Manufacturing production fell in November, marking the first monthly decline in the country’s factory activity after four consecutive months of increases as sustained and intense power cuts continued to weigh on the sector.
Stats SA on Tuesday said manufacturing fell 1.1% from a year earlier, after a 1% rise in the prior month. The decline was better than Bloomberg expectations of a 3.5% contraction.
Rolling blackouts have been a big headache for the ANC as Eskom continues to battle ageing infrastructure, shortages in generating capacity and corruption.
At the party’s 111th anniversary celebration, President Cyril Ramaphosa vowed to ensure megawatts were added to the grid and called on the power utility to tighten operations and secure strong leadership.
Eskom supplies more than 90% of SA’s electricity, and analysts have cited the power utility’s inability to generate enough capacity as “now the single largest risk and threat to economic growth”.
The impact of countrywide power outages saw manufacturing collapse at the start to the fourth quarter, when production fell 6.3% on a monthly basis.
The drop was a combination of load-shedding and the effect of the Transnet strike from October 6 to 17.
The October monthly figures came after September’s contraction, when more intense power outages in that month caused manufacturing activity to plummet into contractionary territory.
The Absa/BER purchasing managers’ index shows production activity fell to 48.2 in September, below the neutral 50-point mark, and coming close to July levels when load-shedding reached stage 6 and the economy was still recovering from the devastating KwaZulu-Natal floods.
Survey respondents cited electricity supply disruptions as the cause for the decline in production and said power outages at elevated stages were a serious constraint on activity growth.
According to Absa’s senior economist, Miyelani Maluleke, the third quarter of 2022 saw a loss of 3,691GWh of electricity supply, resulting in the worst quarter of rolling blackouts yet.
Maluleke said the manufacturing outlook for the year remained challenging.
“The past year was highly volatile for the manufacturing sector, partly reflecting the damaging effects of various supply-side shocks, including what has been the worst year of load-shedding yet,” Maluleke said. “Power rationing is set to continue this year and the degree to which the sector has become resilient against it is unclear.”
Stats SA data shows that manufacturing output fell in almost all sub-activities with electrical machinery; textiles, clothing, leather and footwear; and wood and wood products categories falling the most.
FNB said the fall in production does not bode well for fourth-quarter real GDP growth and probably reflects the effect of persistent load-shedding.
The Absa/BER manufacturing survey released last month also showed that manufacturers remained gloomy about future business conditions and their fixed investment plans.
Absa economist Andiswa Mdingi said manufacturing production was expected to recover from the flood-induced collapse in the second quarter, but intense load-shedding during the quarter risked outweighing these gains.
Manufacturing is SA’s fourth-largest sector, contributing 14% to GDP. The output numbers provide valuable insight into the health of the economy. Stats SA employment data shows that the manufacturing sector has lost 400,00 jobs since 2008.
Investec economist Lara Hodes said persistent, heightened rotational load-shedding, which would have weighed heavily on the energy-intensive manufacturing sector, remains a key concern and downside risk to economic activity.
FNB economists said the extent of the recovery remains constrained due to the ongoing load-shedding and moderating external demand.
On a monthly basis, manufacturing output rose 2% in November, rebounding from a downwardly revised 6.2% slump in the prior month and against market estimates of a 1.1% decrease.
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