South Africa

South Africa’s manufacturer confidence remains low

Absa’s latest manufacturing survey shows that manufacturer confidence levels in South Africa remained low amid a challenging outlook.

The survey showed that overall business confidence during the quarter remained unchanged at 26 points after two consecutive quarterly declines.

It was partly due to pressure from load-shedding, water restrictions, and transport constraints that continue to weigh on local manufacturers. 

Justin Schmidt, head of the manufacturing sector at Absa Relationship Banking, said confidence was knocked despite Q4 being a peak sales period for manufacturers.

The poor confidence was a result of increased production costs and insufficient demand as consumers struggled with rising costs of living.

“Insufficient demand will remain a concern as many manufacturers expect export volumes and sales orders to decline in the next quarter,” he said.

Manufacturer confidence survey

The quarterly survey covered 700 businesspeople in the manufacturing sector and was conducted 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.

According to the survey, whilst confidence in the fourth quarter may be unchanged, most manufacturers remained pessimistic about the expected business conditions in the next 12 months.

Rising operating costs drive pessimism 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 making management of working capital paramount,” he said.

Positively, some manufacturers indicated an increase in their fixed investment realised in Q4.

“This may indicate 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,” he said.

Although the manufacturing sector is struggling to gain growth momentum, positive factors 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.