Confidence levels in the manufacturing sector improved by 6 points to 23 on the back of better business conditions, but the sector remains under pressure, the Q3 Absa Manufacturing Survey shows.
Overall, respondents to the survey noted an increased level of sales (domestic and export sales up 27 and 31 points respectively) and production (up 30 points) during the third quarter, supported by the easing intensity of load shedding during August.
“With load shedding averaging stage 6 in May and dropping to an average of stage 3 in August, it is clear that easing electricity supply disruptions, resulting in increased capacity utilisation, have positively impacted sentiment in the sector during the quarter,” said Justin Schmidt, Head of Manufacturing Sector at Absa Relationship Banking. “While the sector continues to face headwinds, encouragingly, it continued to show some growth during the second quarter, as highlighted by Stats SA’s latest GDP figures, indicating that many businesses have adapted or invested to insulate themselves from the effects of load shedding.”
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 16 and 29 August 2023. The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence where all participants are satisfied with current business conditions.
“Although the Q3 survey still points to depressed conditions in the sector, the overall results suggest that the manufacturing sector is in a better position than in the second quarter of this year. However, some manufacturers noted that infrastructure failures due to load shedding and rising interest rates posed a challenge to their operations in the third quarter,” Schmidt said.
Investment intentions have improved somewhat with total expected fixed investment in the next 12 months increasing by 5 points. “Given the uncertainty around the operating environment, manufacturers’ investments are focused on remaining in operation while investments into additions or expansions remain on hold,” Schmidt added. This is evident in the survey data, with more respondents citing improved intentions to invest in replacements (up 11 points) compared to intentions to invest in additions (increased by 6 points).
As manufacturers head towards their peak sales season in the fourth quarter, their expected production and sales levels as well as their import and export volumes are more optimistic. This builds on positive readings which indicated a jump in exports during the third quarter, including a 3% net majority of manufacturers reporting higher exports relative to the third quarter of 2022. A weaker currency as well as the lower base due to the KZN floods in 2022 may have contributed to these increases in exports.
While forward-looking expectations have improved significantly (expected business conditions over the next 12 months increased 16 points from the record low recorded last quarter), ongoing uncertainty is fueling a cautious approach, which will likely delay growth, Schmidt said.
As many manufacturers continue to invest in renewable energy options, Absa remains committed to empowering manufacturers to reach their goals.