The mining and manufacturing sectors proved somewhat resilient at the end of the first quarter, marking a slight increase compared to the previous quarter, even as the country faced intensified power outages in that period.
Stats SA released March mining and manufacturing production data on Thursday. The data shows that mining production increased by 1% in the first quarter of 2023 compared with a 3.4% decline in the fourth quarter of 2022.
Manufacturing production also increased by 1.4% in quarter one 2023 compared with a 1.5% decline in the previous quarter.
Alexforbes economist Murendeni Nengovhela told Business Day that as both these sectors contribute about 21% to the total GDP, their first quarterly performance suggests that they contributed positively to quarter one GDP.
“Both mining and manufacturing are energy-intensive sectors and have proved somewhat resilient in the wake of intensified power outages,” Nengovhela said.
“However, over the medium term, worsening power cuts and easing economic activities across SA’s major trading partners will somewhat weigh on activity in the near term.”
Africa economist at Oxford Economics Jee-A van der Linde said the latest production numbers suggest that the industry “might eke out” a slight quarter-on-quarter gain when the national data is published next month.
But both industries have not fared well since the pandemic, and have continued to feel the strain of heightened load-shedding that averaged stages 4 and 3 in February and March, respectively.
After construction, mining is the second-worst performing sector, remaining 8.1% smaller compared with pre-pandemic levels.
Also worth noting is the Canadian-based Fraser Institute’s latest annual survey of mining companies, which showed SA was among the world’s least attractive investment destinations when it comes to mining, scoring 44.76 points and ranking 57 out of 62 jurisdictions in the overall investment attractiveness index.
All this while the median score for Africa on the investment attractiveness index increased by 2.4 points to reach 54.25 in 2022.
Van der Linder said a lack of reliable electricity supply, infrastructure inefficiencies and theft also undermine SA’s attractiveness for mining investment.
He said even though manufacturing production figures for March were better than expected, looking ahead, SA’s Absa purchasing managers’ index increased to 49.8 index points in April 2023 from 48.1 in March.
“But, despite the improvement, the index failed to edge back above the neutral 50-point level. What’s more, the next batch of manufacturing output data will see annual comparisons become distorted after KwaZulu-Natal’s industrial sector was hit by devastating flooding in April 2022,” he said.
Stats SA data shows that on an annual basis mining production contracted 2.6%. Even though the out-turn was better than the Bloomberg consensus prediction of a 7.3% year-on-year fall, the annual decline in mining output has been persistent for fourteen straight months, mirroring the material affect of structural bottlenecks.
Data shows that the annual decline in mining output was broad-based, with nine out of twelve divisions falling. The most significant negative contribution came from platinum group metals, which declined by 9.1% year on year in March after growth of 2.8% the previous month. Coal production fell by 1.8% and iron ore production fell by 0.9%.
Manufacturing also fell on an annual basis, contracting 1.1% in March and after a downwardly revised 5.6%. The outcome was better than the Bloomberg consensus prediction of a more resounding 5.8% contraction.
Data shows that only four sub-sectors registered growth rates year on year while six subsectors reported declines.
Don Consultancy Group chief economist Chifi Mhango said the labour intensive subsectors such as textiles, clothing, leather and footwear, which fell 12.1% in March, were of particular concern.
“This does not bode well for employment creation and GDP trends within the manufacturing sector going forward,” Mhango said.
“What is coming out clearly is that the manufacturing sector is still operating below its full capacity in production terms. At 77.9% capacity utilisation, it remains below the 80% and above levels that are ideal for an economy to advance in terms of GDP growth rate and employment creation, with insufficient demand and shortage of raw materials being some of the main reasons.”
Update: May 11 2023
This article has been updated with more information.
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