JOHANNESBURG, 8 APRIL 2021 – The unabated decline in manufacturing production is worrying and may worsen further amid steep electricity tariff and transport cost increases, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.
According to data released by Statistics South Africa today, total manufacturing production declined by 2.1% year on year in February 2021, while it fell by 1.2% from January 2021. Total manufacturing sales, however, increased by 3.5% year on year in February 2021 and by 3.2% from January 2021. Year-to-date production declined by 3.1%, while sales improved by 2.1%.
Within the Metals and Engineering (M&E) sector, which accounts for a 29% share in total manufacturing production, total production across the 13 sub-categories increased by an average of 0.6% in February 2021 year on year, with total sales increasing by 5.3% to reach R70.8 billion.
Commenting on the data, SEIFSA Chief Economist Chifipa Mhango said the manufacturing production trends are worrying as they take place at a time when output needs to improve in order to spur economic recovery. He expressed concern that cost variables could push that output in the opposite direction.
“The manufacturing sector and M&E sub-sector, in particular, are sensitive to cost increases; this month’s 15.6% rise in electricity tariffs as well as increases in transport costs will only serve to deepen the decline in activity in the industry as companies, unable to absorb these costs, close shop,” he added.
Mr Mhango said the manufacturing sector is already in a woeful state, with declining levels of employment and investment and a weak global trade position. This, he said, had been worsened by the COVID-19 pandemic and the resultant lockdowns to curb its spread, with the sector now only contributing 12% to GDP from levels of 25% in the 1990s. He said this
is contrary to other emerging economies, whose manufacturing sectors contribute 50% to their economies.
Mr Mhango urged the Government to intensify its efforts to revive the ailing economy.
“While SEIFSA is encouraged by the allocation of R54 billion over the next three years for economic and industrial development, among other interventions, the Government needs to speed up other interventions such as the implementation of the Steel Master Plan for the benefit of primary and downstream players,” he said.
The M&E sector, he said, is also pinning its hopes on the Government’s R791.2 billion public infrastructure spending over the next three years, since it is heavily reliant on key public infrastructure projects to boost its production and sales, especially in categories such as steel and downstream products such as roofing material. Mr Mhango said the implementation of these projects was important, especially if local content requirements are also enforced.
He said this, along with a shift towards expanding South Africa’s M&E production sales footprint onto the rest of Africa by taking advantage of the African Continental Free Trade Area, will help the sector back on its feet.