THEBE MABANGA
THE MANUFACTURING sector in South Africa and around the world is showing signs of recovery from the coronavirus pandemic, but in South Africa this is not translating to new jobs, while the global recovery is threatened by the second wave of COVID-19 currently sweeping across Europe and the United States.
On Tuesday, Statistics South Africa (StatsSA) reported that manufacturing production decreased by 2.6% in September 2020 compared with September 2019, but on all other measures, the manufacturing sector showed improvement.
Seasonally adjusted manufacturing production increased by 3.2% in September 2020 compared with August 2020.
This followed month-on-month changes of 3.3% in August 2020 (from July) and 5.6% in July 2020 (from June). Manufacturing hit its lowest point in April, when the economy was in hard lockdown.
Seasonally adjusted manufacturing production increased by 32.9% in the third quarter of 2020 compared with the second quarter of 2020 with all ten manufacturing divisions reporting positive growth rates over this period as the sector opened up after lock down.
“The most notable increases came from the sectors hardest hit by COVID-19 earlier in the year,” says Nedbank in a research note.
‘Basic iron and steel, non-ferrous metals, metal products and machinery’ rose by 43.9%, ‘petroleum, chemical products, rubber and plastic products’ experienced a 24.4% increase while ‘motor vehicles, parts and accessories and other transport equipment’ rose by a staggering 144.5% and ‘food and beverages’ rose 12.8% from a higher base since food was produced throughout the lockdown.
“The recovery was supported by the easing of strict lockdown across most of our trading partners in Asia and Europe, combined with looser domestic restrictions,” says Nedbank.
Last week, Stats SA reported that capacity utilisation by large South African manufacturers rose to 72.9% in August 2020 from only 59.8% in May but is still below the 80.3% achieved in August 2019.
All the manufacturing divisions showed decreases in utilization of production capacity in August 2020 compared with August 2019, which means more machinery lying idle for longer periods.
Usage of Electrical machinery, motor vehicles, parts and accessories and other transport equipment fell along with textiles, clothing, leather and footwear among others while the highest rates of utilisation of production capacity in August was the highest in petroleum, chemical products, rubber and plastic products at 79.7%.
Another measure of manufacturing activity is new vehicle sales, and signals were mixed.
New vehicle sales fell by 25.4% in October compared to a year ago after a 23.9% year-on-year decline in September and plunging by 98.4 % in April as the lockdown took hold.
New vehicle exports on the other hand gave hope as they rose to 33 474 in October from 28 704 units in September, 23 337 units in August.
Only 901 units were shipped out in April compared with 28 883 units in March from a record 44 566 units in August 2019.
Vehicle exports rose by 10.6% in 2019 to a record 386 863 in 2019 and the National Association of Automobile Manufacturers of Southern Africa (Naamsa) expected exports to reach 400 000 this year, but that was before the impact of the coronavirus.
Vehicle exports are critical to South African manufacturing with BMW for example, exporting 95% of its production manufactured in South Africa.
Manufacturing activity is gradually picking up.
Last week, the Bureau for Economic Research (BER) manufacturing index rose to a record 60.9 in October from 58.5 in September, 55.8 in August and 49.4 in July.
The business activity index, which forms part of the manufacturing index, eased to 62.8 in October after being steady at 64.7 in September and August and only 5.5 in April.
Despite strong business activity in the past few months, the employment index only improved to 49.1 in October from 44.8 in September and 38.6 in August, suggesting that job creation lags economic activity.
Also last week, it was reported that the Markit Purchasing Managers’ Index (PMI) rose to 51.0 in October from 49.4 in September, 45.3 in August, 44.9 in July.
The latest reading ended a sequence of 17 consecutive months of contraction in private sector activity.
Central to the improvement in overall business conditions were increases in both new orders and output.
New orders expanded for the first time in 28 months as customer demand improved following the easing of COVID-19 restrictions.
Issues with the supply of materials, which were particularly acute for steel and glass in the food and beverages sector, contributed to delays in supply chains and higher purchase costs.
Last week, about five manufacturing indices on the continent rose including record levels for Kenya, and increases for Ghana, Egypt, Uganda and Zambia while ten indices rose around the world.
These include record level for Brazil, and increases for China, India South Korea, the Eurozone and the United Kingdom as well as the United States.
The global manufacturing index rose to 53, 0 in October from 52, 4 in September, 51,8 in August, 50,6 in July and 39.8 in April, the height of the lockdown globally.
“The recovery seen thus far from April’s trough is expected to continue for the remainder of the year,” notes Nedbank, pointing out that over the year to date, manufacturing production is still down by 14.4%.
“The latest global and domestic PMI’s provide a glimmer of hope, although the second wave of coronavirus infections in advanced economies and the threat of a resurgence of cases domestically pose significant downside risks to the rebound,” the bank says.
(SOURCE: INSIDE POLITICS)
