Mining, manufacturing remain marooned

Nedbank's Johannes Khosa says that the production side of South Africa's economy remains weak. Image: Facebook

Manufacturing production contracted by 1.2% year-on-year (y/y) in August while mining output fell by 10.1% y/y in the same month‚ the latter mainly as a result of a fall in the production of platinum group metals.

Though factory output was up month-on-month by 2.2%‚ helped by strong growth in the basic iron and steel‚ machinery‚ and transport equipment categories‚ when viewed over the three months to August‚ output in eight of SA's ten major industries contracted. Over this period‚ total manufacturing production fell by a seasonally adjusted 1.4% compared with the previous three months.

"Today's data‚ both mining and manufacturing‚ provide further evidence that the production side of the economy generally remains weak‚" Nedbank Economist Johannes Khosa said.

He believed that the manufacturing sector's performance was likely to remain lack-lustre in the months ahead.

Slight improvement forecast for manufacturing

On the one hand‚ Khosa expected manufacturing output to improve slightly off a low base as production normalises following labour strikes in the platinum, steel and engineering sectors. Those sectors that supply the export market should also continue to benefit from better global demand and a weaker rand.

This view is supported by the slight improvement in the Kagiso Purchasing Managers Index which rose above the 50 level (denoting an expansion) in September‚ hitting 50.7 index points from 49 in August. This was the first time in five months that the index breached the 50 point mark.

Manufacturing Circle's Coenraad Bezuidenhout says state procurement needs to improve to boost local production. Image: Manufacturing Circle

It suggests some improvement in production activity is likely down the line‚ particularly in industries that supply the export market.

On the other hand‚ Khosa feared that this improvement could be offset by a poor performance by SA's domestic-oriented industries given the softness in domestic demand as a result of the weakness in household finances.

Investment slowdown

The slowdown in private fixed investment activity was also likely to continue to weigh on sectors involved in construction and supplying infrastructure-related goods‚ he said.

In a statement earlier‚ the Manufacturing Circle highlighted that only 18% of manufacturers were benefiting from government's local procurement initiatives.

SA manufacturers had been "hugely supportive" of these policies‚ according to the lobby group's Executive Director Coenraad Bezuidenhout‚ but in many instances they were not being adhered to by broader government.

"To change the situation‚ procurers across government and state-owned enterprises need to drastically improve their strategic procurement capacity and willingness to comply with important legislation and policy initiatives‚ or face the consequence of further de-industrialisation‚" he said.

The Department of Trade Industry is well aware of the problem. Though it had designated 10 products‚ sectors and sub-sectors for local procurement (on the basis that their producers meet local content requirements) it recently tabled a report which listed 160 government tenders which had failed to satisfy these local procurement provisions.

The Manufacturing Circle believed that should government be able to get local procurement right‚ it would set a powerful example to the private sector to follow suit.

Source: BDPro via I-Net Bridge