Decreased manufacturing output shows South Africa is lagging behind in its industrialization efforts
Manufacturing production decreased by 8.9% year-on-year in October, Statistics South Africa (Stats SA) reported on December 9.
The largest negative contributions were made by petroleum, chemical products, rubber and plastic products (-17.5% and contributing -4.1 percentage points); basic iron and steel, non-ferrous metal products, metal products and machinery (-14.1% and contributing -2.7 percentage points); and motor vehicles, parts and accessories and other transport equipment (-13.4% and contributing -1.2 percentage points).
Seasonally adjusted manufacturing production decreased by 5.9% in October compared with September, which followed month-on-month changes of 3% in September and 7.2% in August.
The seasonally adjusted manufacturing production for the three months to October 31 increased by 0.9% compared with the previous three months, and five of the ten manufacturing divisions reported positive growth rates over this period, Stats SA said.
The largest positive contributions were made by food and beverages (5.8% and contributing 1.4 percentage points); and petroleum, chemical products, rubber and plastic products (6.5% and contributing 1.3 percentage points).
The largest negative contributions were made by motor vehicles, parts and accessories and other transport equipment (-11.2% and contributing -1.1 percentage points) and basic iron and steel, non-ferrous metal products, metal products and machinery (-5.3% and contributing -1.1 percentage points).
Additionally, seasonally adjusted manufacturing sales decreased by 5.8% in October compared with September, which Stats SA said followed month-on-month changes of 3.6% in September and 8.8% in August.
Don Consultancy Group (DCG) chief economist Chifi Mhango said the manufacturing production and sales declines, as reflected in the data released by Stats SA, “suggest that more government intervention is required to support the struggling sector”.
He explained that the recently released gross domestic product (GDP) data for South Africa shows the manufacturing sector declining by 4.2%, with the level of manufacturing capacity use still below the 80% level.
As of the third quarter, the manufacturing sector contributed only 11.4% to the South African economy, which is a massive decline from the levels of above 20% in 1995, with its ability to create jobs also diminishing owing to limited investment into the sector.
Mhango added that “at an official national unemployment rate of 34.9%, South Africa needs to raise its game to reverse the trend and challenges the country’s economy is facing in the manufacturing sector”.
For example, the manufacturing sector lost 13 000 jobs in the third quarter, compared with the previous quarter, with a year-on-year loss of 58 000 jobs.
In addition, Mhango stressed that rising energy costs and its unreliable supply patterns caused by electricity load-shedding, increasing and uncompetitive logistical costs, unstable nature of the labour environment owing to regular industry strikes, coupled with rising imports of finished goods into the South African economy, is “worrisome”.
He stated that “creating the conducive environment to attract investment into the manufacturing sector should be the key priority of the South African government”, adding that “there has to be strong monitoring compliance to the local procurement of manufactured goods for all government-related infrastructure projects with private sector support”.
As such, he suggested that increasing locally produced goods percentage at South African retail shops in the industries such as clothing and textile to over 65% should be the ideal target in the short term.
Increasing the export market footprint with value-added products on the African continent using market intelligence should be the national strategic approach to boost South Africa’s net trading position in the manufacturing sector, he advised.
Referring to the international market, Mhango noted that manufacturing production in the US increased 4.5% year-on-year in October, following a downwardly revised 4.7% increase in September.
On a monthly basis, factory activity increased 1.2%. Excluding a large gain in the production of motor vehicles and parts, factory output moved up 0.6%, according to US Federal Reserve data.
In China, the National Bureau of Statistics is reporting manufacturing production in China increasing by 2.5% in October over the same month in the previous year, and in other BRICS countries, latest manufacturing data shows increases of 2.7%, 4.5% and 1.8% for India, Russia and Brazil respectively.
This all means that “South Africa is lagging behind in its industrialisation process”, Mhango said.