South Africa

South African factory activity hits 14-month low

Factory

Business activity in South Africa’s manufacturing industry fell to a 14-month low in September as electricity-supply constraints in the continent’s most industrialized economy disrupted operations.

A gauge tracking business activity declined to 38.5 from 50.6 in August, Absa said on Monday. That’s the lowest monthly reading since July 2021, when deadly riots, looting and arson disrupted supply chains, industrial output and demand for manufactured goods. An outcome below 50 signals contraction.

The Johannesburg-based lender said that muted factory activity contributed to a decline in the overall purchasing managers’ index, which dropped to 48.2 from 52.1 in the prior month.

“More intense load-shedding during the month was likely to blame for the decline relative to August,” it said, using a local term for rolling blackouts.

South Africa is suffering an energy crisis as power utility Eskom Holdings SOC Ltd., which produces almost all of the nation’s electricity, struggles to meet demand. It has imposed a record 119 days of outages so far in 2022, according to Bloomberg calculations.
The state-owned company has cut power every month except January and forced the country to endure 25 days of consecutive rolling blackouts in September.

“Overall, the PMI results do not bode well for a strong recovery in actual manufacturing production from a bleak second quarter,” Absa said.

While the sector, which accounts for 13% of gross domestic product, isn’t expected to perform as poorly as in the prior quarter, a strong rebound is unlikely.

Manufacturing was among the seven industries that contracted in the three months through June after devastating floods wreaked havoc in the eastern KwaZulu-Natal province in April, halting operations at vehicle-manufacturing plants and shuttering the nation’s main port.

The gauge tracking expected business conditions in six months’ time declined to 51.1 from 57.9 in August as “concerns about the persistence of load-shedding, the health of the global economy and perhaps the lingering impacts of higher borrowing costs likely affected sentiment,” Absa said.

The Absa purchasing managers’ index is compiled by the Bureau for Economic Research.

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