers currently investing in their own energy generation and exploring ways to consume less energy, Absa remains committed to support the manufacturing industry along their journey.”