Manufacturing sector still fragile

16 August 2016 - 21:11 By Ntsakisi Maswanganyi

Manufacturing‚ one of the pillars of the South African economy and the country’s fourth-biggest sector‚ is not out of the woods yet‚ despite better-than-expected production data for June. Philippa Rodseth‚ executive director of the Manufacturing Circle‚ an industry body representing local manufacturers‚ said in an interview last week that the sector remained fragile and no material change was expected in the short term.Crucially‚ manufacturers did not expect to create much employment either — this is cause for concern because the sector has been identified as one of the key industries that could jumpstart growth.SA is in the unique position of being the most competitive economy on the continent‚ but the country trails its global peers. Deloitte’s 2016 Global Manufacturing Competitiveness index found that despite SA being the most competitive country in Africa in terms of manufacturing‚ globally it fell three places to 27th.The Manufacturing Circle viewed a weak rand as one of the elements that could boost competitiveness‚ Rodseth said.A weak rand makes imports more expensive and generally leads to a reduction in imports‚ as well as an increased use of locally produced goods — otherwise known as import substitution.The effects of rand weakness took time to be felt‚ however‚ because customer supply chain obligations needed to be unwound and switched to South African goods‚ which meant it was too early to make a call on whether import substitution was already taking place in SA‚ cautioned Rodseth.Manufacturers have been under pressure from weak demand and lower commodity prices‚ the results of which have been job losses.Manufacturing shed 8‚000 jobs in the first quarter of 2016‚ according to Statistics SA’s Quarterly Employment Statistics based on a survey of employers.Most of the jobs were lost in basic metals‚ machinery and equipment; office‚ accounting and computing machinery; and wood products‚ publishing‚ printing and reproduction of recorded media."The Manufacturing Circle’s position remains in line with our view for the sector itself‚ which we deem to be fragile with no material shifts in the short term‚" said Rodseth.She attributes the higher output of petroleum‚ chemical products‚ rubber and plastic products partly to rising demand for refined petroleum products locally and on the rest of the continent.The positive contributions of wood and wood products‚ paper‚ publishing and printing; and food and beverages to manufacturing production data could flow from the benefits of a weakened exchange rate driving export-led growth‚ Rodseth said.The metals and engineering divisions of manufacturing are not doing well‚ mainly as a consequence of the commodities slump.Both manufacturing and mining output were better than expected in June and increased in the second quarter of 2016‚ supporting the view that the economy may have avoided a technical recession‚ defined as two consecutive sectors of contraction. Gross domestic product (GDP) contracted 1.2% in the first quarter...

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