Manufacturers in South Africa are worried that the rising cost of living amidst the ongoing power cuts could eat into households’ discretionary income during the festive season shopping period, as cash strapped consumers battle to to survive.
Absa yesterday warned that manufacturers were concerned that reduced consumer disposable income could curb demand in the fourth quarter of the year, the seasonally peak sales period.
This comes after the third quarter Absa Manufacturing Survey showed that confidence levels among manufacturers dipped 2 index points to 26 points in the third quarter.
The quarterly survey showed that the majority of manufacturers expect business conditions to deteriorate further over the next 12 months on the back of poor global growth.
Absa Relationship Banking head of manufacturing sector Justin Schmidt, said high inflation and South Africa’s energy challenges were expected to continue in the short term.
Consumer inflation has risen to a 13-year high of 7.8 percent this year due to rising fuel and food prices, with petrol prices surging to unprecedented levels of more than R27 per litre in July, though tampering down lately.
Additionally, Schmidt said manufacturers’ investment intentions had dropped significantly compared to the beginning of the year as insufficient demand and the cost of credit become larger constraints.
“Manufacturers are as pessimistic about the expected business conditions in the next 12 months as they were in the fourth quarter of 2020,” Schmidt said.
The survey covers approximately 700 businesspeople in the manufacturing sector and was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 10 and 29 August.
Although it remained one of the top constraints on current activity, manufacturers have found that amid the easing of supply chain disruptions, shortages of raw materials have become less of a constraint than it was in 2021.
“Although cost and stock pressures appear to be easing slightly, manufacturers are still faced with a tough operating environment,” Schmidt said.
“Many manufacturers felt that business conditions worsened during the quarter with load shedding, high input costs and bottlenecks at SA ports all weighing on sentiment.”
However, Schmidt said economic growth aided by infrastructure spend, an acceleration in regulatory reform and a reliable supply of energy would go a long way to support the manufacturing sector in the period ahead.
Schmidt said raw material cost increases slowed, while for the first time since 2020, manufacturers have indicated that they have sufficient raw material and finished goods relative to planned production and expected demand.
“This should free up working capital and reduce the pressure that manufacturers have felt on their margins,” Schmidt said.
“With many manufacturers currently investing in their own energy generation and exploring ways to consume less energy, Absa remains committed to support the manufacturing industry along their journey.”
BUSINESS REPORT