This survey, released yesterday, shows that production, domestic and export sales, as well as new orders, have improved and recorded levels better than initially expected. Picture: Henk Kruger / Independent Newspapers
South African manufacturers confidence levels have lifted by a healthy 8 points to reach 36 index points during the fourth quarter of this year, even though this remains below the 50-points expansion threshold.
According to the Absa Manufacturing Survey for the fourth quarter of 2024, this was the highest level since the first quarter of 2022.
This survey, released yesterday, shows that production, domestic and export sales, as well as new orders, have improved and recorded levels better than initially expected.
Whilst both domestic and export selling price inflation eased, the total cost of production per unit also declined significantly. The reduction in the raw material price per unit contributed the most to the overall production cost dropping sharply by 20 points, quarter-on-quarter.
Justin Schmidt, the executive for the manufacturing sector at Absa Business Banking, said it was encouraging to see an upward shift in business confidence after a difficult year characterised by demand side challenges and lingering logistics headwinds.
“The sharp decline in unit production cost comes on the back of lower inflation, lower oil prices and rand strength over the past few months,” Schmidt said.
“As we head into peak sales season, manufacturers will be well positioned because of lower production costs. The latest reduction in the repo rate is also expected to result in higher consumer demand over the next few months.”
The quarterly survey, which covers approximately 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 24 October and 11 November this year.
The subsectors that contributed the most to the overall increase in confidence included metals and machinery, chemicals, and food and beverages. The latter subsector’s confidence reading increased the most, by 28 points to 52.
Confidence amongst manufacturers in the transport sector dropped sharply from 28 in the third quarter to 13 this quarter, mainly as a result of subdued demand in the sector.
Overall, manufacturers feel that business conditions have improved quite considerably with this indicator increasing by 29 points, likely driven by the reduced production costs and the improvement in demand with new domestic and export orders increasing by 26 and 13 points, respectively.
In the previous survey, when taking a 12-month forward view, manufacturers expressed an improved likelihood to invest in fixed assets.
“We are starting to see some of that materialise with the indicators measuring realised fixed investment and investment in machinery and equipment improving by 6 and 10 points, respectively,” Schmidt said.
When considering the constraints on current activities, most indicators remained stable since the last read, however, manufacturers did highlight an increase in the shortage of skilled and semi-skilled workers.
Also encouraging was a further decline in the political constraint after a sharp drop was recorded in the third quarter.
“Given load shedding in preceding years, manufacturers have usually focused their efforts on building resilience into operations by investing in backup power and renewable energy solutions – we are now starting to see investment to improve capacity and efficiency in operations as well as consideration for technology and equipment that will enable their journey to green manufacturing,” Schmidt said.
Absa said it has a team of sector experts with in-depth knowledge of the manufacturing landscape adding it remained committed to support this vital sector with a range of future-fit financial and non-financial solutions.
BUSINESS REPORT