Manufacturing in S.Africa remains fragile - CNBC Africa

Manufacturing in S.Africa remains fragile

Southern Africa

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Domestic demand is low in South Africa's manufacturing sector. PHOTO: Getty Images

This is according to a 2014 quarterly review by the Manufacturing Circle. The review, which was compiled by Pan African Investment and Research Services, indicated that high production costs, weak demand and low productivity were some of the main contributing factors to this.

Companies that performed well attributed rising export demand and the supporting weak rand for exports as crucial factors.

“This is a quarterly bulletin. It’s a survey-based bulletin where a number of CEOs across the segment of manufacturing are surveyed and their inputs are compiled,” said Pan African Capital chief executive, Iraj Abedian.

“It’s a very tangible way of bringing government policy makers and industrialists together, sharing their views, going into what’s happening on the ground in real time.”

Abedian, who spoke at the Manufacturing Indaba, which is currently taking place in Johannesburg, South Africa, explained that both internal and external factors have played a part in what transpired during the 2014 quarter.

“The South African economy is increasingly challenged in terms of domestic, structural deficits, by that I mean in terms of energy, infrastructure, skills, but also globally, there are some trends that are creating challenges for us – the localisation of the financial sector, interest rates rising, access to credit slowly shrinking,” he said.

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“On balance, manufacturing activities remain weak. From an economic point of view, sustainable job creation within the sector is becoming risky. The sector is under pressure so to hang onto the jobs that we have is increasingly a challenge. This is the reality on the ground.”

According to the report, domestic demand weakness in the manufacturing sector was mainly due to sluggish construction activity, high competition from cheap imports, seasonal factors, delays in capital projects implementation, weak consumer spending as well as reduced mining sector demand.

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Abedian added that South Africa is especially facing challenges from within its own region, which is currently growing at a rapid rate.

“One of the key trends is that our region, sub-Saharan Africa, is now effectively competing with us in a very serious way [and] at the same time providing markets for us. We need to fully appreciate the benefit of being in the right region at the same time,” he explained.

“The potential remains quite massive and it remains our collective challenge to unlock that potential.”