The operating environment for local manufacturers has become increasingly difficult with challenges ranging from load shedding, subdued local economic growth, failing infrastructure, port inefficiencies and softer global demand for export-oriented manufacturers.
Pferd notes that Stats SA last month reported that manufacturing production decreased 4.7% in December 2022 YoY over December 2021. Manufacturers have commonly cited power supply disruptions as the most significant contributor to declining manufacturing activity.
For instance, audit firm PwC recently published its economic outlook, reporting that load shedding in 2022 reduced South Africa’s real GDP growth by up to 5% notwithstanding that businesses and the public sought to mitigate against the impact of power cuts. PwC estimates that in 2022, South Africa imported more than R5-billion worth of solar panels providing an additional 2 000 MW of generating capacity.
Further evidence of this distressed situation is provided by Absa’s Manufacturing Survey for the fourth quarter of 2022, which pointed to low levels of business confidence. The bank’s Purchasing Manager’s Index (PMI), compiled by the Bureau for Economic Research in partnership with Absa, dropped to 48.8 in February from 53 in January. It attributes the fall to the negative impact of record levels of stage 6 load shedding on manufacturers.
Many businesses have implemented strategies to mitigate against the risk of load shedding, including solar power solutions and generators. Yet higher fuel costs from early February for businesses using diesel generators are putting additional pressure on production costs.
The damage is revealed by a survey conducted last month by the National Association of Automotive Component and Allied Manufacturers (NAACAM). According to the report on the automotive sector, persistent and prolonged bouts of load shedding have had a negative impact on monthly production and turnover among its manufacturing members. NAACAM says that stage 6 load shedding is having an impact on the automotive sector’s 4% economic contribution to GDP both in the short and long-term, given that many of its members don’t have the money to implement measures that limit the impact of load shedding.
The survey found that 75% of respondents which reported new business opportunities were at risk because of prolonged load shedding, and more than 58% said they had placed their workforce on short time as a result of production interruptions. More than a fifth reported having either started cutting jobs or had to put a halt on new hires.
Several of these issues were addressed in President Ramaphosa’s recent annual State of the Nation Address (Sona), according to Pferd.
During his Sona address in February, President Ramaphosa revealed that more diesel would be procured for Eskom to power up its emergency generation fleet. He also announced tax incentive schemes to encourage taxpayers to install rooftop solar panels and businesses to invest in renewable energy solutions.
Globally, the World Steel Association expects that demand for steel will start recovering this year. This, combined with the new local tax incentive for rooftop solar panels, bodes well for the local steel industry.