A new survey by the Manufacturing Circle, a lobby group of ZA manufacturers, warns that the short term outlook for the sector is bleak.
Some 74% of manufacturing companies surveyed said job cuts are likely over the next 12 months.
Pan African economist Iraj Abedian, who presented the findings, said reasons for the pessimistic outlook include labour market uncertainty – particularly the platinum strike – elevated wage and input costs, competition from imports, low labour productivity, a lack of skills and faltering consumer spending.
Some 67% of respondents said conditions were “weak” or “poor” in the second quarter of the year, compared to 52% in the corresponding quarter in 2003.
Abedian said the short term outlook is negative as well, and the outlook for the next two years is also not favorable. So there is a declining optimism in the sector. This is a national issue that has to be dealt with. This erosion of optimism comes from many segments of the cabinet.
Abedian said that the background is a patchiness in the global economy, with a surge in geopolitical factors. Within ZA, confidence has been shattered in the business sector, with the side-lining of the business role in economic revival.
Since 2012/13, the emerging economies began to falter. There is a structural divergence between the two blocs – with developed countries pulling ahead. Since 2008, there was a collapse in SA, the knock-on effect of the recession in the OECD, particularly the US. But we did not bounce back. More recently, from 2011 onwards structurally the economy is getting to a performance mode that is deviating downwards from its trend line.
In Q2 the platinum strike was a major blow to the economy. The likelihood of a further downgrade is real. The chances are the next move will be down, not up. Unless the national treasury comes up with a credible macroeconomic and fiscal strategy, the country will experience another downgrade.
In the last quarter, we had a further quarter of job losses. The currency did not help. We have had a momentum for depreciation. This has some mixed blessings for the sector. This leads ultimately to price increases, and affects inflation. Most manufacturers have reported increases in input costs, and there have been raw material shortages as well as water and electricity disruptions.
On the positive side, demand for exports from Africa and the US is more robust, although the local market remains the mainstay of our manufacturing performance.
Our comparative position compared to other trading partners has deteriorated.
Automation in manufacturing remains the top strategic concern, with machines replacing less-skilled labour. Skills availability remains an issue.
In terms of the hoped for increase in procurement by government, 82% of manufacturers say they are not benefiting from it! And policy makers need to see why this is so and how the blockages can be unlocked.
To conclude: there is a downbeat feeling in the manufacturing sector.
What of the NDP? It’s a structural developmental plan. The impact is in 10 years and beyond. One element nobody talks about is the professionalisation of the public sector, as an example.
That process itself is a five year process, and bears fruit in another 3-5 years.
On energy policy or education, it will also take time.
There is confusion at government level, with the NDP branded as the solution, but there is very little faithful adherence to its spirit and it has become a deterrent to the reality that the economy requires a short-term economic solution.
Manufacturers are worried. And if the latest survey is to believed, there is not a lot of joy on the horizon.
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