The manufacturing industry – the 4th largest industry in South Africa, contributing 14% to the gross domestic product (GDP). With the Food and Beverages division, the most important component in the industry, contributing 25% to total manufacturing activity. Followed by the Petroleum and Chemicals products component, and a distant third place being Basic Iron and Steel. Manufacturing as a whole is an industry in decline in South Africa – and with loadshedding back in full swing, it may continue its decline as ESKOM cannot provide enough power for manufacturers to keep producing goods. A possible spike in manufactured goods being imported in coming months – as businesses trying to protect themselves against losses caused by ESKOM and loadshedding – instead of manufacturing locally.

2020 started with an already weak SA economy coming from a technical recession and forecasted low growth. The decision to lock down the country as part of the COVID-19 response to protect the health of the South African population put further pressure on the steel industry.Serious implications for domestic steel manufacturers for short, medium and long term are particularly negative and remain in the negative in 2021. As costs skyrocket, buyers remain nervous about being caught short as global demand accelerates amid lingering supply threats. Constant fear of not being able to secure logistics and resources needed where reality also is a situation where it’s much more expensive if you have to shut down a mill because you of shortage of material and supply.

Buyers are caught in a rush to secure raw materials with global industries from manufacturing to construction, gearing up for the pandemic fade away and that is one of the main factors why prices of industrial commodities and shipping costs are spiking. If anything sustainability and improvement in the manufacturing sector, and the M&E industry in particular, will depend on efforts realised on government’s part to revive the economy. A declining level of employment as well as investment, with a weak trade position in global market – With a national unemployment rate at 32.5% – South Africa’s industrial base will require much needed support, through significant improvements in industry and fixed investment.

An encouraging aspect to all of this, coming from 2020 into 2021, is that manufacturing output has increased compared to year-on-year reports for March. Though production increased by 5.5% and sales by 18.8%, giving an impression of good returns, it is however slow compared to normal economic activity. Manufacturing sector output for the first quarter of 2021 shows there is more room for increased activity and production, given that the current “returns” are calculated at a capacity utilisation base of 74%. Moving forward support from government in the form of speeding up implementations and ensuring that state entities adhere to procurement rules in public infrastructure spending that are for localisation.

Overall, manufacturing sector remains weak in terms of production patterns, with a year-to-date production decline of 3.1% as at end-February 2021. While manufacturing capacity use declined to 59.8% overall and to 52.8% for the M&E sector in the second quarter of 2020 to date. It is is highly important for interventions from government to efficiently roll out economic recovery plans in 2021, to enable industry recovery, open up trade and restore industrial production(to utilisation capacity of 80% and above)…

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By Boitumelo Lesenya

010 593 0544

info@intervent.co.za