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Manufacturing sales in growth mode

The manufacturing sector is heading for a splendid finish to 2021, with November’s nominal sales figure within touching distance of the R250 billion mark. This represents a solid increase of 12% over the figure for October and an 8% increase over the sales level a year earlier.

The recovery of manufacturing activity has been encouraging, with November’s nominal sales 10% higher than in November 2019 (pre-Covid), representing a positive, albeit marginal, increase in real terms.

Global supply-chain disruptions have brought mixed fortunes to local manufacturers, with some experiencing lower output due to a scarcity of intermediate inputs, whilst others have benefited from an element of forced import substitution.

Virtually all of the key manufacturing groups performed exceptionally well in November, with double-digit sales increases the norm. A combination of higher demand and continued benign Covid restrictions has undoubtedly given manufacturing a lift, with those sectors aligned to the hospitality industry likely to have continued in this vein during the Christmas holiday season.

Although manufacturing sales have recovered well during 2021, the volume of manufacturing production still remains marginally lower than prior to the Covid pandemic.

The top-three ranking for individual manufacturing groups remained unchanged in November, with food still leading the pack by a considerable margin (R43.5 billion) and beverages in second place (R20.6 billion). Non-ferrous metal products remained in the number three spot (R18.8 billion), but basic iron and steel products overtook motor vehicles to move into fourth place (R16.8 billion).

Manufacturing PMI on track

Looking ahead at prospects for sustained growth in manufacturing, the Absa Purchasing Managers’ Index (PMI), compiled by the Bureau for Economic Research at Stellenbosch University, suggest a continuation of robust sales trends for this key sector.

The Absa PMI, which only covers manufacturing, broke its all-time record twice during 2021 and recorded its highest ever level in November, namely 64.1. Between August 2020 and December 2021, the seasonally adjusted figure was in expansionary territory (above 50) for 16 of these 17 months, with the only exception in July, when the Kwazulu/Natal unrest occurred.

Recovery of capital formation

Another positive development signalling sound future prospects for manufacturing is the healthy increase in private sector capital formation during the 3rd quarter of 2021, namely by 3.5% in real terms (year-on-year).

The quarter-on-quarter growth rate was even more impressive, namely 7.8%. The latter performance is especially impressive when viewed against the backdrop of the socio-political unrest in KwaZulu/Natal, which occurred during this quarter. Compared to the disastrous second quarter of 2020, when the lockdown restrictions were at their harshest, new fixed investment by the private sector has now recovered by a whopping 34% (in real terms).

From a manufacturing sector perspective, it is especially encouraging that the asset class for machinery & equipment has recorded the strongest recovery since the 3rd quarter of 2019 (pre-Covid), namely 97%. The category for construction works is in second place, with a recovery rate of 95%.

In the process of recovery, the private sector has once again cemented its role as the key player in expanding the country’s production capacity, raising its share of total capital formation from 67.3% during the 2nd quarter of 2020 to more than 73% a mere five quarters later. This is the highest level that has been achieved since the high and sustained economic growth that occurred between 2004 and 2007.

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