South Africa

Manufacturing confidence reaches highest level in 2023

The fourth quarter Absa Manufacturing Survey showed a slight improvement in confidence in the manufacturing sector to the highest level seen in 2023.

Confidence in the manufacturing sector improved slightly to 26 points in the fourth quarter of 2023.

Although trading conditions remained tough, manufacturers noted an overall improvement in business conditions. 

In addition, domestic and export sales performed better than their long-term averages, while the total cost per production unit decreased by 9 points.

“It is clear that easing electricity supply disruptions, the resulting increase in the average hours worked, and improved production have positively impacted sentiment in the sector,” said Justin Schmidt, head of the manufacturing sector at Absa Relationship Banking. 

“Yet, current confidence levels are still too low to encourage large-scale growth or expansion.”

The Absa Manufacturing Survey is a quarterly survey that covers approximately 700 businesspeople in the manufacturing sector and is conducted by the Bureau for Economic Research at Stellenbosch University between 25 October and 13 November 2023. 

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.

As manufacturers enter their peak sales season in the fourth quarter, their production level rose 5 points, returning to positive terrain for the first time in six consecutive quarters.

“Despite some positive results this quarter, manufacturers continue to note challenges in the operating environment, with respondents specifically mentioning issues at the ports, water-shedding and political uncertainty,” Schmidt said. 

“Given these constraints on current activities, manufacturers remain cautious to invest in machinery and equipment over the next 12 months.”

Despite dropping slightly, manufacturers’ current raw material and finished goods stocks are still considered adequate to meet planned production and expected demand in the quarter.

“South African manufacturers continue to prove their resilience as the Q4 survey results paint a slightly better picture compared to the rest of the year,” Schmidt said.

“To remain competitive, it is vital for manufacturers to continually evaluate their business operations and invest in cost-effective and efficient processes.”

As the sector approaches a quieter Q1 and the 2024 national elections, manufacturers are more pessimistic regarding expected business conditions for the next 12 months. 

Still, forward-looking trade expectations indicate that most manufacturers expect import and export volumes to increase in the coming months.

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