PMI indication of economic expansion

Georgina Barrick, CEO of executive search specialists Humanity Search and Select

The PMI has now remained above 50 - the index level indicating economic expansion - for five consecutive months, a sign that the global economy might be finally turning the corner. As investor confidence returns and our major trading partners China, the USA and the EU begin spending again, South African manufacturers can expect widespread opportunities for growth.

As if to underline the positive implications of the PMI, according to a report on Business Day's BDLive.co.za site the JSE closed at a record high on Tuesday, 10 September, on the back of higher than expected August industrial production figures from China. Tuesday's closing figures for EU and US markets showed them strengthening, too. "These are hopefully some of the indications of a slow return in business confidence worldwide," says Georgina Barrick, CEO of executive search specialists Humanity Search and Select.

Rise in employment index

Kagiso Asset Management's head of research, Abdul Davids, noted that the business activity and new sales orders indices contributed the most to the overall increase in the PMI, and that both demand and operating conditions within the South African manufacturing sector had improved notably. In July, the employment index also rose to a level showing expansion for the first time since November last year. "We're confident that with key trading partners undergoing the beginning of economic recovery, SA exporters could be facing something of a boom," Barrick adds.

Through sound regulation and fiscal oversight, South Africa escaped the worst of the sub-prime lending crisis when it imploded in 2008. Paradoxically, this sound management resulted in the Rand remaining strong, while the purchasing power of our major trading partners collapsed around us. The result was a severe contraction in SA exports. "However, with the Rand now weaker, at around R10 to the dollar, while the USA, EU and China begin to show increased demand, the export market is going to expand rapidly," says Barrick. "We're expecting this to have a positive effect on the search industry, as companies seek the best executive talent to manage growth and new opportunities."

Low GDP growth rate

While signs of returning growth and increased trade are encouraging, all is not yet rosy. According to the World Bank, SA's GDP growth rate is hovering at just 2,5% at the moment, far short of where it needs to be to maintain a vibrant economy and reduce unemployment. However, apart from the improved economic indicators, there are other reasons for cautious optimism in the short term.

"Take the miners' strike this year," says Barrick. "We spent two or three months anticipating it, talking about it in the news - and then it arrived and was over in barely three days. And while 'strike season' hasn't been totally devoid of conflict and violence this year, it has certainly been less disruptive than in many previous years. It looks like management and labour are learning to negotiate in good faith. I don't think it's an exaggeration to say we're on the threshold of a brighter business environment."