Production data will be in focus this week with the release of mining and manufacturing figures by Stats SA on Thursday.
Total mining output contracted 3.6% year on year in July, after a marginally upwardly revised 1.3% expansion in June.
On a month-on-month basis — a calculation that is critical for the official assessment of quarterly GDP growth — mining production dropped 1.7% in July, reflecting a deterioration from 1.2%.
FNB chief economist Mamello Matikinca-Ngwenya said the data paints a gloomy picture for the third quarter and is consistent with the general expectation of a moderation in GDP growth after a better-than-expected 0.6% quarterly expansion in the second quarter.
The economy is still very dependent on the mining sector, which is a significant contributor to the country’s financial wellbeing through taxes, employment and foreign currency reserves.
According to the latest PwC mining report, export data issued by the SA Revenue Service (Sars) shows that for the first six months of 2023 exports of mined materials amounted to R575bn, which contributes 58% of the total exports from SA. .
The industry also faces a number of risks. In the past few years mining companies have had to contend with heightened electricity outages, logistical constraints for bulk commodity exports, above-inflation cost pressures, fluctuations in commodity prices and exchange rates, challenges with illegal mining, and shortage of critical skills.
PwC energy leader Andries Rossouw said 2023 is a year during which mining companies should adapt to thrive, especially as commodity prices have decreased and costs increased.
“Decreases in the prices of certain minerals, productivity, infrastructure constraints and increases in input costs have resulted in a decrease in profits and operating cash flows experienced by SA mining companies,” Rossouw said.
Absa senior economist Miyelani Maluleke said SA’s export commodity prices have continued to trend lower through the third quarter, while Brent crude oil prices have generally risen.
“Despite the slight rebound in August, our export commodity price index for SA fell by 10.5% quarter on quarter in the third quarter, largely driven by continued declines in prices of rhodium, palladium and platinum,” Maluleke said.
After reaching $97 a barrel in late September, Brent crude oil prices have since fallen to about $84.
“Overall, the deterioration in the commodity terms of trade is likely to weigh on SA’s current account deficit. We expect [it] to widen from 2.3% of GDP in the first half of 2023 to 3% in the second half and 3.2% in 2024.”
Also on Thursday, data on manufacturing production for August will be released.
SA has positioned itself as a prime manufacturing hub on the African continent, with its industrial manufacturing industry serving as a crucial multiplier of economic growth, an engine of development and a significant contributor to the country’s GDP. In 2022, the sector contributed 11.4% towards overall GDP, or R3-trillion.
According to Stats SA’s latest manufacturing survey, about 309,000 jobs, or 22.1%, have been lost in the manufacturing industry since 2005. Over the same period, the contribution of manufacturing to GDP declined from 19.1% in 2005 to 13.2% in 2021.
Total manufacturing output expanded 2.3% year on year in July, marking the fourth consecutive month of annual expansion but reflecting a moderation from 5.9% in June. On a monthly basis manufacturing output shrank 1.6% after a 1.2% monthly increase in June.
The July monthly reading was consistent with the Absa purchasing managers’ index (PMI), which showed manufacturing activity fell sharply, reaching levels last seen in the same month in 2021 when the looting and unrest in KwaZulu-Natal and some parts of Gauteng hobbled production.
The PMI fell from 52.2 points in June and 54.8 in May to 47.6 in July, well below Investec’s expectations of a more neutral 50 index point reading. The reading reflected regulatory hurdles and the extremely slow pace of bureaucracy in the domestic energy sector, as well as a slowdown in international trade flows, shown in the contraction of new export business volumes for a fourth straight month.
Also this week, the World Bank Group-IMF annual meetings kick off in Marrakesh, Morocco, as the world faces intertwined challenges of climate change, fragility and conflict, elevated debt levels and weaker growth prospects.
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