The third quarter of 2013 manufacturing survey launched by the Manufacturing Circle this morning reveals that business confidence in the manufacturing sector remained mostly weak during the quarter. However, manufacturers expect greater levels of stability over the next 12 months to two years, even though this outlook has weakened somewhat as well.

Strikes and instability in labour relations shaped the manufacturingenvironment. Other key deterrent factors during the quarter included: elevated labour and energy costs, a volatile rand and a sluggish consumer spending.

29% of manufacturers expected to decrease their employment compliments over the next 12 months. Of that portion, a quarter (7%) expected to do so by more than 15%, indicating that mechanisation may now be part of the competitiveness planning of an increased number of manufacturers (previously, only 3% indicated expected employment reductions of 15% or more over the next 12 months).

Most respondents project soft conditions in the manufacturing sectormainly due to:

• prospects of unstable labour relations and protracted strikes;
• the impact of the new BBBEE codes; and,
• the inability to compete both locally and globally.

Uncompetitive selling prices (owing to slow consumer spending and aggressive competition), sluggish activity in the mining sector, strikes in the automotive industry and subdued domestic consumer spending constrained the domestic demand for manufactured goods during Q3 2013.

All the same, some manufacturers experienced increased demand due torenewable energy projects. On the export front, African demand for South African manufactured goods remained resilient during Q3 2013.

A rise in input costs and stagnation in job creation characterised supply conditions in Q3 2013. Furthermore, the lack of skills, the inability to fill vacancies due to financial constraints, the effect of non-competitive pricing (forcing companies to scale back production and employment) and plant closures due to high fixed costs dragged the performance of surveyed manufacturers over Q3 2013.

The government’s renewable energy projects are expected to provide some further business opportunities.  In general, however, the government’s local procurement programme still only benefits 24% of firms surveyed. Consequently, manufacturers in general do not expect the government’s procurement programme to support growth in their activities.

71% of the manufacturers sourced 80% or more of their input needs from the local market. We see this as an essential contribution to growing our domestic market, thus setting an excellent example in terms of local procurement for other sectors to follow.