CONFIDENCE levels in the manufacturing sector dropped 9 points to 17 in the first quarter of 2023, according to the Absa Manufacturing Survey.“Manufacturers are feeling pessimistic as load shedding, especially at higher levels such as stage 6, continues to have a significant impact on their businesses,” said the head of Absa Relationship Banking’s Manufacturing Sector, Justin Schmidt. “Current confidence levels are similar to those seen during the global financial crisis and are the lowest since the Covid-19 hard lockdown.”
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 February 8 and 27, 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 many manufacturers have implemented measures to become resilient to load shedding, once stage 4 is exceeded, heavy manufacturers may be asked to curtail their production in an attempt to stabilise the national grid,” Schmidt said. With raw material shortages and insufficient demand as constraints on current activities declining to 50 and 61 points respectively in this quarter’s results, the impact of load shedding becomes apparent in the 15-point drop in production realised.
Additionally, capacity underutilisation increased by 6 points to 74, the highest level since the hard lockdown, and costs remain high with the total cost per production unit indicator at 85 points, well above the long-term average of 60. “Survey respondents noted the cost of loadshedding in the form of both production downtime and diesel purchases for generators as key costs this quarter,” Schmidt noted. While selling prices remain fairly high, concern remains as manufacturers are limited in the extent to which they can pass rising costs onto their customers, leading to margin pressure.
Despite the already difficult operating environment, pessimism continues to surround forward-looking expectations as most manufacturers expect that business conditions will deteriorate even further over the next 12 months with both import and export volumes expected to decline. Unsurprisingly, manufacturers have indicated poor investment intentions over the next 12 months.
