MANUFACTURING SALES REMAIN BUOYANT

South Africa’s manufacturing industries have started the year on a high note, with nominal growth in the value of total sales of more than 9% during January and February (year-on-year).

Although manufacturing volumes remain under pressure, the latest sales figures are also positive in real terms, outstripping the consumer price index by more than 2%. The continued resilience of the manufacturing sector is especially encouraging against the backdrop of a number of intimidating challenges facing the economy in general. These include permanent electricity rationing, higher interest rates, decaying roads in most provinces and dysfunctional municipalities.

The year-on-year real growth rate of 2.1% during the first two months of 2023 is marginally higher than the average real growth rate of 1.5% between 2015 and 2023 (for January & February).

An interesting feature of manufacturing activity in South Africa is the presence of several seasonal factors. Each year usually starts slowly, as many factories remain closed during the last throes of the summer holidays and February is not much better, due to it being the shortest month of the year. Business then starts picking up nicely in March, but tends to drop again in April, mainly due to long weekends and the Easter school holidays.

Apart from a slight lull in July, due to the winter holidays, manufacturing activity then builds up steam to eventually record its best month of the year in November, followed by a significant drop in December as many factories close for the Christmas season and summer holidays. True to form, the value of manufacturing sales hit an all-time monthly high of more than R288 billion during November 2022. During the second half of 2022, the average year-on-year increase in the value of manufacturing sales amounted to more than 17% (in nominal terms).

Several key manufacturing divisions and groups performed exceptionally well during February, as illustrated by the data in the table. All of these manufacturing groups recorded double-digit nominal growth rates, compared to January.

Globally, manufacturing activity has experienced a diminishing contribution to overall GDP, due to the relentless rise of the services sectors. Over the past 100 years, the services sectors in the US grew from a 50% contribution to GDP to 85%, a trend that was made possible, inter alia, by the exponential increase in logistics and technological advancement, especially through the internet.

Despite the structural shift towards services sectors, manufacturing remains a key sector employing a large variety and number of skills in all countries, whilst also playing a key role in international competitiveness. Manufacturing is also responsible for sizeable levels of new capital formation. In South Africa’s case, the ratio of capital formation to value added for manufacturing has outperformed that of the total economy, despite a declining trend that set in as a result of state capture and the Covid pandemic.