SA’s manufacturing production rose less than market expectations in October, as constant load-shedding continued to hinder the sector’s operations.
It was the fourth consecutive month of growth in factory activity, but the increase was the weakest in four months.
The sector contributes 14% to GDP, but this year it has had to contend with bouts of intense load-shedding, challenges at Transnet, water-shedding in some parts of SA and continued pressure on production costs, making for a difficult operating environment.
Although the latest GDP data showed that the sector appeared unaffected by intense power outages during the third quarter, data for the start of quarter four depicts a different picture.
On a month-on-month basis, manufacturing production fell 6.3% in October after a prolonged strike at Transnet during that month.
The latest monthly decline exceeds the 5.3% drop recorded during April, when heavy flooding caused destruction in KwaZulu-Natal and is slightly less than the 8.4% month-on-month plunge recorded during July 2021’s riots and looting.
Activity showed a slight improvement on an annual basis, increasing only 1%, following a 2.9% rise the previous month and missing market estimates of a 4.5% increase.
Stats SA reported that seven out of 10 manufacturing divisions reported positive growth rates over this period. Notable contributors to manufacturing were motor vehicles, parts & accessories and other transport equipment; wood & wood products, paper, publishing & printing; and food & beverages.
FNB economists said even though the manufacturing sector contributed to third-quarter GDP growth, the extent of the recovery remained constrained on account of the ongoing load-shedding and moderating external demand.
“In the near term, manufacturing activity should be supported by moderating input costs, easing supply chain pressures and still resilient domestic demand,” FNB said. Measures to improve port and rail efficiencies and to reduce production costs to increase competitiveness are critical in the longer-term, it said.
Economists said the recovery in the vehicle industry, together with an inventory build-up, may have provided a temporary boost and they are likely to be the reason for the industry having performed better than expected during the previous quarter.
That said, load-shedding has occurred sporadically throughout the final quarter of 2022, which means a recovery is not a foregone conclusion.
Nedbank chief economist Nicky Weimar said the manufacturing sector outlook for next year is less rosy.
“Softer global demand is expected to undermine production in the export-orientated industries, while the anticipated slowdown in domestic demand will subdue output in the inward-focused industries.
“On top of these concerns, local operating conditions will remain challenging, characterised by persistent inefficiencies at the country’s ports and continued power outages. Within this context, we expect manufacturing production to decline in 2023,” she said.
Update: December 8 2022
This article has been updated with economists’ comment.
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