Manufacturing Circle Executive Director
The latest Kagiso PMI once again confirm that much remain to be done to get manufacturing out of the woods, but that all is not doom and gloom.
Slow business activity (the sub-index measured below the 50 point marked, indicating contraction), mounting inventories and low domestic demand is currently weighing down the sector. The lack of demand is due to a weakened consumer, and due to resumed labour instability in upstream sectors (platinum and gold).
There are upsides in terms of higher anticipated demand from the Eurozone, which should be supported by the weak rand.
The surge in the price sub-index from 80.1 to 89.3 also does not only indicate rising input costs. It also indicates pricing confidence on the side of manufacturers, which means margin squeeze is being ameliorated in a sector that not too long ago had to contend with the triple challenge of rapidly bunched-up administered price and wage increases, a strong rand and low demand.
While there was some recovery in the employment sub-index (by five points to 50.7), downside risks due to low productivity, upstream labour instability and the threat of mechanisation remain.
In order to grow manufacturing we need to grow volumes and push down costs. To grow demand we need quicker and more even roll out of government's infrastructure build programme and more even implementation of government's local procurement efforts. We also need to work harder at easing market access into the rest of Africa, China and Brazil for our manufactured goods. To push down we need to focus on bringing administered costs down as part of a broader fiscal review that benchmarks the way we fund, finance and recoup costs for infrastructure and services against key competitor economies and to rapidly improve security of electricity and water supply by municipalities in particular.
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