Data released on Thursday cemented 2020 as one of the worst years in more than a decade for mining and manufacturing production — both levelled by the coronavirus pandemic and economic lockdowns.
Though the most recent figures for December came in better than the market expected in both sectors, the overall annual declines underscored that SA’s industrial base is set for a long slow haul to recovery, say economists.
During 2020 mining production fell 10.7%, its worst level yet, surpassing the 6.6% decline reported in 2009 at the height of the global financial crisis.
Manufacturing, meanwhile, fell 11% its worst level since 2009 when it fell 13.8% according to Stats SA data.
Mining contributes roughly 9% to GDP, while manufacturing contributes roughly 14% and both industries have been bedevilled by local constraints that predated the virus, notably constrained electricity supply.
There are, however, some silver linings. Mining production in December improved for the first time year-on-year since February 2020, rising a marginal 0.1%. This was, however, better than the 5.4% decline that was predicted by a Bloomberg poll of seven economists.
Mineral sales have proven resilient during 2020 increasing 10.4%, buoyed by strong commodity prices particularly platinum group metals.
This has supported firm profitability with the likes of PGM miners Sibanye-Stillwater and Anglo American Platinum, recently advising investors to expect a surge in profits.
The outlook for mining remains mixed, however, said Nedbank economists Isaac Matshego and Nicky Weimar in a note.
“Globally, improving industrial activity and firmer commodity prices creates conditions for higher production,” they said. Domestic factors however remained major constraints — particularly SA’s uncertain legislative framework and persistent power shortages.
“The threat of new waves of Covid-19 infections could also still undermine the build-up of momentum in mining activity,” they said.
Meanwhile, manufacturing rose 1.8% in December from a year previously, its first year-on-year increase recorded since May 2019. This too was better than expectations for a decline of 1.2%.
Stanlib chief economist Kevin Lings noted that encouragingly, in December 2020, nine out of 10 major manufacturing sectors showed an annual increase in production.
Nevertheless, given the overall 2020 slide, “clearly, the sector has a long way to go to fully recover,” he said in a note, adding that it has “massively underperformed the recent recovery in industrial production within emerging markets”.
“SA manufacturing has been under enormous pressure for a considerable period, including in the years prior to the impact of Covid-19,” Lings said.
The majority of manufacturing divisions of been hurt by falling levels of fixed investment — especially in new technology — as well as regular bouts of labour unrest and electricity outages, said Lings.
For local manufacturing to prosper in the longer-term policy, authorities need to implement measures that meaningfully improve the outlook for industrial activity, he said. This includes the deregulation of most business sectors, and progress on government’s infrastructure development programme.
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